A strong business plan holds few surprises for its target. It conforms to generally accepted guidelines of form and content. Each section should include specific elements that will clarify your business goals.
Your plan should address all the relevant questions that will be asked by individuals who review it, namely, investors. If your business plan is not structured in order to provide the appropriate information in a concise and logical progression, then your chances of satisfying the key questions concerning development and operations will decrease.
Generally there are seven major components that make up a business plan. They are:
1. Executive summary
2. Business description
3. Market strategies
4. Competitive analysis
5. Design and development plans
6. Operations and management plans
7. Financial factors
An optional component is a section for SBA materials, which should be included only if the purpose of developing your business plan is to obtain financing from this source. Documents required by the SBA may be useful to you in setting up your business.
While the business plan can be divided into the segments listed above, there are a few elements that don't fall within these broad classifications but are, nevertheless, critical to the plan's success. These elements include a cover, a title page and a table of contents.
A business plan should have a cover. There is no reason to have your work bound in leather; what is required is a neat cover of adequate size to hold your material. Buy a blue, black, or brown cover at a stationery store. A lender is more likely to think well of you if you are conservative than if you spend money on unnecessary show. Subtle factors like this reflect your business judgment. In some respects, the way a person reads your business plan will affect his or her judgment of your management ability.
Include a title page in your business plan. On this page, put the name of the business, the name(s) of the principals who own it, and the business address and phone number. If you have a professional, businesslike logo, you can use it to dress up your title page. On some plans, the first page has the name of a packager or any other person who assisted the business owner in preparing the plan. We believe this is a mistake. A business plan should be represented as a personal document by the principals themselves. There is a place in the plan where you can show professional assistance, but the business and the plan itself are yours.
You'll also need a table of contents that should follow the executive summary or statement of purpose, which we'll discuss later. Although the table of contents appears toward the beginning of the plan, you will naturally prepare this last. Be aware, however, that you do need to include a table of contents. When you or others look over your plan, you should be able to quickly find financial data, market information, and the like.
The first component of the business plan should describe the nature of the business through several elements, including the executive summary or statement of purpose and the business description. These two elements serve to define the business, the type of product it will offer, and its role within the context of the overall industry.
Within the overall outline of the business plan, the executive summary will follow the title page. The summary should tell the reader what you want. This is very important. All too often, what the business owner desires is buried on page eight. Clearly state what you are asking for in the summary.
The statement should be kept short and businesslike, probably no more than half a page. It could be longer, depending on how complicated the use of funds may be, but the summary of a business plan, like the summary of a loan application, is generally no more than one page. Within that space you'll
need to provide a synopsis of the entire business plan. Key elements that should be included are:
1. Business concept: Describes the business, its product, and the market it will serve. It should point out just exactly what will be sold, to whom, and why the business will hold a competitive advantage.
2. Financial features: Highlights the important financial points of the business including sales, profits, cash flows, and return on investment.
3. Financial requirements: Clearly states the capital needed to start the business and to expand. It should detail how the capital will be used, and the equity, if any, that will be provided for funding. If the loan for initial capital will be based on security instead of equity within the company, you should also specify the source of collateral.
4. Current business position: Furnishes relevant information about the company, its legal form of operation, when it was formed, the principal owners, and key personnel.
5. Major achievements: Details any developments within the company that are essential to the success of the business. Major achievements include items like patents, prototypes, location of a facility, any crucial contracts that need to be in place for product development, or results from any test marketing that has been conducted.
When writing your statement of purpose, don't waste words. If the statement of purpose is eight pages, nobody's going to read it because it will be very clear that the business, no matter what its merits, won't be a good investment because the principals are indecisive and don't really know what they want. Make it easy for the reader to realize at first glance both your needs and capabilities.
Part one of seven. Tomorrow, we'll cover the business description. Tips are updated on a daily basis at 8:30am PST or 11:30 EDT.