The Elements of a Good Business Plan
Although you may not relish the job of putting together a good business plan, it can be a very helpful process to you in helping understand your business better.
A lender may require or expect a business plan. What constitutes a good business plan?
One great thing about creating a business plan is that the process forces the prospective owner(s) and/or manager(s) of the business to analyze their environment and put down on paper their assumptions about the economic environment in which the business operates. Writing a business plan helps to understand factors which may have not been previously considered. It is important to be honest and truthful. It is not a good thing to start a business based on inaccurate assumptions.
What are the elements of a good business plan?
Executive Summary – Begin your plan with executive summary. A good beginning is very important. You usually have to sell your idea to potential lenders and venture capitalists in the first two or three paragraphs. The executive summary provides a concise overview of the entire plan along with a history of your company. This section is meaningful because it tells the reader why you think your business will be successful. Even though the executive summary comes first in your presentation it should be the last section you write. After completing all of the other sections you will have a better feel for the most succinct points you want to make.
The quality of your management team is the best determinate of your business success.
One important factor to potential investors is the identification of the business owners and the key executives and a description their backgrounds. The character and the previous history of the management team are very important factors.
Market Analysis – What is the market premise? What are the great ideas that will make the enterprise a success? Who will the customers be? Why will they buy from your company? There should be an analysis of customer needs and potential competitors. Where are your markets located?
Define the extent to which you feel you will be able to gain market share and the reasons why. Estimate the market share percentage and number of customers you expect to obtain in a defined geographic area. You should also state the assumptions you used to develop these estimates.
Service or Product Line – Include information about the specific benefits of your product or service. Specify the advantages your product has over that of others.
What are your costs? Who will your suppliers be? If you are making a product, what are your raw materials or components and where will you obtain them?
Business Risk Assessment – It is helpful to perform a risk assessment, documenting what the high risks are and how the management team of the company plans to address these risks. Typical risk categories are the economic environment, market forces, competitive pressures and liquidity and available resources.
Financial Statements – Bankers like numbers. If you own an established business, you will be requested to supply historical data related to your company’s performance. Most creditors request data for the last three to five years, depending on the length of time you have been in business. You will need income statements, balance sheets, and cash flow statements for each year you have been in business (usually for up to 3 to 5 years.)
You will also be required to supply prospective financial data. Most of the time, creditors will want to see what you expect your company to be able to do within the next five years, including forecasted income statements, balance sheets, cash flow statements, and capital expenditure budgets.
Miss Speedy Spells it Out: Doing a business plan is very helpful!
Best Luck! Doing a good business plan can be very helpful to you in helping you to understand your business better, and, it can even be fun!
This is an update of a post previously published on August 26, 2009.