Key Elements of a Business Plan
A business plan is a good platform to explain why is the business an opportunity and what makes it so. Is the opportunity something new, maybe based on a special talent the business owner has, it could be that new information has been discovered to create the opportunity, maybe there is an emerging gap in the consumer market that has a need for something to be created, or more provision might be needed in the market for an existing product.
Describe the background that led to the business being formed and its evolution to the present time. The background may be based on the business owner’s historic experiences, education, research, previous business, invention, or a good understanding of the market.
What is the current state of the industry? Is the industry expanding its presence in the market, changing with the advancement of technology, or shrinking due to other influences? Are there a few or a lot of competitors, are they new or well established, are the competitors popular, and approximately what market share might they have. Are there any industry trends that will affect the business opportunity and what affects will the changes create?
Product / Service
It’s helpful when documenting the product/service to provide some detail surrounding its use and the unique features the goods bring to the market.
Are there multiple uses the goods might be used for and are there a range of sizes, models, versions, and upgrades that might be planned? Are the goods for short term use or long term use and are there any value added components that might be combined with the goods. Why are the goods any better than the current goods available to the market, are they price competitive and is there currently a demand for the goods?
Is the business currently developing any new versions of the existing product or are entirely new products being developed that may be innovative for the market?
The strategic intent of a business is the road map the business is about to embark on, with additional information indicating the road map the business will then continue on to reach its intended goals.
The creation of a strategy for the business to enter the market may be very helpful for the business owner to complete, prior to the business entering the market. The entry strategy might temper the rawness of brewing enthusiasm and provide a level headed approach to initiating the business, preparing the owner for the when the multitude of obstacles might appear and how to mitigate them.
The entry strategy should indicate how the company and its goods would be presented to the market, how will the market will be encouraged to purchase goods from the business and what marketing tactics might be employed to create market awareness. The entry strategy should also indicate the owner’s expectations of initial market uptake and the timeframe it should take to reach a level of sustainability.
During the development of the entry strategy, a range of previously unidentified opportunities and obstacles may be realised with time-frame expectations of their occurrence. Having more transparent knowledge of what the initial start-up of a business looks like, will assist in exploiting additional opportunities and mitigating obstacles that weren’t previously visible.
How a business evolves from a start-up and moves into an established business requires a slightly different pathway and set of tools to apply to the business and the market. After the initial rush of consumers purchasing from the newly announced business with its goods of the day, the consumers may not return for some time as the goods might be long lasting, the competitor market might provide better purchasing options, or the consumers simply don’t feel the desire to return.
Planning the next stage of the business strategy to maintain a good level of market share is an important element of ensuring the business remains sustainable. Such a change from initial startup phase to sustainability phase generally occurs in the second and third years of the business.
Business Strategy & Exit Plan.
Business entities have a range of expectations and might be projected to continue for extended periods of time with the intent to grow into something much bigger, or the longevity of a business may be for a set period of time in conjunction with a lease, a trend product or another time based measure.
Business entities that are family owned or have evolved into something bigger than was originally expected tend to have a longevity based on the ability of the owner to continue working, and when the owner’s time in the business has finished, the business tands to be sold, inherited or closed.
The business plan indicates what the longevity expectations of the business are and what the exit strategy of the owners might look like when it’s time for them to exit the business, whether it is succession or inherited ownership, selling the business or simply ending the business.
Brand & Logo
Stakeholders will recognize a business mostly by the brand and logo of the business. The label brings a significant amount of the value into the goods on offer, and equally for business the goods are provided by.
The business plan should indicate the intended messaging that the owner feels they have highlighted in selecting the brand and logo for the business, highlighting what the message is that the brand and logo are presenting to the market. The values, ethics and status of a business are reflected through the design of the brand and logo, delivering transparent and subliminal messaging to the market.
The brand and logo may be joined as one representation, which a number of the larger business entities such as Warehouse, McDonalds, Kentucky Fried Chicken and similar utilize, whilst others separate their brand and logo indicating the perception that their logo is so well recognized that the brand doesn’t need to have a high level of visibility. Examples of brand and logo separation are Nike simply exhibiting a tick on their product, Calvin Klein labelling their product with CK and a selection of other businesses utilizing a similar labelling strategy.
Whichever method of labelling the business has selected to use is ok, as long as the strategy fits the business message, the target market the business is providing to, and the strategy the symbol is based on as identified in the plan.
The business plan should identify the customer group the business is targeting with its goods, indicating the clarity the business has in profiling and identifying the consumer group most likely to purchase its goods. The plan should provide some overview as to why the that particular consumer group has been selected, if there are opportunities to expand into other market segments and how difficult is it gain customers from another market segment.
Market research can be approached in different ways using primary or secondary market research tools.
The market research might include how easy the prospective customers can access and purchase the goods, what the purchasing cycle frequency might be and what obstacles might be experienced by the prospective consumer, or the business in creating a successful purchasing platform. The research can highlight market trends that might be emerging or changing from one way of doing things to another.
Research might consider whether prospective consumers really want or need the goods and how the business could convince the consumers to purchase the goods. It may be necessary to identify the range of similar competitor goods to choose from or do the goods provided by the business have very little competition in the market. The business may have supplier contracts for the goods or may be negotiating a supply contract or preferred supplier programme.
Competition can have a significant impact on a business through their presence in the market and the alternative goods options they might offer. The competition may have benefits the business is unable to match, or alternatively the business may be able to provide the goods with additional benefits that the competitors are unable to match.
The plan can indicate how the business maintains its awareness of what the market is doing by using market evaluation tools to regularly monitor what is occurring in the market and what is emerging.
Financial Components of the Business
The reader of the business plan will be seeking to gain confidence the business has a good level of financial security, and has a reasonable understanding of how to gain the revenue required to be sustainable and further to be profitable.
A component of having a reasonable financial understanding is being able to explain the Gross Margins of the goods on offer, what is the expected gain the business intends to make additionally to the cost of goods sold, and other financial measures indicating overhead costs and profits.
The business might highlight that it has considered all of the fixed and variable overheads that will be incurred from the purchase of raw materials through the point of sale of the goods. Including financial information in a business plan will indicate that the business owner may also be aware of any financial risks that may emerge and changes that might occur in the market that the business should prepare for in the near future.
Emerging risks might consume a percentage of profit currently gained per unit. A good indication of financial risk management is to document the number of unit sales required for the business to become profitable, including the longevity of the goods being sold, which may also indicate the level of expected repeatable business, or the speed in which new versions of the goods are being developed, possibly turning the current goods into an outdated version.
The financial information will assist in presenting a financial overview of what is needed for the business to reach its financial ‘break-even point’ and what is required for the business to remain profitable, allowing the business to gain the revenue required to pay its bills and maintain a good amount of cash-flow.
If the business plan is being compiled for investors, the plan should indicate whether there are existing investors that may or may not have certain financial rights in the business.
Gaining customers can be a challenge for a business, whether they are just starting or have been operating for a period of time. There are various strategies that may be applied to encourage the market to engage and purchase the goods provided by the business, yet not all strategies fit all market climates.
Many businesses use the scatter gun approach by marketing to a large area of the market without targeting any specific market segment. The scatter gun approach can be relatively successful for a portion of businesses yet this method of marketing may not provide the desired results to all business entities and might not be as cost effective as some other methods.
As an example, the push–pull method designed to create a consumer need or desire, with the intent to encourage a specific segment of the market to purchase the goods on offer. Sampling the market to identify what market segments might be most appropriate to target would be beneficial when using a targeted marketing strategy.
Include the pricing structure of the goods in the business plan to provide the reader some knowledge of the value of the goods and how affordable the goods might be.
A sales plan sits within the marketing plan indicating the method of creating consumer awareness and interest in the goods on offer. The sales plan includes an overview of the promotions and advertising the business intends to engage in and the market segments most likely to targeted with such promotions.
A component of marketing is to deliver confidence to the consumer when purchasing the goods on offer. The business may exhibit an amount of confidence in their goods through a guarantee of sorts, a warrantee for a period of time, or some type of service provision that may be connected to the purchase of goods.
The ability of the business to gain its raw materials for the goods it intends to produce can be critical to the function ability of the business. If a business has difficulty in obtaining any of its raw materials, the operation of the business may experience costly delays and further, may not have any goods to sell for a period of time, leaving the business with no sales revenue.
Equally important is being able to get the goods to the point of sale in a manner that is timely, maintains good integrity of the goods and is cost effective. The plan could highlight how the business has reduced the distribution risks and managed distribution overhead.
Design and Development
A portion of business entities may buy in many or all of their goods from other suppliers to on-sell their goods to the market, having little need for design or development of newer versions of their goods. Such businesses could mention their intentions in the business plan of their commitment in seeking the latest models or versions of the goods they are providing to position the business well in the market in comparison to the surrounding competitors.
Other business entities might create their own goods and services to differentiate from possible competitors. When a business is producing their own product, there is a risk of being left behind in the evolution of product improvement by competitors.
A business plan should highlight the product development programme of the business with the intent to evolve the product further, indicating any development risks that might be evident and the intended new versions or new products planned as part of the business strategy.
There are a selection of parameters to consider with product development programmes that might add a level of difficulty to progressing product development. There may be financial constraints through budgets or revenue, legal requirements that need to be adhered to, or propriety protection that needs to be managed. Any parameters that need to be managed should also be included in the business plan.
Manufacturing & Operations
It’s good to indicated in the plan how the business operates whether it’s a retail outlet or a complex manufacturing operation. The operating detail will assist the reader in understanding how simple or complex and cost-heavy the business might be. The business may need to purchase large amounts of equipment or simply decorate the window of a shop front.
Include in the plan whether the business has gained a good level longevity with the facility it’s using. Is the facility owned by the business, maybe a long term lease, or is the facility leased on a month to month basis. Does anything need to be done to the facility to make it suitable for the business, or be made suitable for the goods and the market being provided for?
Is location important to the business, as a manufacturing business may not require a point of sale at its facility and could be remotely located from the market, yet a retail or hospitality outlet may need to be in full view and have high accessibility for the market to purchase their goods?
A business plan should give some guidance to the Organisational Structure of the business. Who does what, who is in charge of the business, and what the internal hierarchy looks like?
The organizational structure helps the reader identify that all areas of responsibility have been accounted for and that there is some amount of order in the chain of internal command. It would be helpful to include the expertise of employees in key positions, indicating the level of collective competency the business has in the management team and other key areas.
If the business has a board of directors, indicate the knowledge value each director brings to the board. Are there independent directors and does the board engage with any advisory body.
The reader may want to understand how the ownership of the business is placed, whether there might be a single owner, multiple owners with various amounts of shares, or a publicly listed business.
Business Risk Management
Every business will have some level of risk that needs to be mitigated at its initial start-up phrase through to a business considering an exit strategy. Listing the business risks in a business plan will indicate to the reader the level of competency the business has in identifying the risks and further documenting what actions would be taken to mitigate the risks.
Noel Rodgers MBA – CMC
For further information on this subject please email Noel Rodgers
E email@example.com M 0274 775583