The Basic Business Plan
A solid business plan should represent management’s foundation and justification for birthing, growing, operating, and/or selling a business based on present economic and market conditions and future projections. Without a solid plan, a business is destined to operate by trial and error — an approach that often leads to failure.
Herein lies the first lesson of developing a business plan: The business plan should be built from the outside looking in so that any reasonable party can clearly and quickly understand the business concept.
The business plan can come in a multitude of formats and include all types of information, data, graphs, charts, analyses, and more. The basis of every business plan, however, is in four main sections.
The executive summary
The executive summary is a brief overview of the business concept in terms of the market opportunity, the operational logistics required to bring a product and/or service to market, the management team that’s going to make it happen, the amount of capital needed to execute the plan, and the potential economic return.
This section of the business plan is really nothing more than a condensed summary of the entire business concept, presented in a neat and tidy overview of five pages or (hopefully) fewer. The general idea is that the executive summary should capture the critical content of each of the three primary areas of the business plan in an efficient and easy to digest manner.
Although the meat of the business plan resides in the remainder of the document, this section is the most critical in terms of attracting interest from capital sources and/or management. The reader of the business plan must be able to conceptualize, understand, and justify the business concept from the information presented in the executive summary.
This section must gain the reader’s interest, generate some type of excitement, and move him with a sense of urgency to pursue the business opportunity at hand.
Although the executive summary is the first section of the business plan, consider writing it last, so you can draw information from the other sections of the plan. If you write it first, you’re probably going to need to rewrite it later to make it consistent with information in the remaining sections.
The market assessment
The market assessment substantiates the present or future need for a product or service that’s not being met in the current marketplace. Although this section of the business plan isn’t necessarily more important than the others, it takes precedence because without a market for the product or service, a business has no reason to provide it.
You support the business concept by quantifying the size of the market in coordination with qualifying the market need, but that step is only half the battle (and often the easier of the two halves).
Beyond providing information and supporting data on the market size, characteristics, and trends, the market assessment must also present a clear understanding of the business’s competitive niche, target market, and specific marketing strategies.
Identifying the specific niche and target market and developing an effective marketing strategy to capitalize on the opportunity present is often more challenging and critical to the future success of the business venture. And to top it all off, locating reliable and meaningful data essential to supporting your conclusions on the market opportunity can often be difficult.
The operational overview
Following the market segment of the business plan is a well-developed company operating overview. This segment of the business plan addresses a number of operational issues, including personnel requirements, technological needs, locations (for offices, production/manufacturing, warehouses/distribution centers, and so on), company infrastructure requirements, international considerations, professional/expert counsel resources, and the like.
This segment drives various business-operating elements in terms of the resources needed to implement and execute the business plan. For example, if a company is planning on expanding into new foreign markets where the local government still “influences” the distribution channels, then the operating segment needs to address how the product will be distributed and which international partners will be essential to the process.
Business plans often dedicate a large portion of the operational overview to providing an overview of the management team. The overview covers the members’ past credentials as well as their responsibilities with the new business concept.
The market may be ripe and capital plentiful, but without a qualified management team, the business concept will sink more times than not. In today’s challenging economic environment, management qualifications and credibility have taken on an entirely new level of importance, given the heightened sensitivity to management accountability and transparency.
The management team responsible for executing the business plan is a key component of the business plan. Initially, financing and capital sources are lured in by business plans and may turn over any concept in the plan to a slew of professionals for further due diligence, reviews, evaluations, and critique.
For example, if a capital source has concerns over the technological basis within a biomedical company, then medical- or technology-based professionals can be brought in to complete additional research and analysis and either approve or dismiss the idea.
However, the management team standing behind the business plan and its execution is really what the capital and financing sources invest in. The integrity, experience, determination, passion, commitment, and competence of the management team are of utmost importance. Any weakness in this area is likely to drive away investors and their capital.
The financial summary: Performance and required capital
In a sense, the financial summary brings all the elements of the business plan together from an accounting and financing perspective. In the financial summary, financial forecasts project the anticipated economic performance of the business concept based on the information and data presented earlier in the business plan:
The market segment drives the revenue portion of the forecasts, because the information accumulated and presented there substantiates items such as potential unit sales growth (in relation to market size), pricing, and revenue sources by product and service.
The operational overview drives the expense element of the forecast, because it addresses the business cost structure in terms of personnel, assets, company infrastructure, and so on.
You can look at the financial summary as a projected financial report that includes a forecasted income (profit and loss) statement, balance sheet, and cash flow statement. All this information quantifies the capital required to execute the business plan.