Providing a clear outline of goals—and how to reach them, a business plan is a critical tool for every entrepreneur. It's what separates a business that has yet to formally launch from a mere idea, lending it substance and tangibility. When seeking to obtain start-up capital, a business plan is a compelling document that can sway potential investors or financial institutions. Although business plans can vary depending on the company and the team involved, there are five essential elements that every plan should have:
This is a simple and concise summary of your business that can run anywhere from one to two pages. It should give the reader a firm grasp of what your business is about and what you are looking to achieve. Think of it as your outline, giving the reader a road map of what to expect when he or she reads the plan.
Small business owners need to make informed revenue projections based on inventory, market, geography, and demand. How much do you expect to generate in sales during the first year? What about after five years? The estimates should be grounded in solid financial reporting and not simply pie-in-the sky conjectures. "Without a sales forecast, you really won't have an understanding of what your expenses and cash flow will be," explains Sabrina Parsons, CEO of Eugene, Oregon-based Palo Alto Software, a provider of business planning software. "And without [knowing the latter], you won't understand what kind of a loan or line of credit you will need to keep your business going," she adds.
For this section, you will need to compile and incorporate data that pertains to the demographics of your target customer base. Who are they and how many of them live in your town and community? What advertising and/or marketing channels are you planning to leverage in order to reach them? Digital? Word-of-mouth? Print, TV, and radio? You will need to include specific details of a proposed marketing campaign that explains how and when you plan to utilize these channels and the results you hope to achieve.
This section of a business plan explains the strengths, weaknesses, opportunities and threats of your business (SWOT). Here it’s important that the business owner make an honest assessment of his or her particular work style and personality, notes Terry Powell, the founder of AdviCoach, a business coaching and advisory firm for small- to medium-sized businesses.
“Anticipating any issues that may arise from both the business and leadership side will make business owners better prepared for the long road ahead,” he explains.
Who will you compete against in your target market? If it’s a saturated market, how do you plan on positioning your business and setting it apart from rivals? In other words, say the experts, be sure your business plan details your company’s competitive advantage and the specifc void in the marketplace it fills. “[The competition part of a business plan] is a great source of information on how you should market and where you should market,” says Parsons.
A business plan is an essential document when looking to secure financing from banks or private investors. It should give the reader a well-researched explanation of your business, where it sits among the competition, and what unique features or services it brings to its market. “[A business plan] is not about predicting the future,” insists Parsons. Rather its purpose, he says, is to present intelligent projections that can be instrumental in either launching or growing your business.
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