8 Elements of an Effective Business Plan
In our series on starting a business, we have presented some important questions to consider and discussed why the first thing you should do is count the cash. Yet addressing these issues is just the bare bones of starting your company; the business plan puts the flesh on the bone.
You need a business plan to get financing, whether it’s from a bank or your brother-in-law. (OK, maybe not to get financing from your brother-in-law, but it’s useful backup when he starts yelling, “You got me into WHAT?”) Otherwise, if you walk in without a business plan under your arm, you’ll be walking out without funding.
Beyond securing the company’s finances, the business plan also help you as a business owner focus. Putting every detail on paper ultimately lets you identify your company’s strengths and weaknesses and forces you to address both in a balanced way. That may seem daunting but it’s really not that bad. Why?
Well, whether or not you realize it, even a casual conversation about your business draws on at least three elements of an effective business plan: the need for your service, how you provide that service, and what you hope to achieve. These are elements that you unwittingly internalize, often by sheer repetition.
So yes, the business plan is the cornerstone of every conversation with a potential investor, not just the bank but also the brother-in law. Once you put the two on the same level, it gets bit less intimidating, and the business plan becomes just another routine talking point like the weather or the sequester.
1. Problem statement.
The first thing the business plan has to do is show the customer has a problem, even if they don’t know they have it. The problem doesn’t need to be unique or specialized. The most common problem that businesses address is simple yet universal: time. Sure, most anyone could wash their own car or make their own lunch, but if they need to be at their kid’s soccer match in half an hour or at the bank by 12:00, your drive-thru car wash or restaurant will solve a pressing problem. Start by plainly stating that problem.
2. Business description.
Now you need to tell people how you’re going to solve that problem. Your business description should start with the 10-second “elevator pitch” that summarizes what service you provide. Only after that brief summary should you begin to detail how you provide that service. Include exactly what you will provide for the customer, as well as what you won’t. The key to this is that each of the choices you make in your business description will affect how much money you’ll need to start or expand, and how much sales revenue you can expect.
3. Business résumé.
Speaking of money, are you going to need some. Banks and brothers-in-law are finnicky. They will want to be sure you have the you have the experience, education and commitment that translates to success before they invest. You can have a location and formula for the best bakery in the area. But if you can’t toast bread without burning it, the banks may not be interested. (Your brother-in-law may still lend you money, if only because your wife makes him or for his own sinister motives.) To get the help, you will need a statement of everything you have accomplished that has a direct bearing on your business objectives.
4. Marketing plan.
A business plan also has to talk about your marketing plan. This is not your field of dreams; if you build it and don’t tell anyone, I guarantee you they won’t come.
Your marketing plan should range from taking the temperature of the market locally and nationally to settling on a logo for your brand. In your plan, you should detail your target market, how to best reach that market, provide a budget for marketing, break down the competition and determine how to set your business apart.
5. Financial projections.
Even you aren’t looking for investors, you need to be able to show yourself that your business will make money. This should go without saying but you’ll need to check any blind optimism you might have and support that optimism with hard numbers.
So grab your calculator and get crunching because you’ll need the following: a break-even analysis, a profit-and-loss forecast, a cash-flow projection, and a start-up cost estimate. These will determine how much funding you need in the short term and whether your profit can cover your expense.
A responsible financial projection should also include a reliable analysis of future trends and the potential risks around the corner.
If you are looking for investors, then distill this information into a brief summary that includes your current financial standing. It’s the first page your Angel Investors will look for.
6. Personnel plan.
Unless you’re committed going Lone Ranger, chances are that you’ll need some help to run your business. Your personnel plan should outline any temporary or permanent help you may need to support your efforts. Consider the responsibilities and compensation for each position and be prepared for the headache of maintaining a staff schedule–unless you can delegate that to another employee. Yes, employees cost money but you can’t do everything on your own.
7. Specific business goals.
What do you personally want out of your business? Do you want to be your own boss? Do you want flexible hours to be more available for your children? This is the place to establish your personal stake in the business. It’s easy to overlook this, but putting your goals in writing will help you keep your eye on the ball. When you’re unsure about a decision for your business, turn to this page ask whether that decision is in line with your stated goals.
8. Plan summary.
The business plan is meant to be an organized statement of your status and your intent, so it’s important to have one page you hand out that provides an overview of the whole plan. In one page, you should be able to identify your business, the service you offer,and your projected costs and profits. You want to make it as easy as possible for your audience to know those essentials about your business, so put this page somewhere prominent, ideally right next to your financial summary.
These are the basic elements found in most effective business plans, but I’m a business lawyer not a business writer. If you want to learn how to write a business plan, I can point you some experts like John Nicodemus and Joseph Karsner, IV.
In the meantime, good luck and good hunting.
The Fisher Law Office is known for its experience in estate planning, probate administration, asset protection, and business development. Annapolis attorney Randall D. Fisher has practiced for over 20 years, maintains the highest peer review rating for ethics (AV Preeminent) by Martindale-Hubbell, and is a sucker for long walks on the fairways.