PART 1 – It all starts with a plan on paper.
A six-part series on the necessities of starting a business.
Contrary to belief, the key to a successful business is not a “good idea,” but rather a “good idea” fueled by a passion and the desire to see the “good idea” through. Seeing a good idea through takes time and begins with the very first step in launching a business – formulating a business plan.
The business plan is the blueprint of a business – a plan presented on paper that describes the foundation of a company including the concept, goals and vision, and the details of how it will work. It is important to note that just like any blueprint, a business plan is a work in progress– it will continuously change as the goals, industry and other variables change around it. All business plans are different, and businesses can have anywhere from one plan to multiple plans – the most important element is having one.
Every business plan needs to include three major areas that are key to a business: the business concept, the market analysis and the financial details. How these details are presented varies according to numerous business resources, but generally a business plan can be broken into these sections.
- Executive Summary
- Market Analysis
- Organization & Operations
- Product Lines
The executive summary is the first introduction of the company to the world and is therefore perhaps the single most important section in the plan. While it is the first section, it is actually the piece that should be written last.
Executive summaries should be just that – a summary, one to three pages that contain the mission statement, a brief overview of all the sections and basic company details (location, employees, products, etc.). Some of the company details may not yet be determined if you are just starting out, but still try to explain how you envision the company taking shape. For example, if a location is not yet determined, comment on the research and experience you will draw from to finalize a location.
According to the Small Business Administration, when writing a market analysis for a business plan, it should include an industry description and outlook, target market information, any market test results and an evaluation of competition. All these items require research beforehand, so make sure to dedicate time to truly learn about the industry. Determine items such as what the growth and outlook are, what the trends are, and how many similar businesses are in your area.
Understanding the industry also means pinpointing the audience, which is also known as the target market. Strive to target the audience that will respond to the service provided. For example, children love ice cream; however, mothers are better targets as they are the consumers actually purchasing the goods. Targeting the proper audience is also reflected in knowing the demographics of the area of
the business location.
The last part of the market analysis should include information on the marketing and sales strategies for the company. Determine what the most basic goals and strategies of your overall program will be – of course this will vary as your business grows, but where do you want to start? What channels will you use to communicate with your customers (mailings, advertisements, viral marketing, etc.)? What tactics will be used to carry out the strategies?
Organization & Operations
The third section of the business plan outlines the structure of the company, from ownership and upper management to departments and specific positions. The ownership portion outlines the legal structure of the company. Is it a partnership, headed by a board or sole proprietorship? Has the company been incorporated?
Then, the organization chart needs to be designed. Put together a chart of the departments and positions needed to run a successful company. Include a timeline of when the positions will be added as the company grows and the basic requirements for the positions. Having an organization chart will not only allow for the company to run effectively, but will also play into the financials of the company as well.
A business without goods or services is just an idea, so your plan should provide detailed information on what your company will be offering and what sets it apart. Start with brief explanations of the products/services offered and touch on the availability (including manufacturing, stocking options, etc.). Then describe its competitive advantage, which is ultimately what will allow your business to surpass the competitors and bring success for the product lines. Information can be prepared as a list or in paragraph form; however, if listing, remember the focus should be more on the advantage rather than the detailed descriptions. If the product is still being developed, just be sure to include information on the prototype or the general idea.
The final part of the business plan, and perhaps the most daunting (and sometimes hardest to swallow!), is the financial section. The financial section should contain a total investment outline, profit outline, forecast sheets and funding requirements to launch the business. The investment outline should showcase all of the costs (actual and estimates, whichever you have available) associated with launching the business. Generally, these costs include design and build-out (i.e., the location and all the costs associated like permits, furniture, etc.), equipment, supplies, employees, marketing and miscellaneous. Be aware that initial investments are always costly, but the purpose of the financial outline
is to understand the costs and profits over time.
Just as important is the projected profit analysis. The profit analysis includes a couple of documents. The first document should consist of a breakdown of the cost of the product, the price and profit margin. Once the price is determined, there will also need to be a document showing the estimated daily, monthly and yearly sales based on the amount of product sold or services rendered. This then will feed directly into the third document for the profit analysis that will consist of all the projected gross profit minus the operating costs, thereby providing the net profit. It’s recommended that this last document show scenarios for low, medium and high revenues.
The forecast sheets tend to highlight the 3- to 5-year plan for a business. The information usually includes the projected profits, operating costs and repayment of startup costs, if applicable. They are helpful because they show how the investment will grow in profit over a period of time and can even include expansions and inclusions to the business after its launch.
The last part of the financial presentation is funding, which outlines how the initial investment will be made. If you already have the funding plan prepared, congrats! If not, list out all the possible financial scenarios including any personal investments, investor and banking options, incentives, etc. Of course, the layout of the funding plan will be determined by the stage you are at with potential investors, but it’s always good to lay out all the cards for the overall picture. On that note, the financial portion of the business plan is always enhanced with diagrams, graphs and images that highlight all the aforementioned information.
Types of Plans
While every plan should contain the five suggested sections, how they are presented are at the discretion of the entrepreneur. Entrepreneur.com describes three basic types of plans that are generally used for business plans: the miniplan, the working plan and the presentation plan. The miniplan tends to serve as the bare bones and provides a base for the plan to be expanded upon. The working plan provides more of the operation details, yet is still vague on concepts. The presentation plan is the most formal of the three and is highly detailed. This plan is generally the preferred plan often presenting to future investors, bankers, etc. For the entrepreneur just starting out, the miniplan can serve as the starting point and grow into a presentation plan.
Whether basic or elaborate, the business plan is the overall road map for the start of a new business. No two business plans are the same and they tend to continuously evolve, but the most important point is to have one. Formulating a business plan is the first step to fulfilling a dream or turning a good idea into a great one.
“Essentials Elements of a Good Business Plan
for Growing Companies,” www.sba.gov
PreGel AMERICA Training Facility Curriculum
“An Introduction to Business Plans,”
Small Business Administration, www.sba.gov