What Is A Business Plan and What Are Its Components?
One of the critical factors for the success of any project is having a well-documented project plan. Think of your business as a project; a lifetime project. Ideas constantly come and go and at times it can become overwhelming.
Anybody that has ever undertaken any big project can relate to that. Here the importance of a business plan. A business plan is a formal written document that explains your business, states its goals and how do you plan to accomplish them. In other words, it is a roadmap for you to follow. It also explain your business to other key stakeholders, such as lenders and investors, that you understand your business, its industry and that you have clarity of the steps needed to grow it.
One of the most misunderstood aspects of a business plan is the idea that it is rigid. Your business plan is not set in stone. A business plan is a living document that can be expected to change over time. Like a roadmap, it provides the direction of the business. And just as driver may encounter road construction or new routes to the final destination, you may need to correct the business course as well.
Typically, key stakeholders do not understand the nature of your business. Since one of the most important and difficult aspects is getting key stakeholder’s commitment and buying, it is essential for you to understand the importance of this document and to be familiar with its content, since it will be review and analyzed by them.
Components of the Business Plan Include:
1. Executive Summary
Your executive summary should appear first in your business plan. It should summarize what you expect your business to accomplish. Since it is meant to highlight what you intend to discuss in the rest of the plan, it is customary to write this section last.
A good executive summary should be compelling. It reveals the company’s mission statement, along with a short description of its products and services. It might also be a good idea to briefly explain why you’re starting your company and include details about your experience in the industry you’re entering.
2. Company Description
The next section that should appear in your business plan is a company description. It’s best to include key information about your business, your goals and the customers you plan to serve.
Your company description should also discuss how your business will stand out from others in the industry and how the products and services you’re providing will be helpful to your target audience.
3. Market Analysis
Ideally, your market analysis will show that you know the ins and outs of the industry and the specific market you’re planning to enter. In that section, you’ll need to use data and statistics to talk about where the market has been, where it’s expected to go and how your company will fit into it. In addition, you’ll have to provide details about the consumers you’ll be marketing to, such as their income levels.
4. Competitive Analysis
A good business plan will present a clear comparison of your business to your direct and indirect competitors. You’ll need to show that you know their strengths and weaknesses and you know how your business will stack up. If there are any issues that could prevent you from jumping into the market, like high upfront costs, it’s best to say so. This information will go in your market analysis section.
5. Description of Management and Organization
Following your market analysis, your business plan will outline the way that your organization will be set up. You’ll introduce your company managers and summarize their skills and primary job responsibilities. If you want to, you can create a diagram that maps out your chain of command.
Don’t forget to indicate whether your business will operate as a partnership, a sole proprietorship or a business with a different ownership structure. If you have a board of directors, you’ll need to identify the members.
6. Breakdown of Your Products and Services
If you didn’t incorporate enough facts about your products and services into your company description (since that section is meant to be an overview), it might be a good idea to include extra information about them in a separate section. Whoever’s reading this portion of your business plan should know exactly what you’re planning to create and sell, how long your products are supposed to last and how they’ll meet an existing need.
It’s a good idea to mention your suppliers, too. If you know how much it’ll cost to make your products and how much money you’re hoping to bring in, those are great details to add. You’ll need to list anything related to patents and copyright concerns as well.
7. Marketing and Sales Plan
In your business plan, it’s important to describe how you intend to get your products and services in front of potential clients. That’s what marketing is all about. As you pinpoint the steps you’re going to take to promote your products, you’ll need to mention the budget you’ll need to implement your strategies. You also need to mention how will you sell the products you’re building? That’s the most important question you’ll answer when you discuss your sales strategy. It’s best to be as specific as possible. It’s a good idea to throw in the number of sales reps you’re planning to hire and how you’ll go about finding them and bringing them on board. You can also include sales targets.
8. Request for Funding
If you need funding, you can devote an entire section to talking about the amount of money you need and how you plan to use the capital you’re trying to raise. If you’ll need extra cash in a year or two to complete a certain project, that’s something that’s important to disclose.
9. Financial Projections
In the final section of your business plan, you’ll reveal the financial goals and expectations that you have for your business. You’ll report your anticipated revenue for the first 12 months and your annual projected earnings for the second and third year. Some plans even project the fourth and fifth years of business. If you’re trying to apply for a personal loan or a small business loan, you can always add an appendix or another section that provides additional financial or background information.