by Brandon Reiter
Answering the Tough Questions
If you look online, you’ll find many different structures for a business plan but they all essentially contain the same key information and answer four important questions: What’s the goal of your business? Why will it be successful? How will you make it successful? And how much will it cost to operate? Any coherent business plan answers ALL of these questions. In this article I outline all of the key sections you want to make sure are covered and what to consider while writing them…
Section I: Company Description
The Mission Statement
The first step in writing a business plan is to come up with a convincing mission statement. The first of the four questions: what is the goal of your business?
A mission statement is simply more than, “We sell clothes online”. It’s your MISSION; how will your business improve the lives of your customers? So, let’s try it again. Let’s say your business is, indeed, selling clothes online. A good mission statement may sound something like: To enrich the lives of young women by providing them with high quality clothing at affordable prices.
The Executive Summary
The executive summary is the first real paragraph of your plan, but should be the last thing you finalize. Now that you have a mission statement, you can use it to develop your executive summary which is an elevator pitch on how you plan to achieve your mission. The summary should answer all of the four major questions and how you plan to achieve the answers. While the executive summary should be the last thing you finalize, you should start with a rough draft to give yourself an outline for the rest of the plan. You can go back and keep changing it as you work through the rest of your plan.
The easiest part of the plan is writing the basic facts about your business: address, email, phone number, hours of operation, type of corporation, etc.
Analyzing your industry may sound like a tall task and very time consuming, but it is an important step in creating your plan, nonetheless. The more research you do, the more prepared you will be, but all business won’t require a super in depth analysis.
At a minimum you’ll want to identify all the industries you’re in as most companies are in more than just one. For instance, while Skyview is in the small business consulting industry, it’s also in the financial services industry and the online blogging industry, amongst others. You’ll want to identify key trends in the industries as well as looking at established companies that have been successful in the field. Lastly, you’ll want to focus on where there is room for opportunity, hence why your business can find it’s entry into it.
One of the first things they teach in any business school is how to perform a S.W.O.T analysis: Strengths. Weaknesses. Opportunities. Threats. Performing a S.W.O.T. analysis helps you begin to answer the second, and perhaps most difficult, question: why will your business be successful?
Strengths – What will your business excel at? What is it’s specialty and core competencies? What sets it apart from the established players.
Weaknesses – What are your obstacles? What will you need the most help with? What can prevent you from executing your plan?
Opportunities – You’ve identified this in the industry analysis, but reiterate the opportunities your business will focus on seizing upon specifically withing in the industry on a micro level.
Threats – Similar yet different than weaknesses, threats are things that can jeopardize the feasibility of your business in the long run. These are more macro ideas like general shifts in technology, change in consumer behavior, workforce availability, a GLOBAL PANDEMIC, etc.
Section II: Products & Services
This is pretty self explanatory, but listing out all of your products and services can help jog your memory and come up with other ideas on what you can offer clients.
Section III: Marketing
This right here is the most important part of your plan, answering one of the major questions of the plan: What sets you apart? Your niche can change over time, but in order to begin you want to focus on a segment of your industry you want to focus on. Ideally it’s one that is currently in need of businesses like yours, or often gets overlooked by the major players. For instance, my business is financial consulting, but due to my expertise in camping, I have a focus on summer camps. There are not too many firms like mine that specialize in camps so when camp owner’s stumble upon me, I am more likely to get their business as opposed to another firm that has little experience dealing with camps. Carving out a unique niche and a plan to target a unique set of clients will answer, why your company will be successful.
Now that you’ve identified your niche, specifically state the exact demographics of your target customer. What are their ages? Gender? Nationality? Profession? And so on.
Another self explanatory section, here you want to identify who your main competitors will be. But think outside the box, a competitor does not have to necessarily be in the industry, they just need to be an alternative to your products or services. For example, Netflix famously states that sleep is their main competitor.
Whatever you do, Do NOT say that there is no competition. There’s AWLAYS competition. If you show your plan to a potential investor and they see that you think you won’t have any competition, they will laugh you off and assume you have no idea what you are talking about. You’re starting a business after all, don’t be naïve.
This is a section that changes over time, but is important to think about before you launch. You’ll want to come up with a preliminary budget to spend on advertising, where you’ll advertise, and how often.
What is your initial pricing strategy. This evolves overtime, but you need to start somewhere. If you want to put in more due diligence, you can run a market analysis via surveys to your potential customers to see if they’d be interested in your services and how much they’d be willing to pay for them. This also determines your intended position in the market place. Whichever price point you decide to start with, try to avoid negative words like “cheap” and “expensive”, but rather use more flattering descriptions such as “affordable” or “high quality”.
Section IV: Operation Plan
Your business will look much different in the early stages than it will later on, so here you will describe how you intend to get the business off the ground from an operational standpoint.
Specifically, you’ll want to discuss any partners/partnerships you have, where you’ll be operating from, who’s responsible for what, and other specifics, such as hours of operation and intended hires.
While this may seem like putting the cart before the horse, it is important to think about how you’ll expand when the day comes, because that’s the goal. Going into your business blindly without thinking of an initial expansion plan can lead to some missed opportunities. You’ll want to go over key positions you plan to add once you have more cash and opportunities for hire, what sort of capital requirements you’ll need in order to expand, as well as touching on your advertising plan for expansion.
Management & Organization
Here is where you specifically state who the members of your team are, as well as their qualifications. You’ll also want to list any advisors or partnerships you already have such as business consultants (cough cough) accountants, lawyers, industry experts, etc.
Section V: Start Up Expenses & Capitalization
Now we’re really getting to the meat and potatoes of how this whole thing will start, and what it will take. Consider all of the expenses you’ll need to get off the ground. In terms of capitalization, how will your business be paying for the startup expenses? Are you self funded or will you need outside investors? If the answer is the latter, you’ll want to be very specific in this section as those potential investors will be the main audience for the plan itself, and this is the information they’ll care most about: how much of their money do you need and what for?
Section VI: Financial Plan
My favorite! What can I say? I’m a numbers guy. This section includes two important forecasts: Your 12 month cash flow forecast and your 3-5 year profit and loss forecast. Of course, this question addresses the last main question: How much will it cost to operate?
Cash Flow Forecast
As I mentioned in a previous article, your cash flow represents the wheels of the car that is your business. Forecasting can be very difficult due to the infinite amount of unknowns that lay ahead. But it’s okay! This is just an estimate that is necessary for, not only you (to see if this plan can actually generate money), but for potential investors (for them to visualize how much money can be generated with the specified amount you are asking for).
The forecast represents both the money coming in, which can be in the form of investments, loans, grants, and revenue, as well as the money going out, which can be in the form of expenses, capital expenditures, and distributions (dividends).
There are four important numbers that must be included in the forecast: starting cash for the period (how much self-funding and investments will you start with), incoming cash, outgoing cash, and ending cash for the period.
Profit and Loss Forecast
Like the cash flow forecast, the profit and loss is another rough estimate of the money your company will be generating however, for this, you’ll want to predict a little farther into the future. You can go up to five years, but keeping it at three is more reasonable, in my opinion, as most startups are a completely different business five years down the road compared to when they first start. Unlike the cash flow forecast, the profit and loss forecast focuses solely on that: profit and loss. How much will you do in sales, and how many expenses will you have during your first three years. Make sure to consider your costs as you expand (while your revenues may be growing steadily, your costs for expanding my be more significant).
Make sure to include any sources or graphs you alluded to in your plan in this section. You don’t want to be accused of plagiarizing before you’ve even started!
If you are looking for help writing a business plan, you’ve come to the right place! Schedule a free consultation here to see how Skyview can assist you in creating a comprehensive plan that will help you present to potential investors!