- List the components of a business plan
- Briefly describe the components of a business plan
The following written guide will help you create a business plan and map out how you will start and run your business successfully. The different parts are described in the order in which they appear in a business plan.
The executive summary is often considered the most important section of a business plan. This section briefly tells your reader where your company is, where you want to take it, and why your business idea will be successful. If you are seeking financing, the executive summary is also your first opportunity to grab a potential investor’s interest.
The executive summary should highlight the strengths of your overall plan and therefore be the last section you write.
Below are several key points that your executive summary should include based on the stage of your business.
If You Are an Established Business
If you are an established business, be sure to include the following information:
- The mission statement: This explains what your business is all about. It should be between several sentences and a paragraph.
- Company information: Include a short statement that covers when your business was formed, the names of the founders and their roles, your number of employees, and your business location(s).
- Growth highlights: Include examples of company growth, such as financial or market highlights (for example, “XYZ Firm increased profit margins and market share year-over-year since its foundation). Graphs and charts can be helpful in this section.
- Your products/services: Briefly describe the products or services you provide.
- Financial information: If you are seeking financing, include any information about your current bank and investors.
- Summarize future plans: Explain where you would like to take your business.
With the exception of the mission statement, all of the information in the executive summary should be covered in a concise fashion and kept to one page. The executive summary is the first part of your business plan many people will see, so each word should count.
If You Are a Start-up or New Business
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. Convince the reader that you can succeed in your target market; then address your future plans.
This section of your business plan provides a high-level overview of the different elements of your business. The goal is to help readers and potential investors quickly understand the goal of your business and its unique proposition.
What to Include in Your Company Description
- Describe the nature of your business and list the marketplace needs that you are trying to satisfy.
- Explain how your products and services meet these needs.
- List the specific consumers, organizations, or businesses that your company serves or will serve.
- Explain the competitive advantages that you believe will make your business a success such as your location, expert personnel, efficient operations, or ability to bring value to your customers.
The market analysis section of your business plan should illustrate your industry and market knowledge as well as any of your research findings and conclusions.
What to Include in Your Market Analysis
- Industry description and outlook: Describe your industry, including its current size and historic growth rate as well as other trends and characteristics (e.g., life cycle stage, projected growth rate). Next, list the major customer groups within your industry.
- Information about your target market: One of the first steps in the process is determining your target market and why they would want to buy from you. Narrow your target market to a manageable size. Many businesses make the mistake of trying to appeal to too many target markets. Research and include the following information about your market:
- Distinguishing characteristics: What are the critical needs of your potential customers? Are those needs being met? What are the demographics of the group and where are they located? Are there any seasonal or cyclical purchasing trends that may impact your business?
- Size of the primary target market: In addition to the size of your market, what data can you include about the annual purchases your market makes in your industry? What is the forecasted market growth for this group?
- How much market share can you gain?: What is the market share percentage and number of customers you expect to obtain in a defined geographic area? Explain the logic behind your calculation.
- Pricing and gross margin targets: Define your pricing structure, gross margin levels, and any discount that you plan to use.
- Competitive analysis: Ask which areas are being ignored by your competitors. Creating a niche for your business is essential. Your competitive analysis should identify your competition by product line or service and market segment. Assess the characteristics of the competitive landscape (e.g., market share, strengths and weaknesses, barriers to market entry, etc.). Don’t Become a jack-of-all-trades. Learn to strategize.
- Regulatory restrictions: Include any customer or governmental regulatory requirements affecting your business, and how you’ll comply.
Once you’ve completed this section, you can move on to the Organization and Management section of your business plan.
Organization and Management
This section should include your company’s organizational structure, details about the ownership of your company, profiles of your management team, and the qualifications of your board of directors.
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? 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.
Service or Product Line
Once you’ve completed the Organizational and Management section of your plan, the next part of your business plan is where you describe your service or product, emphasizing the benefits to potential and current customers. Focus on why your particular product will fill a need for your target customers.
What to Include in Your Service or Product Line Section
- A description of your product/service: Include information about the specific benefits of your product or service – from your customers’ perspective. You should also talk about your product or service’s ability to meet consumer needs, any advantages your product has over that of the competition, and the current development stage your product is in (e.g., idea, prototype).
- Details about your product’s life cycle: Be sure to include information about where your product or service is in its life cycle, as well as any factors that may influence its cycle in the future.
- Intellectual property: If you have any existing, pending, or any anticipated copyright or patent filings, list them here. Also disclose whether any key aspects of a product may be classified as trade secrets. Last, include any information pertaining to existing legal agreements, such as nondisclosure or non-compete agreements.
- Research and development (R&D) activities: Outline any R&D activities that you are involved in or are planning. What results of future R&D activities do you expect? Be sure to analyze the R&D efforts of not only your own business, but also of others in your industry.
Marketing and Sales
Once you’ve completed the Service or Product Line section of your plan, the next part of your business plan should focus on your marketing and sales management strategy for your business.
Marketing is the process of creating customers, and customers are the lifeblood of your business. In this section, the first thing you want to do is define your marketing strategy. You’ll learn more about this in the Marketing chapter of this course.
After you have developed a comprehensive marketing strategy, you can then define your sales strategy. This covers how you plan to actually sell your product. Sales is also covered later in the course.
Next, if you are seeking financing for your business, you’ll need to complete the next part of your plan—Funding Request.
If you are seeking funding for your business venture, use this section to outline your requirements, including the following:
- Your current funding requirement
- Any future funding requirements during the next five years
- How you intend to use the funds you receive: Is the funding request for capital expenditures? Working capital? Debt retirement? Acquisitions? Whatever it is, be sure to list it in this section.
- Any strategic financial situational plans for the future, such as: a buyout, being acquired, debt repayment plan, or selling your business.
When you are outlining your funding requirements, include the amount you want now and the amount you want in the future. 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.
Once you have completed your funding request, move on to the next part of your plan—Financial Projections.
You should develop the Financial Projections section after you’ve analyzed the market and set clear objectives. That’s when you can allocate resources efficiently. The following is a list of the critical financial statements to include in your business plan packet.
Historical Financial Data
If you own an established business, you will be requested to supply historical data related to your company’s performance. Most creditors request data for the last three to five years, depending on the length of time you have been in business. Typical financial data to include are your company’s income statements, balance sheets, and cash flow statements for each year you have been in business. Often, creditors are also interested in any collateral that you may have that could be used to ensure your loan, regardless of the stage of your business.
Prospective Financial Data
All businesses, whether start-up or growing, will be required to supply prospective financial data. Most of the time, creditors will want to see what you expect your company to be able to do within the next five years. Each year’s documents should include forecasted income statements, balance sheets, cash flow statements, and capital expenditure budgets.
Make sure that your projections match your funding requests; creditors will be on the lookout for inconsistencies.
Lastly, you may want to include an Appendix to your plan.
The Appendix should be provided to readers on an as-needed basis and should not be included with the main body of your business plan. Specific individuals (such as creditors) may want access to this information to make lending decisions. The appendix can include items such as your credit history, résumés, letters of reference, and any additional information that a lender may request.Therefore, it is important to have the appendix within easy reach.
Any copies of your business plan should be controlled; keep a distribution record. This will allow you to update and maintain your business plan on an as-needed basis.
Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered above. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.