One of the most important steps in starting a small business is the creation of a business plan. A business plan is a written outline that summarizes the goals, organization, products, services and financial planning of the business. This plan is a map that shows where the business is at and where it intends to go.
Business plans vary based on the type and goals of the business. A specific plan needs to be created for each specific business. However, there's key information that's usually found in most types of business plans.
An executive summary is a summary that contains the highlights of the business plan. It's usually the first section of the plan. However, it should be written last since it takes its information from other sections. Executive summaries are usually not long and are written in general language.
Description of the Business
Since businesses vary widely, a description should be included in the business plan. This description can be general or very specific as to the nature of the business. The history of the business and its location should also be included in the description. Some examples of information that may be found in a business description include:
- Home business - a home-based lawn care service that'll take care of residential lawns
- Food service - a family restaurant located in a small town that specializes in Italian food
- Retail - a shoe store that's located in a large mall
- E-commerce - an online Web site that sells games for computers and cell phones
- Construction - a small construction company that builds houses and small buildings
- Independent contractor - a consultant who helps small businesses with their computer needs
Products and Services
The business plan should list the products and services the business will provide. This includes the similarities and differences they have with what's already available in the market. The development stage of the product and the amount of time it'll take to be ready for the market should also be included. Some examples of information that may be found in this section include:
- Home business - mowing, insect control, weed removal and fertilization for homeowners
- Food service - great customer service while serving around 20 varieties of Italian dishes
- Retail - all different types of shoes for men, women and children, including the most popular brands of shoes
- E-commerce - creative and addictive games for under $10 each to be played on computers and cell phones
- Construction - construction services for a variety of customer needs, including carpentry, painting, plumbing, exterior renovations and remodeling
- Independent contractor - computer consulting that'll provide technical help to small business owners
The goals and objectives of the business should be clearly written in the business plan. Anyone reading this section should be able to clearly understand what the business is attempting to accomplish. Many times the mission statement for a business is included in this section. A mission statement is a short statement that defines the purpose of the business.
The goals of a business should be realistic and indicate where the business will be heading. Some examples of business goals include:
- Home business - to increase in customers by at least 30% every year for the first 5 years
- Food service - to become profitable by year two
- Retail - to increase in customers due to excellent customer service and fair prices by 10% in the first year
- E-commerce - to increase in customers every year and to become profitable by year three
- Construction - to grow as a company by 10% every year for the first 10 years and to build houses and office buildings with a high standard of care
- Independent contractor - to increase customers by 50% in 2 years based on a reputation for high-quality and professional service
Market analysis is an examination of the industry and target market for the business. The target market is made up of the potential customers that the business owner intends to reach with his products or services. The market section of the business plan should focus on the industry outlook and the identification of the target market.
One method of gathering information for market analysis is using market tests. These may be in the form of questionnaires or surveys to gather information from people relating to the products or services that'll be sold. Information on target markets may also be found in local libraries, the local phone book and the local government office.
Analysis of competitors should also be included in the market section. Competitors should first be identified in the market. Information about the competition should then be gathered and summarized. This information can be found in multiple places, including newspapers, press releases and the competitor's Web site.
Other important information that may be included in the market analysis section include lead times and regulatory restrictions. Lead time is the time between when a customer will place an order and when the business actually delivers the product or service. Regulatory restrictions are customer or governmental requirements that'll affect the business now and in the future.
Some examples of information that may be found in the market analysis section of a business plan include:
- Home business - most competitors are other home-based businesses in the market
- Food service - the main competitors are franchise restaurants that have already established a name in the market
- Retail - market is improving for the selling of shoes for all age groups, especially children
- E-commerce - younger men under the age of 22 will be the target market for games
- Construction - market increasing for the construction of smaller office buildings
- Independent contractor - small businesses will be the largest segment of the market that'll have the most potential customers for computer consulting
Business Management and Organization
The management and organization section describes how the business is legally structured. The names of the owners, the percentage of their ownership and the profiles of the managers may all be written in the business plan. Some examples of information that may be found in this section include:
- Home business - a partnership that's owned 50-50 by 2 people
- Food service - three managers, including a day-to-day operations manager, a dining room manager and a kitchen manager
- Retail - a two-person partnership that has one manager and three other employees
- E-commerce - one owner with nine employees that develop games
- Construction - two partners that'll use temporary workers for most projects
- Independent contractor - a sole proprietorship with no other employees
The marketing plan is the strategy that'll be used to reach the target market. Details such as advertising, pricing and distribution are included in this section. Some examples of information that may be found in a marketing plan include:
- Home business - advertising with flyers and signs
- Food service - creating a frequent dining program to help bring back customers
- Retail - planning to have multiple sales and to advertise in the newspapers
- E-commerce - advertising at videogame Web sites and providing one game free
- Construction - underbidding rival companies and advertising on local radio
- Independent contractor - advertising on business Web sites and building reputation by word of mouth
A business plan will usually have a section that has a request for the amount of money that's needed to start or expand the business. This section will include the amount of funding needed currently and any future funding needs. A business owner can also include different funding scenarios. Some examples of items that may need funding include:
- Home business - the need for a small loan to purchase lawn care equipment
- Food service - money needed to rent a building and to purchase food
- Retail - money needed for the purchase of shoes and to rent space in a mall
- E-commerce - the need for a loan to purchase computers to develop games
- Construction - money needed to purchase construction equipment
- Independent contractor - the need for a small loan to pay for advertising
The financial analysis section includes the projected income statement, the cash flow projection and the balance sheet of the business. Most creditors will require the owner to supply the historical and prospective financial data of the business. The owner should develop the financials for the business after the market has been analyzed and clear objectives have been set.
The last section of the business plan is the appendix. The appendix should include any additional information that supports the business plan. This may include charts or copies of important documents. Some examples of information that may be found in an appendix include:
- Home business - letters of reference
- Food service - contracts with food suppliers
- Retail - resumes of developers
- Construction - permits and licenses
- Independent contractor - relevant articles in magazines and newspapers
Questions for Your Attorney
- What are the pros and cons of having a business plan? How detailed should the plan be?
- Can I update the business plan later on if the business goes in a different direction?
- How much market analysis should I do before I form a business? Where's the best place to gain information on my competitors?