Each Business Plan Should Have Its Own, Unique Structure
While it is difficult to say what exactly needs to be in every business plan, there are certainly some givens. The structure below is from a recent plan our business plan consultants completed for a client, and represents a data-driven, action-oriented business plan. Certainly this structure may ignore some pieces; however, for this particular client these were the critical elements that had to go through exhaustive analysis. This plan was used in the retail space for an existing business and allowed the client to secure a $340,000 SBA bank loan.
A brief 1-2 page overview of the product and/or service, monetization strategy, cost structure, and general composition of the company. Business plan consultants will share conclusions from the pro forma financial projections. Any financial ask is spelled out with the proposed loan terms. The opportunity must be succinctly explained. Why does this business need to exist? What problem does it solve? Clear answers to these questions help tee up the entire business plan.
People start businesses because they potentially have identified an untapped market need. There is a looming consumer problem in need of a solution. The solution itself doesn't have to be product oriented.
Rather, some companies are highly successful because they out-service the competition and this service is desired by end consumers. This distinction speaks to the importance of conveying your company's value proposition.
The financial review should address the revenue model, cost structure, and capital requirements to launch the business. Sharing in brief language what the business will monetize and how much it costs to do so is important.
Readers will need to know very quickly what the financial ask is and how the model will work to service the debt obligations. Questions of continuity and sustainability will surface at this time as owners cannot rely on debt forever to finance overhead and operations.
No matter the industry, the economy will always play a role in the performance of a business. The broader macroeconomic environment influences interest rates, and thus the cost of capital. Consumer confidence and employment levels fuel or slow consumer spending and retail sales. The price of gasoline and other transport-related costs are influential for companies involved in logistics and transportation.
Strong business plan writers will expand upon these economic impactors and how they will affect financial results. Some industries, e.g. car dealerships, are more susceptible to economic downturns while others, e.g., liquor retail store front, have proven more recession proof. Market research and market analysis are critical pieces of the puzzle as any successful strategy will fully understand and embrace the broader competitive environment.
As a startup begins the work of forming a business, there are several helpful tools to analyze the overall attractiveness of an industry. Michael Porter's five forces framework is an excellent choice for determining whether or not to enter an industry. In fact, some startups change gears completely after doing a thorough assessment of the industry. Studying the buyers and sellers reveals who the key stakeholders are and how much force each side exerts on the main industry players. Careful attention should be given to the threat of substitutes and new entrants as either scenario has implications for the proposed business.
This portion of the business plan takes an inward view of the business and begins to address, organize, and structure the makeup of the company. The management team will be introduced with their qualifications and experiences. Lenders and other investors are particularly interested in the capabilities of the proposed management team. Why will this individual or group of individuals be successful managing the proposed business? A well written management profile helps strengthen the business's credibility and improve the likelihood the business is awarded funding.
This section goes deep on the product and/or service offering and explains the pricing model, customer acquisition strategy, and overall monetization plans. Labor plans are introduced and general overhead requirements required to operate are discussed. Writing a mission and vision statement is fundamental and will always precede any discussion of goal setting. The mission captures the primary purpose of the business. It seeks to answer this question: why does this business exist? The vision should speak to the intentions of the business. What the business plans to accomplish and by when should be clearly expressed in the vision statement.
From here, business plan consultants should move into an exhaustive review of the product, target market, and marketing plan. While the Executive Overview introduced these elements, this section should go into great detail about what the product is, how it works, and why someone would be willing to pay for it.
Trying to reach a broad audience typically is poor marketing. A segmentation should be done to break down the target population into groups which simplifies the marketing communications and lead generation processes. A deep dive into how the company will reach its target audience should conclude this section. This will involve granular discussions of the website, social media marketing, search engine optimization, pay-per-click advertising, and other lead generation activities.
For new or existing businesses, there is always a thorough analysis explaining the use of funds. Top-notch business plan writers will itemize and allocate every expense down to the penny as to provide great clarity to the bank or owner regarding where, why, and how money will be spent.
Estimating the target population is an integral part of forecasting sales as the market will dictate how much sales volume the business will generate. Experienced business plan writers will build a forecast based on how many potential consumers exist, and from there a consumption estimation can be completed for the market and on a per capita basis, using data tools like BizMiner.
Market sizing is a vital step in preparing a high quality business plan. This analytical exercise helps identify the amount of capacity a business must have in order to fulfill the market demand. Further, market sizing plays an integral role in the development of the pro forma financial projections. There are entire books and some very helpful articles devoted to this practice. The most astute business plan consultants want to know the size of the market and also quantify the size of the prize.
Composed of both fixed and variable expenses, the cost structure represents the total costs required to operate the business. Some businesses selling a physical product will have a large line item for cost of goods while labor is weighted heavier for service-based businesses.
Employees are almost always involved in a business and typically constitute a large portion of the total cost structure. In this section, seasoned business plan writers will quantify total headcount costs, including wages, bonuses, benefits, payroll taxes, and wage inflation.
Bankers, investors, zoning officials, and other public servants are objective people. These individuals are less concerned with the owners' intuition about the viability of the business and are more interested in the financial composition of the company. Further, many investors, and the SBA in particular, require certain financial documents. In this section the business plan writers should prepare three year financial projections. Back of the envelope math is not sufficient here. Tremendous effort and analytical rigor should be put into developing these projections. In some cases a pitch deck or investor presentation is assembled to illustrate these financial elements.
The financial plans for the best plans we have seen are composed of a cost structure overview, profit & loss, balance sheet, cash flow statement, breakeven analysis, sensitivity analysis, and a thorough revealing of the underlying assumptions of the financial model. Again, there are endless resources on the web and we highly recommend working with professional business plan consultants with proven experience compiling these critical pieces.