The business plan still remains the standard for describing the business in detail. The business plan takes all the elements and includes them in a complete description of the major elements of the business. The nine parts that makes up a full business plan are detailed below.
The classic structure of a business plan contains a maximum of 25 single-spaced pages of text and 15 pages of financials and appendixes. Plans for any business whose product or service is new, even revolutionary, or in which the entrepreneur is new to the industry, are the ones that really need these 25 pages.
However this is not always the rule as most small businesses are more imitative than innovative. When you are going into an imitative business, your business plan can be shortened considerably.
Where the type of business is already well established, such as a dry cleaner or word processing service, the market is well defined and well known, and the entrepreneur comes to the business with experience in the industry, the amount of necessary description drops dramatically and as such the business plan consist of very few pages as low as ten pages. Even so, the financial section remains its usual length, although the appendixes may be sparse.
When you send a business plan to someone, it is a good business practice to include a cover letter. A cover letter is a one-page document on business stationery (also called letterhead) that introduces the business plan and its owner and indicates why the recipient is being asked to read the plan.
It is typically the first written material someone sees about your business, so it needs to look and sound just right.
The Title page typically contains the following information:
There are three other possible items to include on the title page. One might be a securities disclaimer. If you are using a business plan to seek individual investors, it is important to state the following on the title page: "This is a business plan. It does not imply an offering of securities." Typically this comes after or as part of the proprietary statement.
The disclaimer is needed to comply with Securities and Exchange Commission (SEC) rulings. Another item to include is the name of the person who prepared the business plan, if it is someone other than the owner.
The third possible item for inclusion is a notice of copyright for the plan or trademark for your brand name or logo, if you choose to pursue those forms of intellectual property protection.
Table of Contents
The table of contents typically puts the major section headings (e.g., executive summary, company, market, etc.) in boldface type and the sections underneath each in regular type. Page numbers are given for every component, including financial statements and appendixes. Remember to put page numbers on every page of the business plan, even the financials.
Many entrepreneurs write the one-to-two-page executive summary first, using it as a guide, and then write the rest of the plan.
The first section of a business plan tells the story of your company. Ideally it should sell the reader on the company and the ideas and people behind it. It usually consists of two subsections; the first is the one that provides an overall description of the business and the other focus on its product or service.
Company Description (1-2 pages)
Typically the first two subsections are the vision statement and mission statement of the business or company, which I have discussed earlier. If you have specific goals or objectives for your business, state it in a subsection after the mission statement.
The next subsection is typically labeled "Company Background," or you can use the name of the business (Businesswealth Global Resources Ltd, for example). This section gives a brief description of the business – its age and location, as well as the markets it serves, promotes or plans to serve.
The company's current status (start-up, seed stage, ongoing, maturation, expansion, and so on) is covered, and the most recent milestone achieved is often stated clearly, (received initial investments, finalized product design, tested a prototype, completed market testing, made first sales, and so on). For an existing business, the history of the business is briefly covered here.
The last part of the company background describes the business's competitive advantage and the way that it goes about making its profits and achieving its mission. This is sometimes called the business model. This is where the plan gets a chance to sell the key ideas about the firm's approach to business.
The language should be optimistic and positive, and where there are numbers that support the operation of the business model, such as a 30 percent profit margin, 99 percent customer satisfaction, or double-digit growth, it should be included.
Product/Service and Industry (1-8 pages.)
The purpose of this section is to describe your firm's product or service in order to help the reader understand what you are actually selling or promoting and how it could help your target audience or customers. A good description should persuade the reader to want to buy your product or service or get involved in your company.
These descriptions often include pictures or graphics that could help readers visualize the product or service. It is also common to explain how the customer uses the product or service or how it fulfills some need or desire or solves a problem for the customer.
Often the descriptions explain how the firm is able to deliver value benefits to the customer (quality, style, delivery, service, technology, ease, personalization, assurance, place, human resource, brand/reputation). If the product or service has protection through a proprietary technology or from patent, trademark or copyright, it is important you mention it here.
Every product or service is part of an industry, and here is where you talk about it. Industry descriptions typically include the key information identified in the industry analysis. Your business objective and goals is within a wider industry. This includes the industry's SIC (Standard Industrial Classification) and NAICS codes, the size of the industry (in number of firms and sales), and some indication of the historical trend of growth, stability, or decline (how much it is growing, how long it has remained stable, or by how much sales overall is it declining over time).
Industry profit margins are an important part of this section, as is how profits are typically made. Then you point out what your firm's projected or achieved profit margins are and how your business model helps make this possible.
The market section talks about your customers, who they are and what they are like, who else is pursuing them, and how you plan to get or keep your customers. The market section builds on materials you may have developed in the feasibility analysis, the industry analysis and the marketing plan.
Market and Target Customer (1-3 pages)
The market refers to the total population of people or firms to whom you plan to sell. Markets are usually described in terms of their size (both in numbers of customers and size of sales) and scope (local, regional, national, international or global).
The major ways the market is organized are also covered. Professional, trade, or industry associations, special-interest clubs, major national gatherings, and media dedicated to the market (e.g., Association of Authors Magazine for books authors) are all relevant.
The target customer section focuses attention on the individual who would buy your product or service. Target customers are described in terms of demographics (such as age, gender, education, income, experience), their relation to the product or service (will they use your product or service themselves, gift it or resell it), how often they buy (once a day, once a week, twice a month, every three years, once in a lifetime, etc.), their past experience with your kind of product or service (new user, prior user of competitor's product, prior user of your product), and what they are looking for when buying your product or service.
What they are looking for should be based on discussions with potential customers, and it hopefully matches closely with the value benefits your product offers. Providing a comparison of the two is often a good idea.
It is very common to have multiple target audiences. When this is the case, you should provide a separate description of each one. It often helps to give each target group a specific name when you refer to them in the rest of the business plan. Your marketing plan can differ dramatically among the different groups.
Competition and Competitive Advantage (1-2 pages)
This section could be in one single page or a one-page table. The table identifies the major current competitors for your market by name and location. Other columns mention the competing product(s) or service(s), its market share, price, competitive strength, and competitive weakness. The accompany page of text talks about your firm's competitive advantage, what makes your product or service or company unique and how your competitive advantage gives you an opportunity to win sales from these firms. Often this information is based on material gathered from the industry analysis.
Marketing Strategy (1-3 pages)
A good marketing strategy section focuses on three ideas:
The overall strategy subsection discusses your generic strategy (differentiation, cost, focus) as well as any supra-strategies (craftsmanship, customization, etc.) or fragmented industry strategies (no-frills, formula facilities, etc.) you pursue. Explain here how each is used in your firm and in your sales efforts.
The sales plan addresses the day-to-day specifics of how sales are achieved. It builds on the value benefits being sought by your customers and shows how these are turned into promotional efforts, pricing and incentive programs, distribution techniques, and location. Most of all, it emphasizes the way you or your employees go about selling.
Examples of advertising materials, displays, coupons, or the like are useful and typically mentioned here, but details are put in an appendix. The proof that your approach is working comes from sales made using these approaches, so the strongest sales plans talk positively about the results of pilot tests, pre-selling efforts, or conventional sales already made. Being able to name customers (especially repeat customers) really build up this section.
Over the longer term, even with a clear competitive advantage, a sound strategy and a good sales plan, your competitors are not likely to give up the market. They will fight back. When they do that, try to match your sales plan with features or competitive advantage. Here is where you want to have several additional strategies that play against weaknesses in the competition, or further improve your product or service.
These can include protections through patents and intellectual property protection or relationships with powerful partners. You may have contracts that tie customers to you long term, but most often advantages come from bringing out improved versions of your product or service before the competitors introduces its own improved product or service.
Having these improvements ready requires some preparation on your part. In business, this is often called research and development (R&D) or the growth plan. Most business plans add a section on R&D or growth plan here to explain how they are working to maintain an in-depth competitive advantage, with one or more additional generations of products or services ready to be used, or quickly brought to market, in order to keep the competitors one generation behind your firm in meeting customer needs.
Growth plans often talk about longer-term partnerships to be sought, new markets to be pursued, or ways to leverage the firm's assets, for example through licensing or franchising.
In this section you layout the components and supports for the firm itself. So far you have covered the product and the customer. The goal for this section is to convince the reader that the business will be successful because it has access to high-quality people both within the firm and within the larger business community, and the organization itself is structured to make the best use of those people.
Legal and Organization Structures (½ - 1 page)
This subsection describes the legal form of the business (Limited Liability Company (LLC), Limited Liability Partnership (LLP), sole proprietorship, etc.) and where it is formally registered. It also describes the organizational structure of the firm or business. Often for big businesses these are drawn using organizational charts.
For small businesses with an owner-manager and an employee or two, it is easier to just give the description in words.
The typical format for this is to start from the top, with the highest-level manager, giving his or her title and major duties. Successive sentences describe the positions and duties of workers at each level below.
This section should make clear how many employees there are and whether they are full time or part time, permanent or seasonal, family or non-family. If you have schedules for seasonal hiring and if you have standards for hiring, they get mentioned in this section.
Key Personnel ( ½-3 pages)
By now you have sold people on to your vision, mission, product, service, competitive advantage, and even your sales approach. It is now time to sell the most important single element in the business plan and that is you! In any business and any business plan, everything hinges on the quality of the entrepreneur behind it.
If there is no confidence in the entrepreneur, there is no way to have confidence in the other parts of the plan. The goal for the key personnel subsection is to inspire that confidence in your reader.
Who are your key personnel? Any owners or senior managers count, as do people who will be handling key aspects of the business. For example, a salesperson with an extensive customer base would be a key employee, as would an employee who is locally famous for a skill the business will use.
Often businesses have a circle of outsiders involved. This might include a local media personality who will be promoting your business or the inventor or holder of a patent or trademark you are using.
While you might put in the resumes of one or two key people if you have the space, typically the key personnel are described in a half to one-page description. Simply put, the goal is to impress the reader. What is impressive? Accomplishments, and the closer these are to the business, the better. Having been successful in the business in this industry in another firm or in your own firm (if this plan is for an existing business rather than a start-up) is the best proof. Having been successful in another line of business is a good second choice.
Having experience in sales is always useful, as is an experience managing project or people.
Whenever possible talk about accomplishments rather than just experience. Achieving some mark of distinction, such as being a store's top salesperson, is best, followed by years of experience in some aspect of business, followed by education.
Sometimes giving the specifics of the accomplishment does the job, even if no award was given. For example, being able to say, "In my five years at Businesswealth Global Publishers, my sales increased at an average of 50 percent a year" shows your sales abilities are improving, which is good.
When looking for accomplishments, do not limit yourself to business. Particularly for students and stay-at-home spouses, there are often organizational accomplishments that are relevant.
Activities undertaken or managed for schools, churches, social organizations, civic organizations, or community groups are often important indicators of expertise. For example, managing a team during a fund-raising event may help prove your skills in people management and making quick decisions.
Related Service Providers (½-1 pages)
These days, small businesses are rarely alone, and the quality of the professionals surrounding you tells people a lot about how good you might be.
Taking a paragraph or two to identify your bank and banker, your attorney and legal firm, accountant or bookkeeper, and other consultants can help show that you have high-quality supports.
If you have major relationships established with well-known suppliers or customers, list these here also. If you have a board of directors, members can be mentioned here or under key personnel. If you have a board of advisers made up of people who are not owners, they would be listed here.
Location (½ pages.)
The other major organizational asset of a business is its location. This is given here, along with a description of the facility that focuses on how it meets the strategic and sales goals of the business.
Also mention whether you own, lease, or rent the property. If you have investments in the property, either in terms of ownership or improvements made to it, mention those too. If there are plans to expand the facilities, mention them.
The Financial Section
There are two parts to the financial section of a business plan. When you are using a plan to find investors, the financials section starts with two subsections – one on critical risks and one on the deal being offered investors.
For all types of business plans, a set of financial reports or projections is expected. For either approach, it always important to develop the financials in the most conservative way possible – never overstate your sales or profits, always explain the assumptions you are making, and provide (or be ready to give) the source for every number you include. It is usually better to include fewer numbers, but once you understand inside-out rather than having lots of numbers, but knowing only in a general way how you arrive at them is very important.
Critical risks are discussed in more detail below. The deal subsection typically talks about how much money is needed and how the funds will be used. This subsection goes on to address any prior or existing investments and the current ownership situation.
Then it explains the equity being offered to investors, giving the price and the kinds of assurances offered (e.g., seats on the board of directors. buy/sell agreements, etc.). Here the plan details how investors will be able to sell or redeem their equity in order to harvest their investment and exit the business.
The best plans explain how investors will be assured that management will be responsive to investor concerns. Typically the critical risks and the deal will each take about one page each.
The financial statements expected include:
For start-up businesses, it is also common to include a listing of the expenses incurred in the start-up process.
For an existing business, the financial section reports the last two years of actual data, and then offers three-year projections for the income, cash flow, and balance sheet.
For a start-up business, the tradition is to offer three years of data projections. If you will take three or more years to show a profit, it makes sense to give projections for five years. In either case, income and cash flow are given monthly for the first year, quarterly for the second year, and annually for the third and any later years.
Note that each of the financial statements also includes its assumptions. Included as endnotes, the assumptions are often considered to be the most important part of the financials.
Assumptions explain how the computations are made, which items are included or excluded, and whether there are any special considerations underlying the particular numbers. For example, key assumptions include how sales are computed, which items are expensed versus depreciated, and how inventory and business valuations are made.
A schedule of the major milestones or benchmarks the company plans to achieve is often included in the financial section, typically after the assumptions page. If significant milestones or benchmarks have already been achieved, these can top off the schedule, so readers can see how the firm has progressed.
With approximately nine pages used for financials, you have up to six pages left for appendixes. The most popular appendix is a one-page version of the owner's resume.
There are several other useful appendixes, listed below. The ones you select depend on what you are trying to highlight in your business plan. They can include:
If readers want to know more about something that is not in the plan, they can ask you for the additional information. So do not worry too much about the many possible appendixes you cannot include.
The goal of appendixes is to provide supporting information that helps detail or support the key selling points of your plan.
At this point, the writing of the classic business plan is done, but there is still work to be done assembling it. Plans are typically delivered as an 8-1/2- by 11-inch document, which has been carefully and repeatedly checked to eliminate spelling and grammar mistakes.
It has been checked to make sure all pages are included and cleanly printed. While your own copy of the plan might be kept in a loose-leaf binder to make insertions and deletions easy, the copies you give out should be spiral bound (so they stay flat when opened).
Covers should be sturdy to protect the plan from the inevitable coffee stains. Cover letters are typically clipped to the cover, rather than included in the plan itself, so the reader opens the plan to see the title page.