Writing the Business Plan (Part 1)
*The following information was taken from East Bay SCORE’s manual, “How to Start and Manage Your Small Business”. All references lead to the full copy of the guide which is free to download.
The usual components of a business plan are:
1. Table of Contents
2. Executive Summary
This might be the most important part of your plan. It must grab the readers’ attention, and hold it so he/she will review the balance of the plan. The Executive Summary can be as short as one type written page, giving a good sense of what you intend to accomplish. It will identify the principals and key team members, as well as some of your strategies. To help in the preparation of the Executive Summary, (and it shouldn’t be finalized until the rest of the plan is) you should complete the following exercises:
Prepare a Mission Statement for your enterprise.
This will be a clear and concise representation of the enterprises purpose for existence. One or at the most two sentences are sufficient. It should be a building block for an overall corporate strategy and a guide in decision making. An example of a mission statement for a small sign company: “We will sell signing to small businesses and individuals; we will produce quality signs at a price lower than larger firms, and complete these signs in 24 hours or less, from a storefront location in a high traffic area”. The mission statement of Wal-Mart is “to give ordinary people the chance to buy the same things as rich people.” A small airline goes as follows: “AirCo will offer young businessmen cost-effective transportation services within our geographical area, focusing on courteous and on time service.”
Do a SWOT analysis around your business idea early in the planning process:
- S for Strengths of the business,
- W for Weakness inherent in the business (both controllable by management),
- O for Opportunities you can identify,
- T for Threats that you might foresee (both are external to direct control by management).
This will help you think through your strategies for attaining the profitability you want. It is good to address problems and seek solutions before they actually occur. Some, but not all of the analysis may go into the Executive Summary, but the thought process will reinforce strategies you express throughout the plan.
- Strengths: Technical competence, knowledgeable staff, financial resources, good knowledge of the market, excellent vendor relationships established, proximity to the market place, minimal competition in my market.
- Weakness: Lack of management skills; no track record in this business; heavily dependent on one person; heavily dependent on one vendor; the best location for space was not available; market is very seasonal.
- Opportunities: Growing market for the type of product I will provide; availability of skilled/knowledgeable workforce; large disposable income in proposed market; sales trend for my products has been increasing; possible availability to me of more desirable space in the near future; probable availability of a unique product that will increase revenue beyond that projected.
- Threats: Economic downturn, new well financed competition, inflation, increasing cost of materials and labor, competition volume purchasing allows them lower costs; price cutting normal in this business; availability of growth capital; earth quakes.
Your Executive Summary will be a work in progress. You will find yourself revising it many times, or until it tells the story of your business in a way that will compel the reader to delve further into the business plan. You want to share the enthusiasm that you and your team have for the business.
3. General Company Description
- the Name of your business
- the Mission Statement which you have already prepared and which says “what you want to do”.
- the Location and physical plant, where your business will be located and why. There is nothing wrong with certain types of home-based businesses, but yours might require a special location. If it is retail, location can be the most important consideration of many. How will you determine the best location for you, and what effect will it have on the business, including costs and customers? Describe the area if it is important to the plan.
- Determine and state your legal structure. Get advice from a lawyer, or a counselor. These decisions are usually based on personal vs. corporate liability, and tax issues. Refer to Chapter 5, Legal Aspects, of this manual for more information.
- Note in your plan that business name application, business licenses, resale permits, federal tax ID, import permits, where required, and any other requirements to “do business” have been, or are being addressed. Make sure that they will be in place at the proper time relative to your starting the business.
4. Products and Services
Describe here in more detail, and in a structured format, what you are offering and how you will provide it. Sourcing encompasses all issues relating to how you will attain the product or service you intend to sell. However be mindful that what any customer seeks from a vendor such as reliability, availability, on time service, rapid response times, high levels of quality and predictable costs can also apply to a service you are offering.
When outsourcing products, remember how important the relationship with your vendors can be. They can hurt you if quality or delivery times deteriorate, prices increase, or if they aren’t concerned with providing you competitive advantages. You should be able to look to your suppliers for new product ideas, for marketing help and perhaps advertising allowances, and maybe even help, if cash gets tight, by virtue of extending terms.
In your plan list sources for your primary products, and append copies of price quotations, if available. You need to seek a protected market to avoid that the same product does not appear within your marketing area through another channel. In the event some outside force affects your vendor, or your own relationship breaks down, what are your plans for a secondary source? You don’t want to promote and advertise a product that you can’t get. Try to reach an agreement on future price increases where timing can be important.
Go out of your way to establish a trusting and cordial relationship with all of your vendors. It will pay off for you in many ways.
5. Marketing Plan
This will normally be the largest section in you plan. Marketing is all business activity involved in the movement of product or services to the customer, and includes advertising, packaging, promotion, selling and pricing. You should include factual information about the following:
- A detailed description of the product or service being offered (this should be easy for you because you know it better than anyone else). How does this satisfy a customers needs?
- Who buys the product or service, and why do they need it?
- What is the size of the market for your products? How did you determine market size? (Explore demographic data for your market, check competitive web sites, suppliers, trade shows, consumers, competitors, Census data, etc.). What is your target market (? What market growth is expected, and why?
- What share of the market, as you have surveyed it, are you planning to attain in year 1, 2 and 3 (Lenders scowl at too much share, too soon)? Your share, even if static, will generate more revenue in a growth market.
Discuss the competition in some detail. If there is a compelling reason why you will not be adversely affected by competition (market exclusive, for example) discuss it here. Research the competition through the yellow pages, websites, Chambers of Commerce, Catalogues, Trade Shows, surveys, suppliers, and visit their locations.
Your competitive edge
- Do you have a competitive edge, and are able to create demand for the product from you rather than a competitor who might have the same or similar product?
- What are the unique aspects of your product that will create a market “niche” for you? Is there any reason why these advantages will not continue?
- If there are any intellectual property or patent/copyright issues, discuss them.
- If you are aware of pending improvements in your products (relating to cost, availability, marketability, or profitability), recognize them and when they might become available.
Your marketing and sales strategy
- What is your pricing philosophy? How will it affect sales volume and margins? Explain, if you can, what the competitions’ pricing philosophy is. Provide good logic as to how you arrived at your selling prices.
- Promotion relates to various activities and actions that will attract customers and consequently improve sales volume. You might attract them because of location, or pricing, or uniqueness of product, but beyond that you need to get to them so they will get to you. There are various means such as flyers, ads, websites, banners, mailings, sponsorships (ball teams), press write ups about the uniqueness of your business, etc. You should describe what your promotional plans are, and account for their costs in your budgeting. Explain how they will help your business, and why you have chosen one over another.
- Location has been covered to some extent under the section on “The Company”, but if it will have a major effect on your marketing strategy, address it here in the context of marketing.
- Selling is the art of converting a “looker” into a “buyer”. The promotion gets them to you, and then you have to sell them on the product or service. If there are any unusual aspects regarding your “selling” or sales philosophy, discuss them in the plan.
This is part 1 of a 2 part series and was extracted from East Bay SCORE’s "How to Start and Manage Your Small Business." The full reference manual can be downloaded by clicking here.
*This blog is intended to provide information to support startups and existing small businesses. A sincere effort is made to ensure accuracy, but no warranty, express or implied, is provided in that regard and East Bay SCORE and the author will not be liable for any errors or omissions in this blog.