What is a Business Plan
A business plan for small businesses is a set of documents that are prepared by/with the small business owner. The purpose of a business plan is to demonstrate the feasibility of a business idea, justification of expansion, or update strategic documents that are essential for small business success. It describes the nature of the small business and contains the business goals, reasons why they are attainable, and plans on how to reach them.
A well thought-through business plan is one of the main components of your roadmap to small business success. It provides the foundation and serves as a blueprint to guide policies, and on how to structure, run, and grow your small business. Although a business plan is of particular importance for entrepreneurs at startup, it is critical to keep it updated, at least annually. The reason for this is, viable small businesses are dynamic; they change and grow. Updating your business plan will keep the small business owner on the right track in adapting to changing internal and external conditions. Furthermore, it also allows small business owners to leverage new opportunities and avoid or prepare for emerging threats. To read 7 Reasons Why a Business Plan is Important for Small Businesses – click here.
Remember a good business plan is never done! Going through the thought processes of creating the business plan for your small business is just as, or more, important than the business plan itself.
Outline of Business Plan for Small Businesses
The structure and contents of a business plan for small businesses differs between the type of small business, industry and purpose for preparing it. Below is a detailed outline of a business plan to act as a guide. Pick the topics needed to prepare a custom business plan for your small business.
The executive summary is the most vital part of the business plan for small businesses. It briefly highlights the most important aspects and selling points of your business. It should stimulate interest and encourage stakeholders to read more. The executive summary of the business plan briefly covers your:
- Business idea and why it will be successful (when applicable).
- Key business fundamentals and goals/objectives.
- Products and/or services and justification (why).
- Industry, target market, ideal customers, competition and marketing strategy.
- Management team and their ability to ensure small business success.
- Financial outlook (also funding needs, uses, sources and repayment).
The small business description of the business plan for small businesses covers the most important aspects of interest. Specifically, the business description highlights your strengths while briefly covering:
- Business Philosophy and History: Your business, its vision, mission and values. Problems you are solving. Competitive edge. How long in business, profitability, size and potential growth. key milestones, highlights to date.
- Business Goals and Specific Objectives: Achievable and measurable goals and objectives and the activities to meet them within a specific timeframe.
- Structure and Ownership: Registered where and legal structure. Shareholder details.
- Locations and Facilities: Business’s physical locations (offices, store locations, manufacturing plants and storage facilities). Space availability and meeting of current and future needs. Location’s importance. Current business premises (bought/leased). If needing new facilities, need summary.
- Legal Environment: Legislation (e.g. consumer, business and industry regulations) that impacts your business. Compliance to environmental, health or workplace regulations. Licenses and/or permits.
- Innovation and Intellectual Property: Research and development importance and activities. Trademarks, copyrights or patents and status. Confidentiality Agreements in place.
- Business Insurances: Insurance coverages and costs. Include insurance such as workers compensation, public liability, professional indemnity, product liability and business assets.
- Environmental impact: Impact of your business on the environment and associated risks.
- Community Involvement: Community impact and engagement.
Management and Organization
The purpose of this management and organization section is to build confidence that that you have a qualified team with the ability to run this small business. The management and organization section of the business plan for small businesses include:
- Biographies: Include biographies of the owners and key personnel. Describe each person’s unique experience, expertise, core competencies, and any major achievements/awards. Cover previous experience starting and growing small businesses and how he/she give your business a competitive edge.
- Gaps: How you plan to fill the open positions in the organization chart and/or close any gaps in the lack of management of technical expertise/experience.
- Advisors: List the business leaders advising your small business, including mentors, consultants, attorneys, bankers, accountants, board of directors, etc.
- High Level Organization Chart: The chart shows all the high level the key positions that are already filled or will be filled. Define the roles and responsibilities of each position and how it will contribute to the success of the small business.
- Personnel Plan: Number of people you will employ and timing. Define categories op employees, number, skills, availability, roles, salary and other costs. Elasticity/sensitivity with sales volume changes. Also cover retention, recruitment, training, education, licensing, working hours.
The main purpose of the market analysis is to show that you target market is large enough to build a sustainable small business. Market analysis is the process of determining the attractiveness and the dynamics of a special target market within a specific industry. You as small business owner need to determine the number of potential customers and the value of your market share. The market analysis of the business plan for small businesses includes:
- Industry Analysis: Overview of your industry and position in the industry life cycle. Industry trends and how would changes in the environment (macroeconomic conditions, regulatory and legal conditions, political conditions, available technology, etc.) affect your industry. Potential threats and opportunities within industry. Consider new entrants, bargaining power of buyers/sellers, availability of substitutes, etc.
- Target Market: Through segmentation describe your target market (customers) demographics and buying patterns. Trends in your target market. (growing/shrinking, customer preferences/need or behavior changes). Total size of your target market. Your realistic share of the market and growth potential.
- Market Need: Problem your product/service is solving. Needs of your target market. Buying patterns, behavior and decisions of your target customers.
- Competition: Competitor list including description, market share, size, revenue, profitability, , segments targeted, products/services, marketing, characteristics of offerings, pricing, personnel strengths/ weaknesses. How do they compete with your small business?
- Market Niche: Based on the above clearly define your unique part of the target market and how your small business fits into the industry/target market.
- Entry Barriers: The effect of entry barriers on your small business and your competition. How to overcome them. Consider high costs (startup, marketing, production, etc), specialized needs (production, technology or employee skills), marketing/branding challenges, shortages qualified employees, patents, tariffs and quotas, etc.
Products and Services
Based on the market analysis, the products and services of your small business are described with emphasis on the value provided to your customers/clients. The products and services section of the business plan for small businesses includes:
- Product or Services Description: Short explanation (drawings, technical specifications, photos, etc. attached). Product lifecycle positioning. Essential vendors, manufacturers and/or partners in producing and delivering the product or service to customers (briefly).
- Market Proposition: Market-fit, value to customer and problems solved. Benefits, features and reasons for success. Characteristics that gives them a competitive edge above competition.
- Proprietary Products or Services: Proprietary features providing a competitive advantage. Copyright, patent details, licensing and exclusive agreements.
- Growth potential: Anticipated demand and future growth. Factors influencing growth
The marketing plan is the strategy of how you as small business owner will reach and service your target market. It is based on the marketing analysis and directed to meet your specific marketing goals/objectives. Clearly explain how you see the market, how you are planning to attract customers, and why it should work. The marketing plan of the business plan for small businesses covers the following:
- Positioning: How you position your small business by a differentiation strategy (making your product/service unique by targeting a specific segment of the market) or cost leadership strategy.
- Branding: Small business identification and how your customers recognize and experience your business. Brand image associated with credibility, quality, and satisfaction. How brand materials such as logo, website, packaging and promotional materials will support your brand.
- Target/niche customer: Ideal customer (buyer) in terms of age, gender, location, income, social status, occupation, education and attitudes. Or if it is a business, the industry, location, sales, size, stage in business cycle. List of existing or potential key customers that is key to success and how you will you target and serve them. Customer management and service standards to keep them coming back.
- Selling Proposition: Product/Service differentiators providing you with a competitive edge within your business’s niche (your unique segment of the market). Such as new product/service, pricing, quality, delivery, warranty/guarantee, customer support, service contracts, training, promotions, bundles and refund policy.
- Pricing Model: Pricing strategy and why. Pricing decision, based on cost plus, market, quality or benefits or a combination. Competitor price comparison. Proof of profitability of pricing model. Price sensitivity of customers in buying decisions.
- Distribution Channels: Methods of selling your products and/or services including ecommerce, wholesalers, own retail stores, third party network, door to door, inside sales force, outside sales representatives, OEMs (original equipment manufacturer) and word of mouth. Strategic partnerships or key distributor relationships impacting your success.
- Advertising Channels: Promotional channels such as radio, cable television, online, print media, social media marketing, emails, brochures, flyers, business cards, trade shows, networking. Why and how often?
- Promotional budget: List promotional items and how much do you plan to spend.
- Location (if new): Location need, including marketing considerations such as customer convenience, parking, public transportation and ideal businesses nearby.
- Sales Forecast: Achievable sales revenue, based on historical sales data, analysis of market, trends, salesperson input and marketing strategies. Build and justify your sales estimate based on the “best guess”, as well as “worst case” scenario.
Operational planning deals specifically with the internal operations and resources necessary to produce and deliver your small business’s products or services. The operational plan of the business plan for small businesses covers:
- Building and Location: Operational location requirements including size and type of building (retail, industrial, commercial, etc.), zoning restrictions, etc. Accessibility for employees, suppliers and transportation. Anticipated costs, including rent, maintenance, utilities, insurance and any buildout or remodeling costs.
- Technology: Description and protection of key assets, information technology (hardware and software) and intellectual property. Protection, license agreements, disaster preparedness and contingency planning.
- Production and Distribution: Production and distribution processes description and associated costs. Capital requirements, such as vehicles and equipment specialty tools.
- Quality Control: Consistency requirements and quality control procedures.
- Sourcing and Fulfillment: Key supplier relationships, reliability, scalability, dependencies and backup plans. Negotiated pricing, payment terms, delivery schedule, etc.
- Inventory Management: Inventory requirements, lead times and turnover of raw materials, supplies, work in progress and finished products. Projected value/cost of inventory and comparison to industry/competition.
The financial plan is the part of the business plan that contains the data for financing your small business. It should also show that your business has a low investment risk because it is profitable, stable and has a positive cash-flow. It is important to identify and document the key assumptions underlying your financial forecasts The financial plan of business plan for small businesses covers:
- Start-up Funding: List start-up expenses and determine funding requirements, sources (debt or equity) and preferred terms. Including funding needs to cover capital items (vehicles and equipment) and running expenses until revenue increases. How will you pay off any debt? List current funding secured from investors and ownership received.
- Credit policies: Credit policies including credit extension criteria, creditworthiness evaluation, credit terms, credit cost recovery, late payments, handling slow-paying customers.
- Cost Structure: Analysis of the operational risk of your small business considering operating leverage (degree to the small business can increase operating income by increasing revenue) and breakeven point (sales volume needed to cover costs).
- Financial Outlook: Prospective financial outlook for the next five years includes income statements (profit and loss projection), cash flow statements, balance sheets and capital expenditure budgets. For the first year provide monthly projections. Clearly explain assumptions behind the projected numbers and match them to your funding requests.
- Personal Financial Statements: If you seek financing include detailed personal financial statements for each owner.