How to Write a Business Plan

Many of the students think that there is no need for a business plan as many entrepreneurs get success without it. With entrepreneurial drive and solid business skill, does the business startup plan offers an inevitable success? Not really, but great planning comes with a huge difference in failure and success.

Business plan acts as a guide—considerably a roadmap for business which clearly outlines the goals, and plans on how to achieve these goal. An effective business plan guides through startup and managing the business, and bring partners or getting funded.

Sections of Business Plan;

 Executive Summary

• Overview and Objectives
• Products and Services
• Market Opportunities
• Sales and Marketing
• Competitive Analysis
• Operations
• Management Team
• Financial Analysis

• Executive Summary:

 It is an outline which briefly defines company’s goals and purpose. Though, it is hard to concise but here is what it should include: 

• Products or services brief description
• Objectives summary
• Market description
• High level justification for viability (it covers competitive advantage and competition)
• Clear picture of business growth potential
• Outline funding requirements

This section is the make-or-break of business plan.

If the executive summary doesn’t describe the ways business will solve specific issue or generate a profit, then it is pretty much possible that the plan to gain benefit of an opportunity isn’t well developed.

So, take it as a business plan snapshot that gives a clear idea of what is the plan, how it will be done and succeeded. Since business plan allows starting the business and potentially growing it, the Executive Summary is the foremost thing that helps you with following:

• Refining and tightening the concept (highlighting the plan and including the critical points)
• Determining the priorities (what is important; strategic partnership, the research, product development, location)

Overview and Objectives

While in the planning stages, it becomes difficult to provide an overview of the business. With existing business, summarizing on current operation is easy but tough to explain on a plan of what to become. Consider;

• The products and services that will be provided
• How it will be provided?
• What is required to provide these items?
• Who will provide it?
• Most significant of all, whom it will be provided.

Take an example of bicycle rental business. They have retail customers. The principal of the business is grounded on face-to-face transactions despite the online component for bike rentals. There is a need of location, racks, tools, bikes, and other related items of brick-and-mortar. The required employees on board should have specific skill set to serve customers. To guide every day activities, there should be an operating plan which boils down to:

• What will be provided
• What customer expects to buy from bicycle provider which meets their needs
• What is required to run the business
• Bikes in quantity to service demand. It will require a retail location to meet the business demand. 
• The service to customers will be provided by whom;
• There will be semi-skilled employees who are capable of sizing, customizing and repairing bikes.
• Who are the customers
• cycling enthusiasts

Answering the above questions is difficult with different business plan. For instance, when you open a restaurant, the labor needs will be determined by what you plan to serve, the selected location and the purchased equipment. Above all, it will define the customer. Start by focusing on the basics at first:

• Identifying the industry; either it is wholesale, retail, service or manufacturing etc. Define the business type clearly.
• Identifying customer. A product can’t be marketed or sold to customers before knowing who they are.
• Explaining the issue or problem that has to be solved. Customer value is created by solving problems. For instance, one of the issues is cycling enthusiasts who can’t use bikes to travel. The other is casual cyclists who can’t spend noteworthy sums on their bikes. So, by offering convenient alternative and lower-cost the problem can be solved. Tell how the problem will be solved such as the shop would offer better enhanced services and reasonable prices for off-hours equipment returns,like remote deliveries, and online reservations. The overview and objectives session starts with;

• History and Vision (purpose and goal)

Objectives:

• To achieve the market share
• To generate target profit
• To minimize inventory replacement cost

Products and Services

This section of the business plan comes up with descriptions of products or services which the business will provide.

Technical or highly detailed descriptions aren’t recommended. It’s better to ignore industry buzzwords and use simple terms. Arriving with description on how company’s products or services may differ with that of rivals is critical. Trademarks, copyrights, and patents you apply can be listed in this section. This section can be long or short depending upon the product type. For instance, if the business is product-focused, then more time is spend to describe the products.

When there is a plan to sell commodity item, and competitive pricing is used as a key to success, then there is no need to add significant product detail. If the commodity is available readily in various outlets, then the key to business is the ability to market it in a cost-effective manner along with the commodity itself, as compare to the competition.  If coming with a new product or service, do explain the product nature, its value, uses, etc. else readers won’t find sufficient information to appraise the business. Few key questions that need to be answer are:

• Do the products or services exist in the market or it is in the process of development?
• What’s the specified time frame to introduce new products or services into the market?
• How the products or services are different from the competition? Is there a competitive advantages or disadvantages?
• What will be the operating costs and how to get a good profit margin?
• How to get the products? Do you assemble (using raw material provided by others) or manufacture the products? Is the product purchased from wholesalers or suppliers? If the business runs well, is there stable products supply available?

The business plan primary goal is to persuade that the business is viable. It will include product description, competition and future products.

Market Opportunities

A component critical to business success is market research. An efficient business plan analyzes and assesses buying cycles, customer demographics, habits of purchasing, and readiness to get used to new products or services.

The process begins with developing the understanding of market and inherent opportunities in it.  Before starting a business, make sure that there is a viable market for what the product or service plans to offer.

Assess the market at high level, and answer the questions related to your market and industry:

• Identify the market size. Is it stable, growing or declining?
• How about the industry growth, overall?
• What market segment has to be targeted? What behaviors and demographics make up the targeted market?
• Is the particular product or service demand increasing or decreasing?
• How one product can be differentiated from the competition in a cost effective manner, also a way customers finds it meaningful?
• What price range customer expects to pay for particular products and services? Is it considered a commodity or individualized and to be custom?

Fortunately, the products and services are defined and mapped out. The section offers a check of the analysis that is important since selecting the correct product or service is a critical factor for success of a business.

Quantify the market and understand the purchasing ability and characteristic of potential customers in the market or industry. For the target market, determine:

• Potential customers (in order to sell jet skis; people under the age of 16 and above 60 is unlikely to be a customer and women comprises a small percent of purchasers) Depending on the product type, there is a need to take total population and other factors.
• Take total households. For instance; when selling air conditioning, determining the number of households is crucial than just getting information of the total population in the area.
• The median income determines the ability to spend. Does the target market holds adequate purchasing power to buy the products or services and enables to making a profit? Never assume every locality as same in context of purchasing power.
• Demographics to know income when planning to sell services to local businesses. Determine how much amount they can spend on such services.

Get to know the market in general terms with specific segments within that market. Serving a market is easier when you can define and quantify. Narrow down the focus to answer these questions:

• What is your target market? Simply include target demographics, geographical details and company profiles.
• Who are the potential customers?
• Which market segment will be focused on? 
• What niche has to carve out? What market percentage is aimed to penetrate and attain?
• Clear the intended market size and population spending level.
• Why will customers purchase the particular products or services?
• How the product or services will be priced? Will it provide value-added services at low or high prices?
• How much and why your market is likely to grow?
• How market share can be increased over time?

Include;

• Market summary (current market state specific to location and product or services trend)
• Market trend (over time movement and changes in population trend)
• Market Growth (target market growth over past years)
• Market Needs (what customers expects and wants)

• Sales and Marketing

Introducing new and unique products and services is amazing, but it is crucial to let population know that this particular product exists. That’s the reason marketing strategies and plans are essential to the success of a business. Marketing doesn’t mean simply means advertising. Whether it is public relation, advertising or promotional literature, it is a clear investment in the business growth.

Money spent on marketing should produce a return that could be higher cash flow because good marketing plans lead to greater profits. Rather than spending money on advertising efforts come up with a smart marketing program. Few basic steps commonly used in creating the marketing plan are;

• Target market focused.  Which customer is to be targeted?

Who has to come up with this decision? Determine the ways to reach potential customer base.

• Assess the competition. Any marketing plan allows setting apart from competition, because there is no way to stand apart without being familiar with the competition. Rivals can be known by collecting information on products or services type, advertising campaigns, pricing and quality. What are the competition strength and weakness? How they work well? How to build a marketing plan that directs the benefits to customers?
• Take the brand. The marketing plan should act as reinforce to boost the sales. How customers perceive that brand has effect on sales. Before marketing, consider how you want to reflect business products or services.
• Consider the benefits. What sorts of issues are solved? Advantages or perks that is delivered? Customers think in context of solutions and benefits, so the marketing plan clearly identifies these. Don’t play focus on what you provide but instead what customers receive.
• Consider differentiation.  How the businesses will compete in context of product, price or service?

Now provide the details of marketing plan. The key questions to answer are:

• Analyze the sales budget and marketing efforts.
• Determine if initial marketing efforts were successful and ways to encounter if your initial efforts aren’t succeeded?
• Is there a need of sales representatives to promote business products or services?
• How and why public relations activities should be set to help market the business?

This section includes target market, marketing strategy, pricing strategy and competitive advantage.

• Competitive Analysis:

This section analyzes both current and potential competition that may enter the market. To make sure that business grows and survives, it is necessary to understand the competition strength and weakness.  Small businesses are more susceptible to competition, when there is an entry of new companies in the marketplace.

It can be time-consuming and extremely complicated, though it shouldn’t be. An easy and simply process can be followed for ascertaining, analyzing, and determining the competition strengths and weaknesses.

• Developing profile of current competitor and the competition they place. Now, identify how competitor can outperform you by;
  • Marking their strengths and identifying their convenience, service, price and extensive inventory- the areas where the business can be at risk.
  • Marking their weakness which is an opportunity than could be taken advantage of.
  • Identify their basic objectives – gaining market share, capturing premium clients. Look at their purpose and what they tend to achieve.
  • The marketing strategies used by the competitor.  Check with their public relations, advertising etc.
  • How market share can be taken away from the competitor?
  • What will be the competitor action when you enter the market?

If you know the target market and industry, you have an understanding for competition strength and weakness. Information can be gathered through;

• Check website that may reveal information about competitor services, product, prices and company objectives.
• Visit the competitor locations. Check on with promotional literature and sales material.
• Assess their advertising and marketing campaigns.
• Browse for public relation, mentions and new of the competition.

Competitive analysis gives better understanding of competition and helps in identifying changes that should be made to business strategies. Consider following questions in the business plan under competitive analysis;

• Who are my present-day competitors and the market share they hold? Are they successful? If yes, then how?
• -What is the target market of competitors? Are they focusing on specific niche, particular customer type, or taking the mass market.
• Does competing businesses scale back their operations? If yes, then why and how it impacts your business?
• How your business differs from the competition? What weakness of competitor can you take advantage of? Which strength of competitor needs to be overcome in order to be successful?
• What if the competitors exit the marketplace? What and how will you do to take benefit of that opportunity?
• What will be done from your side if any new competitors get into the marketplace? What will be your reaction to overcome the challenges?

Operations

Developing Operations Plan aims at serving the targeted customers, and keeps operating costs in line making sure of the profitability. This plan details strategies to manage, staff, manufacture, inventory, fulfillment and all the elements essential for operating day-to-day business activities.

The operational goal revolves around the key questions which are;

• What supplies, equipment, facilities is required?
• Define the organizational structure? For each aspect of business, who is responsible?
• Do you need research and development, either as an ongoing operation or during start-up? If yes, then how to achieve this task?
• Check the initial staffing needs. How and when it is the right time to add staff?
• What are the effective ways to establish business relationships with suppliers and vendors? How these can effect day-to-day operations?
• As the company grows, how will the operation change? If the company doesn’t perform well initially, what steps can be taken to cut costs?

Operations plans must be particular to market sector, industry and customers.  The plan should address the following key areas;

• Location and Facility Management (space, zoning, remodeling, construction, utility and power, access to supplier, shipping etc.)
• Daily operations (methods of production, service, customer and sales, delivery and receiving, inventory control, cleaning and restocking)
• Legal ( health and environmental regulations, insurance, license, copyrights, trademarks and patents)
• Personal requirements (training, pay structures, staffing, policies, recruiting and retention)
• Inventory (turnover rate, lead time, seasonal fluctuation, expected inventory level)
• Suppliers (payment policies, credit, contingency plans and back-up suppliers)

Consider operational plan as the “implementation” part of business plan. What is required and how it should be done? Simply create a plan overview to make sure the timeline and milestone make sense.

Management Team

The management team quality is an important factor used to assess the new business potential.

Management team section allows evaluating resources, experience and skills the management team needs. Carefully addressing the needs at the time of implementation gives higher success chances. Few key questions to cater for management team are;

• Identify key leaders for the company? Consider their skills, educational backgrounds and experiences?
• Do the leaders hold any industry experience? Assume if not, then what sort of experience they will bring to the business which is applicable and related?
• What role each position will perform (it can be directed through an organization chart) and the job role and responsibilities under each position.
• What pay rate should be offered to attract qualified candidates? Also, by position, determine the company’s salary structure.

Financial Analysis

Financial estimation and projections help entrepreneurs, investors and lenders to objectively assess a company’s success potential.  Financial analysis is critical if a business looks for funding (outside) and provides comprehensive financial reports.

Financial projections direct if the business holds any chance of being viable. Most of the business plans cover these basic projections or reports:

• Balance Sheet: It describes cash position of the company that includes liabilities, earnings, assets and shareholders retained for future operations funding or for growth and expansion. It indicates business financial health.
• Income Statement: It is also referred as profit and loss statement, which list down projected expenses and revenue. This indicates if the company will gain profit during specified time period.
• Operating Budget: It is a thorough breakdown of expenses and income that provides a guide on ways the company may operate from “dollars” viewpoint.
• Cash Flow Statement: It is a projection of cash receipts and expense payment. It indicates when and how the cash will flow; and no payments can be made without cash payments.
• Break-Even Analysis: It is a revenue projection which is needed to cover variable and fixed expenses. Indicates under which particular conditions and when business can expect to gain profit.

• Appendices

Business plan often include less important information in an Appendix section.  It includes;

• Key leaders resumes
• Extra descriptions of products or services
• Organizational charts
• Legal agreements
• Advertising and marketing collateral examples
• Products and potential facilities photographs
• Holdup for competitive analysis or market research
• Additional projections or financial documents

To create an Appendix is not essential when looking for financing or bringing in investors as the people don’t like going through piles of graphs, numbers, chart and backup information.

Ultimately it is individuals’ money, effort and time. So, the goal of the business plan should revolve around convincing oneself and others of a business idea that makes sense.