Business Plans -> Business Plan Definition
Executive Summary Definition
Business Plan Definition
Writing The Business Plan
A business plan is a document that summarizes the operational and financial objectives of a business and contains the detailed plans and budgets showing how the objectives are to be realized.
Because the business plan contains detailed financial projections, forecasts about your business's performance, and a marketing plan, it's an incredibly useful tool for business planning.
For anyone starting a business, it's a vital first step.
My Writing A Business Plan series provides detailed instructions for working through each section of the business plan. Business Plan Outline, is the starting page; it includes a brief explanation of the contents of each section of the business plan.
How does the business plan differ from the investment proposal? Not much.
The business plan and the investment proposal have the same contents. You can think of an investment proposal as a business plan with a different audience. The business plan is considered an internal document, unlike the investment proposal, which is designed to be presented to external agencies. For more about business plans crafted for investors, see Prepare An Investor Ready Business Plan.
Thinking of writing a business plan? Here is a business plan outline, listing the sections of the business plan in the order in which they will appear in your completed business plan with a brief explanation of each section to help you get organized and guide you through the writing a business plan process.
While appearing first, this section of the business plan is written last. It summarizes the key elements of the entire business plan.
An overview of the industry sector that your business will be a part of, including industry trends, major players in the industry, and estimated industry sales. This section of the business plan will also include a summary of your business's place within the industry.
An examination of the primary target market for your product or service, including geographic location, demographics, your target market's needs and how these needs are being met currently.
An investigation of your direct and indirect competitors, with an assessment of their competitive advantage and an analysis of how you will overcome any entry barriers to your chosen market.
A detailed explanation of your sales strategy, pricing plan, proposed advertising and promotion activities, and product or service's benefits.
An outline of your business's legal structure and management resources, including your internal management team, external management resources, and human resources needs.
A description of your business's physical location, facilities and equipment, kinds of employees needed, inventory requirements and suppliers, and any other applicable operating details, such as a description of the manufacturing process.
A description of your funding requirements, your detailed financial statements, and a financial statement analysis.
Appendices And Exhibits
Any additional information that will help establish the credibility of your business idea, such as marketing studies, photographs of your product, and/or contracts or other legal agreements pertinent to your business.
Yes! Once you have an idea for starting a business that you want to pursue, writing a business plan should be one of the first things you do.
People think of writing a business plan as something thatís only necessary if youíre trying to get a business loan or persuade investors that your business is worth their money, but actually, writing a business plan is necessary no matter how you intend to finance your new business.
The main purpose of writing a business plan when youíre starting a business is to test the viability of your business idea. Writing a business plan will tell you if the business youíre thinking of starting has a chance of becoming a successful business.
Writing a business plan when you start a business forces you to do the research and get the information that youíll need to turn your idea into a successful venture.
And if writing your business plan shows you that that particular business idea wonít work? Abandon it and try another idea.
If you donít write a business plan when youíre thinking of starting a business, in the best case scenario, youíll be floundering around squandering time and resources. In the worst case scenario, your new business will fail Ė because of things you didnít but should have known.
The bottom line is that if you invest some time and energy into writing a business plan, youíve got a much better chance of avoiding business failure.
For how to write a business plan, see The Business Plan Outline.
A Business Plan, as all good entrepreneurs starting out in life should know is the foundation, or rather a springboard, towards the establishment and growth of a new business. A business plan is an essential tool for companies raising capital Ė and your business plan needs to be Investor Ready.
What is an Investor Ready business plan?
An investor ready business plan is a document that has been professionally prepared to meet the needs of both Venture Capitalists and Angel investors. In your business plan, you should be able to see your own project through the investorís eye. Your plan must be able to answer the concerns of an investor.
Both Venture Capitalists and Angel investors are risking their hard earned capital by investing in your venture in the hope of long term returns that are worth many times their original investment.
An Investor Ready Business Plan demonstrates to investors that you are an expert in your industry and that you have a clear mission. An entrepreneur addresses these needs by preparing a comprehensive and detailed view of their business objectives and goals. Some important business plan sections that address different concerns of the investors are below:
Investors invest in management - not just ideas. It is very important that you express your knowledge, passion and dedication to your business as best as you can. The competence of your team along with their experience levels and their commitment levels are also factors that investors look into before making their investment decisions.
It is important to communicate to the investors that you understand the needs and requirements of your customers and to articulate your marketing strategy within your business plan.
A complete description of the product or the services offered by you should be outlined in detail. A description of the overall market for your product or service, along with the details of your customer base is essential. The investors need to know the reach and the kind of customers your product or service is catering to.
One of the most important sections of your business plan is your marketing plan. This section will outline your sustainable competitive advantage to your investors. In a way it assures them why you will succeed where others have failed. This section is where you include a definitive description of your customers, market size, demographics, characteristics, growth prospects, trends and sales potential per product or service category.
The marketing plan is where the pricing strategies are outlined and how they can directly influence the growth potential of each product or service. It is also important to include the future growth, market share and trend influences.
Barriers to Entry
Along with giving the details of what your product or service is and who your customers are, you also have to inform your investors how you will you prevent your competitors from taking away your customers. The barriers to entry section outlines your business strategy to keep your competitors at bay and grow in the market. Investors need to feel comfortable about the soundness of your strategy before they invest in your venture.
Business planning is like water to a thirsty plant. It keeps our businesses vital and thriving. Without business planning, your business will never be as healthy as it could be and may even sicken and die. But many small business owners donít do the business planning they should, because theyíre hard-pressed to find the time to do it. How many times have you thought that you should do some business planning Ė if only you werenít so busy taking care of business!
But business planning doesnít have to be a time-consuming ordeal. In just a pair of two to three hour sessions, you can put together the basics of a business plan that will invigorate your business for the course of a year.
So set aside the time on two days for a pair of business planning sessions.
(The days donít have to be consecutive, but should be fairly close in time. You may choose to have your business planning sessions as much as a week apart.)
If youíre the sort of person who prefers to work in a group, get together with a like-minded friend or two who also runs a small business. Youíll find the brainstorming in these business planning sessions easier with input from other people, and theyíll certainly be more fun as social occasions. (Keep your business planning group small though; no more than three!)
1. Revisiting the vision statement.
Your business vision statement is the starting point for any business planning, as itís the core of your inspiration and motivation. Do you see yourself having so much business you need to hire help? Trebling your sales? Becoming locally renowned as the best business of your type? Expanding into a franchise operation? Give your imagination free rein. What would you like your business to be like next year? Three years from now? Five years from now?
Articulate your business vision for each time period listed above Ė and write your three business vision statements down. Donít hesitate to craft a business vision statement that expresses what you truly want your business to be and what you truly want to get out of your business. The vision statement is for you, not for your customers or clients.
2. Evaluate your business.
This second step of business planning involves examining the current position of your business. First, the easy part. What are your businessís three best strengths right now? And what are your businessís three areas of weakness?
Now it gets a little harder; you need to relate these strengths and weaknesses to your vision statement for next year. How will the three strengths you have identified get you closer to where you want to be next year? How will the three weaknesses hold you back?
Think about these and/or discuss them and then write down the three aspects of your business that you feel are most important to concentrate on in terms of achieving your vision statement for next year.
For instance, suppose my business vision statement is to treble my sales for next year and get my product nationally known. Suppose, too, that my strengths are the attributes of my product (people who use it see it as a superior product), my customer base (the product is well-positioned locally and I do a lot of repeat business), and my distribution system (I have no problems filling orders or having my product delivered to the customers).
On the other hand, the weaknesses of my business are that it doesnít seem to be attracting a large number of new customers, the product doesnít seem to be known outside of the local area, and my marketing efforts donít seem to be working.
Examining these and comparing them to my vision statement for next year, I wrote down: "Sales force. PR. Marketing."
Stop here for the first business planning session. Thatís enough to mull over for now Ė and if you go away and do other things, your mind will continue to work on the problem youíve set it. A good nightís sleep between this and your next business planning session (or even several!) will make your next business planning session much more productive.
Now that you now where you want to go, the purpose of this business planning session is to figure out how youíre going to get there, giving you a practical business plan of action for the next year.
3 Set your priorities.
In my example in the first business planning session, the three aspects of my business that I thought were most important in terms of achieving my vision statement for next year were all closely related. Yours might not be. Look at the three aspects youíve selected and rate them from most important to least important.
4. Brainstorm actions.
Focus on your top one or two priorities. What can you do to achieve what you want to achieve? Let your mind rove and list all the possible actions you could take, no matter how impractical they seem. (Hereís where having a partner or business planning team will really help; others often come up with ideas that have never occurred to you!)
For instance, having set my priorities to marketing and PR, I would brainstorm all the actions I could take to improve my marketing and PR efforts so that I could treble my sales and get my product nationally known. I could:
- Set up a website
- Send press releases regularly
- Do something unique or outrageous that would get me national coverage
- Hire a public relations expert
- Do a marketing plan
- Do a huge mailing campaign sending people samples of my product
- Pay to have the name of my business on a blimp
- Buy ads in national magazines
- Buy ads on search engines
This is only a partial list, but you get the idea. The important thing at the brainstorming stage is to record all your ideas without prejudging (and rejecting) any of them. The most far-fetched idea may contain the kernel of a good idea.
5. Organize your actions.
This is the stage of our Quick-Start business planning where you shape your ideas into an action business plan.
First, go over your list of actions. Put checkmarks by ideas you think are good, put question marks by ones you are doubtful about, and draw lines through the ones you think are unworkable or silly.
Now examine the "good" ideas. Do you see any similarities or themes? If so, group those ideas accordingly.
6. Set your goals.
Use the check marked items and/or groups of themed items to create your action goals. As I say in Goal Setting Is The First Step To Achievement, the secret of successful goal
setting is to incorporate both the action youíre going to take and the timeline into your goal. Use the formula of:
"I will (specific goal) by (specific actions I will follow to accomplish the goal) by (time)."
As an example, one of my action goals might be: "I will get my product known nationally by creating a marketing plan by (a date 3 months from now)."
Another of my action goals might be: "I will get my product known nationally by placing two ads in national magazines by (a date 3 weeks from now)."
Donít skip the dates! Theyíre important both to spur you into action and to give you a basis for evaluating your progress.
Create as many action goals as you feel are necessary to accomplish the greater goal of making your vision statement for next year reality.
7. Plan how and when to evaluate your progress.
You have your action business plan now and youíre ready to implement it Ė but thereís one more piece of business planning to do first. If you donít plan how and when to evaluate your progress now, chances are youíll never get back to your business plan.
The dates inherent in the goals will help, but you also need to build time for reviewing your progress on your action business plan into your timetable. What will work best for you? Will you review your progress on your business plan once a week? Once a month? Each three months? Some people find it very effective to start each day with a business planning session. This keeps your goals front and center in your mind.
Whichever you choose, pick your dates now and record them with reminders in whatever scheduling system youíre using. Evaluating your progress on your action business plan will probably take anywhere from twenty minutes to an hour.
Once again, doing your business planning with a partner or small group is very beneficial at this stage; one of the things you will do when you evaluate your progress is assess whatís working and whatís not. Itís always useful to get more input when amending goals (and interesting to see how your partner or group members are doing implementing their own action business plans).
The second business planning session ends here. Youíve now chosen your direction over the course of the next year and have forged a specific action business plan to take you where you want to go. Youíve even determined how and when youíre going to sit down and evaluate your progress on your action business plan.
Thereís only one thing left to do Ė put your action plan into action! Hopefully these two business planning sessions have gotten you fired up and ready to start working on making your vision statement happen.
A vision statement is sometimes called a picture of your company in the future but itís so much more than that. Your vision statement is your inspiration, the framework for all your strategic planning.
A vision statement may apply to an entire company or to a single division of that company. Whether for all or part of an organization, the vision statement answers the question, "Where do we want to go?"
What you are doing when creating a vision statement is articulating your dreams and hopes for your business. It reminds you of what you are trying to build.
While a vision statement doesnít tell you how youíre going to get there, it does set the direction for your business planning. (For more on the role of your vision statement in business planning, see Quick-Start Business Planning.) Thatís why itís important when crafting a vision statement to let your imagination go and dare to dream Ė and why itís important that a vision statement captures your passion.
Unlike the mission statement, a vision statement is for you and the other members of your company, not for your customers or clients.
When writing a vision statement, your mission statement and your core competencies can be a valuable starting point for articulating your values. Be sure when youíre creating one not to fall into the trap of only thinking ahead a year or two. Once you have one, your vision statement will have a huge influence on decision making and the way you allocate resources.
Goal setting is an important exercise for small business owners; without goals, we would just drift along. Goal setting allows us to be proactive, instead of just being reactive. We've all had days where we just seem to leap from one crisis to another, but we know that it's not a preferred mode of operation!
However, goal setting isn't enough. Goal setting is just the first step to achievement. Imagine, for instance, that your goal is to lose weight. Knowing that goals need to be specific if you're going to have any chance of success, you decide that you will lose 15 pounds by a date set four months from now. Time passes. Four months later, you get on the scale. Are you surprised to discover that you haven't lost any weight?
You shouldn't be. While you started out well, by setting a specific goal to achieve, you didn't perform any action to help you achieve the goal.
What's missing from this scenario is a goal setting strategy to help you accomplish the goal you have set. Without a goal setting strategy, or series of actions, that you are going to use to work towards the goal, whether or not you achieve the goal you have set is just a matter of blind chance. And blind chance is no way to run a successful business! To be successful, you need to make things happen, not just let things happen.
So when you're setting business goals (or any other goals!), use a goal setting formula that incorporates a strategy or strategies for accomplishing the goal. For example, suppose that you want to increase sales. When you're setting this goal, don't just write, "I will increase sales." This goal is too general.
First, specify the goal. "I will increase sales this month by 25 percent". Setting a specific goal builds in the criteria you will use to evaluate your success; in this case, at the end of the month, you'll either have increased sales by 25 percent compared to the previous month, or you won't.
Then, specify the strategy that you will use to work towards accomplishing the goal. "I will increase sales this month by 25 percent by offering a 10 percent off sale on all inventory and advertising this sale in local media."
Every goal you set needs to follow this basic goal setting formula: "I will (specific goal) by (specific actions I will follow to accomplish the goal)." As in the example above, you may have several specific actions you will take to achieve your goal, rather than just one.
What happens when you go beyond the basic step of goal setting? Evaluating your success or failure is easy, because your goal is specific rather than general. And suddenly, instead of just having a goal that you may or may not achieve, depending on chance, you have a specific battle plan to follow to achieve the goal you've set. Instead of setting yourself up for failure, you've set yourself up for success.