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A business plan is a roadmap that clearly defines the goals and objectives of the company, an area of the company (such as a division) or a product line. In addition to defining a goal, a business plan goes further and defines the strategy for achieving the goal and the steps leadership will use to follow the strategy and successfully accomplish the goal. It is a plan that establishes what the business is, where it wants to go and how it is going to get there. It clearly defines goals, actions and processes necessary to achieve the objectives.
Many professionals consider a business plan necessary only for start-up companies. However, even in established organizations, management can use a business plan as a vital piece of strategy and planning to accomplish many different goals and needs. Business plans are most commonly used to establish the direction of the company as a whole—whether a new company or one changing direction. They are also used to examine certain functional areas, for example, marketing or operations, to review specific product lines or problems, and to evaluate the current or proposed direction of the organization, division or new product line. Other purposes of business plans include optimizing growth and development, providing direction for continued operations, and obtaining financial capital for startups or expansions.
Business plans provide members of management an opportunity to organize their thoughts and write them down clearly so that the entire management team knows where the organization is headed and how they can work together to get there. Not only is there a clear direction that everyone can follow, but there is also a plan to keep everyone focused and accountable in achieving the goal.
Step 1: Determine the Purpose of the Business Plan
Knowing why and how an employer will use this document will be determined by its audience (is it management or a bank?). The components of the document will be defined by the target audience and overall objectives: for example, specific outcomes from management or money from the bank or investors. Determining the purpose of the business plan will ensure proper direction and development of the plan and the tools to be used.
What is the purpose for this document? Is the business owner:
An entrepreneur who needs start-up capital?
An expanding organization that needs the business plan to define a new business, provide course correction or evaluate a new product?
An organizational leader who needs a roadmap to clearly define the business and strategy of the company, division or product?
A consultant who needs to develop the business or area of business, such as the marketing component?
Step 2: Determine the Audience
Once the purpose for the business plan has been established, the organization will need to determine its audience. It can begin by deciding whether this document will be used externally, internally or both.
External (creditors and investors). External plans are used when financial capital is needed and generally includes start-up plans, growth or expansion plans, or new product plans.
Internal (organization’s leadership). A plan used by leadership is generally an internal plan, operations plan, strategic plan or feasibility plan to determine if the new business or product is worth pursuing. Sometimes, an internal plan can focus on growth, expansion or new product development when new capital is not needed. If the plan is designed to investigate whether a product line is worth pursuing, it would be operationally focused—not financially focused—because the organization is not seeking new capital at this point. The plan would be written strictly for management and not for a bank or investor.
External and internal (both creditors or investors and leadership). Typical plans for business improvement or expansion plans are written for creditors to gain capital and for leadership to outline strategy and direction.
Step 3: Determine What the Audience Needs from the Plan
If the audience is external (creditors and investors), the following should be determined:
1. What is needed by the group approving the capital? For example:
A financial history is important to banks (creditors). Banks want to know the organization’s risks.
Description of management is important to investors. Investors want to assess the management team’s knowledge, experience and ability for success.
2. What is essential in meeting the needs of the audience? For example:
Show results. An organization should clearly outline its business and strategy and how the business will reach the successful results established in the plan. Organizations must show evidence of future success and how the creditors or investors will earn their money back.
Earn their respect. The plan should be written to convince creditors and investors that the business is going to be a success. Management should use the supporting documents in the plan to prove the organization will be successful.
If the audience is internal (leadership), what does the business need from the plan?
Show results. Management should clearly outline the business and strategy and show how the organization will reach the successful results established in the plan.
Produce an implementable model. The business plan must be the roadmap that defines how leadership is going to achieve success. It must state who, what, where, when and how through measurable goals, actions, timelines, responsibilities, budgets and plan reviews.
Predict and address roadblocks, such as competition or changes in the market, and eliminate unknowns.
If the audience is both external and internal, a combination of both elements will be necessary.
Step 4: Include Standard Components
There is no single outline for a business plan because each plan has different goals and audiences. Samples targeted to goals and audiences can be found in software, publications and online resources. An excellent online resource for elements of a business plan and hundreds of free samples can be found at the Small Business Administration’s website.
Standard components include:
Executive summary. This is a short summary of the entire plan covering the key ideas, information and results of the plan. This is the first piece of the plan that will be read and needs to emphasize the reasons the plan should be supported, the strength of the plan and its outcome. Information summarized includes the company information, goals, product/service, key personnel experience and accomplishments, competitors, market, sales, and marketing plan. Also included are pertinent numbers, such as financing required, sales projections, three- to five-year financial forecasts and the organization’s plan to repay any loans.
Summary of organization’s objectives. This section contains the company’s long- and short-term goals. If developing a new product line, this section will show how the new product line will fit into and further the long- and short-term objectives.
Company description. This section describes the organization of the business. Included is the type of operation, such as manufacturing, retail or service-oriented, and if it is a new or an already established business. The legal form, such as a sole proprietorship, partnership or corporation, is included, as well as a summary of the industry and the nature of the business, its product or service description, and product market and history, which will show stability, growth or both.
Market analysis and marketing plan. This analysis should include demographics, potential and strategy. The analysis will substantiate what the total market is for this product or service and include market growth potential, what proportion of the market the organization is expected to capture, and how the organization will be in position to capitalize on the growth and to increase its market share. This section should also summarize the marketing plan, including the demand for the product or service and why it will sell, the proposed market, trends within the industry, and a description of the pricing plan and packaging. The marketing plan should be supported with solid research.
Management team description. The business plan should outline the organizational structure and management team and include an organizational chart and resumes and biographies of key management staff. The plan should also list responsibilities of key players and staffing projection data for the next few years. The plan should demonstrate how the structure and combination of proven team players will secure success.
Financial analysis and plan. This section must show that the management team is committed to the financial success of this venture. The plan should include the amount of capital needed and any personal commitment of funds, outline the plan to repay any debt, and show current and forecasted data. Also included should be pertinent financial worksheets: cash flow statement, income statement, balance sheet and break-even analysis.
Operations plan. The operations and management plan is designed to describe how the business functions on a continuing basis. The plan describes the responsibilities of the divisions within the organization and management team; the capital and expense requirements; the physical necessities such as location, facilities, equipment and inventory; and a description of the process. This will be a description of how the operation works on a day-to-day basis.
Appendices. Included in the appendix should be any charts, graphs, worksheets and information that will further supplement the facts provided within the document.
Step 5: Keys to Better Business Plans
The business plan is much more than a dry report; it needs to convince and excite those using it. Necessary time should be devoted to the small details, such as the feel of the document, and research components, such as the appropriate style of the plan and marketing efforts of the plan. Consideration should be given to what is going to make this an implementable plan—the roadmap for leadership. It must be a clear, concise and usable plan.
The feel. A business plan is typically 30 to 40 pages. Ease of readability is more important than providing a large document that no one has time to read. The executive summary should grab the readers’ attention from the start and keep them reading using eloquent and powerful writing. The writing should demonstrate deep knowledge but also generate excitement, passion and enthusiasm to keep the reader hooked. The plan should be focused and concise by sticking to essential facts. The writers should refrain from inserting interruptions when making their case. They should not talk only about projections and successes—instead, the text should convince and excite the audience, and the supporting documents and graphs should be used to prove the success of the business plan.
Development. The plan writers should employ software resources, books and websites to develop the work. They should research the appropriate information for their audience and what the audience needs from the document.
Devote the appropriate time. Development of a business plan will take several hours a day over the course of a few weeks. Reviews by the management team should be scheduled to keep the team members on schedule and to prevent the plan from being developed in a vacuum. The organization’s accountant and business advisors should also serve as reviewers. Organizations can use a consultant when necessary, but they should develop as much as possible before using a consultant to review or complete the document.
Implementation. A good business plan is practical. Time should not be wasted creating a business plan that fails to provide an implementable model that leadership will follow. The business plan is more likely to be successfully implemented if it contains simple, specific, clear and realistic elements. Organizations should use the plan to:
Clearly outline the business and strategy.
Set concrete goals, responsibilities and deadlines to guide the business.
Assign tasks to people and departments and set milestones and deadlines for tracking.
Provide timelines for regular review and course correction.
General management principles and processes should be used to define strategy and to set realistic and measurable goals, actions, timelines, responsibilities, budgets, plan reviews and communication.
Results. Business planning is about results. Results can be achieved by ensuring the content meets the purpose of the plan. The team responsible for the business plan should not only complete the outline—instead, it should make it a practical and implementable plan by focusing on all details of the entire process.
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This material is for informational purposes only and not for the purpose of providing legal advice. You should always contact your attorney to determine if this information, and your interpretation of it, is appropriate to your particular situation.
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