Crafting your business plan
Now that you have your idea in place, you need to ask yourself a few important questions: What is the purpose of your business? Who are you selling to? What are your end goals? How will you finance your startup costs? All of these questions can be answered in a well-written business plan.
This third article in our series dedicated to startups features on a simple yet time consuming process which can easily put off many startups if not tackle properly - drafting your business plan. We will share with you a step-by-step approach to crafting your business plan, which as you will see, holds fundamental importance in formulating key business decisions, shaping the direction of your business as well as securing finance through bank loans or overdraft facilities. In a nutshell, a business plan helps you figure out where your company is going, how it will overcome any potential difficulties and what you need to sustain it.
A business plan is made up of 10 distinctive sections which can be intertwined to form a single document. Below is a snapshot of the different components forming a business plan:
1. EXECUTIVE SUMMARY
An executive summary is a one- or two-page summary of your entire business plan. It is your five-minute elevator pitch. It may include a table of contents, company background, market opportunity, management overviews, competitive advantages, and financial highlights. It’s probably easiest to write the detailed sections first and then extract the cream to create the executive summary. Try to keep it to just a couple of pages.
2. MISSION STATEMENT
When you're coming up with the concept for your business, an important component of your overall strategy plan is a mission statement. This brief statement declares the purpose of an organization and defines the reason for the company's existence. It provides the framework and context to help guide the company's strategies and actions by spelling out the business's overall goal. Ultimately, a mission statement helps guide decision-making internally while also articulating the company's mission to customers, suppliers and the community.
When writing your mission statement, don't waste words. If the mission statement is eight pages, nobody's going to read it because it'll be very clear that the business, no matter what its merits, won't be a good investment because the principals are indecisive and don't really know what they want. Make it easy for the reader to realize at first glance both your needs and capabilities.
3. COMPANY BACKGROUND
The section provides a brief history of your company. Here you will answer questions such as when and how your organization was formed, what type of legal entity you are, and accomplishments to date.
Importantly, your past accomplishments are perhaps the best indicator of potential future success, so be sure to identify and include all key milestones your company has achieved to date.
4. PRODUCT OR SERVICE DESCRIPTION
Everyone has a product or service that they are offering to a prospective client. You should be able to describe what it is that you are selling as well as identify what makes your product or service unique. You may choose to combine this section of the business plan with the next section – Marketing Plan.
5. MARKETING PLAN
In this section, you need to spell out your market analysis and describe your marketing strategy, including sales forecasts, deadlines and milestones, advertising, public relations and how you stack up against your competition.
Other than your Product or Service strategies, you should consider the following areas in your marketing plan:
Pricing
Detail your pricing here. In particular, discuss how your pricing relates to competition. For example, are you the premium brand? The low cost brand? Remember your chosen pricing model will determine your expected branding.
Promotions Plan
Your promotions plan details the tactics you will use to attract new customers. For example, you might choose radio advertising, or online pay-per-click ads, or press releases, and so on. In this section, detail each form of promotions you will use.
Distribution Plan
Your Distribution Plan outlines the ways in which customers can buy from you. In many cases, they can only buy directly from you, perhaps at your physical location or web address. In other cases, you might have distributors or partners who sell your products or services. In such a case, detail this structure.
6. COMPETITOR ANALYSIS
The competitive analysis is a statement of the business strategy and how it relates to the competition. The purpose of the competitive analysis is to determine the strengths and weaknesses of the competitors within your market, strategies that will provide you with a distinct advantage, the barriers that can be developed in order to prevent competition from entering your market, and any weaknesses that can be exploited within the product development cycle.
7. SWOT ANALYSIS
Conducting a SWOT analysis is an important part of business planning. A properly prepared SWOT analysis shows investors that you have realistically and objectively considered these elements.
Banks and other lenders understand that businesses will encounter difficulties at some point, and want to know how you will deal with these challenges. Remember that overestimating strengths and opportunities or ignoring potential problems will undermine your credibility.
8. OPERATIONS.
This section aims at helping you outline the more administrative side of your business, including how you operate, where your office is located, your staff or assistant if applicable, equipment, overhead and other expenses, legal relationships, your network of suppliers and credit policies. Make sure that you also list key milestones you hope to achieve in the future and the target dates for achieving them.
9. FINANCIAL PLANNING
This is where you provide the numbers that back up everything you described in your organizational and marketing sections. Include conservative projections of your profit and loss statements, balance sheet, and your cash flow statements for the next three years. These are forward-looking projections, not your current accounting outputs.
Areas to include in this important sections are as follows:
Revenue model: how your business will generate revenue? Do you sell products? Do you sell advertising space? Do you sell by-products, like data? Do you sell all of the above?
Financial highlights: your full financial model (income statement, balance sheet and cash flow statement) belong in your Appendix, but in this section you’ll include the highlights. For instance, include your revenues, key expenses, and projected net income for the next five years.
Funding requirements/Use of funds: if you are seeking funding for your company, detail the amount here, and importantly for what you will use the funds.
10. TIMELINE
This section holds great importance as you think on timeline for implementation of the various objectives set in the business plan from preparing your product, pitching your client to seeking finance. It is usually best represented by way of Gantt Chart providing clear indication for every stakeholders to know the timeline they need to abide to for the project to stay on track.
Should you require any assistance in drafting your business plan, feel free to get in touch with your accuSolve team.
