The Value and Core Components of a Business Plan
Think of a business plan as a roadmap for a new company. An effective business plan is a document that provides an overview of your operations, objectives, and expectations for the next three to five years, as well as an explanation of your strategy for achieving those goals and meeting those expectations.
Maybe you want to leave your corporate career and become a business coach. Maybe you’re a lawyer and want to start your own practice. Maybe you’re an entrepreneur with a truly unique idea and value proposition. Anyone who starts a business should have a business plan.
If you need to pitch your idea to investors, apply for a loan or grant, or bring in a business partner, consider a business plan an absolute must. Although a business plan doesn’t guarantee success, it can certainly reduce the risk of failure.
Ultimately, a business plan is the only acceptable format for communicating your company’s potential with the hard data that investors, lenders and business partners will demand. Without a business plan, you probably won’t be able to convince people that your company is a good investment, which means you won’t be able to acquire the cash, assets and/or facilities required to operate your business.
A Business Plan Is Not Just About Securing Money
A good business plan can help to clarify disputes about roles, responsibilities, and liabilities between parties involved in the business. It can help you make decisions and commit to certain products, services, and processes by putting them in writing. It can provide you with an action plan to keep your business on track.
A business plan can also help you come up with new ideas and approach your business from a fresh perspective. On the other hand, sitting down and writing a business plan will often tell you if your ideas for marketing, financing, staffing, etc. are flawed. This gives you the opportunity to do more research, test ideas and shore up weaknesses before you start spending – and possibly losing – money.
Now that we’ve established the value of a business plan, we have to discuss what to include in your business plan. Here are some of the core components, according to the U.S. Small Business Administration.
This is your mission statement, followed by general, high-level information. What products and/or services are you offering? Who’s in charge? Where are you operating? What’s the growth plan? How and why will you achieve your goals?
How do you know there’s a need for what you’re offering? What data and trends support your ideas and plan? Who is your target audience? Who is your competition? Why is your company more desirable than the competition?
How is the organization structured from the top down? What are the responsibilities of each person on your team? Who controls each area of your company? You also need to identify the legal structure of your business, such as a limited partnership, limited liability corporation, S corporation or C corporation. Your accountant and attorney can help you choose the appropriate legal structure.
Products and/or Services
What exactly are you offering? How will your product or service meet the needs of your target market? Have you filed for patents, trademarks or copyrights?
Marketing and Sales
How will you attract and retain customers? How will products and/or services be priced in a way that’s both fair and profitable? Will sales and transactions take place online, in a store or both? What’s your process for dealing with customer complaints and product returns?
How much money do you need to start and operate your business? What specifically will that money be used for? How will you manage and pay back debt?
Based on research and analysis, what is your company’s financial outlook for the next three to five years? Keep in mind that projections are estimates. More important than exact sales numbers, projections help you present business drivers, the relationship between growth and spending, spending priorities, and cash flow assumptions. You also need a reliable system for tracking and reporting progress and results.
Final Thoughts on Your Business Plan
Fortunately, business plans no longer have to be formal, longwinded documents. Be thorough but concise. Speak in layman’s terms, not industry or technical jargon.
While you can easily find a business plan template online, consider a template to be a basic framework. Not every section will apply to every business. Your business plan should be customized and reviewed regularly to ensure alignment with current business operations and goals.
LFL Veritas can help you develop and review your business plan, not just from a financial perspective, but to make sure your business strategy is sound and on target. Contact us to learn more about our business consulting and advisory services.