The is the seventh article in a series of posts focused on deconstructing the essential elements of creating a Business Plan.
Business Planning Articles
Management & Organization
As the seventh part of the Business Plan, Management & Organization is designed to describe the leadership structure of your company.
This section of your business plan should be thorough, between 2-4 pages in length.
The purpose of the Management & organization section is to outline the personalities involved in your business, describe their specific responsibilities, and share the organizational structure you have in place, or plan to implement.
Entrepreneurs should briefly describe the professional experiences and distinct qualifications of each key individual, and provide detailed resumes in the Appendixes of the Business Plan.
An often overlooked component of a good Management & Organization is briefly describing a plan for the continuation of the business should a key person leave the company or become incapacitated.
If you business currently employed more than 10 individuals, consider creating an organizational chart illustrating he management structure, hierarchy and who is responsible for the key functions of your company.
Lastly, should you business plan be designed for investors it is important to include a description of the ownership structure and legal formation of your company.
A simple approach to creating an effective Management & Organization section is to divide it into 4 parts; Staffing, Outside Professionals & Mentors, Legal & Administrative, and Equity Structure.
Staffing represents all of the individual parties actively involved within your organization, or directly employed by your company.
Within this section, entrepreneurs should consider describing the following elements:
A diagram illustrating the leadership and reporting structure of your business.
Explanations of the major duties & responsibilities of each staff member.
Details about the required skills and background for each position in your company.
The tools your company leverages for recruitment any requirement needs.
Descriptions of who is positioned to assume current and future responsibilities in your company.
Details on the salary structure, wages, commissions, bonus and other incentives of key personnel.
Human Resource Risks:
A brief explanation of any contingency plan in the event of a loss of key personnel.
Again, if your start-up has more than 10 employees, creating a detailed organizational chart can be a very effective and efficient way to describe your organizational structure.
Sample Organization Chart
The organization chart above is a classic example of a technology startup that has been operating for between 18-36 months.
When developing an organizational chart and structure, entrepreneurs should look to complementary businesses in their industry for guidance, as the staffing of each industry evolves along a generally uniform model.
Outside Professional Mentors
Professional mentors represent outside or part-time professionals who provide specific services and guidance to your company.
Entrepreneurs should consider describing any of the following applicable roles:
Business Advisors and Mentors
Should any specific advisor and/or mentor be very involved in your business, it is helpful to describe their background and input into your company in a short paragraph.
For greater transparency, founders can elect to provide resumes of outside professional mentors in the appendixes of their business plan.
Legal & Administrative
The legal and administrative section is designed to describe the corporate entity your business is classified under according to your local corporate tax and legal regulations.
Entrepreneurs should consider describing the following applicable items that are relevant to their business:
The specific legal entity your business is incorporated as including; proprietorship, partnership, corporation, cooperative, non-profit, etc…
A detailed list of shareholders and ownership percentages. (For Corporations)
Directors & Officers:
A detailed list of the members of your company's Board of Directors. (For Corporations)
Buy & Sell Agreement:
The type of shares your company issues and the process by which they are awarded, exchanged, bought & sold.
Any Legal Agreements:
A list of any contracts, leases, franchise agreements, personal loan guarantees, etc.. (Include the agreements in your Business Plan Appendixes)
A description of the kind of insurance your business requires, and any risk management policies that your company must or will likely adopt.
In order to provide a concise synopsis of your company's legal responsibilities, entrepreneurs should list the major legal & administrative items in their business plan, and then provide more detailed explanations and possibly copies of documents in the appendixes of their business plan.
The last valuable piece of information entrepreneurs should consider including in this section of their business plan is a detailed representation of their company's equity structure.
Entrepreneurs can do this by including a capitalization table of their company.
A capitalization table is a spreadsheet that illustrates the equity ownership stakes in your company including; equity shares, preferred shares and options, as well as the corresponding values in dollar terms of each equity stake in your company.
Sample Capitalization Table
The capitalization table shows your company’s ownership stakes on a fully diluted basis, which enables the reader to easily understand your company’s capital structure.
Typically, founders are listed first followed by executives, employees, other significant stakeholders and lastly investors.
Founders who elect to create an option pool should also list the members and equity stakes of each stakeholder in a separate table as illustrated above.
The management & organization section of your business plan is relatively straight forward, and demands little creativity. The challenge rests in providing accurate and relevant information.
The objective is provide clear evidence that gives the reader confidence in the team you have assembled to lead your venture. Without the right people, it is unlikely that your venture or any venture will sustain itself and succeed over the long term.
Investors know this, and for many in the private equity world, the team represents the most important element to ensure the future success of the venture.
Therefore, the most important element of this section is to demonstrate the qualifications and qualities of the senior leaders within your company.
Following this entrepreneurs must demonstrate to the reader that their company’s leadership has a solid perspective of the organizational structure required to support the business, and has sounded out the support of valuable industry experts and mentors for guidance.
Entrepreneurs, particularly first time business leaders should always seek the involvement of mentors or advisors because they can significantly help a start-ups and their leaders navigate the early stage challenges of growing a business.
Plus, the involvement of advisors demonstrates to investors that you and your team possess a high degree of self-awareness, and have a good understanding of the team’s strengths, weaknesses and needs.
Involving experienced individuals and professionals demonstrates also willingness to be coached and a desire to grow as professionals. Investors will welcome this attitude because part of their responsibilities is to guide entrepreneurs throughout the life-cycle of their business.
Lastly, outside support can effectively help plug any gaps in the knowledge bank of your company's leadership in order to minimize any possible weaknesses in your business and ensure it's long-term success.
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