Essential Elements Of A Business Plan
Business plans can vary in layout and content, but most business plans have several things in common. Here are what most people agree to be the essential elements of a business plan.
But first, why have a business plan in the first place? Surely we can’t predict the future with any accuracy, so why bother? To a certain extent this is true for businesses that are on the cutting edge of science and technology, however most businesses are not. There are many reasons why you need to have a business plan. You need to have the support of your family and friends and business plans help them understand what you are trying to do and show that you are not entirely crazy. The people and organizations that invest in your business either through loans or equity need to see that you have viable business idea. For you as a road map, you need to have a way of giving your ideas structure, so you can see what needs to be done and if you should go ahead. A business plan also serves project management tools to help you understand what your milestones are and to give you reference points for progress as the business develops.
Essentials of a business plan
Business definition
What is the nature of the business? Ask yourself the question: What business am I in? This is same question Theodore Levitt recommended firms to ask. (Levitt, Theodore. 1960. Marketing Myopia, Harvard Business Review 38, 45-57).
What markets will be served?
Environmental Analysis
What are the opportunities and threats?
PEST C+C: Political, Economic, Social, Technological factors that ARE RELEVANT TO THIS BUSINESS. Plus an analysis of customers and competitors.
Porter’s five forces analysis.
Evidence for all of the above.
Business description
What is your USP? (Unique selling point / proposition)
Marketing
The 4 Ps.
Price: How have you decided on your price? Why? Does it give you a competitive edge? Will pricing strategy change in the future?
Product: Describe the product or service. Describe the product mix. Why these products?
Place: How important is location to your business? Have you secured a location? Do you have a profile of an optimal location? Will location have other functions such as being part of the promotion strategy (Zara clothing chain for example), or image management (Bond Street, Champs Élysées).
Promotion: How will you promote your product? How much will it cost to get buyers’ attention? Where will this promotion take place?
Marketing research: What kind of marketing research have you done? What has it told you?
Human resources
What is the management structure? Who are the top managers and what is their background?
Are there any key personnel that the business will rely on to do essential task? For a high end restaurant this might be a leading chef. For an internet based business it may be a developer. Do you already have these people? Do you have a hiring strategy? Why would they want to take the risk of working in a startup business? How will you retain them in the tough times?
Production
Facilities: If you are making or assembling things, where will production take place? Have you secured a facility or are you still looking? What are the costs both initial and in the long term?
Inputs: Do you have suppliers that are willing to work with you? Will you have access to trade credit? Can you provide evidence of these?
Financial information
What is the projected cash flow? This is more important in the early stages than profit: most businesses that fold do so because of working capital problems. Remember cash is king.
Profit and loss (income statement) forecasts: Although cash is king, the idea of going into business is to make a profit
Balance sheet: What are the assets of the company? Who is supplying the business with the startup capital?
All of the above statements projected for 3 years. Yes, this is difficult, and you will get it wrong to some degree, but the exercise focuses your attention on the financial viability of the business.
Payback periods: If you are borrowing money when can you pay it back?
Contingencies
Do you have a Plan B in case things go wrong?
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