Business Plan Essentials
Learn about the elements that every successful business plan must contain.
When you're about to embark on developing a business plan, remember this: Form follows function, so you want a plan that fits your exact business needs. The emphasis should change depending on whether it's a plan for starting a company, raising investment money, supporting a business loan or managing an existing business.
In most cases, your plan will be a 20- to 30-page document written in simple business language so it's easy to read with the main points highlighted and lots of bullets, and some tables and charts to highlight the most important financial projections. A standard plan includes seven sections:
1. The Executive Summary. Write this summary last, and make sure it contains the highlights of your plan. Assume your most important readers will read only this section.
2. The Company. A plan for a startup describes your strategy for creating the legal entity and how the initial ownership will be divided among the founders. It should also include a table that lists startup costs and initial funding. A plan for an ongoing or already existing company should describe the legal form of the business, the company history and the business's past performance.
3. What You Sell. Describe the products or services you offer. Emphasize why buyers purchase those things, what benefits they get, and what pain points they have before they buy. Show how much it costs to deliver what you're selling.
4. Your Market. Describe your target market, including market demographics, market growth and trends. Include a table that shows a market forecast. Describe the nature of your industry and the competition you have.
5. Strategy and Implementation. Strategy is all about focus. So focus on certain target market segments, certain products or services, and specific distribution avenues. Forecast your sales and the cost of sales. Define your milestones with dates, budgets and specific responsibilities.
6. Management Team. Name and describe the key members on your team. Include a table that shows personnel costs. List the gaps in the management team--if any--and show how they're being addressed.
7. Financial Projections. Describe your financial strategy and how it supports your projected growth. Include a break-even analysis that shows risk as a matter of fixed vs. variable costs. Include projected profit or loss, cash flow and balance sheets.
As you deal with these standard sections, remember that this is your plan and not a classroom assignment, which means you should ignore anything that doesn't fit your needs. For example, if you're developing a business plan for internal use only that won't be read by anybody outside the company, you don't need to describe your company history. You might want to include management team gaps and a personnel plan, but you probably don't need to describe the background of your key management team members.
Making your plan fit your needs means you might add some things, too, beyond the standard outline. For example, a plan for investors should include the investment offering--how much equity for how much money--as well as a discussion of exit strategy, use of funds and return on investment. A plan supporting a bank loan application needs to describe the loan requirements, intended use of funds, collateral and repayment plans.
So what should every plan include no matter what? There are three essentials:
1. Specific milestones, with deadline dates, spending budgets and a list of the people responsible for them. I've seen this called "weaving a MAT," with MAT standing for "milestones, assumptions and tasks." That normally goes into Section 5, Strategy and Implementation. Make the responsibilities specific for specific people, and make sure every task gets assigned to a single person with a name and a face. This section must describe how these different milestones are going to be tracked and measured.
2. Real cash flow. Your plan should show cash flow--either projected or actual or both--month by month for at least 12 months. Show where you're getting money and how much, and show what you're spending the money on. This is cash flow, not just profit and loss, and you have to understand how different cash flow is from profits. Profitable companies go under all the time, but companies with positive cash flow can pay their bills.
3. Focus. A business plan should establish your company's priorities. Don't try to do everything, and don't try to please everybody.
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