It takes more than a great idea to get a small business off the ground. A crucial step in the process is creating a business plan –a formal presentation that details the different aspects of the business, the market, the finances involved and the expectations. Here’s how the Small Business Administration describes it:
“The business plan generally projects 3-5 years ahead and outlines the route a company intends to take to reach its yearly milestones, including revenue projections. A well thought-out plan also helps you to step back and think objectively about the key elements of your business venture and informs your decision-making on a regular basis.”
To help us better understand this process, let’s take a look at each step involved in creating a business plan.
1. Executive Summary
Although this is the first thing the reader will encounter in your business plan, it is often the last piece to be completed. As the SBA says, “This section briefly tells your reader where your company is, where you want to take it, and why your business idea will be successful.” A startup’s approach to an executive summary will differ from that of an established business. The SBA goes on to say,
“If you are just starting a business, you won’t have as much information as an established company. Instead, focus on your experience and background as well as the decisions that led you to start this particular enterprise. Demonstrate that you have done thorough market analysis. Include information about a need or gap in your target market, and how your particular solutions can fill it. Convince the reader that you can succeed in your target market, then address your future plans.”
2. Company Description
This part outlines the different segments of the business. According to the SBA, this includes a description of how the products or services will satisfy the market needs. Katherine Arline of Business News Daily writes that the company description should be considered to be “an extended elevator pitch.”
“You want to thoroughly explain the goals of your business and how you will satisfy the needs of your market,” Arline says. “Your company description also explains the competitive advantages that you believe will make your business a success.”
3. Market Analysis
A startup owner will need to demonstrate industry knowledge and have a firm grasp on the market size and potential market share, according to the SBA. This is where a SWOT analysis (strengths, weaknesses, opportunities, threats) comes in, which Kristie Lorette outlines in a story for Demand Media:
Strengths: “Business strengths are factors that you can control,” she writes. “… Strengths may be the people you employ (their experience, education, credentials, etc.) in the business relationships you have with existing customers, or history (you’re one of the only providers of the product or service in your local area).”
Weaknesses: “Weaknesses are also factors over which you have control, but are areas that you need to improve. Weaknesses are the factors holding your business back from gaining a competitive advantage. Some weaknesses include inexperience, the business location and access to resources such as cash.”
Opportunities: “Opportunities are external to your business, the reasons your business exists or the need the business fulfills. Opportunities become results you will achieve through your marketing strategies.”
Threats: “Threats are external forces beyond your control that you need to be aware of so you can make contingency plans. Threats may include poor economic conditions, bad publicity about your industry or business, laws and regulations or a change in consumer purchase behavior.”
4. Organization and Management
This segment breaks down the structure of the business and includes an organization chart that shows the chain of command as well as details on the owners and business leadership. Here’s how the SBA describes it:
“Who does what in your business? What is their background and why are you bringing them into the business as board members or employees? What are they responsible for? These may seem like unnecessary questions to answer in a one- or two-person organization, but the people reading your business plan want to know who’s in charge, so tell them. Give a detailed description of each division or department and its function. This section should include who’s on the board (if you have an advisory board) and how you intend to keep them there. What kind of salary and benefits package do you have for your people? What incentives are you offering? How about promotions? Reassure your reader that the people you have on staff are more than just names on a letterhead.”
5. Service or Product Line
This is where the focus turns to what the business will actually produce. What is it, how does it work, what need does it fill and how does it benefit others? The SBA says this part should represent the benefits as perceived by the customer. Other elements to include in this section are the product’s advantages, its life cycle, and any details on copyrights, patents, research and legal agreements. Alyssa Gregory further details this for About.com:
“The purpose of the products or services section of your business plan is to clearly express the benefits you’re providing to your customers or clients,” she writes. “All of the background you provide should focus on that goal. Think in terms of answering, ‘Why does my ideal client want this? How will my product or service make his/her life better, easier or more profitable?’”
6. Marketing and Sales
For marketing, the SBA advises you include a description of potential market penetration and growth, along with channels of distribution and methods of communication with customers. For sales, you should describe the team, the training process, recruitment strategies and an analysis of sales prospects. Randy Duermyer writes about this for About.com, saying:
“Those who are considering lending your small business money or investing will want to know how you intend to reach your target market and attain the market share you feel you can attain, which you’ve already discussed in the Market Analysis section of your business plan,” he says. “Your marketing plan will help them understand that. … If it applies to your business, outline your sales strategy in this section when you are writing a business plan. For example, will there be a sales force? Will sales training be provided? Will your sales team be given incentives to encourage them to increase sales and meet or exceed their goals?”
7. Funding Request
Here is where any loan or financial assistance requests will be examined. The SBA recommends including current and future funding requirements, how the funds will be used and any other relevant financial strategies involved.
“When you are outlining your funding requirements, include the amount you want now and the amount you want in the future,” the SBA says. “Also include the time period that each request will cover, the type of funding you would like to have (e.g., equity, debt), and the terms that you would like to have applied.”
8. Financial Projections
Creditors will want to understand your financial expectations and projections, the SBA says, as well as an analysis of your finances that includes “a ratio and trend analysis for all of your financial statements (both historical and prospective).” Elizabeth Wasserman examines this for Inc.com:
“The purpose of the financial section of a business plan is two-fold,” says Wasserman. “You’re going to need it if you are seeking investment from venture capitalists, angel investors or even smart family members. They are going to want to see numbers that say your business will grow — and quickly — and that there is an exit strategy for them on the horizon, during which they can make a profit. Any bank or lender will also ask to see these numbers as well to make sure you can repay your loan.”
9. Appendix
The final section may include a variety of information that may be needed as supplemental material, according to the SBA, all of it being dependent on each unique scenario. This can include credit history, reference letters, licenses and permits, legal documents, building permits, contracts and a list of business consultants.