What Are the Key Components of a Business Plan?

Writing an effective business plan is essential to instilling confidence in potential investors that the business is a viable concept with competent people to run it. To write a business plan that meets the demands of investors, several key components should be included, such as: an executive summary, marketing plan, competitive analysis, key personnel and alliances along with projected financials. Additional information is often added to the plan but is not essential, such as internal communications, legalities and social responsibilities.

Executive Summary

This is the first section of a business plan and is simply a summary of everything that is explained in detail within the main body of the business plan. Essentially, this is where the prospective investor is being told everything he is about to learn in a succinct overview. By looking at the executive summary, many investors will know whether the investment meets their needs prior to reading the entire plan.

Marketing Plan

To have an effective marketing plan, the market for the product and service must be discussed. Both are essential in understanding how the product or service offered by the company will fulfill a demand that exists in the marketplace. Beyond just having the capability to fulfill the demand, does the company have the marketing, advertising and sales force to effectively get the product or service distributed?

Competitive Analysis

The competitive analysis reviews who the competition is and how the competition is effectively penetrating the market. This is essential information to understand how the company will be able to compete with those already doing the same or similar thing and how the company will differentiate itself from competitors to be fresh and new to prospects. If there is not a lot of competition already in the market and the need is great, this demonstrates an open field for business development. If competition is already very high, companies need to distinguish what they do better and why the market will buy from them instead of from a competitor.

Management

This is the team of key personnel and any strategic alliances the company has. Management is essential to any company because these are the people who will implement the business plan from product creation to marketing and distribution. Without the right people who have a track record that proves they are capable of this, most investors will walk away from the deal. Alliances would be other companies or executives who may provide support in product design, manufacturing or management mentoring.

Financials

Financials are essential for any investor to feel confident that the team understands the market, real costs of business where profits will be earned. For many start-up companies, the financials are done in a pro forma fashion. This means that figures are placed as hypothetical numbers based on data known to the company. For instance, a company may know how much it will cost to make a widget and what it will cost to market it, but may place a constant in for total sales within the year to demonstrate what revenues for the company might be.

Resources

• Key Components of the Business Plan