A business plan is a document wherein the entrepreneur lays out his philosophy about his idea, his strategy, for implementing it, and management team who will run it. The question is do you absolutely have to create a business plan? The quick answer is no. No one will hold an electric cattle prod to your feet and force you to produce one. If they do, call the police immediately. What you might discover, especially if you plan to solicit funding through traditional lenders or private sources, is that they will want to see a business plan before they decide whether or not your idea is a good risk. The other obvious benefit to a business plan is that it forces you to think about – REALLY think about – how you will implement your new business.
So what does a business plan look like? It’s simply a printed document, the more professional looking the better, that is broken down into standard sections where you describe various aspects of how the business will operate. Some experts tell you to include more information and others claim you need less, but the following eight section breakdown is the one suggested by the Small Business Association.
1. Executive Summary: The executive summary, sometimes called the Mission Statement, is the big picture view of your business. This is where you talk about the company’s reason for existing. In other words, how will the world benefit from your business being there? A good example of a mission statement on steroids can be found in the movie, Jerry Maguire, where a sports agent played by Tom Cruise famously flips out and decides to tell the truth about where he sees his profession as having gone astray, and lays out a road back to respectability in mission statement form.
2. Company Vision: This section is where you lay out the ultimate vision for your company. Where is it now and how big do you want it to be? Will it be limited to a single store serving a local area or do you have aspirations for it to grow into national or international proportions? If so, you better have a step-by-step plan for getting there. This is where you expand on your grand vision and do your best to get potential investors excited about the possibilities. Subsections of this topic would include a history of the company and any other principal players that might be involved, such as investors or partners.
3. Definition of the Market: To complete a business plan requires that you have some idea of the scope of the market, target audience, and amount of competition already there. You should have already done some research, or at least a fair bit of thinking, to be able to define and describe exactly who you are trying to sell your product to. High earning middle-aged men with flat feet? Left-handed young adults? Very few companies can simply say “everyone” is their target audience because it simply isn’t true. Wal-Mart might get away with such a declaration without being laughed off the stage but there’s a good chance you should narrow your sights considerably.
4. Products and Services: This is where you describe exactly what it is you do or what you’re selling. Maybe you want to sell hot dogs but it’s not that simple. How do you distinguish yourself from the other weiner-slingers already in business? Is your dog bigger, tastier, cheaper, more fortified with essential vitamins and minerals? There’s got to be something different about yours, that makes it superior, or what’s the point in even trying to open a business? If you have nothing different to offer, there’s little chance you’ll make significant inroads into the market if there are already other established players. Don’t forget to include your pricing model.
5. Organization and Management: Depending upon the scope of your vision, especially if you’re going to be a one man company in the beginning, this might be a very short section. On the other hand, if you do have more than one person involved and would like to provide an organizational chart that delineates the power flow and departmental responsibilities, please do so here. Also include what business type you are planning, whether it be a sole proprietor, LLC, or corporation. If you do have managers or partners, describe the role they will play in the business and what they are in charge of. If you need to obtain any special licenses or permits, mention that here, as well as how and when in the process you will get them.
6. Marketing / Sales Strategy: You have your product. You’ve defined the market. Now how are you going to connect the dots and put them together? Explain your sales and marketing strategy, especially in regard to the Four P’s of pricing, promotion, products, and placement. In simple terms, how will you reach your market with news of your company’s product or service? Building it and hoping they will come might have worked for Kevin Costner in Field of Dreams but please don’t rely on it for creating awareness of your new endeavor. What are your plans to get the ball rolling toward the land of profitability? Are you going to advertise on radio, television, on the Internet, or in print? Wait for word-of-mouth to kick in? Send a sales team out into the world? Your investors want to know up front how you’re going to make sales.
7. Finances: You better not blow through this section with a flip remark, “We’ll make money pretty soon.” For a new business, you need an estimate of start-up costs, as well as a projected balance sheet, income statement, and cash flow statement extending one year into the future. For an existing business, you’ll need to provide records of at least three years worth of balance and income statements and a year’s worth of cash flow evidence. For your own good, make these estimates as close to accurate as you can get. If you’re trying to get a business loan, you should include the most recent year’s tax return for the business, as well as a personal financial statement for yourself and any other principals involved.
8. Title Page: Last but not least don’t forget to include a title page, lest the very people you’re trying to woo find themselves eager to throw fistfuls of money in your direction but can’t figure out
where to send it. Include your company name, street address, phone number, email address, and website address.
After a stringent round robin of editing by at least two or three other people, you can print out this business plan, put on a freshly pressed suit, shave, and head out to convince those people who need convincing to give you money. Or, if the business plan is merely for your own purposes, the process of putting it together should have given you a heads up if you have massive holes in your thinking. Be glad that you found out now rather than three months into the process.
If you’re interested in more information about how to put together a business plan, visit the Small Business Administration’s website here.
The Young Wealth Team
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