Parts of a Business Plan
Entrepreneurs and business owners prepare business plans primarily to convince investors to back their business ventures or banks to lend them money. The plan also can serve as a guide for owners, their business partners and managers to follow. A business plan may have five to 10 sections, depending on the type of business and the way the writer wishes to organize and present the plan.
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Executive Summary
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The executive summary is a synopsis of the plan that is ideally presented in one page, though it can be two or three pages if necessary. It highlights the important issues of profitability and returns, size and growth trends of the market, strengths of owners and management and shareholders, use of funds being secured, and operating strategies. The elements are presented in the order in which they appear in the main body of the business plan.
Products and Industry
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A brief background of the company, its products and the industry in which it competes is presented in this section. A brief history of the company, its legal form and mission statement can be a part of this section. The business concept or idea is discussed together with descriptions of the product. The industry, its size and its growth and important trends also are detailed, along with what or who the competitive players are or will be.
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Owners and Management
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Names of major shareholders, whether individuals or corporations, are identified and information is provided about their backgrounds. The management team must also be identified, and their various strengths highlighted. This should include the background of the board of directors and the key personnel in general management, finance, marketing and production as shown on an organizational chart. Some details of these may be carried in appendices. To many investors and lenders, the people behind a company are the main keys to success.
Marketing Analysis
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The objective of this section is to convince the reader that there is a marketing opportunity and that the project proponent has studied it and understands it well. Estimates of demand and supply may be shown here; product characteristics (quality) and prices are compared with the competition; and alternative manners of distribution are discussed. This part of the plan demonstrates that a large enough portion of the market can be captured to make the business viable.
Operating Strategies and Implementation
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The marketing strategy is presented, together with a production plan and a detailed organization plan for each department. Relevant costs also are discussed here, and many of these form the basis for the assumptions that are used in the financial projections in the next section.
Financial Performance and Projections
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To many bankers and prospective investors, this is the most important part of a business plan, even though the projections are the most difficult element to produce. The presentation of financial performance (audited financial statements) for the past three to five years must be brief, with most of it in the appendix. Projections should be more detailed, with all the assumptions identified. Sales and income growth must be highlighted, together with profitability computations, cash flows and usage of funding to be secured. Five-year projections are ideal, with the first year or two being shown on a monthly or quarterly basis.
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