A business plan optimizes the success of your business by requiring you to analyze the potential successes of and obstacles to your business goals. Business plans are typically used at the start-up of a business and to apply for loans, but they are also very useful when running a business to organize for growth and development. As the Small Business Administration notes, business plans should be a “work-in-progress.”
You will use your business plan when you apply for a loan at a bank or approach a potential investor. You may also circulate it to other interested parties, but you should control who sees the business plan and update the plan as needed.
What Are the Essential Elements of a Business Plan?
While the specifics of a business plan will vary for each business, a business plan generally includes most of the following elements:
Executive Summary — The executive summary should briefly state the core principles of the business including a mission statement, objectives and highlights of the plan. It should not be more than a few pages and will probably be written last.
Market Analysis — The market analysis will summarize the target market. It will analyze trends, needs and growth in the region. It may also include market strategies for growth and information about competition in the industry.
Company Description — The company description provides details on the owner or owners, including background experience, the company location and start-up expenses.
Organization and Management Structure — This section will outline the management head or heads, the departments and personnel plans.
Marketing and Sales Management — The marketing portion will discuss pricing, distribution, promotion and marketing of the business. The sales portion may include sales forecasts or sales programs. Discussion of vendor relationships may be included here.
Service or Product Line — Your business plan should describe what you are selling: the products or services that are the heart of your business.
Funding Request — If you are using your business plan to obtain a loan or to provide potential investors with information, you will need to specify the amount of money you want and the money you may need in the future. You should also specify the purpose of the funds; for example, capital, debt retirement or another purpose.
Financials — The financials portion will include the financial performance of your business for the past three to five years (if it is an existing business) and anticipated performance of the business for the next five years. Start-up businesses will have to estimate expected profits on a monthly basis for the first year and then usually on a quarterly basis for the next two to five years.
Appendix — You should include an appendix to your plan for certain persons. While it will not be attached to your business plan, you should have easy access to it. The appendix will include background information on the business, the owners, the management, permitting, market studies and other items of interest for a lender, creditor or certain investors to allow them to make funding decisions.
The Details Will Optimize Your Business Growth
While drafting a formal business plan may take time and effort, the organization that it requires will help to optimize your business’s potential. And as your business grows, the business plan can serve as a reference for professional contacts and future road map for growth and development.