Have you wondered what the most important part of a building is? The part that is intrinsic to its entire existence. It is the foundation.
A sturdy foundation keeps a house standing solid even in the tempestuous of seasons. Just as a building’s foundation is key to its existence, so is your business plan invaluable to the overall success of your business.
The components of a business plan work in harmony not only to establish a blueprint for your business but also provide a roadmap for its stages of growth in posterity.
One mistake some entrepreneurs make about their business plans is seeing it as a tool to convince potential investors to key into the business. This is totally wrong. While the components of a business plan must be ladened with value and strategically written such that the final result, as a whole, has the propensity to attract and retain external interest, the first beneficiary must be the business owner. Your business plan must be able to convince you that you are investing your efforts, time and money in the right idea.
The components of a typical business plan include:
- Executive Summary
- Overview and Objectives
- Products and Services
- Market Opportunities
- Sales and Marketing
- Competitive Analysis
- Management Team
- Financial Analysis
All these must be detailedly structured so that they clearly spell out strategic plans, design profitable marketing, and sales plans, as well as create the foundation for smooth operations. Remember, a business plan helps you identify opportunities and challenges your business might be beset with and plan accordingly. Therefore, it must be approached with the utmost care. Now, I will be delineating these components individually and clarifying what they mean to your business.
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1. Executive Summary
This, here, is the most important of the components of a business plan. The Executive Summary is a brief description of the company’s vision and goals. Bring a summary, you must be ready to fit in your business important concerns in one or two pages in a concise manner. A good Summary will incorporate:
- A brief description of your products and services
- A summary of your business objectives
- An appropriate description of the market
- A justification for the viability of your idea(including a look at your competition and your competitive advantage)
- A snapshot showing your potential business growth
- An overview of financial requirements
As earlier noted, an executive summary is the most essential part of your business plan, so, it is important you get it right. It should be formal, while captivating, and must possess the ability to wet the reader’s interest. Businesses are formed to solve problems. If you are unable to explain how you intend doing this appropriately in a few paragraphs, then you are probably either looking at the wrong idea or thinking too highly of yourself.
2. Overview and Objectives
Providing an overview of your business could be quite tricky, especially for green entrepreneurs still in the planning stages of their businesses. More experienced business owners will find this section relatively easy since they already own or have owned a business. However, the secret to acing this part of the plan lies in these. Think about what products and services you want to provide, how you intend providing those items, what you need in order to be able to provide those items, who will be in charge of providing those items, and very importantly, whom you will be providing those items to.
So basically, in the overview and objective section of your plan, you must show relevant knowledge of your potential customers and the problem they have which you want to resolve. You must show what you want to delve into that will satisfy these problems as well the equipment and facilities needed, as well as the people who will not only help you produce these products but also sell them – your employees. Finally, show you have adequate knowledge of your competition and how you intend matching and beating them in the market.
3. Products and Services
This is another part of the components of a business plan. Here, you are mandated to give an accurate description of the product or service idea you seek to explore. Keep in mind that you do not necessarily need to show your technical or expert knowledge here by using strange, industry jargon. Use simple, easy-to-understand terms so that you don’t bore those reading your plan, especially if its an area they aren’t familiar with.
Unless you intend diving into a virgin product or service, that is, one that is totally new or underdeveloped, explain how the company’s products and services will differ from the competition. Lastly, patents, copyrights, and trademarks you either own or have applied for should also be shown here.
4. Market Opportunities
This is another salient part of the components of a business plan and it basically borders on detailed research. This is because market research is crucial to business success. A smart business plan explores and evaluates customer demographics, purchasing habits, a taste she preferences, willingness to adopt new products and services, and this is what this section is about.
You should show an understanding of your market and the opportunities that abound therein. A good entrepreneur not only recognizes existing market problems but seeks to understand the reason for these problems and possible resolution. Carefully analyze the market you intend to serve to determine your potential customers, number of households, average income, and obtainable demographics.
Conclusively, this section of your business plan must answer questions like: What is your market and what segment of your market will you focus on? What is the size of your market and their spending habits? Why do customers need your product and why will they be willing to purchase what you have to offer? Is your market likely to grow and how can you increase your market share over time?
5. Sales and Marketing
It is one thing to produce a product, it is another to sell and market this product. Sales and marketing are very vital to the success of any entrepreneur, after all, the aim of a business person is to make profits. Marketing begets sales, but then marketing involves more than just advertising; other elements like sales promotion, publicity, and even public relations come into play.
However, while choosing a marketing plan to adopt, be certain it will earn the requisite result and yield benefits at the end of the day else it will all be actions in futility
This part of the components of a business plan must be strategic and well-thought and considerable. Emphasize your target market and existing competition. Indicate your budget for sales and marketing efforts. Show how you intend to assess your marketing efforts and your possible actions if results do not reflect expectations. Also, indicate if you’ll be needing sales representative, either internal or external, and whether there’s a need to set up a publicity campaign for the business.
6. Competitive Advantage
Under this section of your business plan, you must analyze both your current and potential competition. Competition exists in every phase of life. Sometimes it is blatant, other times, it is subtle. Competition exists to keep entrepreneurs on their feet and remove every bit of laxity.
In this section, you need to show an accurate understanding of your competition, as this is critical to your survival. First, begin by profiling your current competitors; their strength and weaknesses, their objectives, market strategy, and market share they take away from you. Next, identify potential competitors, though it may be quite difficult to predict where your competition will emanate from. Your analyses are what will be contained in this section of your business plan.
The components of a business plan are never complete without depiction the business operations. Fortunately, most entrepreneurs have adequate knowledge of the operations of their business. This part of your plan should identify relevant strategies for managing, staffing, manufacturing, purchasing and in general, the daily operations associated with your business.
What facilities, equipment, and supply do you need? What is your organizational structure? What is your initial staffing requirement? How do you intend to establish and maintaining rapport with suppliers? And what changes will you effect in your operations as the organization grows? Your operations must be tailored to your industry, market sector and customers.
A typical operations section thus will contain information as they pertain to location and facility management, daily operations, suppliers, personnel requirements, legal requirements, and inventory.
8. Management Team
A great business is as good as the people behind it. A lot of investors and financial backups tend to consider the quality and experience of the management team as one of the important criteria to evaluate a business’ potential. As such, this part of your business plan is vital, even to you, as it will help elaborate on the skills, experiences and resources your management team will possess. Your business is still in its incubatory stage, as such, you are only designing a plan of what your management team will look like.
Clarify who the key leaders are and if they possess relevant industry experience. If they don’t, explain what benefit they bring to the business. Explain the duties for each position and the salary levels required to attract qualified people. However, in all, endeavor not to list any name, probably a popular one in the field, in order to attract investors. Investors will definitely want to know the role that person will play in your organization, and in most cases than not, those individuals won’t play any meaningful role.
The final part of the components of a business plan talks numbers.
9. Financial Analysis
You cannot be spot on in your analysis here since you are basically making a rough calculation of the monetary requirements of the business. Also, it is important to note that financial analysis as part of the components of a business plan is quite weighty. If you are seeking external help funding your business, providing a comprehensive financial report and projection is very crucial.
Financial projections and estimates are necessary to help both the entrepreneur, as well as others like investors and lenders, objectively assess a company’s potential for success and its viability.
Your financial analysis should possess basic reports like: balance sheet, showing the company’s cash position including assets, liabilities and shareholders; income statement, which is a general projection of revenue and expenses; cash flow statement, which shows cash receipts and expense payments and when how cash will flow through the business; operating budget, which suffices as a comprehensive analysis of income and expenses; and a break even analysis, which depicts when a business can expect to become profitable.
The Financial Analysis part of a business plan will help answer questions about the profitability of a business. Therefore, feel free to enlist the help of a professional like an accountant if necessary.