In the previous post No two businesses are the same, I encouraged you to start putting down everything you are thinking about with regards to your business. This can be an uncomfortable exercise because it can force you to think about obstacles you may face, and perhaps confront the possibility that maybe your business idea is not a good idea after all. That is fine! Better to figure it out now, than later after you have poured in a lot of resources and effort without a plan.
The idea of putting together a business plan is to help you deal with those uncomfortable scenarios, and find ways to mitigate those situations. Two big reasons why businesses fail, is that business owners fail to plan and fail to understand their financial situation. If you have a plan in place, you will see warning signs when things are starting to go south, and if you planned properly, you should have an exit plan to come out of the business as injury free as possible.
Steps in the business plan process
Depending on your needs for the business plan, you can either prepare it yourself, or engage a professional to prepare it for you. If you need a business plan in order to request for financing from the bank or grants from government programs, you may want to hire a professional to do it for you. Most business plan professionals understand the requirements of the banks or programs you are applying for, so can guide you appropriately. It does come with a bit of a cost, so you should look carefully.
If you do want to prepare it yourself, there are various programs that are user friendly and just by answering some guided questions, you can have a professionally looking business plan. Examples of these are Business Plan Pro, Liveplan, and BDC.
However, whether you engage a professional, or do it yourself, you still have to do some research into your business and provide what you have and what you plan to achieve with your business. The exercise in the previous post got you started. Now you need to add a bit more.
Components of a Business Plan
This section is an overview of your business. Think of it as your elevator pitch – you want it to engage the reader to be interested in your business plan and to let them know right away what you are asking for.
The executive summary should include answers to these questions:
- Who are you and what what do you do?
- Where do you operate?
- What is the purpose of this business plan (why are you looking for financing)?
This section should describe the business strategy in some detail. You can break it down into components that make it easy to produce your business strategy:
- Brief History – describe how your business started and how you got to where you are now
- Organization – describe how your company is organized. Include a listing of the senior leadership, their years with the company, and their experience. List the number of staff and the areas they support.
- Business Environment – describe the current situation with the business and industry, customer trends, economic situation that has an impact to your industry, who you compete against and who are the market leaders.
- Your current situation – describe where you fit in the market space, what is your competitive advantage, what are your strengths and weaknesses?
This is where you show that you have done your research. This section should include answers to these questions:
- who are your target customers?
- what are the customer needs?
- where are the customers?
- who your competitors and what are their strengths and weaknesses?
- what are the barriers to entry in your line of business?
- are there any regulations that you must comply with in this business?
Describe how you are going to promote your services or products. An effective marketing strategy would include the “four Ps” of marketing (the marketing mix):
- Product — what products or services do you provide, and how do they meet the needs of your target market?
- Price — how much do you charge for your products or services?
- Place — how are you going to get your product to your customers?
- Promotion — how will you communicate your product or services to reach your target market?
In this section, you describe your operations by answering these questions:
- what are your current day to day operations?
- where do you operate from? do you have other locations?
- what type of facility do you operate from? Is it owned or leased? what is the lease structure?
- how many people work at your organization? what are the shifts your business operates? do you subcontract some of the work?
- what systems, machinery and equipment are used?
- what are your plans for operations improvements or growth?
The financial plan is perhaps the most challenging part of a business plan. You may need to engage your accountant or financial advisor to assist you with this section. Remember, if you are putting together a business plan in order to get financing, the readers of your business plan will likely scrutinize this section in detail as it is where they can judge if your strategy is realistic and makes financial sense.
The financial plan section will include key financial data such as:
- the balance sheet (assets and liabilities and equity)
- sales and expenses forecast
- forecast for profit and losses
- projected cash flows
- debt structure
- exposure to risk (such as exchange rate fluctuations, dependence on single or few customers), and what your plans are to manage this risk.
This is the final, but very important stage as this is where you can describe the specific tasks, task owners, and timelines you will take to execute your business plan. It gives confidence that you have thought through the next steps. For example, if part of the business plan proposal was to request a loan to buy equipment, you can describe in this section the timeline from receiving the funds, sourcing suppliers for the equipment, and when it should be set up and be operational. The implementation plan should align with your projected financial and operational plan.