The is the first article in a series of posts focused on deconstructing the essential elements of creating an effective Business Plan.
Business Planning Articles
The Why & What of Business Planning
Creating an effective business plan for your company or startup involves developing a clear narrative about your business solution that is supported by persuasive statistical data and sound financial analysis.
Why should entrepreneurs develop a Business Plan?
Because, In basic terms a business plan achieves the following:
A. Challenges & solidifies your own assumptions about your business.
B. Sets clear goals for your business and guidelines to reach those goals.
C. Communicates and influences the reader towards a desired action.
With the right ingredients, namely an impactful and marketable solution supported by strong economic evidence, the real challenge of composing a business plan is effectively articulating a significant amount of data in a coherent and persuasive way.
Strategically, a business plan can be looked at in several ways; according to the development stage of your business, and according to your target reader.
When considering your company's stage of development, there are generally two ways to categorize business plans; either as start-ups or fully operating businesses.
Similarly, when considering your target reader, there are also two ways to categorize business plans; for insider readers and for outside readers.
Each of these categories produce business plans designed for a specific purposes, illustrated by the following matrix.
A business plan designed to an external reader typically adopts the strategic objective of securing a form of investment.
While, business plans designed for internal readers typically serve to provide a roadmap of the direction your business is going or aims to go, as well as a tool for self-evaluating every element that makes up your company.
Clearly identifying who your target audience is essential because it clarifies the purpose of your business plan, and serves to guide how you construct and express your company’s narrative.
Business Plan Structure
Structurally, a business plan is made up of 2 intertwined components; a narrative describing the what, how, and why about your business, and a financial analysis that follows generally accepted financial guidelines and venture capital principles.
It is important for entrepreneurs to recognize that the narrative and financial elements of your plan must speak to one another, particularly if the plan is designed for investors who you ask investment from.
The narrative part of your plan needs a strong financial analysis to legitimize and economically convince the reader of your solution, while the financial analysis needs the narrative to explain what the finical figures represent and why they should be relevant to the reader.
With a persuasive narrative and sound financials, the last fundamental component to a great business plan is adhering to a document structure that is easy to follow and familiar.
While every business is different and should strive to demonstrate it’s unique position in the marketplace, following a commonly accepted narrative structure for your business plan will facilitate your reader’s ability to understand your proposal.
The real challenge of the business plan is balancing a uniform structure with a narrative that is unique, inspiring and that motivates specific action.
The ultimate goal of your business plan is to convince the reader that they should become an involved member of your entrepreneurial journey because of the potential your business opportunity represents.
Therefore, entrepreneurs should be encouraged to practice a bit of creative freedom when composing their business plan, while not stepping too far outside of the norm.
For guidance on how to modify your plan depending on the type of business your lead, navigate to Refining Your Plan (Coming Soon).
Here, we examine the specific outline your business plan should attempt to follow.
Business Plan Outline
1. Table of Contents
Simply put, a business plan begins by offering an list of all it’s sections or parts with their corresponding page numbers.
2. Executive Summary
The Executive Summary outlines what your company does in simple terms and what your business plan aims to achieve for the reader. It could be to convince the reader or your business opportunity, to ask the reader for investment, to persuade a professional to join your entrepreneurial team, or to explain in detail every revenant facet of your business to a variety of potentially interested parties.
This section should be done last, as it is both easier and more effective to summarize a large body of text after completing it.
3. The General Company Description
The General Company Description offers a more detailed overview of your Business. What your company does, why it is relevant to customers, how you create and/or offer your solution, who your company leaders are, and what your short term and long term objectives are.
4. Products & Services
The Products & Services section of your plan should explain in very clear detail what your specific business solution is, and what makes it special.
This includes not only describing what makes your solution unique with prose, but of also providing some form of visual evidence, images, drawings, designs, plans, prototypes, samples, etc… The better the visuals the more powerful this section will be.
If your solution is a physical product that is highly portable, consider providing a sample of your product or solution alongside your business plan to whomever you share the document with.
5. Marketing plan
The marketing plan accomplishes three things;
a. Demonstrate that there is a market for your solution with statistical evidence.
b. Explain your unique selling points against competitors.
c. Outline the strategy you have or will adopt to reach out to your target market and the media channels you aim to leverage to distribute your message.
6. Operation Plan
The Operational Plan outlines how your company operates. Important items including; your company’s location, the equipment used develop your solution, the human capital required to run your operations, the processes you have adopted or created to sustain your operations, the environment around your business, and why all or any of these elements are crucial for the long term viability and success of your company.
7. Mangement & Organization
The Management & Organization section is designed to explain who is responsible for what in your company. This section details the experience of your company’s leaders, their distinct competences and why they are fundamental for the continued operations and growth of your business. Organizational charts are often used to illustrate leadership structures, and a plan of succession is typically included.
8. Startup Expenses & Capitalization
The Startup Expenses & Capitalization section outlines the costs that were or are associated with launching your company’s operations, as well as the money that has already been invested into your business and the corresponding equity breakdown or ownership structure of your company.
If your business has not yet raised a significant round of venture financing and has not yet started it’s full time operations, this section offers a sound estimation of the costs associated with launching your business.
9. Valuation & Ask
The Valuation & Ask section details what value in dollar terms your entrepreneurial team has determined for your company at the date of the Business Plan’s completion, which is followed by what investment you are seeking (asking for) in dollar terms from investors to propel your company to the next level.
10. Financial Analysis
The Financial Analysis section offers a detailed economic analysis of your company’s financials, outlining the past and present financial performance of your business, as well as projections of it’s future potential.
The financials are described following generally accepted accounting principles or GAAP with statements including; Profit & Loss Analysis, Cash Flow Analysis, Income Statement, Balance Sheet, and a Break Even Analysis.
The Appendixes offers additional information relevant to your company that supports the sections of your business plan, or which do not comfortably fit into any particular section of the business plan, but are nonetheless important.
A variety of items may be included from personal financial statements, brochures, industry reports to copies of leases and other valuable contracts.
The quality of your business plan in both appearance and substance matters greatly. Having a great idea is not enough to sway investors or any specific audience. Your business must be clearly articulated, logically organized and inspirational.
Therefore, it is important to consider adopting a uniform design style throughout your document that is unique and representative of your brand. If you do not have a strong sense of aesthetics or design, seek the guidance and input of someone who does.
Looks matter, and the more beautifully a plan is composed the easier it will be to produce the kind of inspiration that motivates action.
Composing a solid business plan takes time, typically between 2-3 weeks, and your document should be between 25-35 pages in length, not including appendixes.
First, go through each section of your business plan individually answering as many of the relevant questions as possible. After you have composed the series of sections that describe your business, then work to edit the sections so that they logically flow together and produce a seamless narrative.
It is important that entrepreneurs methodically tackle each section with the appropriate amount of effort, thought and research. Challenge yourself to rethink all of your assumptions, and keep detailed notes on the sources of information you used to build the assumptions that underly your narrative and support your financials.
The real value of composing a business plan is not necessarily the finished product, but in the process of researching each relevant element of your business in a structured and systematic way.
The business planning practice can meaningfully enhance how you think about your business, the way in which you challenge your own ideas, and how you conduct your analytical research.
Going through the process also illuminates the areas of your business that need greater or lesser critical assessment.
Consequently, the investment of time in developing your business plan may be substantial in the short-term, but the endeavor can help you avoid costly even disastrous strategic mistakes over the long-term.
For more guidance on how to effectively modify your business plan depending on the the type of business you are leading, navigate to Refining Your Plan.
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