9 Components of the Best Business Plan

A business plan is “a formal written document containing business goals, the methods on how these goals can be attained, and the time frame within which these goals need to be achieved.” [2] It also describes certain other things such as:

• the nature of the business. 
• the background information regarding the organization. 
• the financial projections of the organization,
• and it’s intended strategies to achieve the targets. 

Therefore, a business plan is more or less an instruction manual that provides direction to a business in achieving its goal. Simple enough, yet many people fail to see the importance of a business plan. In this blog, you can read about the benefits of a business plan while it is being written, who a business plan can convince, two formats of business plans and a comprehensive look at both types.

Benefits of a Business Plan While It Is Being Written

A business plan instigates more uses even prior to it being made. Some of these are mentioned in Guy Kawasaki’s book ‘Art of the Start’. They are:

• “Writing the plan forces a founding team to work together.” This helps generate a stronger team and one might just find out whom they prefer working with.
• Some issues are overlooked or glossed up during the initial stages. While making the business plan, the team can scrutinize each point and see whether it effectively works for the business.
• It uncovers holes in the team. While making the plan, the team members can easily point out an area that cannot be implemented due to a lack of expertise. Therefore, it helps to find the right person who can fill that void. 

Who Can A Business Plan Convince?

As per an article by Jeff Haden, these are the parties that your business plan might convince to come on board your startup, company or business idea. [3]

• Potential financiers – banks, friends, relatives or whoever can come on board for seed funding
• Potential partners or investors – angel investors or venture capitalists who generally require a business plan to evaluate a business
• Skilled employees – when you need to attract good talent, a business plan helps to convince prospective employees, especially if the business is in a startup phase
• Potential joint ventures – if your startup is almost unknown in the marketplace, then a good idea is to join forces with a more established company and in order to do so, you would have to show a very effective business plan

How to Write the Perfect Business Plan

Firstly, it is much easier to prepare the pitch and then expand it into a plan rather than the other way around. When testing the pitch on different audiences, you would get to find the edits you need to do in your pitch which then further helps you to draft an amended business plan. U.S. Small Business Administration outlines two formats for writing business plans. [4]

1. Traditional Business Plan Format
2. Lean Startup Plan

Traditional Business Plan Format

1. Executive summary

This is the snapshot of your business. Most people do not give much effort while making executive summaries but they fail to understand that this section of the business plan either helps the reader to keep on reading the plan or stop. This is because an executive summary should give a full-fledged snapshot of the entire plan and be enticing enough to make the reader go on. 

2. Company Description

Descriptively write the full details regarding your company. You can address the following:

• Problems that your company solves
• List out the consumers, organizations, or businesses your company wishes to serve
• Reiterate why your company’s present location is a perfect one
• The experts on your team

3. Market Analysis

A good understanding of the industry and target market is required here. You can show what the successful competitors do to keep their market share, what works for them, etc. Also, it would be good to show the trends and themes in a particular industry. At this point, it is essential to do market segmentation also. For example, you might be selling bedding but instead of including everyone who sleeps as your target market, you might like to consider a section such as teenagers who would benefit more if they purchase your product. [5]

4. Organization and Management Structure

A clear picture as to how the company is structured is to be added here. An organization chart could be constructed here that outlines who is responsible for the particular department in your company. As per the U.S. Small Business Administration [6], you can also add resumes of key members and also how each member contributes to the success of your organization.

Another thing that one can add here is the legal structure of the organization, whether it is a sole proprietorship or LLC, C or S corporation, etc. 

5. Product or Service

These are the areas that you should consider highlighting when talking about your company’s product or service:

• Explain how it benefits the customers
• Illustrate the product or service life cycle
• If you have any plans of patenting, copywriting, licensing your product or service
• Also, add plans of doing any further research and development

6. Marketing and Sales

It is good to have an aggressive and strategic marketing plan on board. An article by Entrepreneur sums the following as foolproof pointers to a strong marketing plan. [7]

• Introduce new products
• Extend or regain market for existing products
• Ways in which the company can enter new territories 
• Boosting sales. Be specific and provide details as to which product, market or price range would provide a boost in sales
• Cross-selling or bundling two products together
• Entering into long contracts with desirable clients
• Raising prices without cutting sales figures
• Refining your products
• Enabling a content marketing strategy
• Enhancing manufacturing and product delivery

7. Request for Funding

You have to highlight the correct funding amount that you are requesting and a five-year plan as to how you are planning to use it. Specify the form in which this funding would benefit you such as buying equipment or material, paying for salaries, etc. Also, specify whether this funding request would be a form of debt or equity.

8. Financial Projections

While you are requesting funding, supplement it by providing the financial projections. In case that your business is well established, then add in income statements, cashflows, balance sheets, any collaterals that can be used against a loan, etc. Also, try to use give in future projections with the historical data. Provide projected capital expenditure statements, budgeted cash flows forecasted income statements and balance sheets. 

9. Appendix

Any supporting documents that would help your business plan can be added here. Credit histories, resumes, product pictures, letters of recommendation, licenses, permits, patents, legal documents, etc. should be added here.

Lean Startup Plan Format
This is for those entrepreneurs who would like to explain or start their business quickly. This format supports experimentation and usually benefits those entrepreneurs with startups that are relatively simple. This format follows the nine components as described in the Business Model Canvas. [8]

• Value Proposition – describe the unique value given to the customers
• Key Partnerships – the businesses, partners, key suppliers, services that you will be working with to further your business
• Key Activities – outline the key activities of the business, distribution channels, revenue streams as well as your competitive advantage over other competitors or why you are unique and can outperform others in the industry
• Key Resources – outline your main assets such as staff, capital or intellectual property
• Customer Segments – identify the most important customer segment
• Customer Relationships – see if the relationship is automated or personal, or if it is in person or online. Consider the costs of maintaining a customer from start to finish
• Channels – describe the channels in which your customer segments would like to be reached through and the costs involved in ensuring that they are efficient
• Cost Structure – write out the most inherent costs for your company and how your company is planning to reduce it
• Revenue Streams – Outline how your company actually makes money, be it, direct sales, membership fees, selling advertising space, etc.

This was a detailed blog on the benefits of a business plan while it is being written, who a business plan can convince, two formats of business plans and a comprehensive look at both types. Hope you have enjoyed reading this extensive article. Do let us know of any other points that you would like to discuss by letting us know through the comments section and bookmark Alumni Insider for more insightful articles like this.

References:
1. Featured Image – Tumisu
2. Wikipedia – Business Plans
3. How to Write the Perfect Business Plan: A Comprehensive Guide
4. Write Your Business Plan
5. How to Start a Business
6. Write Your Business Plan
7. 7 Steps to a Perfectly Written Business Plan
8. Business Plans: The Lean Startup Format