A business plan is essential to every business whether new or existing. There are many existing entrepreneurs who started their enterprises without a business plan and are doing fairly well. These entrepreneurs, therefore, believe that one does not require a business plan to be successful. However, nothing could be further from the truth.
The unfortunate reality is most entrepreneurs do not truly understand the importance of creating a business plan. The value of a business plan is not in the plan itself but the process utilised in drafting the document. This process forces entrepreneurs to focus on essential elements of their business highlighting where it currently is, where it wants to go, and the specific strategies and tactics for how it will get there.
In circumstances where an entrepreneur needs a business plan for acquiring a commercial loan or equity investment from an investor then a formal business plan is a necessity. However, on too many occasions, many entrepreneurs are unsure about how a proper business plan should be written. Here are 10 elements that every successful business plan should contain:
8 Critical Signs Your Business Needs a Virtual CFO
1. Executive Summary
This section should be written last. It is, however, one of the most important parts of a business plan. The summary captures all the main points presented in the entire plan. In many situations, if the executive summary is weak, it may discourage others from reading deeper into your business plan potentially leading to the loss of many prospective opportunities. Therefore, entrepreneurs need to carefully and properly write their executive summary.
2. Business Description
This is also another crucial area of any business plan because everyone needs to know what the business is about, the products and services it offers, its vision and mission, and the goals and aspirations of the company. It should include the legal structure of the business, ownership, location and history if an existing business. Entrepreneurs need to describe their businesses in a clear and concise manner ensuring that all vague expressions that will leave people confused are avoided.
3. Products and Services
It is essential that entrepreneurs describe their product and/or service offering in the context of the problems or needs that their business solves for their target audience. Most successful businesses are able to identify their unique selling proposition, which is what makes your business unique or different from your competitors. It’s helpful to look at presenting the benefits of your products and services as opposed to just its features.
4. Market and Competitors Analysis
A successful business plan should always contain the results of a thorough analysis of the market. Performing a proper market analysis would allow the business to know its target market, their needs, and the prices they are willing to pay which is information that can ultimately determine success. They also need to conduct an analysis of the competitors in the market. One mistake entrepreneurs make is only considering people with the same business as their competitors. However, as long as a product can be substituted for something else, that alternative is a competitor. It is also critical to perform an analysis of the competitors to know their strengths and weaknesses so those areas could be avoided or exploited as required.
5. Sales and Marketing
This includes the strategies that your business will utilise to reach its target audience. It will state your business’ positioning in the market, its pricing policy, promotional strategies, distribution methods, and social responsibility. Many entrepreneurs believe that social responsibility should be undertaken by large businesses only. However, effective community outreach can be done by small businesses and provides very valuable free publicity through local and social media. This section should also include sales forecasts for a twelve-month period along with basic assumptions. Entrepreneurs should be realistic in their forecasts and growth projections as one of the easiest ways to discourage a potential investor is being unrealistic.
Entrepreneurs need to know how their businesses will operate on a daily basis, what needs to get done, how those tasks will be done, and most importantly, who will accomplish the task. A business has a variety of systems namely for dealing with customers, manufacturing products, managing finances, marketing and so on. Thus, it is vital that a well written business plan clearly highlights all its operations and systems, and how they will work together to have an effectively functioning business.
7. Leadership/Management Team
The management of any business venture is crucial because it can make or break the business. Therefore, entrepreneurs should always have the right people on board. If business owners do not have a particular skill, it is very important that they seek out a partner who is proficient in the area they lack to compliment them. While strong management is absolutely necessary in any business, the entrepreneur behind the business should possess very strong leadership skills, and the business plan should highlight the leadership capabilities of the person or persons in charge. Leadership is important because there is a big difference between a manager and a leader, and it will take a true, strong leader to fully get people behind him/her and in line with the mission and vision of the company.
8. Funding Requirements
One of the things that many entrepreneurs generally get very wrong is the amount of funds they would require to start their business. Consequently, it is imperative to conduct a thorough analysis to determine the amount of money needed for the business’ different campaigns, start-up cost, and operational cost for a specific period of time. Some entrepreneurs believe that their business will cover its overhead costs the moment it opens its doors. This is unrealistic and most times a buffer in the form of working capital is needed to survive the first few months.
9. Financial Summary
This is an area of great importance also. Entrepreneurs need to ensure that they take the time to conduct all the financial analysis necessary to present a strong and robust plan. All business plans should have at least a balance sheet, cash flow statement, and also an income statement. For existing businesses, statements for the last few years are compulsory, and for start-ups, projections for the next 3 years must be included. Projections must be realistic, and all entrepreneurs should conduct sensitivity analyses to ensure that even though the projected sales figures are not met then the business will still survive.
10. Risk Analysis
All entrepreneurial ventures contain risks which if not managed properly can lead to a business’ untimely demise. A business can be exposed to several risks such as legal, market, operational, management, economic or physical. It is important that entrepreneurs balance risks and rewards in their businesses during the planning process. This can be achieved by identifying the most important risks inherent to your business and what can be done to mitigate these risks. Thus, creating a Risk Management Plan is essential to the long-term success of your business.
Most entrepreneurs feel overwhelmed by the process of writing a business plan. While there is no concrete format that a business plan should take, the above elements have become standard in the modern business environment. It’s the format that we at FirstLink adopt when engaging in business planning projects with our clients. Once the above format is followed then there is a higher probability that you will create a successful business plan worthy of reading by any bank or investor. Are you in need of creating a business plan for a commercial bank or investor? Schedule a free consultation today to speak to one of our business advisors.