The 5 Key Elements Of A Good Business Plan
As any founder knows, the only sure thing about running a growing company is change.
In fact, your business plan is perhaps the thing that will change most often throughout your entrepreneurial journey.
Although some Founders are sceptical about planning too far ahead for their businesses, preparing a solid business plan is necessary for many purposes, including, but not limited to:
- Raising finance through investment;
- Applying for a business loan;
- Budgeting for the long and short term;
- Gaining a deeper understanding of how your business works.
Perhaps even more important than preparing a business plan, is making sure that this is updated for each of the small and big changes that your company will go through as it grows and evolves.
Different companies require different types of business plan. Depending on your business model, your revenue structure and many other factors.
However, there are 5 elements of a business plan that are absolutely key to making sure that the reader understands how your company works and plans on growing.
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It includes a complete structure, detailed instructions on how to write each section and tips on how to tweak it for each specific use.
1. Executive Summary
The Executive Summary represents the reader’s first impression of your business
The Executive Summary is the first section of your business plan, and also the last one you should write. It represents the reader’s first impression of your business. As a result, it will likely define their opinion as they continue reading the business plan.
A good Executive Summary includes key facts about your business such as:
- Business & product description;
- Current positioning & targeting;
- Financial outlook & requirements;
- Past and future achievements & goals.
However, the most important function that a great Executive Summary serves is communicating to the reader why they should read the rest of the business plan, and why you want them to.
2. Business Overview
After the Executive Summary, a business plan starts with a comprehensive explanation of what your business proposition is and how it relates to the market where your company operates.
In this section of the business plan, you should explain precisely:
- what your company does;
- what are its products or services;
- in which market it operates;
- who are its customers.
When describing your business, you should make sure to that the reader knows what kind of market environment your business operates in, but also how it can thrive in such an environment from a competitive point of view.
For some very niche or particularly innovative sectors, this may mean that you need to inform the readers about specific market dynamics.
In these cases, make sure that you clarify what is considered ‘the industry standard‘ in your sector, the selling points that current players are competing on and how your business is positioned relative to them.
Make sure to include:
- Your mission statement;
- The philosophy, vision and goals of your company;
- Your industry and target audience;
- The structure of your business, detailing your customers, suppliers, partners and competitors;
- Your products and services and the problem they solve;
- Unique Selling Point(s).
If the company already has a well-defined product or service, this section can be divided into Company Description and Products & Services.
3. Sales & Marketing Strategy
This section of the business plan requires a deep understanding of your market space and how your business positions itself within its niche and competes with existing players.
Within your Sales & Marketing strategy, you should outline:
- A definition of your target market – include its size, existing and emerging trends and your projected market share;
- An assessment of your market – this should summarise how attractive your target market is to your company and why, Porter’s Five Forces or the more recent Six Forces Model are useful tools to define this;
- Threats & Opportunities – you can use a SWOT Analysis to present these;
- Product/Service Features – once you have thoroughly described your product/service, make sure to highlight its Unique Selling Points, as well as any complementary offerings and after-sale services;
- Target Consumers – whether you’re a B2B or B2C company, it’s a good idea to include an ideal customer profile to describe exactly what niche(s) you are going to target;
- Key Competitors – research and analyse any other players inside or outside your market whose offering might compete with you directly or indirectly;
- Positioning – explain in a short paragraph how your company differentiates from your competitors and how it presents itself to your target niche;
- Marketing Plan & Budget – outline the marketing and advertising tactics you will use to promote your business, giving an overview of your brand and of the communication elements that support it;
- Pricing – explain how your pricing strategy fits within the competition and how it relates to your positioning;
A very common mistake that should be avoided is writing that you have no competition. Instead, you should show your efforts in researching your competitors and assessing how they could threaten your business.
4. Operations & Management
This section gives you the opportunity to explain to the reader how your company does things differently.
The people and processes that are allow your business to operate on a daily basis are the key to your competitive advantage. In fact, they help you build a better product, deliver it more efficiently or at a lower costs. Your Operations & Management must be able to successfully realise what you ‘promised’ in the previous sections.
Here, you must demonstrate how much you know about your business, so don’t leave out any relevant detail. Be concise but thorough, focus on two main points:
- Operational Plan – this section outlines all the day-to-day operations of the business. It involves detailing all the processes and resources that the company requires for each of its activities. You should include:
- Production or Service Delivery;
- Quality Control;
- Credit policies;
- Legal environment;
- Organisational Structure – this is an overview of all the people involved in your business and their position in relation to each other. You should detail the experience of the existing team, as well as the roles that haven’t been filled yet. Include advisors and non-executive directors.
Investors and banks will also look at this section to get an idea of salary costs. As these are normally a significant cost centre, don’t overestimate your staff needs.
5. Financial Plan
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Your Financial Plan is possibly the most important element of your business plan. This is especially true if the business plan is aimed at investors or lenders.
This section includes projections, budgets and goals that are unique to each business. In particular, you should focus on explaining the assumptions on which you based your forecasts, more than on the forecasts themselves. Every good Financial Plan will include:
- 12-month Profit & Loss Projection – A month-by-month forecast of sales, operating costs, tax and profits for the following year. Sometimes three years.
- Cash Flow Statement & Forecast – This financial statement tracks the amount of cash that leaves or enters the business at any given time.
- Breakeven Analysis – This is a cornerstone of your business plan. Here you should show what level of projected sales allows the business to cover its costs.
- Capital Requirements – This point is fundamental as it shows investors what their money will be spent on. It should contain a summary of all the expenses for big purchases and day-to-day running costs.
The Financial Plan is usually followed by the Appendices. Here you should include detailed spreadsheets and calculations used to prepare the financial statements.
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