To develop a business plan for your business venture is an essential task to do for healthy existence.
This is due to the fact that there is an increasing need for businesses to stand the test of time without being visile out within the first five years of existence.
With this in mind, A Business Plan document is a vital tool that is required to evaluate whether the development of a new business idea or the acquisition of an existing business is wise.
This article is intended for small business owners, those seeking bank loan or grants and those intending to start a small business.
It will help you better understand the business planning process and the key elements of an effective business plan.
1. Business Planning
It is risky to commit your resources or that of an investor to a business venture without first carrying out a feasibility study and develop a Business Plan to guide its development.
A business plan is a workable document that fully explains all aspects of your planned business.
To be successful in business, Planning is vital – without planning your business failure rate will be high.
The first section of this article necessitates a review of some basic information on Business Planning.
A. Business Plan Basics
What is a Business Plan?
- A document that defines the future path of a business
- A document that ‘sells’ your business concept
- A management tool used to track, monitor and evaluate your business progress
- Planning tool
- Summary of how you intend to organize and operate your business
- Blueprint for long-term success
Why prepare one?
- Forces you to think about and confirm all the important aspects of your potential business
- Identifies the investment and cash needs of your business (i.e. how much you will need and when you will need it)
- Helps raise funding from outside sources
- Establishes a benchmark for comparative purposes against actual results over time
- Assesses the industry in which your business will operate
- Assesses the viability of your business idea
- Provides direction to your business idea (i.e. serve as a ‘road map’)
- By following your business plan, it will assist in your overall management and capacity development
- Business Plans help identify your customers and all other market considerations such as competition and pricing
Who reads it?
- Your band council, who may be the main investor
- Your development corporation board, who has the final say in investment decisions
- Potential outside investors or partners
- Financing agencies; banks, aboriginal capital corporations
B. Key Elements of an Effective Plan/Proposal
The planned value of having a business plan is the result of the information you gathered and the knowledge you obtain throughout the process
The under-listed are suggestions that will ensure your business plan is easily read and understood.
Your business plan or proposal document presents your business idea – such that, it is important and accurately reflects your desired end results, and the implementation plan for its achievement
A business plan:
- Needs to be well-formatted and organized, easy to read, and presentable
- Needs to leave a favourable impression because it is the ‘first impression’ your business will leave with outside interests,
- Should be concise and to the point
- Should be based on current research in all relevant areas, such as:
- equipment costs
- operating costs
- marketing costs
- customer data
- Should use a set-up that is applicable to your kind of business and industry
- While there are no hard and fast rules, a plan should not be more than 25 pages in length
C. The Business Planning Process and Business Plan components
I. Project Initiation to Evaluation
Business planning for any business concept or idea should always be a priority.
Ideally, business ideas will flow from your strategic plan, which takes an in-depth look at the current and desired positioning of your faculty.
Business opportunities may present themselves in the results of your Strength, Weakness, Opportunity, and Threat (SWOT) analysis.
The preferred approach is to generate business ideas from within, and sync with your capacity and abilities, rather than from third parties who may not have a sound understanding of your business current situation and dynamics.
By taking a planned approach your company will focus only those potential business initiatives that have a realistic chance of succeeding,
that is a good fit with your business resources, and are in line with your overall business objectives.
After analyzing and prioritizing the available business opportunities, your next step will be to determine the feasibility of the generated business ideas.
A feasibility study is what you do to determine the feasibility of the business whether or not a business idea is worth going after to the next step.
II. Should you get into this business?
A feasibility study involves gathering, analyzing and evaluating information with the purpose of answering the question, “Should I get into this business?”
Answering this question requires a preliminary assessment of yourself and business considerations.
In other words, you need to determine whether or not the project works, and whether or not it can work for you.
During this phase, few key questions to consider which also must be captured in your feasibility study include;
- Do I have the capacity and skills required to carry out this business?
- Can I acquire human resources when necessary?
- Will this business, and the respective industry, work within my territory?
- Is there a ready market for my planned business idea? How big is the market? What is the state of the industry?
- Is the business legal? Do state or federal regulations allow for this kind of business?
- What are the major potential risks? Can I live with the potential risks?
- What level of investment is required? Is it within my means?
III. The Business Plan Document
Once you have narrowed down on your business ideas through analysis and review of a feasibility study, the next step will be to build on the idea and generate your business plan.
The under-listed elements are the key components of a business plan.
These are the vital variables that your readers expect to see in your plan – your aim will be to forestall questions and provide answers beforehand.
Business Plan Components
- Cover Sheet
- Executive Summary
- Table of Contents
- Business Description & Overview
- Products and Services
- Market Analysis
- Key Management and Staffing
- Operational Plan
- Marketing Plan
- Financial Plan
- Implementation Plan
- Appendices and supporting documents
Business Plan Component Description
- Cover Sheet
As noted earlier, your business plan document is your first impression potential investors will have of your business idea.
Your cover sheet should be compelling enough to capture reader interest to read more. it should be interesting and informative.
This section comes first but always prepared last; it summarizes the key points of the business plan.
Keep it 2 pages maximum. This may be the only portion a potential investor will read, so make it interesting and informative.
This should also summarize your financial request. If you are requesting a $25,000 loan, note it here and indicate your repayment plan.
3. Table of Contents
Ensure the table of contents is reader-friendly.
Your aim is to provide a clear path to the information a reader might be searching for in your business plan.
Your page numbering should be intact and correct.
4. Business Description and Overview
This section introduces your business to the reader. Describe your business in terms of:
- type of business (e.g. retail, service)
- Type of ownership and structure
- location, address and contact person
- start date
- the current state of the operation
5. Products and Services
This section describes the products or services your business provides.
A discussion about your product uniqueness, its features or advantages will provide a fair advantage to those seeking your product/service.
If appropriate, information on any technical advantage or information on patents or pending trademarks should be included.
Remember, your business plan is a marketing tool that aims to generate investor interest – don’t undersell your business.
6. Market Analysis
This section details the study and research you have carried out to assess your potential market.
It also discourses a number of market-related issues, including;
- total market size for your product
- your targeting audience
- your competitors and how you plan to compete against them?
- 4 P’s discussion (Product, Price, Place, and Promotion)
7. Key Management and Staffing
Regardless of how structured and well-planned your business plan is, investors or your readers will always want assurances that your company has the capacity and needed management and personnel to power the implementation.
This section outlines your most important asset, your organization, and the team members that will get the job done. Specifically;
- background information (resumes) on key personnel, including yourself
- an organizational chart that outlines who is doing what
- technical abilities, capabilities, and skill set necessary to the business
8. Operational Plan
This section delivers an overview of how the business will run. It will show the connection between your product/service and your market. This portion of the plan should include:
- Description of facilities;
- Operational structure;
- Selling and manufacturing process;
- Description of day-to-day operations; and
- Product delivery processes
9. Marketing Plan
A market analysis defines the actual size and nature of your potential target market.
A marketing plan shows how you intend to reach your market and generate interest. Information should include:
- promotional plan (brochures, advertising, tradeshows, etc.);
- staffing; and
- pricing strategy.
10. Financial Plan
Your financial plan shows the estimated and actual figures to all that is discussed in your business plan.
Key information that should be captured includes:
- initial startup investment costs
- source(s) of funds for start-up
- 3-year financial forecasts captured in;
- Balance sheet
- Cash flow statements
- Income statements
11. Implementation Plan
This section shows to potential investors and readers that if they do provide funding to your business project, that you know what to do next to get started.
Your implementation plan should list key activities with dates for completion. Key activities could also include:
- acquisition of equipment
- buying inventory
- hiring of staff
D. Business Planning Tools
The most referenced business planning tool is our easy business planner which is an interactive tool and can be found through this link.
This business planning tool which has been referenced by many is an interactive downloadable tool. we have templates which are available for product-based and service businesses.
2. Funding Proposals Application
To access government or investors funding, businesses are generally required to apply via a proposal submission process.
Most programs provide proposal templates for businesses to follow, in a nutshell, all funding proposals should include the following elements:
- Invest the time and resources to ensure you present a thoughtful, professional proposal that addresses all of the required elements
- Provide detailed information on your company ability and experience to carry out the proposed program
- Demonstrate by including a section in your proposal that clearly shows that you understand the program requirements
- Outline in your proposed work/approach section, clearly how you intend to approach the project to meet its deliverables
- Reporting and timing should be clearly outlined in a schedule, which illustrates that you know what is required and when it is scheduled to be completed and reported upon.
- Cost is usually a major component of any proposal. Include a complete and detailed breakdown of all the costs associated with the proposal
In summary, ensure your proposal includes the following elements:
Proposal Section Comments & Recommendations
Every proposal must contain an executive summary of the proposal. This summary is significant because it might turn out to be the only section of the submission that is read.
It should be a concise summary housing the main elements of your proposal and should be a maximum of 2 pages.
The summary section is seen first but always prepared last, after you have completed all the main sections.
Most importantly it should answer a key question…most importantly, it should tell Why the funding should be given.
This section introduces and describes your intention to the reader. You should also provide background information about your business in this section, highlighting past achievements in similar projects.
Provide enough information to ensure that an uninformed reader can clearly understand who you are, and the project you wish to receive funding for.
Statement of Need (Fit to Program Requirements)
The program you are applying to has been set up to address a certain need.
In this section, your goal is to clearly describe the situation at hand, and how the program can address it.
Providing statistical data to back up your claims will be an added advantage. Make it easy to understand how the program’s objectives match your business needs.
Project Goals & Objectives
In this section of your proposal, clearly, describe the goals and objectives that you will accomplish with the requested funding.
Your projects goals should be in line with the stated goals and objectives of the program you are applying to.
Ensure that you make a distinction between your goals and objectives.
Objectives are more specific and along with goals should indicate the desired outcomes, and not describe the activities that will be undertaken.
Also ensure that your project’s goals are realistic in relation to your organization, while at the same time, will make a meaningful difference.
This is a key section of your proposal as it describes the approach you will employ to carry out the project activities to reach its goals and objectives.
This section should include the following sub-sections:
- Introduction to approach
- Specific activities that will be undertaken
- By Project Phase or
- by Goal/Objective or by
- Date Order
This section should also describe the resources that you will use to complete the project, including staffing and financial plan.
A work plan could also be developed to illustrate how the project will be completed and by when.
It is important to highlight the changes and improvements that your project will enable.
This is captured as your project outcomes and will include both short- and long-term benefits of the project.
This section is key, as your projects successful outcomes usually become your funding agencies successful outcomes.
If they can demonstrate their success through your efforts, your proposal has a better chance of receiving funding.
Most programs that you will be developing proposals for will have a funding limit. This section of your proposal illustrates how you will conduct your project within the program financial limits.
This limit may be a certain amount or % of project cost or both. The funding agency may have a given format for budget submissions, it is important to follow their directions, including allowable expenditures.
This is also an opportunity to demonstrate how you will leverage the funding of this program with other sources, including your own.
3. Pro-Forma Financial Documents
A standard Business Plan must include Pro-forma balance sheets, income statements, and cash flow statements.
The Balance Sheet is a snapshot of the business at any point in time. In the case of a business start-up, it is often the starting balance sheet. A balance sheet is made up of three parts.
- Assets: Things owned by the business
- Liabilities: Debts a business owes
- Equity: The owners’ investment and re-investment in the business
This is really significant because it gives the reader a fore-knowledge of how the business is currently being financed with the owners’ money (equity) or through the creditors’ money (liabilities).
Cash Flow Statements
A Cash Flow Forecast is undoubtedly the most important financial tool. It is the cash flow that shows you if, and when, you will run out of cash crucial to run your business.
It allows you to take action before certain eventualities occur and even do “what if” calculations before taking on new projects.
The cash flow is a 12-month projection that forecasts the receipts and disbursements for your business.
In a start-up condition, it is better to have a start-up month to specifically show the reader the costs incurred as a result of starting the business.
The purpose of the Income Statement Forecast is to showcase the revenues and expenses of your business for and/or over a given period of time – which is usually one year.
Other terms for this are budgeted income statement or pro forma income statement.
There are three things that need to be predicted to forecast your income statement: the cost of goods projection, the sales projection, and the overhead projection.
Glossary of Terms
- Accounts Payable – Short-term debts acquired as a result of day-to-day actions
- Accounts Receivable – Monies payable to your company resulting from day-to-day actions
- Assets – Items that you own, or are due to you, in your business (e.g. cash, equipment, accounts receivable) that have a positive financial value
- Balance Sheet – A ‘point in time’ financial snapshot listing of all your company’s assets, debts, and equity
- Break-Even Analysis – A mathematical equation that shows the volume of sales needed to allow your business to cover its costs – no profit or loss is made
- Business Plan – A written document that states your business goals, marketing activities, production process, managerial capacity and strengths, and expected financial results for a specific period of time. It is a written framework that evaluates all aspects of your business
- Capital – The funds and assets invested in a business by the owners
- Capitalization requirements – The amount of funding needed to cover initial costs until the business becomes self-sustaining
- Collateral – Assets that are pledged to guarantee a loan
- Current Assets – Assets that can be quickly converted to cash
- Current Liability – A debt due in less than 12 months
- Depreciation – A non-cash expense of doing business (e.g. depreciation in the value of machinery or equipment)
- Direct costs (variable) – Costs that will differ depending on the volume of business production (labor, material, supplies, utilities)
- Financial statements – Reports that summarize the financial condition of the business; usually include balance sheet, statement of operations (or profit/loss statement), and cash flows statement
- Equity – An ownership interest in a business
- Income statement – Shows income and expenses and resulting profit or loss over a specific period of time
- Indirect (fixed) costs – Costs that remain constant regardless of the business activity level (advertising, telephone, travel, general/administrative expenses, depreciation, insurance)
- Liquidity – Ability of your company to pay your short-term debts