Contents of an Effective Business Plan
Starting a company requires proper planning, knowledge, and funds. An individual will not only sell products or services but also manage people and operations. Trying to manage a company without any form of a guide can lead to failure and mismanagement. This is why creating an effective business plan is necessary to ensure the success of a company. Writing the document can be tedious but will also be rewarding as entrepreneurs can use it for a variety of purposes. This article will discuss the contents of an effective business plan and how to apply them in the writing process.
What is a Business Plan?
A business plan is a long documentation of the overall strategy that entrepreneurs will utilize to operate their organization. Individuals often write the paper after they have conducted a feasibility study and concluded that the business is viable. It is a lengthy document that contains detailed discussion and data regarding the different aspects of an organization and its operations. The main contents of the document include a company description, market analysis, marketing plan, operating plan, and financial plan. These contents discuss organizational aspects from the required capital investment to the expected behavior of company employees.
An individual may write a business plan for their personal use or to attract potential investors that can fund the business. Depending on the purpose, the contents of the document may change. Entrepreneurs that are writing the paper for their personal use may simply utilize informal language and disregard intricate discussions. For individuals that are looking for external funding, they will need to properly format the paper and provide clear discussions about the operating, financial, and marketing aspects. Whatever the purpose, writing a business plan is a necessary task for entrepreneurs to have a written guideline during the beginning of their project.
Importance of Writing a Business Plan
Individuals starting a company should write a business plan to have a written guide that they can refer to when starting a project. The document will contain a description of the organization and the values that it upholds. Writing these parts will make an individual think critically about what the organization will stand for and the business environment that they want to develop. This can help entrepreneurs with crucial decisions that may affect the company’s image and status. The paper will also include critical analyses of the market and the industry which will help in their advertising campaigns and product specifications. Entrepreneurs can refer to the document when they are planning their operations and how to penetrate their market.
A business plan is also a necessary tool for an organization that is looking for potential investors. The document includes discussions regarding the company’s marketing plan, operating plan, and financial plan. Potential investors will want to read this information first before deciding to fund a business. They will want to identify the business’s projected cash flows, return of investment, current funding, and the quality of the product. The document must provide all of the information and prove to the investors that the business is worth their investment.
Contents of an Effective Business Plan
An effective business plan will contain thorough research discussions and concise descriptions that will help readers to easily understand a company or a project. Entrepreneurs who want to create a successful company should make sure that they write an effective business plan and not just a checklist of their objectives.
1. Concise Business Description
An effective business plan must provide a concise business description section that will act as an introduction to the company. It will include the company name, mission statement, vision statement, core values, and the organization’s objectives. Individuals can also include a brief product or service description. Depending on the type of products and services, a separate section may be more appropriate. Read the explanations below regarding the contents of a good business description:
Company Name. This is simply the official name of the company. Individuals can include the logo and a brief explanation behind the name. Indicating whether the organization is a sole proprietorship, partnership, or corporation is also a good idea.
Mission Statement. This is a short paragraph that contains an organization’s main purpose. A good mission statement must address societal problems and tell the readers how the organization will help in resolving those issues. The best mission statement highlights a business’s positive influence on society rather than its financial success.
Vision Statement. This is a short statement, mostly one to three sentences long. An organization’s vision is its projected status within a specific period. It will tell the readers what the company wants to become in the future. A good vision statement should not only state the organization’s projection but also how it can help society. A good example would be: “To provide efficient alternative sources of energy for 50,000 American homes within the next five years.”
Core Values. These are the qualities and values that an organization aims to uphold and wants its employees to possess. Some organizations tend to disregard this section, however, it can be a great addition to an effective business plan as it helps create a better description of what the company wants to become. Individuals often write this section in a bulleted form with brief descriptions of each value.
Objectives. The objectives are similar to the mission, however, this section tends to be in bulleted form. The section directly states the objectives of a business which may include the restatement of the vision.
Products and Services. To write an effective business plan, it would be best to separate this section from the business description. Entrepreneurs can just then provide a list of the available products and services to let the readers know about their offerings.
2. Unique Products and Services Description
Creating this section will allow entrepreneurs to properly describe the qualities of their products and services. An effective business plan must show the readers how unique are the company’s products and services. The section should provide information on a product’s or service’s main material, use, benefits, and advantage over existing brands. When writing the section, individuals should aim to attract the readers’ interest in the product or service. Entrepreneurs can consider it as a marketing tool when showing the document to potential investors.
It is important to note that the marketing plan section of the document will also include a discussion about the products and services. Due to this, individuals should avoid discussing prices, promotional strategies, and other marketing aspects in this section. They should mainly focus on providing an initial good description of their offerings.
3. Critical Market Analysis
An effective business plan must include a critical market analysis that discusses the company’s target market, industry conditions, competitors, suppliers, and other similar aspects. Individuals who conducted a feasibility study before writing their business plan will already have a market analysis. This section involves research and first-hand data gathering so that entrepreneurs can have a better understanding of the industry. A good market analysis will help in creating an effective marketing plan, operating plan, and financial plan.
When doing a market analysis, entrepreneurs should utilize marketing principles like Porter’s Five Forces and PESTLE analysis. These principles will give individuals a guide on which industry factors to look at and analyze. Identifying and stating threats and opportunities in the document can be helpful. Entrepreneurs can look at these factors and create strategies to avoid or utilize them. Potential investors will also want to know how the organization will interact with the market.
The most important part of the market analysis is the identification of the target market. The target market is the specific group of consumers that the organization will base its promotions, prices, and distribution methods. Identifying the group is essential to any marketing and operating plans. Entrepreneurs should identify their consumers’:
Geographic location
Gender
Age
Social status
Occupation
Salary
Cultural identity; and
Other personal identifiers
4. Extensive Marketing Plan
Once the organization has identified its target market, it can then proceed with the creation of a marketing plan. This section will discuss the marketing mix as well as enumerate the methods that the company will use to advertise its products and services. The marketing strategies should be thorough and specific with its details. Entrepreneurs must set a timeline in which they aim to launch their campaign. The marketing plan will mostly revolve around the following:
Products/Services. The main subject of the marketing plan will be the company’s products or services. In this section, individuals should provide a clear description of their products or services. They can state the reason why they created the product and its benefits to society. They should also state the advantage of their offers over their competitors.
Pricing. This is a crucial aspect of the marketing plan as it dictates the profitability of the product or service and the market’s perception. Factors like production cost, buyer power, and market price play an important role in defining the price. A product’s price must be above the production cost, near the market price, and within the scope of buyer power. In an effective business plan, the entrepreneurs must rationalize the product’s price especially if it is above the current market price.
Place/Distribution. This aspect involves two types of location. The first one is the facility where the organization will operate. This can be a production area, a warehouse, online, or an office. The second type is the distribution channels or the places where the company will distribute and sell its products. Some examples of these channels are physical stores, online resellers, and direct sellers. Potential investors will want to read about this section since it will discuss the process of delivering the products from production to the consumers.
Promotion. This section includes the overall advertising campaign strategies. Entrepreneurs should discuss the various methods that they will use to promote their products and services. They must indicate if they are going to use tv commercials, Youtube advertisements, flyers, word of mouth, billboards, and other methods. The section should also state the promotion campaign’s budget, required manpower, and timeline. This is the main part of the marketing plan and should provide detailed instructions for the campaign.
5. Competitive Analysis
An effective business plan must include a discussion of the company’s competitors. This part can be a subsection of the market analysis or a standalone section. If a business has multiple competitors and conducted extensive research on those competitors, a standalone section may be a better option as it will give more space for the information. A competitive analysis must provide information about competitors’ current market status, market share, marketing mix, and other factors that affect their position in the industry.
An organization can learn a lot from analyzing its competitors. They can identify common trends between existing brands and analyze the influence of these factors on the market. They can learn about the best suppliers, promotional strategies, and standard pricing through competitive analysis. They should also be able to identify the current threats that the existing brands are facing and trying to address. Including all this information in the document will let potential investors know that the company conducted proper research on the market. It will also allow entrepreneurs to assess the difficulty of entering the industry.
6. Informative Organization Description
An organization description is essential to illustrate the qualifications of the company in an effective business plan. The section will contain the organizational structure of the company. Entrepreneurs should use an organizational chart to visually present the hierarchy inside the company. The chart should include every staff that is essential to the organization’s operations such as office workers, freelancers, consultants, and others.
The section should also include information about the company leaders. It must provide descriptions for the owners, managers, investors, and partners. The descriptions can include their educational background, career achievements, previous projects, affiliations, and role in the company. Potential investors and consumers will want to know who are the people responsible for the company and indicating this in the business plan will show transparency. The public will trust the organization if they know the individuals managing it.
7. Definitive Operating Plan
An effective business plan must contain a definitive operating plan that will discuss how the organization will operate. The section must state the managers’ responsibilities and their influence on the decision-making within the company. Entrepreneurs should also restate whether the company is a sole proprietorship, partnership, or corporation. Readers can use this information to better understand the decision-making process within the organization.
The operating plan must discuss the day-to-day workflow of the business. It should tell the readers about the production and distribution of a product, employees’ daily routine, tools and equipment necessary for the operations, schedules, and an overview of the business process. The section must be specific when discussing these different aspects. Potential investors will read the section and assess if a company can properly handle its workflow. Specific details will let potential investors know that the owners have a concrete plan.
8. Accurate Financial Plan
A financial strategy and projection are necessary for any business plan to be successful and effective. The financial aspects of a company are its most important assets. It dictates whether the organization can continue to operate and its profitability. Potential investors will pay close attention to financial aspects and they will want accurate calculations regarding profitability. Entrepreneurs must include their office/space rent, production cost, utilities, owner salaries, employee salaries, taxes, and other expenses. The individuals will mostly indicate these factors when they are calculating when the company will earn the return of investment or ROI.
They will also need to provide calculations on the projected daily, monthly, quarterly, or annual cash flow. These projections are necessary to ensure that the company has enough funds to maintain the organization’s operations. Most companies are not profitable during the first few years before they gain their ROI. Companies will have to depend on their capital investment to maintain their operations. An accurate financial plan is necessary to ensure that the capital investment can cover the period before the ROI. Additionally, entrepreneurs should consider hiring financial experts to conduct the calculations regarding the ROI, cash flow, and taxes to ensure the accuracy of the information.
9. Executive Summary
An executive summary is a concise summarization of the contents of the business plan. It is similar to a research paper’s abstract section. It is the first section in the document but will be the last part that an individual will write. An executive summary must contain parts of the company description, market analysis, marketing plan, operating plan, and financial plan. The section should be informative and provide the readers an overview of the document, however, it must not exceed one page in length.
10. Appendices
To make an effective business plan, entrepreneurs can include an appendices section at the end of the document. It will contain extra information that the individuals did not discuss in the other parts of the paper. This section can be helpful if an organization is trying to attract investors since it can contain additional data that may persuade the reader to invest. The extra information can include:
Product images
Financial charts and graphs
Licenses and permits
Copy of contracts and other legal documents
Curriculum vitae of the owners
Photo of the office and team members
List of partners and investors
Sample advertisements
Need Help with Your Business Paper?
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