A business plan is a statement of your goals for starting a business, and should include reasons these goals are attainable, and how you plan to achieve those goals. This plan can be submitted to investors or lenders for financial backing, and often include 3 year plans and 5 year plans for business success.
Business plans can either be internally focused or externally focused. Externally focused business plans focus on describing long-term goals to external stakeholders such as banks and potential shareholders or board members. Government institutions often create external business plans for tax-payers, other government agencies, and national or international lending agencies.
Internal business plans focus on a subset of goals that must be reached for the long-term goals outlined in the larger, external business plan can be reached. Sometimes, if an existing business decides to radically change the organization, an internal business plan can be submitted to employees and shareholders. Other types of business plans outline when and how new departments are structured and products developed and released.
In a fast-paced modern world, the ideal length for a business plan currently is one page. However, if you have a complicated business model that requires numerous sources of funding, or very detailed long-term goals, you should use the first page as an outline for the whole business, then offer details on additional pages.
How is a Business Plan Used?
Business plans are used for three overarching goals: planning, communication, and management.
The most important use for a business plan, especially before the business is formed, is to create the path the business will follow over the next several years, including when new employees can be hired, new products developed and released, and when the business is expected to become financially solvent. The planning stage also identifies obstacles and how to either avoid them or work around them. The planning aspect will show potential investors at early stages of the business that you, as an entrepreneur, are serious and have put thought into how to create and run a successful organization.
Business plans communicate to financial institutions, potential employees, business partners, and the public that you have intent to form this business and work with the larger community to do so. The business plan communicates in detail how you want to accomplish your goals, which is a necessary aspect of applying for and receiving loans or government assistance.
Once your business is up and running, the plan can be used as a gauge for success. This will help you manage the business by keeping development goals realistic, and keep the business focused. The timelines and milestones can be revised if necessary, but are the best way for you to understand whether or not your business is successful.
Basic Structure of a Business Plan:
- Executive Summary. This statement must be as short as possible for the sake of potential investors. This is an outline of your overall business plan, and should include succinct points answering questions regarding how your business fits in the marketplace, your target market, solutions to problems involving the target market, financial milestones, and who will be part of your management team.
- Company Overview. This document is primarily included in external business plans in order to explain the internal management structure, legal structure, company ownership, and history to potential investors. If your company has a mission statement, that is also often included in the company overview.
- Industrial Analysis. This is your statement of research involving your target market and your competitors.
- Customer Analysis. This section provides further details on your target market, including psychological analysis of their needs and spending habits, as well as their general demographic makeup.
- Competitive Analysis. This section offers further details on your competitors, including their key strengths and weaknesses. Analyzing your competitors will help you and your investors better understand how you fit into the marketplace.
- Marketing Plan. You should use this section to describe your products/services, including your desired brand positioning. Describe how you will reach your customers in your target market, which primarily involves marketing, but could also involve discussion of a distribution plan.
- Operations Plan. This section describes in detail the day-to-day operations of the business that will ensure its success. Typically, this covers between 1 and 3 years, but could go up to 5 years.
- Management Team. Use this section to discuss which positions you will hire, or, if you are an existing company, who works in the upper management and how they are qualified. Also discuss any positions which need to be created and filled.
- Financial Plan. For investors, this section is the most important. Discuss how your operations and marketing will generate revenue to create a successful business. Highlight key assumptions of revenue, and if you are asking for money, discuss how much money you need to start a particular project and project how you will repay the money or earn it back.
- Appendix. Many of us have not dealt with an appendix since college, but this part of the document includes important details regarding sources and customer information that will prove your business plan statements on multiple levels.