I’ve recently read a business plan that has prompted me to write another piece on the topic. The first thing that should be done when starting a new business is creating the plan, or the blueprint for the organization. For many reasons the business plan is a critical component to the businesses successes and failures and helps reiterate and reinforce the focal points of the company when times are hard. Studies show the first twelve months can make or break a business and can be stressful times. Your business plan can be your backbone and rock during these hard times. Therefore, you need to put the effort into creating the business plan, sticking to it, or adjusting accordingly as you develop, grow, and continue forging ahead. In addition to being your own support your business plan can help secure financial help with start-up costs, short-term loans, and tracking your goals.
There are nine key sections to the business plan: Executive Summary, Market Analysis, Company Description, Organization & Management, Marketing & Sales Management, Service or Product Lines, Funding Requests, Financials, and an Appendix.
The Executive Summary is the most important section and should provide a short synopsis of the entire plan as well as some history of your company. I recommend completing the entire plan before writing this section. This section should answer questions such as:
- · What kind of company do you have?
- · Who are your primary customers?
- · What are your short and long-term goals?
- · How many employees do you anticipate having? What key metric will drive this anticipatory rate?
- · Who are the leaders of the organization? What experience do they have and how will that experience be leveraged in this enterprise?
- · If you are seeking funding, how much are you looking for?
Following the Executive Summary should be a Market Analysis. It is imperative you understand who your competition is and know everything there is to know about the market you are entering. If you are creating a new market or are in a new market, relate the similarities to another industry’s beginnings. Remember to be realistic as the only person you will be fooling is yourself. Knowing who your customers are and how your competition acts will be a key component in advertising and marketing your product.
The Company Description & Organization & Management sections should speak for themselves. Discuss what type of company you are, LLC, S-Corp, C-Corp, LTD, LLP, etc… What is the company about, the mission statement, goals, and the purpose the company ultimately serves. Then discuss the Organization & Management, how these individuals were selected for the position they are in, and the experience they have to excel in this position. The Organization & Management section can be a critical section for investors because well respected leaders and managers can make all the difference during key growth stages.
The Marketing strategy should elaborate on four key points: market penetration, growth, channels of distribution, and communications. There is no right or wrong answer to your strategy in this section. Marketing is always evolving and changing and so are your customer’s demands. This makes marketing an extremely challenging fixture for any business. However, this section will help you and the investors understand your outlook on marketing and make your strategy relevant to your business. In addition to the four key points mentioned above this section should discuss sales force and sales activities.
The bread and butter of your business plan is the Service or Product Line(s) section. This tells the investors the benefit of what you are selling. Be sure to focus on the benefit of your product to consumers and not necessarily all of your actual products. If you are a hosting company, or aspiring company, and offer Shared, Reseller, VPS, Dedicated, and Co-location, you do not need to break down each specific product and what they are. You should talk about the added benefit and services each of these products will feature. The market summary should help the readers understand more about the actual products you’re offering and the basics behind your products and/or services. In addition to touching on the added features or services describe the products or services from a consumer point of view, what stage of development that product or service is in, and the benefits of your product or service and the ability to meet consumer needs. It is also beneficial to list what separates you from the competition in this section.
The Financials & Funding Request section should be relevant, within scope, and not be an extreme. The previous sections laid out who your company is and where you want it to be. This section should discuss the financial implications of getting there. It is important to discuss what your current funding requirements are, future requirements over the next five years, how these funds will be used, and any long-term strategies you plan to implement that would have a significant impact on funding or cash flow. Always discuss time frames and what the funds will be used for. Once you have listed your requirements and requests be sure to include the justification for it.
The second portion to the Financials & Funding Request section should include prior Financial statements such as three to five years’ worth if you have them. It is imperative that your Financials match your funding request or else you will immediately project inconsistencies in your plan. Remember investors are used to looking at charts, graphs, and pivot tables, don’t forget to be creative and capture the attention of the reader.
Lastly, finish up the business plan with your Appendix. This section is not included with the submission of your business plan and usually is requested by investors. This section shares credit history of your business, resume of key executives and employees, pictures of your products or recommendations of your services, letters of reference, details of your market studies and their sources, relevant articles or references to your business plan, software or any other license, permits, or patents, copies of leases, building permits, contracts, list of business consultants, including attorney and accountants.
Be sure to remember who and where you sent your business plan and appendix. This is the key to your successes and failures.
For further analysis of the Business Plan please see my September 2011 blog entries on YIPFolio.com. For any questions or inquiries please send an email to Doug.
Doug C. is a Financial Analyst for a top 20 Fortune 500 Financial Services company and owner of YIPFolio Financial & Management Consulting Services. He specializes in Financial & Accounting services including balance sheet, P&L, fixed assets, and capital funding. He has spent several years in the Hosting and Technology industry while consulting management and senior management on all aspects from raising capital to managing daily cash flow. Doug received his BS in Finance from Fairfield University and resides in the Greater New York City area.