Yesterday we detailed the content of a condensed business plan. Today we define what a Detailed Business Plan should consist of.
Without a well-thought-out structure, even the most persuasive arguments can fail to convince the reader. So the first step is to organize it. Listed below is a list you can check off as you progress:
Table of Contents:
- Summary: a brief overview of the plan.
- Business Description: WHAT the company does.
- Market Analysis: WHO the customer is, market size, trends.
- Competitive Analysis: who else is out there, local, domestic, foreign.
- Products/Service Advantages: WHY is your better.
- Objectives: quantifiable targets.
- Marketing Strategy: HOW to reach those targets.
- Operations: how will the company produce.
- Organization and Management: who will run it.
- Timing: when will things happen.
- Financial Information: historical, actual, projected.
- Exhibits/ Appendices: brochures, photos, news clippings, etc.
Serving as a screening device, it enables you to convince the reader that you have a viable business or idea. It should make the reader want to read the complete plan.
Though it appears first, it should be written last and it shouldn’t be longer than one page, including:
- a brief description of the business,
- estimated market potential, and competitive assessment,
- your product’s advantages and market need it will meet,
- your objectives for your business,
- your market strategies,
- how you will make the product or perform the service,
- your experience with the product or service,
- projected sales and profits,
- how much you have or will invest in the product,
- how much financing is needed,
- where financing is coming from and what it will be used for,
- how and when the financing will be repaid.
2) Business Description
Here you describe the business you are or want to be in. It should include:
the legal form of the business (corporation, sole proprietor, etc)
your specific product or service,
the present or proposed location of the business,
your existing or potential customer and their geographic are (domestic or international)
a brief history of the business, how did you get here,
how the business was financed until now,
who are or who will be the owner
Usually the weakest part of many business plans because it reveals that the marketing homework hasn’t been done thoroughly. Here, you must present sufficient evidence proving that there really is a need for your product or service. That there is a demand that will support your business. It is not enough that you believe in the product or service.
In short, this part should include 3 main aspects: a) the need for your product or service, b) how your products or services meets that need, c) how you can sell your product or service at a profit.
The following is a suggested way of organizing this section:
Market Size: Present actual figures of the size of your market for your product or service. It may seem difficult to obtain reliable numbers, but it’s worth the effort. Many SBA’s are willing to help you do this. Include detailed information on the following:
- How much is being spent now on your product or service?
- Is the market growing or not, and what rate? How is the market changing and why?
- Where will the market be in 5 years?How much will the market be spending? Do population or age projections show an impact for the future?
Market Profile: Define existing or potential customers for your product or service, elaborating on the information in the Business Description. This should include:
- Who will buy? If your customers are individuals, what are their demographics (characteristics, age, income level, education, family status, etc.)? How many are there? If your customers are businesses, what kind of businesses, what do they have in common, what are their sizes, are products branded or private label, etc?
- Where are your customers? Are they located in a particular region or area? Describe the characteristics of the region as it may relate to your products, for example: if your business makes winter hats, your customer is mainly in cold regions.
- Why will your product or service be purchased?Elaborate on the need your product or service meets and why the customer will select yours over a competitive choice. Will your product meet a feature or a benefit need? For example: Velcro brand closures are a feature, but if the sneakers make you jump higher or run faster, it’s a benefit.
- When will your product or service be purchased? Is it seasonal, if so, what is the seasonal aspect? Does it tie in with other products or events?
- What is the customer’s expectation for your product in terms of price, quality, service, delivery, packaging, etc?
Describe the companies and products that are or will be your competition, include inports if they aree a factor in your market. Even new products have some type of competition. Include the following information, limiting yourself to the top 5-6 competitors:
How many companies will you be competing against? Where are they located and how long have they been in business?
How do they distribute the product or service? What is their respective market share?
What are their strengths and weaknesses in marketing, operations and finance, and what are their strategies?
How does your product compare in terms of price, quality, service, design, delivery or other features?
Do you intend to take market share away from the competition or will you be creating a new niche market?
Some of this information may seem difficult to obtain, but doing so is the only way you’ll know who and what you are up against. To begin, you have tools available to you like your phone book, catalogs, etc.
5)Product or Services Advantages:
Investors or lenders want to know how your product or service compares to the competition. They want to know what is unique about it and to what degree you’ll have a competitive advantage over similar or existing products, and how long that will last.
Product Description: Define the key features of your product or service and its benefits to potential customers. Compare these with those of your competition. Here you should emphasize your competitive edge -what ‘…er’ your product or service will have (better,faster, cheaper, softer, neater, etc.). If your product or service has any limitations, it should also be specified here, otherwise, you are fooling yourself.
Proprietary Position: if you have one, describe the patent, copyright, or other contractual design or exclusivity or means of protecting your product or service or technology.
Other Barriers to Competition: Describe any barriers that would discourage others from entering the market. These include agreements with manufactures or distributors, high startup or research costs, tie-in sales, etc.
Regulatory Requirements: How is this environment for your products or services? Describe it. Research any pending or proposed rules or legislations that may affect your product or services or the technological process behind it, coming from agencies like your Environmental Protection Agency, the FDA, local licensing, etc.
Product Extension: Where are you going with your product or service? Describe future improvements, developments or directions to meet the changing needs of your market.
This section describes an quantifies your marketing objectives- where will your product or service be and when (how many will you sell, at what price, when will you insert yourself in the market, etc).
Target Markets: From your market analysis, identify the specific market who will you concentrate your business on. Be as detailed as possible, you want to focus your resources on the segment in which you will the greatest chances for success.
Estimated Sales and Market Share: Estimate how much you think you will sell over the next 3 years, starting with quarterly estimates for years 1 and 2. Calculate the market shares that these sales represent. Market share is that percentage of the total market represented by your sales. For example: if $100 million is spent by all the customers who might buy from you and you sell $500,000 you have 0.5% market share. When calculating your sales, start with existing sales commitments to purchase and potential sales. Be realistic when developing your estimates. For example, if you sell to 1 of every 20 customers you speak to and each sale takes you 1 hour, a salesperson can sell 2 orders per week, therefore you will require 2 salespeople to sell 200 orders per year.
Essentially, this should describe HOW you will achieve your marketing objectives. In this section ow will assess the market, the competition, your capabilities and how you will set your product or service apart from the others. You should also consider trend in the market,competitive strengths and weaknesses, voids in the market, market niches, technology, lower costs, advertising, public relations, promotions, quality and service when developing your strategy.
Include the following as well:
Product Features: Review the features of your product or service that meet the needs or demands of the marketplace. Discuss how those needs are met. Describe elements like:
- How the product will be packaged in terms of function and promotion. Does the package need to display, preserve or protect the product? All three? Are there environmental concerns or concerns by the retailer or final seller of the product?
- How will you label the product or describe your service? Additional to promotional information, are there regulatory concerns for label content (ingredient list, nutritional data, warnings, UPC codes, etc.)
- How will you register and use trademarks and identifying images?Discuss your plans to develop, establish and protect the image. If it is unprotected, it can be used by anybody entering the market, what os your investment worth?
- Warranty terms are sometimes a purchasing decision point. What will your terms be, why and what does the market expect?
- Another significant purchasing decision may be service. What will your service policy be an how will it impact operations?
Pricing: This can be the key element in many marketing strategies. It must be carefully thought out. There are may theories for pricing that you may wish to explore and apply. Consider and explain the following:
- How will your price relate to the cost of your product or service? How will it relate to the cost of marketing and promotional efforts? Is couponing or discounting required in the marketplace you will serve?
- How will your price compare to competitive products or services and is the difference worth it?
- How will your price relate to what the market is able and willing to pay? Products targeted for price sensitive low end markets cannot carry a high price.
- How will your pricing strategy enable you to achieve your objectives and how does it relate to your distributing methods? Is multi-tier pricing required? What will the impact of retailer/distributor markups be? Will these add-ons make your product too expensive?
Distribution: Describe how your product or service gets from you to the customer and how that relates to your marketing methods. Some things to consider are:
- The available methods for distribution (direct sales force, distributors, retailers, mail oder, etc.) for similar products or services.
- The methods used by your competition. Will your be different? Why and can this be used to distinguish your product or service?
- If you choose to use a direct sales force, how large will it be? How fast will it grow? How will they be compensated? What expenses will they incur in beyond salaries?
- If you use dealers and distributors, how many do you need? How will you find them?
- In reasonable detail, describe how your distribution methodology will support your strategy and enable you to reach your objectives.
Promotion: How will you make potential customers aware of your products or services?
- What activities are your competitors using (advertising, trade shows, publicity, literature, etc.)?
- What activities do you plan to use that will differentiate you from the competitors? How much do you plan to spend?
- How will you activities reach customers at a purchase decision making point? How will you maintain awareness or uneven sales decision cycles? How will you develop loyalty to your brand?
- How will you schedule these activities? An estimated schedule for literature media, advertising should be provided.
This section describes how you will obtain or produce your products or provide your service. It should include specifics such as:
Location and Space Requirements: If it already exists, where is it? If it doesn’t, where do you plan on putting it, why? What type of space do you need, how much, what will it cost? What is the breakdown by type (20% office, 50% manufacturing, 30% warehouse, etc.)?
Regulatory: Do need or need to avoid anything in the environment? Does the area have to be zoned for your type of operation? Are there concerns for emissions, parking, traffic?
Equipment Requirements: What do you need for manufacturing or service provision? How much does it cost? Is training or special licensing required?
Personnel Requirements: HR are very important to an organization. How many people do you need and what skills should they have? Do they need experience? What are the prevailing wages, is training required, are unions a factor? Provide a roaster of existing personnel and a schedule of planned hires by date and expense.
Production or Service Operations: Describe the process of manufacturing or providing the service. Include the advantages of your process, capacity, quality control systems, potential suppliers, secondary sources for raw materials or subcontract services. Also, a breakdown of fixed and variable expenses, both current and projected. Define cost/sale relationship, is it linear or does it move in incremental steps?
9)Organization and Management:
How is your business organized and who will manage it? Investors or lenders must be convinced that you have people who can run it and that you can attract needed new people. Describe the following:
Organization: Define and provide job descriptions for each manager or employee type, including specific tasks, responsibilities, authority and relationships to the other employees of each job.
Key Managers: Show how your management team has the necessary functional skills in production, marketing, finance, and general management. Describe their experience with your product or service or in a related industry. Provide a brief biography of each key manager, listing past positions and career highlights that show they can do the job. Include resumes in an appendix or an exhibit.
Management Weakness: Are critical skills missing from your management team? Can they be provided be recruitment, training or subcontracting? Identify any weaknesses in your management team and show how you will fix it.
Compensation: How will you compensate each manager? Is there a compensation plan? Will you have bonuses? Is so, describe it in detail. If your plan does not describe pay for you, it will affect its credibility.
Ownership: Provide a list with all the owners and their stake in the business. If a corporation, list all share holders and the number of shares they own, etc.
Board membership- identify who sits on your board of directors and why they were selected. Describe how each one helps your business and indicate any investments they’ve made.
Plan for the next 3-5 years and prepare a schedule reflecting major milestones in your business. A chart can effectively portray this.Address planned product introductions, changes in the workforce or management, noteworthy sales events, significant changed or events in you marketing strategy or the marketplace and significant changes to your customer base.
Prepare a projected financial statement using the sales and cost information developed in the preceding section. You may need a professional to help you with this section unless you have a financial background. Be prepared to present supporting documentation like tax returns from previous years, your accountant’s reports, cash flow projection, income and statement balance sheet. When individuals are seeking investment the Source and Use of Proceeds and Statement of Changes in Working Capital must be included.
Source and Use of Proceeds: If you’re seeking investment, indicate in a summary how much money you need, where will it will come from, how it will be paid back and most importantly how it will be used.
If you are seeking an equity investment, or some other investment vehicle, explain in detail how you see the money coming in, how the investor will realize profits, and how he will be paid back. Include a summary equity ownership table indicating: the number of shares authorized, issued, owned, and owner name.
Cash Flow Projection: This identifies the sources of cash in, out and operating expenses. It will help you plan your cash requirements in both short and long term views. Cash flow projections should be monthly for year 1 and quarterly for subsequent years.
Income Statements and Balance Sheets: These are the standard measure for all businesses. If you are in business, provide statements for the last 3 years. All planners should provide quarterly projections for the next 2 years and annual projections for years 3-5. If you use an accountant to prepare your information provide audited or reviewed statements.The income statement shows revenue, expenses and profit loss. It provides an overview of the operations of your business. The balance sheet identifies the assets and liabilities of your business showing quantitively the sate of your business.
Break-even-Analysis: With this analysis you will be able to understand the specific relationships between your costs and sales. At what volume do your profits start? At what volume do profits dip due to incremental expenses such as new machinery, overtime, etc.? This very important analysis looks at your business as one entity.
Assumptions: For each and every line item in your pro-forma (projected)financial statements indicate the assumption on which it is based, and why. For example, if you say you are spending $10,000 on a new piece of production equipment, have a quotation from the supplier or a copy of a price list. Do your homework on the numbers. Support raw material price with quotations,labor rates with prevailing wage studies (available in may libraries) or union summaries. Many new assumptions, additionally, will flow from earlier sections on objective, marketing strategy, operations, organization, management and timing. If your plan calls for 10 salespeople, they must be reflected in the salary costs you assume. Assumptions are the most likely areas for challenges to your plan. Test the assumptions and be confident in the one you select.
Spread Sheets: Computer spread sheets are sometimes very useful for asking “what if” questions and looking at results under different conditions or scenarios.
Here you will include supportive details for your plan. Resume of key personnel and managers, brochures to further explain products or services, maps showing location of business, tax returns, prior period statements, accountants compilation reports and quotations supporting assumptions in the financial section, copies of patents or similar documentation, flow charts for production or operations and any other supporting or explanatory information that can be referenced by the readers of your plan.
I hope these articles have been insightful and will help you organize yourself and your business accordingly. Weather you choose to write a condensed or detailed business plan, its importance is imperative for decision making and growth.