In this section you will learn the fundamentals of the proposed business: What will your product be? Who will your customers be? Who are the owners? What do you think the future holds for your business and your industry? The Executive Summary is a summary of the whole business plan in one page or less, and it is often easier to complete this section last.
The Executive Summary should be realistic, professional, accurate, complete and concise. Utilize the information gathered in the following business plan sections to create this general business summary. The Executive Summary will allow your readers to quickly understand the overall plan and purpose for the proposed business.
This is a section in the business plan where you work out the details of what your business will look like, how it will behave, what it will value and how it will be set up legally. In this section, you will answer questions like: What business will you be in? What will you do?
This is a component of the overall Company Description as it is used as a guiding principal for the organization as well as a means to describe the business in one or two sentences. Many companies have a brief mission statement, usually in 30 words or fewer, explaining their reason for being and their guiding principles. If you want to draft a mission statement, this is a good place to put it in the plan.
Company Goals and Objectives
Goals are destinations—where you want your business to be. Objectives are progress markers along the way to goal achievement. For example, a goal might be to have a healthy, successful company that is a leader in customer service and that has a loyal customer following. Objectives might be annual sales targets and some specific measures of customer satisfaction.
In this component, describe what industry/market you are trying to enter. Is it a growth industry? What changes do you foresee in the industry, short term and long term? How will your company be poised to take advantage of them? Describe your most important company strengths and core competencies. What factors will make the company succeed? What do you think your major competitive strengths will be? What background experience, skills, and strengths do you personally bring to this new venture?
Legal Form of Ownership
Sole proprietor, Partnership, Corporation, Limited liability corporation (LLC)? Why have you selected this form? Read how to choose the right legal structure.
Here is where you give detailed information about the products or services your company is offering to your market. This is the place to answer the following:
Describe in depth your products or services.
What factors will give you competitive advantages or disadvantages? Examples include level of quality or unique or proprietary features.
What are the pricing, fee, or leasing structures of your products or services?
Businesses do not run themselves, and businesses often need others for guidance and input. This section is necessary to help the entrepreneur develop a strategic plan of talent to engage in starting and growing the business. SCORE offers the following advice for this section: Ask yourself who will manage the business on a day-to-day basis? What experience does that person bring to the business? What special or distinctive competencies? Is there a plan for continuation of the business if this person is lost or incapacitated? If you’ll have more than 10 employees, create an organizational chart showing the management hierarchy and who is responsible for key functions. Include position descriptions for key employees. If you are seeking loans or investors, include resumes of owners and key employees.
List the following for Professional and Advisory Support:
- Board of directors
- Management advisory board
- Insurance agent
- Mentors and key advisors
This section of the business plan asks for an explanation of the daily operations of the business, its location, equipment, people, processes, and surrounding environment. This section allows the entrepreneur the opportunity to plan and work out areas of the business that will have a large impact on the vitality of the business. Consider the following start-up concerns:
What qualities do you need in a location? Describe the type of location you’ll have. You will also want to note how much space (square feet) you will need and what type of building (office, warehouse, etc.)
Is it important that your location be convenient to transportation or to suppliers? Do you need easy walk-in access? What are your requirements for parking and proximity to freeway, airports, railroads, and shipping centers?
Estimate your occupation expenses, including rent, but also including maintenance, utilities, insurance, and initial remodeling costs to make the space suit your needs. These numbers will become part of your financial plan.
Businesses have a wide variety of legal needs, which varies amongst the different types of businesses. Businesses also need to be aware of legal parameters that may restrict their businesses. Areas that businesses need to be aware of in regards to the legal environment include licensing and bonding requirements, permits, workplace regulations, employee manuals, industry regulations, zoning and building code requirements and intellectual property protection. Legal council may be needed with the following: incorporation papers, contracts, employee manuals, nondisclosure agreements, patents and more.
Will the business sell on credit? If so, what kind of credit will be offered and at what terms?
What are the current and future personnel needs for the company? What would an organizational chart look like? Will job descriptions be created and what sort of talent will be needed for the company. How will the company manage compensation and fringe benefits?
If you are manufacturing a product, can you provide a flow chart of how the product will proceed through the manufacturing process? What sorts of machines are needed for production? What are the production techniques and costs? How will quality control be maintained? How will the company engage in new product development?
What kind of inventory will be kept? Where will pre-production and post-production inventory be stored? What is the projected rate of inventory turnaround? Is seasonal inventory needed? What lead time does the vendor need in replenishing inventory?
Who are your suppliers? What are their payment/credit terms? What do they supply? Do the suppliers have references or a record of performance?
Market and Competitive Analysis
No matter how good your product service may appear, the venture cannot succeed without effective marketing. And this begins with careful, systematic research. It is very dangerous to assume that you already know about your intended market. You need to do market research to make sure you’re on track. Use the business planning process as your opportunity to uncover data and to question your marketing efforts.
There are two kinds of market research: primary and secondary. Secondary research means using published information such as industry profiles, trade journals, newspapers, magazines, census data, and demographic profiles. This type of information is available in public libraries, industry associations, chambers of commerce, from vendors who sell to your industry, and from government agencies.
Primary research means gathering your own data. For example, you could do your own traffic count at a proposed location, use the yellow pages to identify competitors, and do surveys or focus-group interviews to learn about consumer preferences.
In your marketing plan, be as specific as possible; give statistics, numbers, and sources. The marketing plan will be the basis of sales projections. While engaging in market research and competitive analysis consider the following topics:
Economics (facts about the industry)
What is the total size of the market/industry you wish to enter? What percentage of the market do you wish to capture (is it locally, nationally, internationally)? What is the current demand for your product/service in the market? What are the barriers to entry into the market (what would keep you from starting your business)?
Please describe your product/service from the eyes of your targeted customers. What are the features/benefits? What is special about your product/service? What will the product/service do for the customer? Will you provide any after-sale services? What makes you different from the competition?
Who are your targeted customers? What are their key characteristics? Where are they located? What is their annual income? What are some of the related products that they buy? The more you know about your customers (income, gender, age, social class, education, type of business, size of firm, industry etc.), the better equipped you will be to make advertising and sales decisions for the company. You will need to do this research for each customer group your business will have.
Who are the companies that will compete against you? What products/services will compete against you? What secondary items will compete against you for your customer’s money? Where are your competitors located? How will your product/service compare to the competition?
Using the Competitive Analysis table by SCORE to compare your company with your two most important competitors. In the first column are key competitive factors. Since these vary from one industry to another, you may want to customize the list of factors.
In the column labeled “Me”, state how you honestly think you will stack up in customers’ minds. Then check whether you think this factor will be a strength or a weakness for you. Sometimes it is hard to analyze our own weaknesses. Try to be very honest here. Better yet, get some disinterested strangers to assess you. This can be a real eye-opener. And remember that you cannot be all things to all people. In fact, trying to be causes many business failures because efforts become scattered and diluted. You want an honest assessment of your firm’s strong and weak points. In the final column, estimate the importance of each competitive factor to the customer. 1 = critical; 5 = not very important.
Marketing, Ads and Sales
Now that you have systematically analyzed your industry, your product, your customers, and the competition, you should have a clear picture of where your company fits into the world.
Now a marketing, advertising and sales plan (M&A) needs to be developed that will reach your intended market. The M & A plan needs to be tailored to your business and industry that will achieve projected sales and growth goals.
Marketing is a wide range of activities that is focused on the continual need to meet the demands of customers while getting an appropriate value in return. Marketing involves research and outreach; customer information and customer opinion; strategic planning and company messaging; as well as product pricing and product promotion. Meanwhile, advertising and sales are different disciplines that grow from marketing activities. Advertising (or promotions) is utilized in sending messages to customers about the business. A sale is a process of capturing the attention of the customers to complete sales of the product/service.
In developing advertising/promotion plans, seek to answer how will you get the information out to the customers? What media, why and how often? Will you engage in traditional or social media advertising? Will a mixed media or tiered advertising approach be planned, why or why not? How will you track progress/success with your advertising efforts? What is the image you want to project? Will you need to hire a marketing/graphic design firm? When will your website be launched? What other graphic elements do you need (business cards, stationary, etc.)? What technologies will you utilize in advertising? What type of website do you need? Who will develop your website? When will you launch your website? What is the mission of your website, and how will you track success?
How much will you or can you spend on advertising? What are your priorities with your advertising plan?
Explain your method or methods of setting prices. Does your pricing strategy fit with what was revealed in your competitive analysis? Compare your prices with those of the competition. Are they higher, lower, the same? Why? How important is price as a competitive factor? Do your intended customers really make their purchase decisions mostly on price?
Now that you have described your products, services, customers, markets, and marketing plans in detail, it’s time to attach some numbers to your plan. Prepare a month-by-month sales projection for the first 12 months, then project year two sales. The forecast should be based on your historical sales, the marketing strategies that you have just described, your market research, and industry data, if available. You may want to do a “best guess” forecast as well as a “worst case scenario” projection as this will give you a realistic picture of what can happen both good or bad. Remember to keep notes on your research and your assumptions as you build this sales forecast.
Strategic planning is an important part of conceptualizing any business. Although it’s not actually a section of the business plan, it is useful in determining your eventual competitiveness in the market and pieces of it can be used within the plan.
According to the Free Management Library, strategic planning determines where an organization is going over the next year or more and how it’s going to get there. Typically, the process is organization-wide, or focused on a major function such as a division, department or other major function. Organizations use strategic planning as a business plan supplement, a means to develop departmental or new product plans, or as an organizational reflective tool.
Strategic planning often involves the use of the SWOT analysis. SWOT analysis refers to strengths, weaknesses, opportunities and threats. SWOT analysis allows businesses a quick snapshot into where the business is and where it can grow. Companies brainstorm and list all their strengths, weaknesses, opportunities and threats. Through the exercise of creating all four lists, ideas or patterns emerge to help create business roadmaps.
You will have many startup expenses before you even begin operating your business. It’s important to estimate these expenses accurately and then to plan where you will get sufficient capital. Like your marketing plan, your financial plan will require thorough research.
Talk to others who have started similar businesses to get a good idea of how much to allow for your budget and contingencies. Contingencies are expenses that are often not planned on yet are budgeted in a line item “just in case.” If you cannot get good information, we recommend a rule of thumb that contingencies should equal at least 20 percent of the total of all other start-up expenses.
Explain your research and how you arrived at your forecasts of expenses. Give sources, amounts, and terms of proposed loans. Also explain in detail how much will be contributed by each investor and what percent ownership each will have.
According to SCORE, the financial plan consists of a 12-month profit and loss projection, a four-year profit and loss projection (optional), a cash-flow projection, a projected balance sheet, and a break-even calculation. Together they constitute a reasonable estimate of your company’s financial future. More important, the process of thinking through the financial plan will improve your insight into the inner financial workings of your company.
12-Month Profit and Loss Projection
The 12-month profit and loss projection (P&L) is where you put it all together in numbers and get an idea of what it will take to make a profit and be successful. However, most business owners fear engaging in or understanding the P&L statement.
The basic building blocks of a P&L statement include:
Revenue $ 100.00
Less Cost of Goods Sold $ 50.00
Gross Profit $ 50.00
Research & Development $ 10.00
Marketing & Sales $ 15.00
General & Administrative $ 15.00
Gross Income $ 10.00
Taxes/Interest $ 5.00
Net Income $ 5.00
Your sales projections will come from a sales forecast in which you forecast sales, cost of goods sold, expenses, and profit month-by-month for one year. Profit projections should be accompanied by a narrative explaining the major assumptions used to estimate company income and expenses.
Five-Year Profit Projection (Optional)
The 12-month projection is the heart of your financial plan. The Five-Year Profit projection is for those who want to carry their forecasts beyond the first year. Of course, keep notes of your key assumptions, especially about things that you expect will change dramatically after the first year.
Projected Cash Flow
If the profit projection is the heart of your business plan, cash flow is the blood. Businesses fail because they cannot pay their bills. Every part of your business plan is important, but none of it means a thing if you run out of cash.
Cash flow will enable you to foresee shortages in time to do something about them—perhaps cut expenses, or perhaps negotiate a loan. But foremost, you shouldn’t be taken by surprise. For each item, determine when you actually expect to receive cash (for sales) or when you will actually have to write a check (for expense items). You should track essential operating data, which is not necessarily part of cash flow but allows you to track items that have a heavy impact on cash flow, such as sales and inventory purchases.
Opening Day Balance Sheet
A balance sheet is one of the fundamental financial reports that any business needs for reporting and financial management. A balance sheet shows what items of value are held by the company (assets), and what its debts are (liabilities). When liabilities are subtracted from assets, the remainder is owners’ equity.
A break-even analysis predicts the sales volume, at a given price, required to recover total costs. In other words, it’s the sales level that is the dividing line between operating at a loss and operating at a profit.
Expressed as a formula, break-even is:
Break-even Sales = Fixed Costs / Variable Costs
(Where fixed costs are expressed in dollars, but variable costs are expressed as a percent of total sales.)
- Preparing financial statements from the Small Business Administration
- Free downloadable finance forms and templates from Entrepreneur
- Free downloadable small business planning templates from SCORE
- Step-by-step guide on how to write the financial section of a business plan