10 Key Elements Every Business Plan Should Include
A business plan is essential to help a company reduce risk, stay competitive and attract interested investors. It communicates a clear vision of the company, and helps set short- and long-term goals.
While there are many different business plan templates and examples, the best plans are those that are tailored to the company’s specific needs. In this article, we will cover 10 key elements every business plan should include.
1. Executive Summary
According to writing teacher John Clayton, the executive summary is crafted with an audience in mind. Specifically, busy executives interested in bottom-line deliverables. Your executive summary needs to grab their attention and sell them on reading the rest of your business plan.
Start with a captivating introduction that establishes a problem and shows how your solution solves it. Then, highlight your team and qualifications as well as key financial highlights in chart or graph form.
The length of the executive summary will depend on your audience, but a general rule of thumb is to keep it under ten pages. Remember, legibility is important, so run your executive summary through a test to ensure it is easy to read and understand. A good summary is short and concise, but it also contains key information for decision-makers. This will help you get the funding you need.
2. Company Description
The Company Description of a business plan reveals what the company is about, including its goals and vision. It can also include important details about the company’s business structure and the type of products or services it offers.
It should also describe the pain that the company’s product or service will solve for customers and explain how it differs from similar competitors. Avoid using airy claims and gobbledygook in this section. Instead, use terms that your mother could understand and be sure to quantify the “cost of pain” in dollars or time.
A good company description can help make your business plan more attractive to lenders or investors. That’s why it’s important to invest the necessary time and effort into crafting it. It may even be worth hiring a professional copywriter to craft the best possible version of it for you.
3. Market Analysis
The market analysis section of a business plan is the part that backs up any claims made in the company description with concrete data and statistics. This helps convince investors that your business can succeed in the industry and beat out competitors.
It is important to provide information about the size of a given market and the demographics of potential customers. It also covers the buying behavior of these potential customers and identifies trends.
Sales forecasts are another essential element of a business plan. These projections are created for specific increments of time, such as three months or a year. They help you estimate how much your company will be able to sell in each period and the revenue it will generate from these sales. This will help you make informed decisions and secure funding from investors and lenders.
The financials section of your business plan includes your budget, expected costs and payments, break-even point, payback period and net capital requirements with proper accounting calculations. This section is vital to demonstrate that your idea is financially viable, and it’s often a requirement for obtaining funding from investors.
Creating a financial projection isn’t necessarily easy for startups, but it doesn’t have to be complicated either. Your goal is to create a plan that’s accurate enough to be useful but simple enough for your audience to understand.
A well-written finance section will help you manage your finances and make informed decisions about how to spend or save money. Through the services of Pro Business Plans, you can definitely be sure that this is achieved. This will also give you a stronger argument when discussing your business plan with potential investors.
5. Management Team
The Management Team section is one that many entrepreneurs struggle with. Often they blame this section for slowing down the completion of their business plan, and it is usually because of lack of understanding or fear of this portion of the plan.
Having a strong management team can be a major strength of any company. It allows the top leader to share responsibility with others, which can foster a sense of accountability and ownership. It also makes the organization less dependent on a single individual, which can help mitigate risk in case of an untimely departure.
Include a short biography for each member of your management team, listing their relevant experience and skills. Ensure that their goals are both realistic and applicable to your business strategy. In addition, encourage communication between your managers and regular meetings every month or two.
6. Competitive Analysis
Keeping an eye on the competition is an essential part of any business. Whether you’re looking to break into new markets or simply stay ahead of market trends, studying your competitors can help you determine how well your own offerings stack up.
This section of a business plan will detail a company’s current and potential competition in the market, along with its expected consumer demand. It should also lay out a clear distribution channel and define planned marketing strategies and campaigns.
Rolling up your sleeves for competitor analysis can be a lot of work, but it’s important to dig in and uncover the information that’s relevant to your business. Start by identifying your competitors, then look into their pricing models, marketing materials, features and more. You can often find basic info about competitors – like their founding year, location and number of employees – on websites.
7. Market Opportunity
Market opportunities are emerging trends in the marketplace that businesses can take advantage of. They can be anything from new sources of potential customers to changes in the business environment. Businesses that identify and capitalize on these opportunities can gain a competitive edge in the market and increase their financial returns.
However, it’s important that businesses are able to assess these opportunities carefully and realistically. It’s not financially feasible for businesses to try and take advantage of every opportunity that comes their way. They need to focus on assessing those opportunities that are the most lucrative for them. Moreover, these opportunities need to fit within the company’s existing capabilities and resources. This helps them to avoid spending time and money on projects that are unlikely to pay off. Instead, they can concentrate their efforts on developing products that will meet the customer’s needs and provide a high return on investment.
8. Marketing Strategy
A business plan is an excellent tool for establishing how a company plans to market its products and services. This section should detail the industry and competitors, along with a clear description of how the company intends to reach its target consumer.
This section should also include a discussion of the strength and weakness of your competitor’s products or services, as well as your own sustainable competitive advantage. It is important that this part of the plan accurately reflects the expectations of your target customers.
The Marketing Strategy should clearly distinguish between strategy and tactics (e.g., product development, distribution channels). It is also helpful to include a plan for delegating responsibilities to staff members. Make sure to track and measure your key performance indicators. This will enable you to evaluate the effectiveness of your marketing strategy over time.
An operational business plan zooms in on the “how” and “when” of short-term goals and projects like marketing campaigns and product development. It’s also a good place to discuss any potential intellectual property issues and costs, like patent filings and other registrations.
For example, a service firm that provides consulting or maintenance for equipment would need to include the costs of materials and labor while a manufacturer might need to account for facilities and any necessary equipment. The section might also outline production milestones to keep everyone on track and ensure that department objectives are met.
This section is a little more complicated than the others and may take more time to write, but it’s typically one that investors request. Ultimately, you can tailor your business plan to the needs of individual investors by including only those sections that are relevant for them.
10. Financial Forecast
The financial forecast section of your business plan predicts future internal company results, such as profit or loss and cash flow. This is a key component of any business plan because it helps your team plan ahead for operational adjustments and provides evidence that you’re well on the way to achieving goals when seeking funding.
Depending on the resources at your disposal, you can use a combination of quantitative and research-based methods for creating your financial forecasts. Quantitative methods rely on historical data and statistics to form predictions and are often used to create internal pro forma statements (such as percent of sales forecasting, whereby future line item metrics are calculated as a percentage of revenue). Research-based methods take a more comprehensive approach that incorporates external market data and strategic internal company plans. This typically produces the most accurate and relevant results but requires more time and resources to build.