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The Elements of a Well-Written Business Plan

Filed under Business Planning. Fact checked on May 24, 2012.

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Most business plans are somewhat formulaic, conforming to unwritten standards (read that to mean copying whatever worked before). Unless there is good reason to deviate from the standard, conforming to the formula is one more thing you can do to establish yourself as an astute business person.

The executive summary is arguably the most important section of the business plan. It must be concise, specific, and well-written. Many of the people who review your business plan will decide, based solely on the executive summary, whether to continue reading. A good executive summary provides a brief snapshot of the plan, highlighting sales, spending, and profit summary figures. The summary emphasizes those factors that will make the business a success. It must contain sound numbers for market size, trends, company goals, spending, return on investment, capital expenditures, and funding required.

For new businesses or businesses seeking funding, credibility and excitement are key elements of the executive summary. Venture capitalists receive hundreds of plans each month, and just a few are actually read from cover to cover. A quick 20-second scan of the executive summary is the basis for deciding which plans to read and which companies to interview for investment. When the plan is the vehicle used to attract financing or investment, the executive summary should make it clear to a potential investor why this is a sound investment.

Business Background

The business background section of your business plan generally consists of two to four sections that present information that is specific to your business. You may have gathered substantial information about competitors and the industry in general in the course of considering your business plans. This is not the place for that information. Instead, concentrate solely on characteristics that are specific to your particular business.

The business entity. The business entity portion of the plan provides information that is specific to your business. This document sets forth the current status of operations, the management structure and organization, and identifies key personnel. If the plan is being created for an existing business, historical information should also be included. The business background provides the reader with information regarding:

  • The type of business (e.g., wholesale, retail, manufacturing, service, etc.).
  • The type of legal entity (e.g., corporation, LLC, partnership, sole proprietorship, etc.).
  • When the business was established.
  • Where the business is located.
  • The type of facilities needed, if any (e.g., retail establishment, manufacturing plant, etc.). It may be necessary to devote a separate section to this subject if your facilities are very important to your business.
  • The number and type of employees.
  • The organizational structure (table of organization showing who is responsible for what).
  • The operational information (ie., a schedule of the hours the business is open, etc.).
  • The identity of key employees, including a description of their abilities that make them vital to the success of the business. You may decide to devote a separate section to employees, if you think they are key to your success.

The information provided should go beyond a simple statement of facts. For example, if you chose to incorporate rather than to operate as a sole proprietor, what factors influenced your decision? Explaining why a particular decision was made goes a long way in helping the reader understand your decision-making process.

Tip

Don't forget yourself when you think about key employees, particularly if you're starting a new business. You need to present your educational background and prior business experience in a way that establishes your ability to succeed. While you probably won't include a copy of your resume, much of the information that appears on your resume will appear in the plan. Don't be afraid to present yourself in the most favorable light that you can honestly and objectively portray.

The business background is also the place to identify the goals and objectives of the business by explaining in general terms what business you are in or want to be in. How is it unique and why will your goods or services appeal to customers? This requires consideration of competitors who are appealing to the same customers. Why will customers prefer your business to theirs?

Note that startup businesses face a special challenge when drafting the business background of a business plan. In the absence of an existing business, the background will be evaluated in terms of what the business will do, not what it has done. This makes it even more important to have a clear picture in mind of how your business will look and operate once it's up and running. When you have a track record it's easier to point at the results you've achieved as an indication of your potential for success. Without any history, you'll have to work a little harder to make sure that you have developed and presented a realistic idea of what it will take to make your business work.

Product or service description. If you have reached the point that you are trying to write a description of what it is that your business actually does or sells, you've probably been thinking about your product or service for quite some time. Now is the time to take a step back and reflect. Because of your familiarity with the idea, you will have to consciously avoid giving it short shrift in your plan. Don't provide needless detail, but remember that the product or service idea you have hasn't been kicking around in the heads of the people who might read your plan. It is important to ensure that your reader will be able to understand the exact nature of your product and/or service.

The starting point is a clear and simple statement of what the product is or what service your business will provide. Avoid the temptation to compare your offering to similar services or products offered by others. Reserve that analysis for the marketing plan, where you will discuss competitors and potential competitors.

Instead, focus on those factors that make your offering unique and preferable to customers. Explain what it does, how it works, how long it lasts, what options are available, etc. Of particular importance is whether you are selling a stand alone product (e.g., lunch) or a product that must be used with other products (e.g., computer software or peripheral devices). Be sure to describe the requirements for any associated products (especially vital for software). If there are special requirements for successful use or sale, these must be stated.

Another issue to consider is whether you hope to sell items on a one-time or infrequent basis or whether repeat sales are the goal. If you're opening a bakery or restaurant, you're going to count on the same customers returning on a regular basis. A heating contractor installing a new furnace or a consultant helping to implement a new order processing system probably isn't going to do that for the same client again any time soon. A similar issue is how long the product or service will last and whether you intend to upgrade or supersede the product or service at some point in the future.

Sometimes a useful way to present product or service information is to create a features/benefits analysis. A feature is a specific product attribute or characteristic. A benefit is the advantage a customer or user will derive from the product feature. Consider the following table, which illustrates this type of analysis for a theoretical high-tech wrist watch:

Auto-Watch Features

and Benefits Analysis

Feature Benefit
battery has an indefinite life - recharges whenever watch is exposed to light consumer doesn't have to deal with time, inconvenience, and expense of periodic battery replacement
time signal from National Institute of Standards and Technology updates time automatically by radio consumer never has to set the time and can rely on near absolute accuracy
dial lights up at night when looked at consumer doesn't have to use two hands to see time in dark
receives global positioning satellite signals to determine time zone and exact location consumer doesn't have to adjust watch while traveling

Timing is also an issue. Be realistic about the time it will take to develop the product or service. For example, if you're writing the plan while the first prototype is being built, provide a timetable for completion of development and estimate how long testing will take before production in commercial quantities can begin. Timing issues are also addressed in the financial projections that you prepare and in the market plan you create. Both of those analyses, however, rest on the product or service being available on schedule.

Business facility assessment. There are a number of issues you should address in your business plan regarding the choice of a facility. Not surprisingly, the most important consideration is usually location. The first question to address is why you need a business facility. At one extreme, a consultant may perform most services in space provided by clients. That consultant may not need a facility at all and may maintain a small home office to store reference materials and business records. At the other extreme, a manufacturing business may require access to rail transport, room for manufacturing operations and storage, parking facilities for a lot of employees, etc.

Once you have assessed your facility requirements, you'll also want to look at the cost. There are numerous factors, some unrelated to your business, that will figure into your planning. For example, you may be faced with the choice of leasing property or buying it outright. The trends in the local real estate market could have a big impact on your decision. If real estate prices are rising quickly, buying may provide some protection from the risk of escalating rent and afford a way to mitigate losses if the business doesn't work out.

Your business plan should also describe the basic structure of your facility (age, size, general location) as well as any equipment that you may need for operation.

Planning for people. A business plan can help to organize the roles and responsibilities of all the people involved in your business. Even if it's just for your own benefit, a checklist of all the tasks performed by individuals (or groups of individuals, if you have many employees) may be useful.

In writing your plan, show that you've considered options other than full-time employees. In many cases, a startup business or a business taking on a new product, service, or market will experience a short-term need for a lot of help. How you fill that short-term need for help will be dictated in large part by your expectations regarding business direction and performance. If you choose to use temporary help, what you learn about various temporary help providers and any relationships you establish could be helpful if you have a need for temporary help again.

At one extreme, your business plan can make it clear that you won't ever have any employees. What little you can't do, you'll contract out. Many businesses built around performing services tend to be near this end of the spectrum. At the other extreme, your plan may reveal a need for an exponentially expanding sales force until you have reps in every major city in the US. Your choice in filling short-term needs would be very different, and, in terms of building a sales force, very important.

It can be a little difficult to predict how many people your business is going to need, particularly if you're in a new business. The process of creating a business plan can help a lot. As you consider each of the key areas, you'll develop a picture of all the activities that go into running your business.

Also consider the "key person" concept. Is there anyone whose presence in the business is vital (other than yours)? If so, it makes sense to consider what your business would do in the event that a key player is lost.

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