Before starting any business, the potential owner can benefit a great deal by writing a business plan. If third-party financing is required for such a venture, then it may become essential to offer a plan including, but not limited to, the business idea, its goods or services, budget, source of funding, market potential, and marketing strategy.
A business plan would also provide information about the method of operation and projected sales and expenses for a specified period of time. Creating a formal plan helps the owner(s) and financier(s) to get a better understanding of the costs involved in the venture, its advantages, drawbacks, and potential bottlenecks and plays a key role in identifying ways to revamp the plan for a smooth progress.
Irrespective of the nature of the business, there are a few components that are included in most plans.
Generally, an executive summary runs for a page or two and offers an overview of the:
- Business idea;
- Goals of the business;
- Details about owners and management (business structure);
- Goods or services provided;
- Advantages of the idea;
- Target customers;
- Marketing strategy to reach those customers; and,
- Financial projections.
Although an executive summary is the most important section of the plan and one that the lender will read first, it is better to write it last, after completing the other sections, as it would be easier to highlight the important points from each subsequent section.
This section provides a description of the:
- Business history (new, purchased, expanding, etc.);
- Personal career accomplishments;
- Vision and the mission of the business;
- Ownership structure;
- Business model;
- Goods or services offered by the business;
- Competitive advantage of this business (low cost production through technological innovation, high-end target customers, etc.);
- Nature of sector (cyclical?); and,
- Short-term and long-term goals, milestones to be crossed along the way, etc.
This section discusses the output of the business in greater detail. Information about the various attributes of the good or service and its uniqueness in relation to other competitor products/services are included here.
SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. This section lists the potential stumbling blocks for the business and the intended plan to overcome them. Taking an objective view when discussing the positives and negatives in this section offers the investor/lender the chance to gauge the credibility of the proponent.
An overview about the industry, its growth prospects, where your business fits into the overall market, the methods and tools that will be used to promote the good or service (including e-commerce details such as offering a website to buy the good/service online, need for third-party web developers, etc.), and the intended target customers are listed in this section. A description of the marketing mix and the allocated budget for such promotional work need to be included, while providing facts to substantiate claims.
This section discusses the day-to-day operation including business requirements (land, building, suppliers, etc.) and where applicable, production method, quality control measures (Statistical Process Control charting, etc.), plan for defective items (recycling, etc.), technology needs (hardware and software for distributed control system, tools for design, etc.), inventory control, and accounting.
This section outlines the costs for the above sections and for labor (salaries/wages/contract workers). It also lists the (forecast) revenues for a specified length of time (say, 3 or 5 years). As part of the forecast, it would be worthwhile to offer worst-case, conservative/most likely, and best-case scenarios with a contingency plan. Other essential details for this section are profit and loss estimates, capital required, sources for the capital (personal funds, credit, etc.), loan repayment schedule, and tax considerations.
Do you have tips for someone writing a business plan? What are the other components that should be included as part of one?
About the Author: Clark works in Saskatchewan and has been working to build his (DIY) investment portfolio, structured for an early retirement. He loves reading (and using the lessons learned) about personal finance, technology and minimalism. You can read his other articles here.