Building a Business Plan
Before you begin to research and then write your business plan, it is important to comprehend exactly what the document should include. According to the Small Business Administration, a well-written business plan consists of the Executive Summary, Company Description, Objective Statement, and the Business and Management Structure. It also needs to include the Products and Services section, Marketing and Sales Plan, Business Financial Analysis, Financial Projections, and the Appendix. Each section is described in detail below.
- The Executive Summary Section
The Executive Summary is the first part of your business plan. It should include a mission statement that fully explains the main focus of your business. The Executive Summary should also include a brief description of the products and or services that you are planning to sell or are currently selling. You should also include basic information regarding the ownership structure of the company, and a summary of your overall plans for the business as a whole.
- The Company Description Section
This section provides a brief overview of your business. It should contain essential information such as the company's registered name, the address of any physical locations, and the names of important people that are associated with the business including the company accountant and attorney. The Company Description should also include the history of the business, nature of the business, and further details regarding the products and services that the business is currently offering or plans to offer.
- The Objective Statement Section
The Objective Statement, also known as the Business Goals Statement, must define the company's goals in a clear manner. In essence, it should spell out exactly what you would like to accomplish in both the short term and the long term. For example, if you are seeking outside funding, it is important to utilize this section to explain why you have a need for the funds, how the funds will help your business get off of the ground or grow, and exactly how you plan to achieve your growth targets.
The objective of the Objective Statement is to visibly explain the opportunity that you are presenting, and how a loan from a bank or investment from an investor will help you achieve your goals. For example, if your business is launching a new service, you should explain exactly how the infusion of cash would help your business launch the new service that is projected to increase sales by 45% over the next 2-3 years.
- The Business And Management Structure Section
This is the section where you will list the legal structure of your business. For example, are you a sole proprietorship, partnership, or corporation? It should also include your key employees, managers, and any other owners of the business. The Business and Management segment needs to cover the percentage of ownership that each owner has in the company and the extent of each owner's involvement in the business.
- The Products And Services Section
The Products and Services section should detail the products and or services that you either plan to offer or are currently offering. This section must cover an explanation of exactly how your product or service works, the pricing structure/model for your product or service, and the typical customers/clients that you serve or plan to serve. The Products and Services section should also include your sales and distribution strategy, why your product or service is superior to what the competition is offering, and how you actually plan to fulfill orders. You may also discuss any current or pending trademarks, and patents that are associated with your product and or service.
- The Marketing And Sales Plan Section
The Marketing And Sales Plan is a simple explanation of what your marketing strategy is, and how you will execute that strategy. This is the section where you can address exactly how you plan to convince customers/clients to purchase your products and or services instead of your competitors. It should also spell out how you plan to develop or further develop customer loyalty that will lead to repeat business. You should also focus on the strengths of your company, and what sets you apart from the competition.
- The Business Financial Analysis Section
This section is certainly a bit difficult to write if you are a brand new or start-up company. You obviously do not have much if any information on your business financials as of yet. That being stated, you should include some realistic financial projections here that are based in reality. Keep in mind that inflated numbers never look good to banks or investors, and are often deal-killers. If you are an existing business that is seeking a loan, it is important to include an income or profit and loss statement.
The Business Financial Analysis Statement should also include a balance sheet that lists both your assets and debts and a cash flow statement that shows exactly how cash comes into and goes out of the business. You should also include any ratios that highlight the overall financial health of your company such as the Net Profit Margin, the Current Ratio, and the Accounts Receivable Turnover Ratio. The Net Profit Margin is the percentage of revenue that you keep as net income.
The Current Ratio is the measurement of the company's liquidity and ability to repay debts. The Accounts Receivable Turnover Ratio is a measurement of how frequently the company collects on receivables on a yearly basis.
- The Financial Projections Section
The Financial Projections section is extremely important for companies that are seeking either bank financing or investors. In essence, it outlines exactly how your company plans to generate enough profit to repay the loan or provide a decent return for the investors. You should also provide the company's monthly or quarterly sales, expenses, and profit estimates over a minimum three-year period. Always assume that you have received the loan or investment when projecting the future numbers. You need to be as accurate as possible in this area.
If you are currently in business, analyze your past financial statements prior to calculating the future projections. It is fine if your goals are aggressive as long as they are realistic. In essence, it is ok to be optimistic as long as you can strongly justify it. This is a delicate balance, as you certainly do not want to negatively stand out for being overly optimistic. The goal is to prove that your company will have the ability to generate a strong enough cash flow to cover the existing debt, and payments of a new loan moving forward.
You should also address the various risk factors involved with your business in order to remain transparent and truthful. The bottom line is that loan officers and investors will want to know that you have considered all of the potential risks and that you have mitigated those risks in some manner.
- The Appendix Section
The Appendix section is not required, however, it does serve a key purpose. This is the section where you can include supporting information that did not fit into any of the other sections as listed above. This information may consist of the resumes of important employees, licenses, equipment leases, permits, patents, receipts, bank statements, contracts, business credit history, and personal credit history. You should consider adding a table of contents at the beginning of the section if the Appendix happens to belong.