The importance of business plans
So now you’ve gotten your company incorporated and all your administration in order – great! Now it’s time for you to get down to creating a business plan. A business plan lays out all aspects of your company in detail which is a crucial step in the initial set-up of your company.
A business plan has multiple uses, such as helping you keep up to date with changing environmental dynamics and attracting potential investors. If you aren’t sure where to start with your business plan, not to worry! We’ll be going through what you should include in your business plan and what will enable you to execute it efficiently.
What is a business plan for?
There are many reasons why a business plan is important. Here are just some to name a few.
The main purpose of a business plan is to increase capital. These days, competition is tough and business planning and fundraising are closely intertwined. Business plans come into play especially in discussions with investors or venture capitalists. Before they invest in your company, they will want to look at a business plan that you propose.
A business plan helps to show what your company has done and how it has grown. It will help you showcase what makes your company stand out from the rest in the industry. This way, you can justify your asking valuation during negotiations with investors or buyers.
The second is business planning. It works like a reference book for your management to make data-driven decisions. It also takes into consideration the understanding of the push and pull factors. A clear destination plan makes it easier for the team to stay on track and eliminates any other distractions.
Recruitment of key talents
Lastly, a business plan will help you in your recruitment process. It will allow you to communicate your business plan to new hires and see who has the beliefs and views that are closely aligned with your organization.
With the right people hired, this will lead to a long-serving team with minimal turnover. You will all also be on the same page, working together towards the long-term goals of the company.
What should be in a business plan?
In this section, we will go through what you will need to include in a business plan and what purpose they serve.
An executive summary is a brief introduction to your business. Keep it simple and easy to understand so that the reader will be able to get what your business is about at once. This is the most important part of the business plan as it introduces your business to potential investors and hires, which means that it will be the first impression that they have of you.
This point of your business plan is where the reader makes the preliminary decision on whether they should continue reading on to other sections of your business plan.
The company analysis portion of the business plan promotes your team and explains why your company is the best team to execute the business opportunity. It should include a detailed overview of your company, including the company’s vision, mission and purpose.
It should also include the history of the company, where the business is based and where the company currently stands in terms of any notable achievements. In short, this is where you can put information that was not able to be part of the summary.
Products and services
This section lists out all the products and services that your business provides. Provide a breakdown of all your products and services according to the revenue each generated as well as how your clients and suppliers are contributing to your supply chain.
This allows you to determine if there are any concentration risks and helps to justify whether or not you need diversification. It also helps you discuss your pricing strategy and future anticipated products and services to be developed and rolled out.
The marketing plan will probably be the most important piece of information that potential investors will look at. It is a guide on the company’s execution and what will be done in the future. In this section, several things need to be put in, including competition and market research, SWOT analysis (Strengths, Weaknesses, Opportunities & Threats), target market research, brand and product positioning, elevator pitches and taglines, target customer personas and profiles, results of any surveys conducted, marketing channels to be used, marketing budget, as well as estimates of cost per action (CPAs).
Your operational plan will showcase your understanding of the industry and your business. This section will be more technical, with information like your facilities and space required included here. Other things like technology and equipment needed, logistic and distribution plans and quality control checks should be here as well. Everything should be explained in detail – from start to end of the process chain.
Management and organization
In this section, you will introduce your team by listing out and explaining in detail the key roles and responsibilities of your management team. It should also include the organizational structure of your company. It should show the potential investor that your team members have the skills to bring your company to its expected level of success.
Your financial plan should provide a transparent snapshot of where your company is at and all your short and long term goals. Include information such as how existing internal and externally sourced information will help to reach these goals.
A few key things to include are,
- Your company’s current balance sheet,
- Your company’s financials for the past two years,
- Annual financial projections for the next five years,
- Break-even analysis,
- Cash flow projections,
- Income and expenses,
- Startup costs,
- Capitalization requirements,
- Funding request
By providing a reasonable forward estimate and snapshot of current and recent past performance, stakeholders will also have a more reasonable expectation of your projected performance.
The last part of your assignment will be the appendices, which include all other information, references and documentation required. It usually contains things like Articles of Incorporation and status, copies of insurance licenses, patent registrations and more. All the information here should supplement the earlier sections to boost legitimacy and stakeholder confidence of the claims and forward performance projections.
Creating a business plan
A business plan is an integral part of starting up your company. It will be useful for both internal and external use. As your business grows, make sure to continue maintaining your business plan to appear more attractive to potential investors.
For help with any other accounting or HR matters, be sure to reach out to us at Margin Wheeler for assistance.