business plan personnel chapter

How Do You Draft the Personnel Section of the Business Plan? The Personnel Section of a Business Plan Explained.

Privacy Overview

Business Plan Section 3: Organization and Management

This section explains how your business runs and who’s on your team. Learn how to present the information in this section of your business plan.

This section of your business plan, Organization and Management, is where you’ll explain exactly how you’re set up to make your ideas happen, plus you’ll introduce the players on your team.

As always, remember your audience. If this is a plan for your internal use, you can be a little more general than if you’ll be presenting it to a potential lender or investor. No matter what its purpose, you’ll want to break the organization and management section into two segments: one describing the way you’ve set up the company to run (its organizational structure), and the other introducing the people involved (its management).

Business Organization

Having a solid plan for how your business will run is a key component of its smooth and successful operation. Of course, you need to surround yourself with good people, but you have to set things up to enable them to work well with each other and on their own.

It’s important to define the positions in the company, which job is responsible for what, and to whom everyone will report. Over time, the structure may grow and change and you can certainly keep tweaking it as you go along, but you need to have an initial plan.

If you’re applying for funding to start a business or expand one, you may not even have employees to fit all the roles in the organization. However, you can still list them in your plan for how the company will ideally operate once you have the ability to do so.

Obviously, for small businesses, the organization will be far more streamlined and less complicated than it is for larger ones, but your business plan still needs to demonstrate an understanding of how you’ll handle the workflow. At the very least, you’ll need to touch on sales and marketing, administration, and the production and distribution of your product or the execution of your service.

For larger companies, an organizational plan with well-thought-out procedures is even more important. This is the best way to make sure you’re not wasting time duplicating efforts or dealing with internal confusion about responsibilities. A smooth-running operation runs far more efficiently and cost-effectively than one flying by the seat of its pants, and this section of your business plan will be another indication that you know what you’re doing. A large company is also likely to need additional operational categories such as human resources and possibly research and development.

One way to explain your organizational structure in the business plan is graphically. A simple diagram or flowchart can easily demonstrate levels of management and the positions within them, clearly illustrating who reports to whom, and how different divisions of the company (such as sales and marketing) relate to each other.

Here is where you can also talk about the other levels of employees in your company. Your lower-level staff will carry out the day-to-day work, so it’s important to recognize the types of people you’ll need, how many, what their qualifications should be, where you’ll find them, and what they’ll cost.

If the business will use outside consultants, freelancers, or independent contractors, mention it here as well. And talk about positions you’d want to add in the future if you’re successful enough to expand.

Business Management

Now that we understand the structure of your business, we need to meet the people who’ll be running it. Who does what, and why are they onboard? This section is important even for a single practitioner or sole proprietorship, as it will introduce you and your qualifications to the readers of your plan.

Start at the top with the legal structure and ownership of the business. If you are incorporated, say so, and detail whether you are a C or S corporation. If you haven’t yet incorporated, make sure to discuss this with your attorney and tax advisor to figure out which way to go. Whether you’re in a partnership or are a sole owner, this is where to mention it.

List the names of the owners of the business, what percent of the company each of them owns, the form of ownership (common or preferred stock, general or limited partner), and what kind of involvement they’ll have with day-to-day operations; for example, if they’re an active or silent partner.

Here’s where you’ll list the names and profiles of your management team, along with what their responsibilities are. Especially if you’re looking for funding, make sure to highlight the proven track record of these key employees. Lenders and investors will be keenly interested in their previous successes, particularly in how they relate to this current venture.

Include each person’s name and position, along with a short description of what the individual’s main duties will be. Detail his or her education, and any unique skills or experience, especially if they’re relevant to the job at hand. Mention previous employment and any industry awards or recognition related to it, along with involvement with charities or other non-profit organizations.

Think of this section as a resume-in-a-nutshell, recapping the highlights and achievements of the people you’ve chosen to surround yourself with. Actual detailed resumes for you and your management team should go in the plan’s appendix, and you can cross-reference them here. You want your readers to feel like your top staff complements you and supplements your own particular skill set. You also want readers to understand why these people are so qualified to help make your business a success.

This section will spell out the compensation for management team members, such as salary, benefits, and any profit-sharing you might be offering. If any of the team will be under contract or bound by non-compete agreements, you would mention that here, as well.

If your company will have a Board of Directors, its members also need to be listed in the business plan. Introduce each person by name and the position they’ll hold on the board. Talk about how each might be involved with the business (in addition to board meetings.

Similar to what you did for your management team, give each member’s background information, including education, experience, special skills, etc., along with any contributions they may already have had to the success of the business. Include the full resumes for your board members in the appendix.

Alternately, if you don’t have a Board of Directors, include information about an Advisory Board you’ve put together, or a panel of experts you’ve convened to help you along the way. Having either of these, by the way, is something your company might want to consider whether or not you’re putting together the organization and management section or your business plan.

NEXT ARTICLE > Business Plan Section 4: Products and Services

Apply for a loan, get started.

Loans from $5,000 - $100,000 with transparent terms and no prepayment penalty. Tell us a little about yourself, your business and receive your quote in minutes without impacting your credit score.

Thanks for applying!

Loans are originated and funded through our lending arm, Accion Opportunity Fund Community Development. By clicking “Continue to Application,” you consent to, Accion Opportunity Fund Community Development’s Terms of Use and Privacy Policy ; and to receive emails, calls and texts , potentially for marketing purposes, including autodialed or pre-recorded calls. You may opt out of receiving certain communications as provided in our Privacy Policy .

How to Write the Management Team Section of a Business Plan

• Small Business
• Business Planning & Strategy
• Write a Business Plan
• ')" data-event="social share" data-info="Pinterest" aria-label="Share on Pinterest">
• ')" data-event="social share" data-info="Reddit" aria-label="Share on Reddit">
• ')" data-event="social share" data-info="Flipboard" aria-label="Share on Flipboard">

How to Write a List of Key Company Principals

How to write a bio that sells you and your company, what are the functions of a business plan.

• How to Make a Creative "About Me" on Facebook
• How to Write Your Business Proposal

Of course, they'll read the market analysis section – and you can expect them to linger over the financial projections section. But if there's one section of a business plan that may carry the greatest weight with lenders, investors and potential strategic partners, it's the management team section. This is where you provide details about the education, qualifications and experience that you and your management team bring to your small business. Written in a crisp and focused manner, the management team section should help those third parties recognize what sets your business apart from others. And it should give meaning to that oft-repeated business maxim: “I don't invest in ideas; I invest in people.”

Gather Key Information

Before you put pen to paper – or your fingers to the keyboard – gather the information you need on your management team. At the least, you should have their resumes handy – and include them in the appendix of your business plan.

Also, be prepared to speak with members of your management team to fill in any blanks. Structure the management team section to include:

• An organizational chart of your small business, including departments, department managers and employees. Biographical information about you, the owner, and any other owners. Specify your ownership percentage and exactly what your day-to-day responsibilities will be. Biographical information on your management team.* The credentials of any advisers who will be at your side providing expert advice, such as an accountant and a lawyer.

One Paragraph Poses One Big Challenge

Like many small-business owners, you may not think of yourself as a writer. So you may be relieved to know that you should devote only about one paragraph to each person you profile in the management section. But in the end, that should be one substantive paragraph, and it will require some finesse to pull it off.

As many writers will attest, being verbose isn't difficult; being concise yet enlightening can be a challenge. Put another way, you want to include only the most relevant and insightful information about your management team – and you want to be quick about it. So be prepared to edit your words ruthlessly as you structure the paragraph to include the team members' info:

• Name and title. Education and professional credentials and some personal information. Primary responsibilities at your small business.

Expand the Second Component

Providing names and titles should be the easy part. The most robust part of your paragraph should proceed with ease if you include:

• Education credentials, including college and major, and any relevant certifications. Employment highlights. Pick the last or last two titles and company affiliations unless there is something truly stellar in someone's past worth mentioning. Skills or specialties, meaning those things that someone truly excels at or is known for.* Notable accomplishments, which can serve as a subliminal message that they can be repeated at your small business.
• Personal insights, which may include anything from community involvement to someone's rationale for joining your company. You have a lot of latitude here, so try to think in terms of what conveys the mark of a can-do, energetic person. If you're impressed by it, chances are someone reading your business plan will be too.

Spell Out the Third Component

Because you opened the paragraph with the person's name and title, you want to close it with a summation of the contributions you expect the person to make. Discretion here is important; you want to demonstrate to people reading your business plan that you've hired accomplished people, but you don't want to stray into the realm of hyperbole, either.

This said, after spelling out so many numbers and analytics in your business plan, the management section is your chance to expose the human side of your business. A good balance can be found in this paragraph:

Thomas Cole, Director of Marketing A mass communication graduate of Illinois State University, Tom brings to us nearly 20 years of marketing experience and a proven ability to integrate best practices into emerging businesses. Websites, smartphones and digital marketing all came of age as the proud redbird worked as a district marketing manager for ABC Media and then marketing manager for XYZ Newspaper Group, both in Chicago. Tom helped these companies navigate sea changes in the newspaper industry and return to profitability by developing imaginative and synergistic marketing campaigns. We expect him to replicate these efforts at Write-On Marketing, at least when he's not busy critiquing the latest creations at his family's award-winning Illinois winery.

Assuming that you believe people are your greatest asset, write your management section like the proud small-business owner you are – your instincts should serve you well.

• NFIB: Parts of a Business Plan: 7 Essential Sections
• Inc.: How to Write a Great Business Plan: Management Team
• Entrepreneur: First Steps: Writing the Management Section of Your Business Plan
• BP Plans: Coffee Export Business Plan

Mary Wroblewski earned a master's degree with high honors in communications and has worked as a reporter and editor in two Chicago newsrooms. Then she launched her own small business, which specialized in assisting small business owners with “all things marketing” – from drafting a marketing plan and writing website copy to crafting media plans and developing email campaigns. Mary writes extensively about small business issues and especially “all things marketing.”

Related Articles

What is an appendix in a business plan, how to write an executive summary on a marketing plan, what are the components of a good business plan, what are the 4 important parts of a business plan, why is an effective business plan introduction important, how to display your bio on wordpress, definition of a swot analysis, final summary for a marketing plan, opening statements for a sales letter, most popular.

• 1 What Is an Appendix in a Business Plan?
• 2 How to Write an Executive Summary on a Marketing Plan
• 3 What Are the Components of a Good Business Plan?
• 4 What Are the 4 Important Parts of a Business Plan?

• Search Search Please fill out this field.
• Building Your Business
• Becoming an Owner
• Business Plans

How To Write the Management Section of a Business Plan

Susan Ward wrote about small businesses for The Balance for 18 years. She has run an IT consulting firm and designed and presented courses on how to promote small businesses.

Ownership Structure

Internal management team, external management resources, human resources, frequently asked questions (faqs).

When developing a business plan , the 'management section' describes your management team, staff, resources, and how your business ownership is structured. This section should not only describe who's on your management team but how each person's skill set will contribute to your bottom line. In this article, we will detail exactly how to compose and best highlight your management team.

Key Takeaways

• The management section of a business plan helps show how your management team and company are structured.
• The first section shows the ownership structure, which might be a sole proprietorship, partnership, or corporation.
• The internal management section shows the department heads, including sales, marketing, administration, and production.
• The external management resources help back up your internal management and include an advisory board and consultants.
• The human resources section contains staffing requirements—part-time or full-time—skills needed for employees and the costs.

This section outlines the legal structure of your business. It may only be a single sentence if your business is a sole proprietorship. If your business is a partnership or a corporation, it can be longer. You want to be sure you explain who holds what percentage of ownership in the company.

The internal management section should describe the business management categories relevant to your business, identify who will have responsibility for each category, and then include a short profile highlighting each person's skills.

The primary business categories of sales, marketing , administration, and production usually work for many small businesses. If your business has employees, you will also need a human resources section. You may also find that your company needs additional management categories to fit your unique circumstances.

It's not necessary to have a different person in charge of each category; some key management people often fill more than one role. Identify the key managers in your business and explain what functions and experience each team member will serve. You may wish to present this as an organizational chart in your business plan, although the list format is also appropriate.

Along with this section, you should include the complete resumés of each management team member (including your own). Follow this with an explanation of how each member will be compensated and their benefits package, and describe any profit-sharing plans that may apply.

If there are any contracts that relate directly to your management team members, such as work contracts or non-competition agreements, you should include them in an Appendix to your business plan.

While external management resources are often overlooked when writing a business plan , using these resources effectively can make the difference between the success or failure of your managers. Think of these external resources as your internal management team's backup. They give your business credibility and an additional pool of expertise.

Advisory Board

An Advisory Board can increase consumer and investor confidence, attract talented employees by showing a commitment to company growth and bring a diversity of contributions. If you choose to have an Advisory Board , list all the board members in this section, and include a bio and all relevant specializations. If you choose your board members carefully, the group can compensate for the niche forms of expertise that your internal managers lack.

When selecting your board members, look for people who are genuinely interested in seeing your business do well and have the patience and time to provide sound advice.

Recently retired executives or managers, other successful entrepreneurs, and/or vendors would be good choices for an Advisory Board.

Professional Services

Professional Services should also be highlighted in the external management resources section. Describe all the external professional advisors that your business will use, such as accountants, bankers, lawyers, IT consultants, business consultants, and/or business coaches. These professionals provide a web of advice and support outside your internal management team that can be invaluable in making management decisions and your new business a success .

The last point you should address in the management section of your business plan is your human resources needs. The trick to writing about human resources is to be specific. To simply write, "We'll need more people once we get up and running," isn't sufficient. Follow this list:

• Detail how many employees your business will need at each stage and what they will cost.
• Describe exactly how your business's human resources needs can be met. Will it be best to have employees, or should you operate with contract workers or freelancers ? Do you need full-time or part-time staff or a mix of both?
• Outline your staffing requirements, including a description of the specific skills that the people working for you will need to possess.
• Calculate your labor costs. Decide the number of employees you will need and how many customers each employee can serve. For example, if it takes one employee to serve 150 customers, and you forecast 1,500 customers in your first year, your business will need 10 employees.
• Determine how much each employee will receive and total the salary cost for all your employees.
• Add to this the cost of  Workers' Compensation Insurance  (mandatory for most businesses) and the cost of any other employee benefits, such as company-sponsored medical and dental plans.

After you've listed the points above, describe how you will find the staff your business needs and how you will train them. Your description of staff recruitment should explain whether or not sufficient local labor is available and how you will recruit staff.

When you're writing about staff training, you'll want to include as many specifics as possible. What specific training will your staff undergo? What ongoing training opportunities will you provide your employees?

Even if the plan for your business is to start as a sole proprietorship, you should include a section on potential human resources demands as a way to demonstrate that you've thought about the staffing your business may require as it grows.

Business plans are about the future and the hypothetical challenges and successes that await. It's worth visualizing and documenting the details of your business so that the materials and network around your dream can begin to take shape.

What is the management section of a business plan?

The 'management section' describes your management team, staff, resources, and how your business ownership is structured.

What are the 5 sections of a business plan?

A business plan provides a road map showing your company's goals and how you'll achieve them. The five sections of a business plan are as follows:

• The  market analysis  outlines the demand for your product or service.
• The  competitive analysis  section shows your competition's strengths and weaknesses and your strategy for gaining market share.
• The management plan outlines your ownership structure, the management team, and staffing requirements.
• The  operating plan  details your business location and the facilities, equipment, and supplies needed to operate.
• The  financial plan  shows the map to financial success and the sources of funding, such as bank loans or investors.

SCORE. " Why Small Businesses Should Consider Workers’ Comp Insurance ."

How to Write a Business Plan: Step-by-Step Guide + Examples

Noah Parsons

24 min. read

Updated March 18, 2024

Writing a business plan doesn’t have to be complicated. 

In this step-by-step guide, you’ll learn how to write a business plan that’s detailed enough to impress bankers and potential investors, while giving you the tools to start, run, and grow a successful business.

• The basics of business planning

If you’re reading this guide, then you already know why you need a business plan . 

You understand that planning helps you: 

• Raise money
• Grow strategically
• Keep your business on the right track 

As you start to write your plan, it’s useful to zoom out and remember what a business plan is .

At its core, a business plan is an overview of the products and services you sell, and the customers that you sell to. It explains your business strategy: how you’re going to build and grow your business, what your marketing strategy is, and who your competitors are.

Most business plans also include financial forecasts for the future. These set sales goals, budget for expenses, and predict profits and cash flow. 

A good business plan is much more than just a document that you write once and forget about. It’s also a guide that helps you outline and achieve your goals. 

After completing your plan, you can use it as a management tool to track your progress toward your goals. Updating and adjusting your forecasts and budgets as you go is one of the most important steps you can take to run a healthier, smarter business. 

We’ll dive into how to use your plan later in this article.

There are many different types of plans , but we’ll go over the most common type here, which includes everything you need for an investor-ready plan. However, if you’re just starting out and are looking for something simpler—I recommend starting with a one-page business plan . It’s faster and easier to create. 

It’s also the perfect place to start if you’re just figuring out your idea, or need a simple strategic plan to use inside your business.

Dig deeper : How to write a one-page business plan

Brought to you by

Create a professional business plan

Using ai and step-by-step instructions.

Secure funding

Validate ideas

Build a strategy

• What to include in your business plan

Executive summary

The executive summary is an overview of your business and your plans. It comes first in your plan and is ideally just one to two pages. Most people write it last because it’s a summary of the complete business plan.

Ideally, the executive summary can act as a stand-alone document that covers the highlights of your detailed plan. 

In fact, it’s common for investors to ask only for the executive summary when evaluating your business. If they like what they see in the executive summary, they’ll often follow up with a request for a complete plan, a pitch presentation , or more in-depth financial forecasts .

Your executive summary should include:

• A summary of the problem you are solving
• A description of your product or service
• An overview of your target market
• A brief description of your team
• A summary of your financials
• Your funding requirements (if you are raising money)

Dig Deeper: How to write an effective executive summary

Products and services description

This is where you describe exactly what you’re selling, and how it solves a problem for your target market. The best way to organize this part of your plan is to start by describing the problem that exists for your customers. After that, you can describe how you plan to solve that problem with your product or service. 

This is usually called a problem and solution statement .

To truly showcase the value of your products and services, you need to craft a compelling narrative around your offerings. How will your product or service transform your customers’ lives or jobs? A strong narrative will draw in your readers.

This is also the part of the business plan to discuss any competitive advantages you may have, like specific intellectual property or patents that protect your product. If you have any initial sales, contracts, or other evidence that your product or service is likely to sell, include that information as well. It will show that your idea has traction , which can help convince readers that your plan has a high chance of success.

Market analysis

Your target market is a description of the type of people that you plan to sell to. You might even have multiple target markets, depending on your business. 

A market analysis is the part of your plan where you bring together all of the information you know about your target market. Basically, it’s a thorough description of who your customers are and why they need what you’re selling. You’ll also include information about the growth of your market and your industry .

Try to be as specific as possible when you describe your market. 

Include information such as age, income level, and location—these are what’s called “demographics.” If you can, also describe your market’s interests and habits as they relate to your business—these are “psychographics.” 

Related: Target market examples

Essentially, you want to include any knowledge you have about your customers that is relevant to how your product or service is right for them. With a solid target market, it will be easier to create a sales and marketing plan that will reach your customers. That’s because you know who they are, what they like to do, and the best ways to reach them.

Next, provide any additional information you have about your market. 

What is the size of your market ? Is the market growing or shrinking? Ideally, you’ll want to demonstrate that your market is growing over time, and also explain how your business is positioned to take advantage of any expected changes in your industry.

Dig Deeper: Learn how to write a market analysis

Competitive analysis

Part of defining your business opportunity is determining what your competitive advantage is. To do this effectively, you need to know as much about your competitors as your target customers. 

Every business has some form of competition. If you don’t think you have competitors, then explore what alternatives there are in the market for your product or service. 

For example: In the early years of cars, their main competition was horses. For social media, the early competition was reading books, watching TV, and talking on the phone.

A good competitive analysis fully lays out the competitive landscape and then explains how your business is different. Maybe your products are better made, or cheaper, or your customer service is superior. Maybe your competitive advantage is your location – a wide variety of factors can ultimately give you an advantage.

Dig Deeper: How to write a competitive analysis for your business plan

Marketing and sales plan

The marketing and sales plan covers how you will position your product or service in the market, the marketing channels and messaging you will use, and your sales tactics. 

The best place to start with a marketing plan is with a positioning statement . 

This explains how your business fits into the overall market, and how you will explain the advantages of your product or service to customers. You’ll use the information from your competitive analysis to help you with your positioning. 

For example: You might position your company as the premium, most expensive but the highest quality option in the market. Or your positioning might focus on being locally owned and that shoppers support the local economy by buying your products.

Once you understand your positioning, you’ll bring this together with the information about your target market to create your marketing strategy . 

This is how you plan to communicate your message to potential customers. Depending on who your customers are and how they purchase products like yours, you might use many different strategies, from social media advertising to creating a podcast. Your marketing plan is all about how your customers discover who you are and why they should consider your products and services. 

While your marketing plan is about reaching your customers—your sales plan will describe the actual sales process once a customer has decided that they’re interested in what you have to offer. 

If your business requires salespeople and a long sales process, describe that in this section. If your customers can “self-serve” and just make purchases quickly on your website, describe that process. 

A good sales plan picks up where your marketing plan leaves off. The marketing plan brings customers in the door and the sales plan is how you close the deal.

Together, these specific plans paint a picture of how you will connect with your target audience, and how you will turn them into paying customers.

Dig deeper: What to include in your sales and marketing plan

Business operations

The operations section describes the necessary requirements for your business to run smoothly. It’s where you talk about how your business works and what day-to-day operations look like. 

Depending on how your business is structured, your operations plan may include elements of the business like:

• Supply chain management
• Manufacturing processes
• Equipment and technology
• Distribution

Some businesses distribute their products and reach their customers through large retailers like Amazon.com, Walmart, Target, and grocery store chains. 

These businesses should review how this part of their business works. The plan should discuss the logistics and costs of getting products onto store shelves and any potential hurdles the business may have to overcome.

If your business is much simpler than this, that’s OK. This section of your business plan can be either extremely short or more detailed, depending on the type of business you are building.

For businesses selling services, such as physical therapy or online software, you can use this section to describe the technology you’ll leverage, what goes into your service, and who you will partner with to deliver your services.

Dig Deeper: Learn how to write the operations chapter of your plan

Key milestones and metrics

Although it’s not required to complete your business plan, mapping out key business milestones and the metrics can be incredibly useful for measuring your success.

Good milestones clearly lay out the parameters of the task and set expectations for their execution. You’ll want to include:

• A description of each task
• The proposed due date
• Who is responsible for each task

If you have a budget, you can include projected costs to hit each milestone. You don’t need extensive project planning in this section—just list key milestones you want to hit and when you plan to hit them. This is your overall business roadmap. 

Possible milestones might be:

• Website launch date
• Store or office opening date
• First significant sales
• Break even date
• Business licenses and approvals

You should also discuss the key numbers you will track to determine your success. Some common metrics worth tracking include:

• Conversion rates
• Customer acquisition costs
• Profit per customer
• Repeat purchases

It’s perfectly fine to start with just a few metrics and grow the number you are tracking over time. You also may find that some metrics simply aren’t relevant to your business and can narrow down what you’re tracking.

Dig Deeper: How to use milestones in your business plan

Organization and management team

Investors don’t just look for great ideas—they want to find great teams. Use this chapter to describe your current team and who you need to hire . You should also provide a quick overview of your location and history if you’re already up and running.

Briefly highlight the relevant experiences of each key team member in the company. It’s important to make the case for why yours is the right team to turn an idea into a reality. 

Do they have the right industry experience and background? Have members of the team had entrepreneurial successes before? 

If you still need to hire key team members, that’s OK. Just note those gaps in this section.

Your company overview should also include a summary of your company’s current business structure . The most common business structures include:

• Sole proprietor
• Partnership

Be sure to provide an overview of how the business is owned as well. Does each business partner own an equal portion of the business? How is ownership divided? 

Potential lenders and investors will want to know the structure of the business before they will consider a loan or investment.

Dig Deeper: How to write about your company structure and team

Financial plan

Last, but certainly not least, is your financial plan chapter. 

Entrepreneurs often find this section the most daunting. But, business financials for most startups are less complicated than you think, and a business degree is certainly not required to build a solid financial forecast. 

A typical financial forecast in a business plan includes the following:

• Sales forecast : An estimate of the sales expected over a given period. You’ll break down your forecast into the key revenue streams that you expect to have.
• Expense budget : Your planned spending such as personnel costs , marketing expenses, and taxes.
• Profit & Loss : Brings together your sales and expenses and helps you calculate planned profits.
• Cash Flow : Shows how cash moves into and out of your business. It can predict how much cash you’ll have on hand at any given point in the future.
• Balance Sheet : A list of the assets, liabilities, and equity in your company. In short, it provides an overview of the financial health of your business. 

A strong business plan will include a description of assumptions about the future, and potential risks that could impact the financial plan. Including those will be especially important if you’re writing a business plan to pursue a loan or other investment.

Dig Deeper: How to create financial forecasts and budgets

This is the place for additional data, charts, or other information that supports your plan.

Including an appendix can significantly enhance the credibility of your plan by showing readers that you’ve thoroughly considered the details of your business idea, and are backing your ideas up with solid data.

Just remember that the information in the appendix is meant to be supplementary. Your business plan should stand on its own, even if the reader skips this section.

Dig Deeper : What to include in your business plan appendix

Optional: Business plan cover page

Adding a business plan cover page can make your plan, and by extension your business, seem more professional in the eyes of potential investors, lenders, and partners. It serves as the introduction to your document and provides necessary contact information for stakeholders to reference.

Your cover page should be simple and include:

• Company logo
• Business name
• Value proposition (optional)
• Business plan title
• Completion and/or update date
• Address and contact information
• Confidentiality statement

Just remember, the cover page is optional. If you decide to include it, keep it very simple and only spend a short amount of time putting it together.

Dig Deeper: How to create a business plan cover page

How to use AI to help write your business plan

Generative AI tools such as ChatGPT can speed up the business plan writing process and help you think through concepts like market segmentation and competition. These tools are especially useful for taking ideas that you provide and converting them into polished text for your business plan.

The best way to use AI for your business plan is to leverage it as a collaborator , not a replacement for human creative thinking and ingenuity. 

AI can come up with lots of ideas and act as a brainstorming partner. It’s up to you to filter through those ideas and figure out which ones are realistic enough to resonate with your customers. 

There are pros and cons of using AI to help with your business plan . So, spend some time understanding how it can be most helpful before just outsourcing the job to AI.

Learn more: 10 AI prompts you need to write a business plan

• Writing tips and strategies

To help streamline the business plan writing process, here are a few tips and key questions to answer to make sure you get the most out of your plan and avoid common mistakes .  

Determine why you are writing a business plan

Knowing why you are writing a business plan will determine your approach to your planning project. 

For example: If you are writing a business plan for yourself, or just to use inside your own business , you can probably skip the section about your team and organizational structure. 

If you’re raising money, you’ll want to spend more time explaining why you’re looking to raise the funds and exactly how you will use them.

Regardless of how you intend to use your business plan , think about why you are writing and what you’re trying to get out of the process before you begin.

Keep things concise

Probably the most important tip is to keep your business plan short and simple. There are no prizes for long business plans . The longer your plan is, the less likely people are to read it. 

So focus on trimming things down to the essentials your readers need to know. Skip the extended, wordy descriptions and instead focus on creating a plan that is easy to read —using bullets and short sentences whenever possible.

Have someone review your business plan

Writing a business plan in a vacuum is never a good idea. Sometimes it’s helpful to zoom out and check if your plan makes sense to someone else. You also want to make sure that it’s easy to read and understand.

Don’t wait until your plan is “done” to get a second look. Start sharing your plan early, and find out from readers what questions your plan leaves unanswered. This early review cycle will help you spot shortcomings in your plan and address them quickly, rather than finding out about them right before you present your plan to a lender or investor.

If you need a more detailed review, you may want to explore hiring a professional plan writer to thoroughly examine it.

Use a free business plan template and business plan examples to get started

Knowing what information you need to cover in a business plan sometimes isn’t quite enough. If you’re struggling to get started or need additional guidance, it may be worth using a business plan template. 

If you’re looking for a free downloadable business plan template to get you started, download the template used by more than 1 million businesses. 

Or, if you just want to see what a completed business plan looks like, check out our library of over 550 free business plan examples . 

We even have a growing list of industry business planning guides with tips for what to focus on depending on your business type.

Common pitfalls and how to avoid them

It’s easy to make mistakes when you’re writing your business plan. Some entrepreneurs get sucked into the writing and research process, and don’t focus enough on actually getting their business started. 

Here are a few common mistakes and how to avoid them:

Not talking to your customers : This is one of the most common mistakes. It’s easy to assume that your product or service is something that people want. Before you invest too much in your business and too much in the planning process, make sure you talk to your prospective customers and have a good understanding of their needs.

• Overly optimistic sales and profit forecasts: By nature, entrepreneurs are optimistic about the future. But it’s good to temper that optimism a little when you’re planning, and make sure your forecasts are grounded in reality. 
• Spending too much time planning: Yes, planning is crucial. But you also need to get out and talk to customers, build prototypes of your product and figure out if there’s a market for your idea. Make sure to balance planning with building.
• Not revising the plan: Planning is useful, but nothing ever goes exactly as planned. As you learn more about what’s working and what’s not—revise your plan, your budgets, and your revenue forecast. Doing so will provide a more realistic picture of where your business is going, and what your financial needs will be moving forward.
• Not using the plan to manage your business: A good business plan is a management tool. Don’t just write it and put it on the shelf to collect dust – use it to track your progress and help you reach your goals.
• Presenting your business plan

The planning process forces you to think through every aspect of your business and answer questions that you may not have thought of. That’s the real benefit of writing a business plan – the knowledge you gain about your business that you may not have been able to discover otherwise.

With all of this knowledge, you’re well prepared to convert your business plan into a pitch presentation to present your ideas. 

A pitch presentation is a summary of your plan, just hitting the highlights and key points. It’s the best way to present your business plan to investors and team members.

Dig Deeper: Learn what key slides should be included in your pitch deck

Use your business plan to manage your business

One of the biggest benefits of planning is that it gives you a tool to manage your business better. With a revenue forecast, expense budget, and projected cash flow, you know your targets and where you are headed.

And yet, nothing ever goes exactly as planned – it’s the nature of business.

That’s where using your plan as a management tool comes in. The key to leveraging it for your business is to review it periodically and compare your forecasts and projections to your actual results.

Start by setting up a regular time to review the plan – a monthly review is a good starting point. During this review, answer questions like:

• Did you meet your sales goals?
• Is spending following your budget?
• Has anything gone differently than what you expected?

Now that you see whether you’re meeting your goals or are off track, you can make adjustments and set new targets. 

Maybe you’re exceeding your sales goals and should set new, more aggressive goals. In that case, maybe you should also explore more spending or hiring more employees. 

Or maybe expenses are rising faster than you projected. If that’s the case, you would need to look at where you can cut costs.

A plan, and a method for comparing your plan to your actual results , is the tool you need to steer your business toward success.

Learn More: How to run a regular plan review

Free business plan templates and examples

Kickstart your business plan writing with one of our free business plan templates or recommended tools.

Free business plan template

Download a free SBA-approved business plan template built for small businesses and startups.

Download Template

One-page plan template

Download a free one-page plan template to write a useful business plan in as little as 30-minutes.

Sample business plan library

Explore over 500 real-world business plan examples from a wide variety of industries.

View Sample Plans

How to write a business plan FAQ

What is a business plan?

A document that describes your business , the products and services you sell, and the customers that you sell to. It explains your business strategy, how you’re going to build and grow your business, what your marketing strategy is, and who your competitors are.

What are the benefits of a business plan?

A business plan helps you understand where you want to go with your business and what it will take to get there. It reduces your overall risk, helps you uncover your business’s potential, attracts investors, and identifies areas for growth.

Having a business plan ultimately makes you more confident as a business owner and more likely to succeed for a longer period of time.

What are the 7 steps of a business plan?

The seven steps to writing a business plan include:

• Write a brief executive summary
• Describe your products and services.
• Conduct market research and compile data into a cohesive market analysis.
• Describe your marketing and sales strategy.
• Outline your organizational structure and management team.
• Develop financial projections for sales, revenue, and cash flow.
• Add any additional documents to your appendix.

What are the 5 most common business plan mistakes?

There are plenty of mistakes that can be made when writing a business plan. However, these are the 5 most common that you should do your best to avoid:

• 1. Not taking the planning process seriously.
• Having unrealistic financial projections or incomplete financial information.
• Inconsistent information or simple mistakes.
• Failing to establish a sound business model.
• Not having a defined purpose for your business plan.

What questions should be answered in a business plan?

Writing a business plan is all about asking yourself questions about your business and being able to answer them through the planning process. You’ll likely be asking dozens and dozens of questions for each section of your plan.

However, these are the key questions you should ask and answer with your business plan:

• How will your business make money?
• Is there a need for your product or service?
• Who are your customers?
• How are you different from the competition?
• How will you reach your customers?
• How will you measure success?

How long should a business plan be?

The length of your business plan fully depends on what you intend to do with it. From the SBA and traditional lender point of view, a business plan needs to be whatever length necessary to fully explain your business. This means that you prove the viability of your business, show that you understand the market, and have a detailed strategy in place.

If you intend to use your business plan for internal management purposes, you don’t necessarily need a full 25-50 page business plan. Instead, you can start with a one-page plan to get all of the necessary information in place.

What are the different types of business plans?

While all business plans cover similar categories, the style and function fully depend on how you intend to use your plan. Here are a few common business plan types worth considering.

Traditional business plan: The tried-and-true traditional business plan is a formal document meant to be used when applying for funding or pitching to investors. This type of business plan follows the outline above and can be anywhere from 10-50 pages depending on the amount of detail included, the complexity of your business, and what you include in your appendix.

Business model canvas: The business model canvas is a one-page template designed to demystify the business planning process. It removes the need for a traditional, copy-heavy business plan, in favor of a single-page outline that can help you and outside parties better explore your business idea.

One-page business plan: This format is a simplified version of the traditional plan that focuses on the core aspects of your business. You’ll typically stick with bullet points and single sentences. It’s most useful for those exploring ideas, needing to validate their business model, or who need an internal plan to help them run and manage their business.

Lean Plan: The Lean Plan is less of a specific document type and more of a methodology. It takes the simplicity and styling of the one-page business plan and turns it into a process for you to continuously plan, test, review, refine, and take action based on performance. It’s faster, keeps your plan concise, and ensures that your plan is always up-to-date.

What’s the difference between a business plan and a strategic plan?

A business plan covers the “who” and “what” of your business. It explains what your business is doing right now and how it functions. The strategic plan explores long-term goals and explains “how” the business will get there. It encourages you to look more intently toward the future and how you will achieve your vision.

However, when approached correctly, your business plan can actually function as a strategic plan as well. If kept lean, you can define your business, outline strategic steps, and track ongoing operations all with a single plan.

See why 1.2 million entrepreneurs have written their business plans with LivePlan

Noah is the COO at Palo Alto Software, makers of the online business plan app LivePlan. He started his career at Yahoo! and then helped start the user review site Epinions.com. From there he started a software distribution business in the UK before coming to Palo Alto Software to run the marketing and product teams.

Table of Contents

• Use AI to help write your plan
• Common planning mistakes
• Manage with your business plan
• Templates and examples

Related Articles

10 Min. Read

How to Set and Use Milestones in Your Business Plan

How to Create a Cash Flow Forecast

How to Write an eCommerce Business Plan + Template

When Should You Write a Business Plan?

The Bplans Newsletter

The Bplans Weekly

Subscribe now for weekly advice and free downloadable resources to help start and grow your business.

We care about your privacy. See our privacy policy .

Tax Season Savings

Get 40% off LivePlan

The #1 rated business plan software

Transform Tax Season into Growth Season

Discover the world’s #1 plan building software

• Starting a Business
• Growing a Business
• Small Business Guide
• Business News
• Science & Technology
• Money & Finance
• Subscribers For Subscribers
• ELN Write for Entrepreneur
• Store Entrepreneur Store
• Spotlight Spotlight
• United States
• Asia Pacific
• Middle East
• South Africa

Copyright © 2024 Entrepreneur Media, LLC All rights reserved. Entrepreneur® and its related marks are registered trademarks of Entrepreneur Media LLC

Elements of a Business Plan There are seven major sections of a business plan, and each one is a complex document. Read this selection from our business plan tutorial to fully understand these components.

Now that you understand why you need a business plan and you've spent some time doing your homework gathering the information you need to create one, it's time to roll up your sleeves and get everything down on paper. The following pages will describe in detail the seven essential sections of a business plan: what you should include, what you shouldn't include, how to work the numbers and additional resources you can turn to for help. With that in mind, jump right in.

Executive Summary

Within the overall outline of the business plan, the executive summary will follow the title page. The summary should tell the reader what you want. This is very important. All too often, what the business owner desires is buried on page eight. Clearly state what you're asking for in the summary.

The statement should be kept short and businesslike, probably no more than half a page. It could be longer, depending on how complicated the use of funds may be, but the summary of a business plan, like the summary of a loan application, is generally no longer than one page. Within that space, you'll need to provide a synopsis of your entire business plan. Key elements that should be included are:

• Business concept. Describes the business, its product and the market it will serve. It should point out just exactly what will be sold, to whom and why the business will hold a competitive advantage.
• Financial features. Highlights the important financial points of the business including sales, profits, cash flows and return on investment.
• Financial requirements. Clearly states the capital needed to start the business and to expand. It should detail how the capital will be used, and the equity, if any, that will be provided for funding. If the loan for initial capital will be based on security instead of equity, you should also specify the source of collateral.
• Current business position. Furnishes relevant information about the company, its legal form of operation, when it was formed, the principal owners and key personnel.
• Major achievements. Details any developments within the company that are essential to the success of the business. Major achievements include items like patents, prototypes, location of a facility, any crucial contracts that need to be in place for product development, or results from any test marketing that has been conducted.

When writing your statement of purpose, don't waste words. If the statement of purpose is eight pages, nobody's going to read it because it'll be very clear that the business, no matter what its merits, won't be a good investment because the principals are indecisive and don't really know what they want. Make it easy for the reader to realize at first glance both your needs and capabilities.

Business Description

Tell them all about it.

The business description usually begins with a short description of the industry. When describing the industry, discuss the present outlook as well as future possibilities. You should also provide information on all the various markets within the industry, including any new products or developments that will benefit or adversely affect your business. Base all of your observations on reliable data and be sure to footnote sources of information as appropriate. This is important if you're seeking funding; the investor will want to know just how dependable your information is, and won't risk money on assumptions or conjecture.

When describing your business, the first thing you need to concentrate on is its structure. By structure we mean the type of operation, i.e. wholesale, retail, food service, manufacturing or service-oriented. Also state whether the business is new or already established.

In addition to structure, legal form should be reiterated once again. Detail whether the business is a sole proprietorship, partnership or corporation, who its principals are, and what they will bring to the business.

You should also mention who you will sell to, how the product will be distributed, and the business's support systems. Support may come in the form of advertising, promotions and customer service.

Once you've described the business, you need to describe the products or services you intend to market. The product description statement should be complete enough to give the reader a clear idea of your intentions. You may want to emphasize any unique features or variations from concepts that can typically be found in the industry.

Be specific in showing how you will give your business a competitive edge. For example, your business will be better because you will supply a full line of products; competitor A doesn't have a full line. You're going to provide service after the sale; competitor B doesn't support anything he sells. Your merchandise will be of higher quality. You'll give a money-back guarantee. Competitor C has the reputation for selling the best French fries in town; you're going to sell the best Thousand Island dressing.

How Will I Profit?

Now you must be a classic capitalist and ask yourself, "How can I turn a buck? And why do I think I can make a profit that way?" Answer that question for yourself, and then convey that answer to others in the business concept section. You don't have to write 25 pages on why your business will be profitable. Just explain the factors you think will make it successful, like the following: it's a well-organized business, it will have state-of-the-art equipment, its location is exceptional, the market is ready for it, and it's a dynamite product at a fair price.

If you're using your business plan as a document for financial purposes, explain why the added equity or debt money is going to make your business more profitable.

Show how you will expand your business or be able to create something by using that money.

Show why your business is going to be profitable. A potential lender is going to want to know how successful you're going to be in this particular business. Factors that support your claims for success can be mentioned briefly; they will be detailed later. Give the reader an idea of the experience of the other key people in the business. They'll want to know what suppliers or experts you've spoken to about your business and their response to your idea. They may even ask you to clarify your choice of location or reasons for selling this particular product.

The business description can be a few paragraphs in length to a few pages, depending on the complexity of your plan. If your plan isn't too complicated, keep your business description short, describing the industry in one paragraph, the product in another, and the business and its success factors in three or four paragraphs that will end the statement.

While you may need to have a lengthy business description in some cases, it's our opinion that a short statement conveys the required information in a much more effective manner. It doesn't attempt to hold the reader's attention for an extended period of time, and this is important if you're presenting to a potential investor who will have other plans he or she will need to read as well. If the business description is long and drawn-out, you'll lose the reader's attention, and possibly any chance of receiving the necessary funding for the project.

Market Strategies

Define your market.

Market strategies are the result of a meticulous market analysis. A market analysis forces the entrepreneur to become familiar with all aspects of the market so that the target market can be defined and the company can be positioned in order to garner its share of sales. A market analysis also enables the entrepreneur to establish pricing, distribution and promotional strategies that will allow the company to become profitable within a competitive environment. In addition, it provides an indication of the growth potential within the industry, and this will allow you to develop your own estimates for the future of your business.

Begin your market analysis by defining the market in terms of size, structure, growth prospects, trends and sales potential.

The total aggregate sales of your competitors will provide you with a fairly accurate estimate of the total potential market. Once the size of the market has been determined, the next step is to define the target market. The target market narrows down the total market by concentrating on segmentation factors that will determine the total addressable market--the total number of users within the sphere of the business's influence. The segmentation factors can be geographic, customer attributes or product-oriented.

For instance, if the distribution of your product is confined to a specific geographic area, then you want to further define the target market to reflect the number of users or sales of that product within that geographic segment.

Once the target market has been detailed, it needs to be further defined to determine the total feasible market. This can be done in several ways, but most professional planners will delineate the feasible market by concentrating on product segmentation factors that may produce gaps within the market. In the case of a microbrewery that plans to brew a premium lager beer, the total feasible market could be defined by determining how many drinkers of premium pilsner beers there are in the target market.

It's important to understand that the total feasible market is the portion of the market that can be captured provided every condition within the environment is perfect and there is very little competition. In most industries this is simply not the case. There are other factors that will affect the share of the feasible market a business can reasonably obtain. These factors are usually tied to the structure of the industry, the impact of competition, strategies for market penetration and continued growth, and the amount of capital the business is willing to spend in order to increase its market share.

Projecting Market Share

Arriving at a projection of the market share for a business plan is very much a subjective estimate. It's based on not only an analysis of the market but on highly targeted and competitive distribution, pricing and promotional strategies. For instance, even though there may be a sizable number of premium pilsner drinkers to form the total feasible market, you need to be able to reach them through your distribution network at a price point that's competitive, and then you have to let them know it's available and where they can buy it. How effectively you can achieve your distribution, pricing and promotional goals determines the extent to which you will be able to garner market share.

For a business plan, you must be able to estimate market share for the time period the plan will cover. In order to project market share over the time frame of the business plan, you'll need to consider two factors:

• Industry growth which will increase the total number of users. Most projections utilize a minimum of two growth models by defining different industry sales scenarios. The industry sales scenarios should be based on leading indicators of industry sales, which will most likely include industry sales, industry segment sales, demographic data and historical precedence.
• Conversion of users from the total feasible market. This is based on a sales cycle similar to a product life cycle where you have five distinct stages: early pioneer users, early users, early majority users, late majority users and late users. Using conversion rates, market growth will continue to increase your market share during the period from early pioneers to early majority users, level off through late majority users, and decline with late users.

Defining the market is but one step in your analysis. With the information you've gained through market research, you need to develop strategies that will allow you to fulfill your objectives.

Positioning Your Business

When discussing market strategy, it's inevitable that positioning will be brought up. A company's positioning strategy is affected by a number of variables that are closely tied to the motivations and requirements of target customers within as well as the actions of primary competitors.

Before a product can be positioned, you need to answer several strategic questions such as:

• How are your competitors positioning themselves?
• What specific attributes does your product have that your competitors' don't?
• What customer needs does your product fulfill?

Once you've answered your strategic questions based on research of the market, you can then begin to develop your positioning strategy and illustrate that in your business plan. A positioning statement for a business plan doesn't have to be long or elaborate. It should merely point out exactly how you want your product perceived by both customers and the competition.

How you price your product is important because it will have a direct effect on the success of your business. Though pricing strategy and computations can be complex, the basic rules of pricing are straightforward:

• All prices must cover costs.
• The best and most effective way of lowering your sales prices is to lower costs.
• Your prices must reflect the dynamics of cost, demand, changes in the market and response to your competition.
• Prices must be established to assure sales. Don't price against a competitive operation alone. Rather, price to sell.
• Product utility, longevity, maintenance and end use must be judged continually, and target prices adjusted accordingly.
• Prices must be set to preserve order in the marketplace.

There are many methods of establishing prices available to you:

• Cost-plus pricing. Used mainly by manufacturers, cost-plus pricing assures that all costs, both fixed and variable, are covered and the desired profit percentage is attained.
• Demand pricing. Used by companies that sell their product through a variety of sources at differing prices based on demand.
• Competitive pricing. Used by companies that are entering a market where there is already an established price and it is difficult to differentiate one product from another.
• Markup pricing. Used mainly by retailers, markup pricing is calculated by adding your desired profit to the cost of the product. Each method listed above has its strengths and weaknesses.
• Distribution

Distribution includes the entire process of moving the product from the factory to the end user. The type of distribution network you choose will depend upon the industry and the size of the market. A good way to make your decision is to analyze your competitors to determine the channels they are using, then decide whether to use the same type of channel or an alternative that may provide you with a strategic advantage.

Some of the more common distribution channels include:

• Direct sales. The most effective distribution channel is to sell directly to the end-user.
• OEM (original equipment manufacturer) sales. When your product is sold to the OEM, it is incorporated into their finished product and it is distributed to the end user.
• Manufacturer's representatives. One of the best ways to distribute a product, manufacturer's reps, as they are known, are salespeople who operate out of agencies that handle an assortment of complementary products and divide their selling time among them.
• Wholesale distributors. Using this channel, a manufacturer sells to a wholesaler, who in turn sells it to a retailer or other agent for further distribution through the channel until it reaches the end user.
• Brokers. Third-party distributors who often buy directly from the distributor or wholesaler and sell to retailers or end users.
• Retail distributors. Distributing a product through this channel is important if the end user of your product is the general consuming public.
• Direct Mail. Selling to the end user using a direct mail campaign.

As we've mentioned already, the distribution strategy you choose for your product will be based on several factors that include the channels being used by your competition, your pricing strategy and your own internal resources.

Promotion Plan

With a distribution strategy formed, you must develop a promotion plan. The promotion strategy in its most basic form is the controlled distribution of communication designed to sell your product or service. In order to accomplish this, the promotion strategy encompasses every marketing tool utilized in the communication effort. This includes:

• Advertising. Includes the advertising budget, creative message(s), and at least the first quarter's media schedule.
• Packaging. Provides a description of the packaging strategy. If available, mockups of any labels, trademarks or service marks should be included.
• Public relations. A complete account of the publicity strategy including a list of media that will be approached as well as a schedule of planned events.
• Sales promotions. Establishes the strategies used to support the sales message. This includes a description of collateral marketing material as well as a schedule of planned promotional activities such as special sales, coupons, contests and premium awards.
• Personal sales. An outline of the sales strategy including pricing procedures, returns and adjustment rules, sales presentation methods, lead generation, customer service policies, salesperson compensation, and salesperson market responsibilities.

Sales Potential

Once the market has been researched and analyzed, conclusions need to be developed that will supply a quantitative outlook concerning the potential of the business. The first financial projection within the business plan must be formed utilizing the information drawn from defining the market, positioning the product, pricing, distribution, and strategies for sales. The sales or revenue model charts the potential for the product, as well as the business, over a set period of time. Most business plans will project revenue for up to three years, although five-year projections are becoming increasingly popular among lenders.

When developing the revenue model for the business plan, the equation used to project sales is fairly simple. It consists of the total number of customers and the average revenue from each customer. In the equation, "T" represents the total number of people, "A" represents the average revenue per customer, and "S" represents the sales projection. The equation for projecting sales is: (T)(A) = S

Using this equation, the annual sales for each year projected within the business plan can be developed. Of course, there are other factors that you'll need to evaluate from the revenue model. Since the revenue model is a table illustrating the source for all income, every segment of the target market that is treated differently must be accounted for. In order to determine any differences, the various strategies utilized in order to sell the product have to be considered. As we've already mentioned, those strategies include distribution, pricing and promotion.

Competitive Analysis

Identify and analyze your competition.

The competitive analysis is a statement of the business strategy and how it relates to the competition. The purpose of the competitive analysis is to determine the strengths and weaknesses of the competitors within your market, strategies that will provide you with a distinct advantage, the barriers that can be developed in order to prevent competition from entering your market, and any weaknesses that can be exploited within the product development cycle.

The first step in a competitor analysis is to identify the current and potential competition. There are essentially two ways you can identify competitors. The first is to look at the market from the customer's viewpoint and group all your competitors by the degree to which they contend for the buyer's dollar. The second method is to group competitors according to their various competitive strategies so you understand what motivates them.

Once you've grouped your competitors, you can start to analyze their strategies and identify the areas where they're most vulnerable. This can be done through an examination of your competitors' weaknesses and strengths. A competitor's strengths and weaknesses are usually based on the presence and absence of key assets and skills needed to compete in the market.

To determine just what constitutes a key asset or skill within an industry, David A. Aaker in his book, Developing Business Strategies , suggests concentrating your efforts in four areas:

• The reasons behind successful as well as unsuccessful firms
• Prime customer motivators
• Major component costs
• Industry mobility barriers

According to theory, the performance of a company within a market is directly related to the possession of key assets and skills. Therefore, an analysis of strong performers should reveal the causes behind such a successful track record. This analysis, in conjunction with an examination of unsuccessful companies and the reasons behind their failure, should provide a good idea of just what key assets and skills are needed to be successful within a given industry and market segment.

Through your competitor analysis, you will also have to create a marketing strategy that will generate an asset or skill competitors don't have, which will provide you with a distinct and enduring competitive advantage. Since competitive advantages are developed from key assets and skills, you should sit down and put together a competitive strength grid. This is a scale that lists all your major competitors or strategic groups based upon their applicable assets and skills and how your own company fits on this scale.

Create a Competitive Strength Grid

To put together a competitive strength grid, list all the key assets and skills down the left margin of a piece of paper. Along the top, write down two column headers: "weakness" and "strength." In each asset or skill category, place all the competitors that have weaknesses in that particular category under the weakness column, and all those that have strengths in that specific category in the strength column. After you've finished, you'll be able to determine just where you stand in relation to the other firms competing in your industry.

Once you've established the key assets and skills necessary to succeed in this business and have defined your distinct competitive advantage, you need to communicate them in a strategic form that will attract market share as well as defend it. Competitive strategies usually fall into these five areas:

• Advertising

Many of the factors leading to the formation of a strategy should already have been highlighted in previous sections, specifically in marketing strategies. Strategies primarily revolve around establishing the point of entry in the product life cycle and an endurable competitive advantage. As we've already discussed, this involves defining the elements that will set your product or service apart from your competitors or strategic groups. You need to establish this competitive advantage clearly so the reader understands not only how you will accomplish your goals, but also why your strategy will work.

Design and Development Plan

What you'll cover in this section.

The purpose of the design and development plan section is to provide investors with a description of the product's design, chart its development within the context of production, marketing and the company itself, and create a development budget that will enable the company to reach its goals.

There are generally three areas you'll cover in the development plan section:

• Product development
• Market development
• Organizational development

Each of these elements needs to be examined from the funding of the plan to the point where the business begins to experience a continuous income. Although these elements will differ in nature concerning their content, each will be based on structure and goals.

The first step in the development process is setting goals for the overall development plan. From your analysis of the market and competition, most of the product, market and organizational development goals will be readily apparent. Each goal you define should have certain characteristics. Your goals should be quantifiable in order to set up time lines, directed so they relate to the success of the business, consequential so they have impact upon the company, and feasible so that they aren't beyond the bounds of actual completion.

Goals For Product Development

Goals for product development should center on the technical as well as the marketing aspects of the product so that you have a focused outline from which the development team can work. For example, a goal for product development of a microbrewed beer might be "Produce recipe for premium lager beer" or "Create packaging for premium lager beer." In terms of market development, a goal might be, "Develop collateral marketing material." Organizational goals would center on the acquisition of expertise in order to attain your product and market-development goals. This expertise usually needs to be present in areas of key assets that provide a competitive advantage. Without the necessary expertise, the chances of bringing a product successfully to market diminish.

With your goals set and expertise in place, you need to form a set of procedural tasks or work assignments for each area of the development plan. Procedures will have to be developed for product development, market development, and organization development. In some cases, product and organization can be combined if the list of procedures is short enough.

Procedures should include how resources will be allocated, who is in charge of accomplishing each goal, and how everything will interact. For example, to produce a recipe for a premium lager beer, you would need to do the following:

• Gather ingredients.
• Determine optimum malting process.
• Gauge mashing temperature.
• Boil wort and evaluate which hops provide the best flavor.
• Determine yeast amounts and fermentation period.
• Determine aging period.
• Carbonate the beer.
• Decide whether or not to pasteurize the beer.

The development of procedures provides a list of work assignments that need to be accomplished, but one thing it doesn't provide are the stages of development that coordinate the work assignments within the overall development plan. To do this, you first need to amend the work assignments created in the procedures section so that all the individual work elements are accounted for in the development plan. The next stage involves setting deliverable dates for components as well as the finished product for testing purposes. There are primarily three steps you need to go through before the product is ready for final delivery:

• Preliminary product review . All the product's features and specifications are checked.
• Critical product review . All the key elements of the product are checked and gauged against the development schedule to make sure everything is going according to plan.
• Final product review . All elements of the product are checked against goals to assure the integrity of the prototype.

Scheduling and Costs

This is one of the most important elements in the development plan. Scheduling includes all of the key work elements as well as the stages the product must pass through before customer delivery. It should also be tied to the development budget so that expenses can be tracked. But its main purpose is to establish time frames for completion of all work assignments and juxtapose them within the stages through which the product must pass. When producing the schedule, provide a column for each procedural task, how long it takes, start date and stop date. If you want to provide a number for each task, include a column in the schedule for the task number.

Development Budget

That leads us into a discussion of the development budget. When forming your development budget, you need to take into account all the expenses required to design the product and to take it from prototype to production.

Costs that should be included in the development budget include:

• Material . All raw materials used in the development of the product.
• Direct labor . All labor costs associated with the development of the product.
• Overhead . All overhead expenses required to operate the business during the development phase such as taxes, rent, phone, utilities, office supplies, etc.
• G&A costs . The salaries of executive and administrative personnel along with any other office support functions.
• Marketing & sales . The salaries of marketing personnel required to develop pre-promotional materials and plan the marketing campaign that should begin prior to delivery of the product.
• Professional services . Those costs associated with the consultation of outside experts such as accountants, lawyers, and business consultants.
• Miscellaneous Costs . Costs that are related to product development.
• Capital equipment . To determine the capital requirements for the development budget, you first have to establish what type of equipment you will need, whether you will acquire the equipment or use outside contractors, and finally, if you decide to acquire the equipment, whether you will lease or purchase it.

As we mentioned already, the company has to have the proper expertise in key areas to succeed; however, not every company will start a business with the expertise required in every key area. Therefore, the proper personnel have to be recruited, integrated into the development process, and managed so that everyone forms a team focused on the achievement of the development goals.

Before you begin recruiting, however, you should determine which areas within the development process will require the addition of personnel. This can be done by reviewing the goals of your development plan to establish key areas that need attention. After you have an idea of the positions that need to be filled, you should produce a job description and job specification.

Once you've hired the proper personnel, you need to integrate them into the development process by assigning tasks from the work assignments you've developed. Finally, the whole team needs to know what their role is within the company and how each interrelates with every position within the development team. In order to do this, you should develop an organizational chart for your development team.

Assessing Risks

Finally, the risks involved in developing the product should be assessed and a plan developed to address each one. The risks during the development stage will usually center on technical development of the product, marketing, personnel requirements, and financial problems. By identifying and addressing each of the perceived risks during the development period, you will allay some of your major fears concerning the project and those of investors as well.

Operations & Management

The operations and management plan is designed to describe just how the business functions on a continuing basis. The operations plan will highlight the logistics of the organization such as the various responsibilities of the management team, the tasks assigned to each division within the company, and capital and expense requirements related to the operations of the business. In fact, within the operations plan you'll develop the next set of financial tables that will supply the foundation for the "Financial Components" section.

The financial tables that you'll develop within the operations plan include:

• The operating expense table
• The capital requirements table
• The cost of goods table

There are two areas that need to be accounted for when planning the operations of your company. The first area is the organizational structure of the company, and the second is the expense and capital requirements associated with its operation.

Organizational Structure

The organizational structure of the company is an essential element within a business plan because it provides a basis from which to project operating expenses. This is critical to the formation of financial statements, which are heavily scrutinized by investors; therefore, the organizational structure has to be well-defined and based within a realistic framework given the parameters of the business.

Although every company will differ in its organizational structure, most can be divided into several broad areas that include:

• Marketing and sales (includes customer relations and service)
• Production (including quality assurance)
• Research and development
• Administration

These are very broad classifications and it's important to keep in mind that not every business can be divided in this manner. In fact, every business is different, and each one must be structured according to its own requirements and goals.

The four stages for organizing a business are:

Calculate Your Personnel Numbers

Once you've structured your business, however, you need to consider your overall goals and the number of personnel required to reach those goals. In order to determine the number of employees you'll need to meet the goals you've set for your business, you'll need to apply the following equation to each department listed in your organizational structure: C / S = P

In this equation, C represents the total number of customers, S represents the total number of customers that can be served by each employee, and P represents the personnel requirements. For instance, if the number of customers for first year sales is projected at 10,110 and one marketing employee is required for every 200 customers, you would need 51 employees within the marketing department: 10,110 / 200 = 51

Once you calculate the number of employees that you'll need for your organization, you'll need to determine the labor expense. The factors that need to be considered when calculating labor expense (LE) are the personnel requirements (P) for each department multiplied by the employee salary level (SL). Therefore, the equation would be: P * SL = LE

Using the marketing example from above, the labor expense for that department would be: 51 * $40,000 = $2,040,000

Calculate Overhead Expenses

Once the organization's operations have been planned, the expenses associated with the operation of the business can be developed. These are usually referred to as overhead expenses. Overhead expenses refer to all non-labor expenses required to operate the business. Expenses can be divided into fixed (those that must be paid, usually at the same rate, regardless of the volume of business) and variable or semivariable (those which change according to the amount of business).

Overhead expenses usually include the following:

• Maintenance and repair
• Equipment leases
• Advertising & promotion
• Packaging & shipping
• Payroll taxes and benefits
• Uncollectible receivables
• Professional services
• Loan payments
• Depreciation

In order to develop the overhead expenses for the expense table used in this portion of the business plan, you need to multiply the number of employees by the expenses associated with each employee. Therefore, if NE represents the number of employees and EE is the expense per employee, the following equation can be used to calculate the sum of each overhead (OH) expense: OH = NE * EE

Develop a Capital Requirements Table

In addition to the expense table, you'll also need to develop a capital requirements table that depicts the amount of money necessary to purchase the equipment you'll use to establish and continue operations. It also illustrates the amount of depreciation your company will incur based on all equipment elements purchased with a lifetime of more than one year.

In order to generate the capital requirements table, you first have to establish the various elements within the business that will require capital investment. For service businesses, capital is usually tied to the various pieces of equipment used to service customers.

Capital for manufacturing companies, on the other hand, is based on the equipment required in order to produce the product. Manufacturing equipment usually falls into three categories: testing equipment, assembly equipment and packaging equipment.

With these capital elements in mind, you need to determine the number of units or customers, in terms of sales, that each equipment item can adequately handle. This is important because capital requirements are a product of income, which is produced through unit sales. In order to meet sales projections, a business usually has to invest money to increase production or supply better service. In the business plan, capital requirements are tied to projected sales as illustrated in the revenue model shown earlier in this chapter.

For instance, if the capital equipment required is capable of handling the needs of 10,000 customers at an average sale of $10 each, that would be $100,000 in sales, at which point additional capital will be required in order to purchase more equipment should the company grow beyond this point. This leads us to another factor within the capital requirements equation, and that is equipment cost.

If you multiply the cost of equipment by the number of customers it can support in terms of sales, it would result in the capital requirements for that particular equipment element. Therefore, you can use an equation in which capital requirements (CR) equals sales (S) divided by number of customers (NC) supported by each equipment element, multiplied by the average sale (AS), which is then multiplied by the capital cost (CC) of the equipment element. Given these parameters, your equation would look like the following: CR = [(S / NC) * AS] * CC

The capital requirements table is formed by adding all your equipment elements to generate the total new capital for that year. During the first year, total new capital is also the total capital required. For each successive year thereafter, total capital (TC) required is the sum of total new capital (NC) plus total capital (PC) from the previous year, less depreciation (D), once again, from the previous year. Therefore, your equation to arrive at total capital for each year portrayed in the capital requirements model would be: TC = NC + PC - D

Keep in mind that depreciation is an expense that shows the decrease in value of the equipment throughout its effective lifetime. For many businesses, depreciation is based upon schedules that are tied to the lifetime of the equipment. Be careful when choosing the schedule that best fits your business. Depreciation is also the basis for a tax deduction as well as the flow of money for new capital. You may need to seek consultation from an expert in this area.

Create a Cost of Goods Table

The last table that needs to be generated in the operations and management section of your business plan is the cost of goods table. This table is used only for businesses where the product is placed into inventory. For a retail or wholesale business, cost of goods sold --or cost of sales --refers to the purchase of products for resale, i.e. the inventory. The products that are sold are logged into cost of goods as an expense of the sale, while those that aren't sold remain in inventory.

For a manufacturing firm, cost of goods is the cost incurred by the company to manufacture its product. This usually consists of three elements:

As in retail, the merchandise that is sold is expensed as a cost of goods , while merchandise that isn't sold is placed in inventory. Cost of goods has to be accounted for in the operations of a business. It is an important yardstick for measuring the firm's profitability for the cash-flow statement and income statement.

In the income statement, the last stage of the manufacturing process is the item expensed as cost of goods, but it is important to document the inventory still in various stages of the manufacturing process because it represents assets to the company. This is important to determining cash flow and to generating the balance sheet.

That is what the cost of goods table does. It's one of the most complicated tables you'll have to develop for your business plan, but it's an integral part of portraying the flow of inventory through your operations, the placement of assets within the company, and the rate at which your inventory turns.

In order to generate the cost of goods table, you need a little more information in addition to what your labor and material cost is per unit. You also need to know the total number of units sold for the year, the percentage of units which will be fully assembled, the percentage which will be partially assembled, and the percentage which will be in unassembled inventory. Much of these figures will depend on the capacity of your equipment as well as on the inventory control system you develop. Along with these factors, you also need to know at what stage the majority of the labor is performed.

Financial Components

Financial statements to include.

Financial data is always at the back of the business plan, but that doesn't mean it's any less important than up-front material such as the business concept and the management team. Astute investors look carefully at the charts, tables, formulas and spreadsheets in the financial section, because they know that this information is like the pulse, respiration rate and blood pressure in a human--it shows whether the patient is alive and what the odds are for continued survival.

Financial statements, like bad news, come in threes. The news in financial statements isn't always bad, of course, but taken together it provides an accurate picture of a company's current value, plus its ability to pay its bills today and earn a profit going forward.

The three common statements are a cash flow statement, an income statement and a balance sheet. Most entrepreneurs should provide them and leave it at that. But not all do. But this is a case of the more, the less merry. As a rule, stick with the big three: income, balance sheet and cash flow statements.

These three statements are interlinked, with changes in one necessarily altering the others, but they measure quite different aspects of a company's financial health. It's hard to say that one of these is more important than another. But of the three, the income statement may be the best place to start.

Income Statement

The income statement is a simple and straightforward report on the proposed business's cash-generating ability. It's a score card on the financial performance of your business that reflects when sales are made and when expenses are incurred. It draws information from the various financial models developed earlier such as revenue, expenses, capital (in the form of depreciation), and cost of goods. By combining these elements, the income statement illustrates just how much your company makes or loses during the year by subtracting cost of goods and expenses from revenue to arrive at a net result--which is either a profit or a loss.

For a business plan, the income statement should be generated on a monthly basis during the first year, quarterly for the second, and annually for each year thereafter. It's formed by listing your financial projections in the following manner:

• Income . Includes all the income generated by the business and its sources.
• Cost of goods . Includes all the costs related to the sale of products in inventory.
• Gross profit margin . The difference between revenue and cost of goods. Gross profit margin can be expressed in dollars, as a percentage, or both. As a percentage, the GP margin is always stated as a percentage of revenue.
• Operating expenses . Includes all overhead and labor expenses associated with the operations of the business.
• Total expenses . The sum of all overhead and labor expenses required to operate the business.
• Net profit . The difference between gross profit margin and total expenses, the net income depicts the business's debt and capital capabilities.
• Depreciation . Reflects the decrease in value of capital assets used to generate income. Also used as the basis for a tax deduction and an indicator of the flow of money into new capital.
• Net profit before interest . The difference between net profit and depreciation.
• Interest . Includes all interest derived from debts, both short-term and long-term. Interest is determined by the amount of investment within the company.
• Net profit before taxes . The difference between net profit before interest and interest.
• Taxes . Includes all taxes on the business.
• Profit after taxes . The difference between net profit before taxes and the taxes accrued. Profit after taxes is the bottom line for any company.

Following the income statement is a short note analyzing the statement. The analysis statement should be very short, emphasizing key points within the income statement.

Cash Flow Statement

The cash-flow statement is one of the most critical information tools for your business, showing how much cash will be needed to meet obligations, when it is going to be required, and from where it will come. It shows a schedule of the money coming into the business and expenses that need to be paid. The result is the profit or loss at the end of the month or year. In a cash-flow statement, both profits and losses are carried over to the next column to show the cumulative amount. Keep in mind that if you run a loss on your cash-flow statement, it is a strong indicator that you will need additional cash in order to meet expenses.

Like the income statement, the cash-flow statement takes advantage of previous financial tables developed during the course of the business plan. The cash-flow statement begins with cash on hand and the revenue sources. The next item it lists is expenses, including those accumulated during the manufacture of a product. The capital requirements are then logged as a negative after expenses. The cash-flow statement ends with the net cash flow.

The cash-flow statement should be prepared on a monthly basis during the first year, on a quarterly basis during the second year, and on an annual basis thereafter. Items that you'll need to include in the cash-flow statement and the order in which they should appear are as follows:

• Cash sales . Income derived from sales paid for by cash.
• Receivables . Income derived from the collection of receivables.
• Other income . Income derived from investments, interest on loans that have been extended, and the liquidation of any assets.
• Total income . The sum of total cash, cash sales, receivables, and other income.
• Material/merchandise . The raw material used in the manufacture of a product (for manufacturing operations only), the cash outlay for merchandise inventory (for merchandisers such as wholesalers and retailers), or the supplies used in the performance of a service.
• Production labor . The labor required to manufacture a product (for manufacturing operations only) or to perform a service.
• Overhead . All fixed and variable expenses required for the production of the product and the operations of the business.
• Marketing/sales . All salaries, commissions, and other direct costs associated with the marketing and sales departments.
• R&D . All the labor expenses required to support the research and development operations of the business.
• G&A . All the labor expenses required to support the administrative functions of the business.
• Taxes . All taxes, except payroll, paid to the appropriate government institutions.
• Capital . The capital required to obtain any equipment elements that are needed for the generation of income.
• Loan payment . The total of all payments made to reduce any long-term debts.
• Total expenses . The sum of material, direct labor, overhead expenses, marketing, sales, G&A, taxes, capital and loan payments.
• Cash flow . The difference between total income and total expenses. This amount is carried over to the next period as beginning cash.
• Cumulative cash flow . The difference between current cash flow and cash flow from the previous period.

As with the income statement, you will need to analyze the cash-flow statement in a short summary in the business plan. Once again, the analysis statement doesn't have to be long and should cover only key points derived from the cash-flow statement.

The Balance Sheet

The last financial statement you'll need to develop is the balance sheet. Like the income and cash-flow statements, the balance sheet uses information from all of the financial models developed in earlier sections of the business plan; however, unlike the previous statements, the balance sheet is generated solely on an annual basis for the business plan and is, more or less, a summary of all the preceding financial information broken down into three areas:

To obtain financing for a new business, you may need to provide a projection of the balance sheet over the period of time the business plan covers. More importantly, you'll need to include a personal financial statement or balance sheet instead of one that describes the business. A personal balance sheet is generated in the same manner as one for a business.

As mentioned, the balance sheet is divided into three sections. The top portion of the balance sheet lists your company's assets. Assets are classified as current assets and long-term or fixed assets. Current assets are assets that will be converted to cash or will be used by the business in a year or less. Current assets include:

• Cash . The cash on hand at the time books are closed at the end of the fiscal year.
• Accounts receivable . The income derived from credit accounts. For the balance sheet, it's the total amount of income to be received that is logged into the books at the close of the fiscal year.
• Inventory . This is derived from the cost of goods table. It's the inventory of material used to manufacture a product not yet sold.
• Total current assets . The sum of cash, accounts receivable, inventory, and supplies.

Other assets that appear in the balance sheet are called long-term or fixed assets. They are called long-term because they are durable and will last more than one year. Examples of this type of asset include:

• Capital and plant . The book value of all capital equipment and property (if you own the land and building), less depreciation.
• Investment . All investments by the company that cannot be converted to cash in less than one year. For the most part, companies just starting out have not accumulated long-term investments.
• Miscellaneous assets . All other long-term assets that are not "capital and plant" or "investments."
• Total long-term assets . The sum of capital and plant, investments, and miscellaneous assets.
• Total assets . The sum of total current assets and total long-term assets.

After the assets are listed, you need to account for the liabilities of your business. Like assets, liabilities are classified as current or long-term. If the debts are due in one year or less, they are classified as a current liabilities. If they are due in more than one year, they are long-term liabilities. Examples of current liabilities are as follows:

• Accounts payable . All expenses derived from purchasing items from regular creditors on an open account, which are due and payable.
• Accrued liabilities . All expenses incurred by the business which are required for operation but have not been paid at the time the books are closed. These expenses are usually the company's overhead and salaries.
• Taxes . These are taxes that are still due and payable at the time the books are closed.
• Total current liabilities . The sum of accounts payable, accrued liabilities, and taxes.

Long-term liabilities include:

• Bonds payable . The total of all bonds at the end of the year that are due and payable over a period exceeding one year.
• Mortgage payable . Loans taken out for the purchase of real property that are repaid over a long-term period. The mortgage payable is that amount still due at the close of books for the year.
• Notes payable . The amount still owed on any long-term debts that will not be repaid during the current fiscal year.
• Total long-term liabilities . The sum of bonds payable, mortgage payable, and notes payable.
• Total liabilities . The sum of total current and long-term liabilities.

Once the liabilities have been listed, the final portion of the balance sheet-owner's equity-needs to be calculated. The amount attributed to owner's equity is the difference between total assets and total liabilities. The amount of equity the owner has in the business is an important yardstick used by investors when evaluating the company. Many times it determines the amount of capital they feel they can safely invest in the business.

In the business plan, you'll need to create an analysis statement for the balance sheet just as you need to do for the income and cash flow statements. The analysis of the balance sheet should be kept short and cover key points about the company.

Source: The Small Business Encyclopedia , Business Plans Made Easy, Start Your Own Business and Entrepreneur magazine.

Business Plan Guide

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Editor's Pick Red Arrow

• 'The IRS is Coming in Hot': Jason Tartick Says All Business Owners Should Do This 1 Thing Before Filing Taxes — Or Risk a Potentially Pricey Audit
• Lock What Is a 'Dry Promotion' — and Has It Happened to You? Employees in This Specific Group May Be the Most Likely Victims .
• I Was a 25-Year-Old Nurse When I Started a Side Hustle to Combat Anxiety. It Made $1 Million in 7 Months — Then Sold for a Life-Changing Amount.
• Lock 2 Phrases I Learned From a Senior CIA Officer That Changed My Leadership Style
• The U.S. Justice Department Is Suing Apple in a Groundbreaking iPhone Monopoly Lawsuit — Here's Why
• Lock I Built My Company to 23 Profitable Stores. Here's My Advice to Small Business Owners Who Want to Grow Their Retail Presence.

Most Popular Red Arrow

What we have to gain by talking about grief and loss at work.

I lost my husband to cancer during Covid — here's how it changed how I lead at work.

5 Simple Wealth-Building Tips For This Generation's Forward-Thinkers

Explore practical finance tips for young professionals striving to overcome economic challenges.

Avoid These 9 Pitch Deck Mistakes When Asking Others For Money

Crafting an efficient pitch deck requires serious effort, but at least it's not wandering in the dark since certain rules are shaped by decades of relationships between startups and investors.

Mark Zuckerberg Says This CEO Is the 'Taylor Swift' of Tech

Meta's CEO posed with Nvidia CEO Jensen Huang on Instagram Wednesday.

To Achieve Sustainable Success, You Need to Stop Focusing on Disruption. Here's Why — and What You Must Focus on Instead.

Instead of zeroing in solely on disruptive innovation, embrace a pragmatic approach to innovation, recognizing and leveraging the potential within ongoing industry shifts.

3 Emerging Trends Shaping the Future of Real Estate

These three innovations are reshaping the real estate industry — discover tips for effectively covering these trends.

Successfully copied link

• Professional
• Business Planning Software
• Entrepreneurs & Startups
• Small & Medium Enterprises (SMEs)
• Larger Businesses & Bespoke Solutions
• Case Studies
• Work with Us
• Accountants & Advisors
• Video Tutorials
• Software Integrations
• Templates & Downloads
• Help Centre

How to Create a Personnel Plan for Investors

What is a personnel plan?

A personnel plan is a document that outlines an organization’s staffing needs, goals, and strategies for managing its workforce.

It is a key component of human resource management and provides a roadmap for the recruitment, selection, training, development, retention, and management of employees.

A personnel plan is critical within the business plan you would have created as a start-up or entrepreneur. It will help you in your financial forecasting, anticipating the right times to hire and expand.

What to include in the personnel section of your business plan

The personnel section of a business plan should include information about the management team and staff that will be involved in operating the business. The people who do the work are the most important asset, which of course comes with a cost. Understanding when to hire, when to think about human resources, and when to grow your business at the right time can be enormously important in meeting business objectives, setting yourself up for success with great personal benchmarks.

Building out a personnel plan within your business plan is going to be essential in planning for the long term success of your business. Forecasting this data can be the best way to ensure longevity.

Who is your management team?

This should include a brief introduction to the key members of the management team, including their backgrounds, experience, and relevant skills. It’s important to highlight their qualifications and how they will contribute to the success of the business.

This can be brief and doesn’t require a full resume for each member of the team. A simple explanation detailing qualifications and relevant experience applicable within the company is all that’s required.

What is the organizational structure?

This section should provide an overview of the organizational structure of the company, including who will be in charge of each department or functional area, as well as any outside consultants or advisors who will be involved.

In line with forecasting, you will want to illustrate the future of your company and who will be included. As you develop, you can anticipate your team growing from a just few employees into staff across multiple sectors, such as customer service, marketing, and support.

What are your staffing needs?

Outline the staffing needs of the business, including the number and types of employees needed to run the business successfully. This should also include the qualifications and skills required for each position.

Here you can identify the weaknesses and risks across your team, ensuring that you have a capable understanding of the roles and responsibilities that are important to the business in the future – though they may not be in place right now. Investors are quick to highlight “perfect” personnel plans, so you will want to embrace that you have identified risks in staffing.

As an example, your head of customer support may also be your head of sales, but in time these two roles will need to be separated.

What will recruitment and training look like?

This section should detail how the company plans to recruit and train employees, including any training programs or on-the-job training that will be provided.

What will the compensations and benefits be?

Outline the compensation and benefits packages that will be offered to employees, including salaries, bonuses, health benefits, retirement plans, and any other perks or incentives.

Outline the Human Resources policies

Detail the company’s policies on issues such as employee performance reviews, disciplinary procedures, and termination policies.

Does a business plan need personnel planning if I have no staff?

Even if you don’t have any employees right now, having a personnel plan is beneficial for your business in the long term.

Without a personnel plan, you may find it challenging to scale your business or adapt to changes in your industry or market. For example, if you suddenly need to hire someone to fill a critical role, you may not know where to start or what qualifications you should look for.

Creating a personnel plan can also help you to clarify your business goals and objectives. By determining the roles and responsibilities required to meet those goals, you can better prioritize and focus on the essential tasks that need to be done.

Therefore, even if you don’t have any employees currently, it’s still a good idea to develop a personnel plan to help you prepare for future growth and ensure that you have the right team in place to support your business objectives.

Is there an easy way to forecast a personnel plan?

Personnel planning is a long process as it requires dedicated thought as to what needs to happen in your business and where you want to take it. Typically, this require a lengthy process of spreadsheets and equations to figure out exactly who needs to be working with you, and at what cost.

Business planning software can ensure that this part of your business plan, alongside other key components, is created with ease – simply needing a few data entries to be entered throughout the software.

Related articles

• 10 Pitch Deck Mistakes to Avoid
• What are the Top 10 Business Plan Components?
• How To Find Potential Investors To Pitch To
• How to create financial projections for your business

Get started FREE with Brixx today

and take the first steps to planning your business’ future development

• school Campus Bookshelves
• menu_book Bookshelves
• perm_media Learning Objects
• login Login
• how_to_reg Request Instructor Account
• hub Instructor Commons
• Download Page (PDF)
• Download Full Book (PDF)
• Periodic Table
• Physics Constants
• Scientific Calculator
• Reference & Cite
• Tools expand_more
• Readability

selected template will load here

This action is not available.

1.5: Chapter 5 – Business Planning

• Last updated
• Save as PDF
• Page ID 21257

• Lee A. Swanson
• University of Saskatchewan

Business planning is an important precursor to action in new ventures. By helping firm founders to make decisions, to balance resource supply and demand, and to turn abstract goals into concrete operational steps, business planning reduces the likelihood of venture disbanding and accelerates product development and venture organizing activity. – Delmar and Shane (2003, p. 1165)

We always plan too much and always think too little. We resent a call to thinking and hate unfamiliar argument that does not tally with what we already believe or would like to believe. – Joseph Schumpeter

Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window. – Peter Drucker

Learning Objectives

After completing this chapter you will be able to

• Describe the purposes of business planning
• Describe common business planning principles
• List and explain the elements of the business plan development process outlined in this book
• Explain the purposes of each of the elements of the business plan development process outlined in this book
• Explain how applying the business plan development process outlined in this book can aid in developing a business plan that will meet entrepreneurs’ goals
• Describe general business planning guidelines and format

This chapter describes the purposes of business planning, the general concepts related to business planning, and guidelines and a format for a comprehensive business plan.

Business Planning Purposes

Business plans are developed for both internal and external purposes. Internally, entrepreneurs develop business plans to help put the pieces of their business together. The most common external purpose for a business plan is to raise capital.

Internal Purposes

• defines the vision for the company
• establishes the company’s strategy
• describes how the strategy will be implemented
• provides a framework for analysis of key issues
• provides a plan for the development of the business
• is a measurement and control tool
• helps the entrepreneur to be realistic and to put theories to the test

External Purposes

The business plan is often the main method of describing a company to external audiences such as potential sources for financing and key personnel being recruited. It should assist outside parties to understand the current status of the company, its opportunities, and its needs for resources such as capital and personnel. It also provides the most complete source of information for valuation of the business.

Business Planning Principles

Business plan communication principles.

As Hindle and Mainprize (2006) note, business plan writers must strive to communicate their expectations about the nature of an uncertain future. However, the liabilities of newness make communicating the expected future of new ventures difficult (more so than for existing businesses). They outline five communications principles:

• Translation of your vision of the venture and how it will perform into a format compatible with the expectations of the readers
• you have identified and understood the key success factors and risks
• the projected market is large and you expect good market penetration
• you have a strategy for commercialization, profitability, and market domination
• you can establish and protect a proprietary and competitive position
• Anchoring key events in the plan with specific financial and quantitative values
• your major plan objectives are in the form of financial targets
• you have addressed the dual need for planning and flexibility
• you understand the hazards of neglecting linkages between certain events
• you understand the importance of quantitative values (rather than just chronological dates)
• Nothing lasts forever—things can change to impact the opportunity: tastes, preferences, technological innovation, competitive landscape
• the new combination upon which venture is built
• magnitude of the opportunity or market size
• market growth trends
• venture’s value from the market (% of market share proposed or market share value in dollars)
• Four key aspects describing context within which new venture is intended to function (internal and external environment)
• how the context will help or hinder the proposal
• how the context may change & affect the business & the range of flexibility or response that is built into the venture
• what management can or will do in the event the context turns unfavourable
• what management can do to affect the context in a positive way
• Brief and clear statement of how an idea actually becomes a business that creates value
• Who pays, how much, and how often?
• The activities the company must perform to produce its product, deliver it to its customers and earn revenue
• And be able to defend assertions that the venture is attractive and sustainable and has a competitive edge

Business Plan Credibility Principles

Business plan writers must strive to project credibility (Hindle & Mainprize, 2006), so t here must be a match between what the entrepreneurship team (resource seekers) needs and what the investors (resource providers) expect based on their criteria. A take it or leave it approach (i.e. financial forecasts set in concrete) by the entrepreneurship team has a high likelihood of failure in terms of securing resources. Hindle and Mainprize (2006) outline five principles to help entrepreneurs project credibility:

• Without the right team, nothing else matters.
• What do they know?
• Who do they know?
• How well are they known?
• sub-strategies
• ad-hoc programs
• specific tactical action plans
• Claiming an insuperable lead or a proprietary market position is naïve.
• Anticipate several moves in advance
• View the future as a movie vs. snapshot
• Key assumptions related to market size, penetration rates, and timing issues of market context outlined in the business plan should link directly to the financial statements.
• Income and cash flow statements must be preceded by operational statements setting forth the primary planning assumptions about market sizes, sales, productivity, and basis for the revenue estimate.
• If the main purpose is to enact a harvest, then the business plan must create a value-adding deal structure to attract investors.
• Common things: viability, profit potential, downside risk, likely life-cycle time, potential areas for dispute or improvement

General Business Plan Guidelines

Many businesses must have a business plan to achieve their goals. The following are some basic guidelines for business plan development.

• A standard format helps the reader understand that the entrepreneur has thought everything through, and that the returns justify the risk.
• Binding the document ensures that readers can easily go through it without it falling apart.
• everything is completely integrated: the written part must say exactly the same thing as the financial part
• all financial statements are completely linked and valid (make sure all balance sheets validly balance)
• the document is well formatted (layout makes document easy to read and comprehend—including all diagrams, charts, statements, and other additions)
• everything is correct (there are NO spelling, grammar, sentence structure, referencing, or calculation errors)
• It is usually unnecessary—and even damaging—to state the same thing more than once. To avoid unnecessarily duplicating information, you should combine sections and reduce or eliminate duplication as much as possible.
• all the necessary information is included to enable readers to understand everything in your document
• For example, if your plan says something like “there is a shortage of 100,000 units with competitors currently producing 25,000. We can help fill this huge gap in demand with our capacity to produce 5,000 units,” a reader is left completely confused. Does this mean there is a total shortage of 100,000 units, but competitors are filling this gap by producing 25,000 per year (in which case there will only be a shortage for four years)? Or, is there an annual shortage of 100,000 units with only 25,000 being produced each year, in which case the total shortage is very high and is growing each year? You must always provide the complete perspective by indicating the appropriate time frame, currency, size, or another measurement.
• if you use a percentage figure, you indicate to what it refers, otherwise the figure is completely useless to a reader.
• This can be solved by indicating up-front in the document the currency in which all values will be quoted. Another option is to indicate each time which currency is being used, and sometimes you might want to indicate the value in more than one currency. Of course, you will need to assess the exchange rate risk to which you will be exposed and describe this in your document.
• If a statement is included that presents something as a fact when this fact is not generally known, always indicate the source. Unsupported statements damage credibility
• Be specific. A business plan is simply not of value if it uses vague references to high demand, carefully set prices, and other weak phrasing. It must show hard numbers (properly referenced, of course), actual prices, and real data acquired through proper research. This is the only way to ensure your plan is considered credible.

Developing a High Power Business Plan

The business plan development process described next has been extensively tested with entrepreneurship students and has proven to provide the guidance entrepreneurs need to develop a business plan appropriate for their needs; a high power business plan .

The Stages of Development

There are six stages involved with developing a high power business plan . These stages can be compared to a process for hosting a dinner for a few friends. A host hoping to make a good impression with their anticipated guests might analyze the situation at multiple levels to collect data on new alternatives for healthy ingredients, what ingredients have the best prices and are most readily available at certain times of year, the new trends in party appetizers, what food allergies the expected guests might have, possible party themes to consider, and so on. This analysis is the Essential Initial Research stage.

In the Business Model stage, the host might construct a menu of items to include with the meal along with a list of decorations to order, music to play, and costume themes to suggest to the guests. The mix of these kinds of elements chosen by the host will play a role in the success of the party.

The Initial Business Plan Draft stage is where the host rolls up his or her sleeves and begins to assemble make some of the food items, put up some of the decorations, send invitations, and generally get everything started for the party.

During this stage, the host will begin to realize that some plans are not feasible and that changes are needed. The required changes might be substantial, like the need to postpone the entire party and ultimately start over in a few months, or less drastic, like the need to change the menu when an invited guest indicates that they can’t eat food containing gluten. These changes are incorporated into the plan to make it realistic and feasible in the Making the Business Plan Realistic stage.

Making A Plan to Appeal to Stakeholders stage involves further changes to the party plan to make it more appealing to both the invited guests and to make it a fun experience for the host. For example, the host might learn that some of the single guests would like to bring dates and others might need to be able to bring their children to be able to attend. The host might be able to accommodate those desires or needs in ways that will also make the party more fun for them—maybe by accepting some guests’ offers to bring food or games, or maybe even hiring a babysitter to entertain and look after the children.

The final stage— Finishing the Business Plan— involves the host putting all of the final touches in place for the party in preparation for the arrival of the guests.

Figure 5 – Business Plan Development Process (Illustration by Lee A. Swanson)

Essential Initial Research

A business plan writer should analyze the environment in which they anticipate operating at each of the s ocietal , i ndustry , m arket , and f irm levels of analysis (see pages 51–60). This stage of planning, the e ssential initial research , is a necessary first step to better understand the trends that will affect their business and the decisions they must make to lay the groundwork for, and to improve their potential for success.

In some cases, much of the e ssential initial research should be included in the developing business plan as its own separate section to help build the case for readers that there is a market need for the business being considered and that it stands a good chance of being successful.

In other cases, a business plan will be stronger when the components of the e ssential initial research are distributed throughout the business plan as a way to provide support for the plans and strategies outlined in the business plan. For example, the industry or market part of the e ssential initial research might outline the pricing strategies used by identified competitors and might be best placed in the pricing strategy part of the business plan to support the decision made to employ a particular pricing strategy.

Business Model

Inherent in any business plan is a description of the business model chosen by the entrepreneur as the one that they feel will best ensure success. Based upon their essential initial research of the setting in which they anticipate starting their business (their analysis from stage one) an entrepreneur should determine how each element of their business model—including their revenue streams, cost structure, customer segments, value propositions, key activities, key partners, and so on—might fit together to improve the potential success of their business venture (see Chapter 4 – Business Models).

For some types of ventures, at this stage an entrepreneur might launch a lean start-up (see page 68) and grow their business by continually pivoting, or constantly adjusting their business model in response to the real-time signals they get from the markets’ reactions to their business operations. In many cases, however, an entrepreneur will require a business plan. In those cases, their initial business model will provide the basis for that plan.

Of course, throughout this and all of the rounds in this process, the entrepreneur should seek to continually gather information and adjust the plans in response to the new knowledge they gather. As shown in Figure 8 by its enclosure in the progressive research box, the business plan developer might need conduct further research before finishing the business model and moving on to the initial business plan draft.

Initial Business Plan Draft

The Business Plan Draft stage involves taking the knowledge and ideas developed during the first two stages and organizing them into a business plan format. An approach preferred by many is to create a full draft of the business plan with all of the sections, including the front part with the business description, vision, mission, values, value proposition statement, preliminary set of goals, and possibly even a table of contents and lists of tables and figures all set up using the software features enabling their automatic generation. Writing all of the operations, human resources, marketing, and financial plans as part of the first draft ensures that all of these parts can be appropriately and necessarily integrated. The business plan will tell the story of a planned business startup in two ways by using primarily words along with some charts and graphs in the operations, human resources, and marketing plans and in a second way through the financial plan. Both ways must tell the same story.

The feedback loop shown in Figure 8 demonstrates that the business developer may need to review the business model. Additionally, as shown by its enclosure in the progressive research box, the business plan developer might need conduct further research before finishing the Initial Business Plan Draft stage and moving on to the Making Business Plan Realisticstage.

Making Business Plan Realistic

The first draft of a business plan will almost never be realistic. As the entrepreneur writes the plan, it will necessarily change as new information is gathered. Another factor that usually renders the first draft unrealistic is the difficulty in making certain that the written part—in the front part of the plan along with the operations, human resources, and marketing plans—tells the exact same story as the financial part does. This stage of work involves making the necessary adjustments to the plan to make it as realistic as possible.

The Making Business Plan Realistic stage has two possible feedback loops. The first goes back to the Initial Business Plan Draft stage in case the initial business plan needs to be significantly changed before it is possible to adjust it so that it is realistic. The second feedback loop circles back to the Business Model stage if the business developer need to rethink the business model. As shown in Figure 8 by its enclosure in the progressive research box, the business plan developer might need conduct further research before finishing the Making Business Plan Realistic stage and moving on to the Making Plan Appeal to Stakeholders stage.

Making Plan Appeal to Stakeholders and Desirable to the Entrepreneur

A business plan can be realistic without appealing to potential investors and other external stakeholders, like employees, suppliers, and needed business partners. It might also be realistic (and possibly appealing to stakeholders) without being desirable to the entrepreneur. During this stage the entrepreneur will keep the business plan realistic as they adjust plans to appeal to potential investors and to themselves.

If, for example, investors will be required to finance the business start, some adjustments might need to be relatively extensive to appeal to potential investors’ needs for an exit strategy from the business, to accommodate the rate of return they expect from their investments, and to convince them that the entrepreneur can accomplish all that is promised in the plan. In this case, and in others, the entrepreneur will also need to get what they want out of the business to make it worthwhile for them to start and run it. So, this stage of adjustments to the developing business plan might be fairly extensive, and they must be informed by a superior knowledge of what targeted investors need from a business proposal before they will invest. They also need to be informed by a clear set of goals that will make the venture worthwhile for the entrepreneur to pursue.

The caution with this stage is to balance the need to make realistic plans with the desire to meet the entrepreneur’s goals while avoiding becoming discouraged enough to drop the idea of pursuing the business idea. If an entrepreneur is convinced that the proposed venture will satisfy a valid market need, there is often a way to assemble the financing required to start and operate the business while also meeting the entrepreneur’s most important goals. To do so, however, might require significant changes to the business model.

One of the feedback loops shown in Figure 8 indicates that the business plan writer might need to adjust the draft business plan while ensuring that it is still realistic before it can be made appealing to the targeted stakeholders and desirable to the entrepreneur. The second feedback loop indicates that it might be necessary to go all the way back to the Business Model stage to re-establish the framework and plans needed to develop a realistic, appealing, and desirable business plan. Additionally, this stage’s enclosure in the progressive research box suggests that the business plan developer might need conduct further research.

Finishing the Business Plan

The final stage involves putting all of the important finishing touches on the business plan so that it will present well to potential investors and others. This involves making sure that the math and links between the written and financial parts are accurate. It also involves ensuring that all the needed corrections are made to the spelling, grammar, and formatting. The final set of goals should be written to appeal to the target readers and to reflect what the business plan says. An executive summary should be written and included as a final step.

General Business Plan Format

Include nice, catchy, professional, appropriate graphics to make it appealing for targeted readers

Executive summary

• Can be longer than normal executive summaries, up to three pages
• Write after remainder of plan is complete
• Includes information relevant to targeted readers as this is the place where they are most likely to form their first impressions of the business idea and decide whether they wish to read the rest of the plan

Table of Con t ents

List of tables.

Each table, figure, and appendix included in the plan must be referenced within the text of the plan so the relevance of each of these elements is clear.

List of Figures

Introduction.

• Describes the business concept
• Indicates the purpose of the plan
• Appeals to targeted readers

Business Idea

• May include description of history behind the idea and the evolution of the business concept if relevant
• Generally outlines what the owner intends for the venture to be
• Should inspire all members of the organization
• Should help stakeholders aspire to achieve greater things through the venture because of the general direction provided through the vision statement
• Should be very brief—a few sentences or a short paragraph
• Indicates what your organization does and why it exists—may describe the business strategy and philosophy
• Indicates the important values that will guide everything the business will do
• Outlines the personal commitments members of the organization must make, and what they should consider to be important
• Defines how people behave and interact with each other.
• Should help the reader understand the type of culture and operating environment this business intends to develop

Major Goals

• Describes the major organizational goals
• Specific, Measurable, Action-Oriented, Realistic, and Timely [SMART]
• Realistic, Understandable, Measurable, Believable, and Achievable [RUMBA]
• Perfectly aligns with everything in plan

Operating Environment

Trend analysis.

• Consider whether this is the right place for this analysis: it may be better positioned in, for example, the Financial Plan section to provide context to the analysis of the critical success factors, or in the Marketing Plan to help the reader understand the basis for the sales projections.

Industry Analysis

• Includes an analysis of the industry in which this business will operate
• consider whether this is the right place for this analysis: it may be better placed in, for example, the Marketing Plan to enhance the competitor analysis, or in the Financial Plan to provide context to the industry standard ratios in the Investment Analysis section

Operations Plan

• expressed as a set physical location
• expressed as a set of requirements and characteristics
• How large will your facility be and why must it be this size?
• How much will it cost to buy or lease your facility?
• What utility, parking, and other costs must you pay for this facility?
• What expansion plans must be factored into the facility requirements?
• What transportation and storage issues must be addressed by facility decisions?
• What zoning and other legal issues must you deal with?
• What will be the layout for your facility and how will this best accommodate customer and employee requirements?
• Given these constraints, what is your operating capacity (in terms of production, sales, etc.)?
• What is the workflow plan for your operation?
• What work will your company do and what work will you outsource?

Operations Timeline

• When will you make the preparations, such as registering the business name and purchasing equipment, to start the venture?
• When will you begin operations and make your first sales?
• When will other milestone events occur such as moving operations to a larger facility, offering a new product line, hiring new key employees, and beginning to sell products internationally?
• May include a graphical timeline showing when these milestone events have occurred and are expected to occur

Business Structure and other Set-up Elements

Somewhere in your business plan you must indicate what legal structure your venture will take. Your financial statements, risk management strategy, and other elements of your plan are affected by the type of legal structure you choose for your business:

• Sole Proprietorship
• Partnership
• Limited Partnership
• Corporation
• Cooperative

As part of your business set-up, you need to determine what kinds of control systems you should have in place, establish necessary relationships with suppliers and prior to your start-up, and generally deal with a list of issues like the following. Many of your decisions related to the following should be described somewhere in your business plan:

• Zoning, equipment prices, suppliers, etc.
• Lease terms, leasehold improvements, signage, pay deposits, etc.
• Getting business license, permits, etc.
• Setting up banking arrangements
• Setting up legal and accounting systems (or professionals)
• Ordering equipment, locks and keys, furniture, etc.
• Recruiting employees, set up payroll system, benefit programs, etc.
• Training employees
• Testing the products/services that will be offered
• Testing the systems for supply, sales, delivery, and other functions
• Deciding on graphics, logos, promotional methods, etc.
• Ordering business cards, letter head, etc.
• Setting up supplier agreements
• Buying inventory, insurance, etc.
• Revising business plan
• And many more things, including, when possible, attracting purchased orders in advance of start-up through personal selling (by the owner, a paid sales force, independent representatives, or by selling through brokers wholesalers, catalog houses, retailers), a promotional campaign, or other means
• What is required to start up your business, including the purchases and activities that must occur before you make your first sale?
• When identifying capital requirements for start-up, a distinction should be made between fixed capital requirements and working capital requirements.

Fixed Capital Requirements

• What fixed assets, including equipment and machinery, must be purchased so your venture can conduct its business?
• This section may include a start-up budget showing the machinery, equipment, furnishings, renovations, and other capital expenditures required prior to operations commencing.
• If relevant you might include information showing the financing required; fixed capital is usually financed using longer-term loans.

Working Capital Requirements

• What money is needed to operate the business (separately from the money needed to purchase fixed assets) including the money needed to purchase inventory and pay initial expenses?
• This section may include a start-up budget showing the cash required to purchase starting inventories, recruit employees, conduct market research, acquire licenses, hire lawyers, and other operating expenditures required prior to starting operations.
• If relevant you might include information showing the financing required … working capital is usually financed with operating loans, trade credit, credit card debt, or other forms of shorter-term loans.

Risk Management Strategies

• enterprise – liability exposure for things like when someone accuses your employees or products you sell of injuring them.
• financial – securing loans when needed and otherwise having the right amount of money when you need it
• operational – securing needed inventories, recruiting needed employees in tight labour markets, customers you counted on not purchasing product as you had anticipated, theft, arson, natural disasters like fires and floods, etc.
• avoid – choose to avoid doing something, outsource, etc.
• reduce – through training, assuming specific operational strategies, etc.
• transfer – insure against, outsource, etc.
• assume – self-insure, accept, etc.

Operating Processes

• What operating processes will you apply?
• How will you ensure your cash is managed effectively?
• How will you schedule your employees?
• How will you manage your inventories?
• If you will have a workforce, how will you manage them?
• How will you bill out your employee time?
• How will you schedule work on your contracts?
• How you will manufacture your product (process flow, job shop, etc.?)
• How will you maintain quality?
• How will you institute and manage effective financial monitoring and control systems that provide needed information in a timely manner?
• How will you manage expansion?
• May include planned layouts for facilities

Organizational Structure

• May include information on Advisory Boards or Board of Directors from which the company will seek advice or guidance or direction
• May include an organizational chart
• Can nicely lead into the Human Resources Plan

Human Resources Plan

• How do you describe your desired corporate culture?
• What are the key positions within your organization?
• How many employees will you have?
• What characteristics define your desired employees?
• What is your recruitment strategy? What processes will you apply to hire the employees you require?
• What is your leadership strategy and why have you chosen this approach?
• What performance appraisal and employee development methods will you use?
• What is your organizational structure and why is this the best way for your company to be organized?
• How will you pay each employee (wage, salary, commission, etc.)? How much will you pay each employee?
• What are your payroll costs, including benefits?
• What work will be outsourced and what work will be completed in-house?
• Have you shown and described an organizational chart?

Recruitment and Retention Strategies

• Includes how many employees are required at what times
• Estimates time required to recruit needed employees
• employment advertisements
• contracts with employment agency or search firms
• travel and accommodations for potential employees to come for interviews
• travel and accommodations for interviewers
• facility, food, lost time, and other interviewing costs
• relocation allowances for those hired including flights, moving companies, housing allowances, spousal employment assistance, etc.
• may include a schedule showing the costs of initial recruitment that then flows into your start-up expense schedules

Leadership and Management Strategies

• What is your leadership philosophy?
• Why is it the most appropriate leadership approach for this venture?
• What training is required because of existing rules and regulations?
• How will you ensure your employees are as capable as required?
• Health and safety (legislation, WHMIS, first aid, defibulators, etc.)
• Initial workplace orientation
• Financial systems
• Product features

Performance Appraisals

• How will you manage your performance appraisal systems?

Health and Safety

• Any legal requirements should be noted in this section (and also legal requirements for other issues that may be included in other parts of the plan)

Compensation

• Always completely justifies your planned employee compensation methods and amounts
• Always includes all components of the compensation (CPP, EI, holiday pay, etc.)
• Outlines how will you ensure both internal and external equity in your pay systems
• Describes any incentive-based pay or profit sharing systems planned
• May include a schedule here that shows the financial implications of your compensation strategy and supports the cash flow and income statements shown later

Key Personnel

• May include brief biographies of the key organizational people

Marketing Plan

• You must show evidence of having done proper research, both primary and secondary. If you make a statement of fact, you must back it up with properly referenced supporting evidence. If you indicate a claim is based on your own assumptions, you must back this up with a description as to how you came to the conclusion.
• It is a given that you must provide some assessment of the economic situation as it relates to your business. For example, you might conclude that the current economic crisis will reduce the potential to export your product and it may make it more difficult to acquire credit with which to operate your business. Of course, conclusions such as these should be matched with your assessment as to how your business will make the necessary adjustments to ensure it will thrive despite these challenges, or how it will take advantage of any opportunities your assessment uncovers.
• If you apply the Five Forces Model, do so in the way in which it was meant to be used to avoid significantly reducing its usefulness while also harming the viability of your industry analysis. This model is meant to be used to consider the entire industry—not a subcomponent of it (and it usually cannot be used to analyze a single organization).
• Your competitor analysis might fit within your assessment of the industry or it might be best as a section within your marketing plan. Usually a fairly detailed description of your competitors is required, including an analysis of their strengths and weaknesses. In some cases, your business may have direct and indirect competitors to consider. Be certain to maintain credibility by demonstrating that you fully understand the competitive environment.
• Assessments of the economic conditions and the state of the industry appear incomplete without accompanying appraisals outlining the strategies the organization can/should employ to take advantage of these economic and industry situations. So, depending upon how you have organized your work, it is usually important to couple your appraisal of the economic and industry conditions with accompanying strategies for your venture. This shows the reader that you not only understand the operating environment, but that you have figured out how best to operate your business within that situation.
• Have you done an effective analysis of your venture? (See the Organizational Analysis section below.)

Market Analysis

• Usually contains customer profiles, constructed through primary and secondary research, for each market targeted
• Contains detailed information on the major product benefits you will deliver to the markets targeted
• Describes the methodology used and the relevant results from the primary market research done
• If there was little primary research completed, justifies why it is acceptable to have done little of this kind of research and/or indicate what will be done and by when
• Includes a complete description of the secondary research conducted and the conclusions reached
• Define your target market in terms of identifiable entities sharing common characteristics. For example, it is not meaningful to indicate you are targeting Canadian universities. It is, however, useful to define your target market as Canadian university students between the ages of 18 and 25, or as information technology managers at Canadian universities, or as student leaders at Canadian universities. Your targeted customer should generally be able to make or significantly influence the buying decision.
• You must usually define your target market prior to describing your marketing mix, including your proposed product line. Sometimes the product descriptions in business plans seem to be at odds with the described target market characteristics. Ensure your defined target market aligns completely with your marketing mix (including product/service description, distribution channels, promotional methods, and pricing). For example, if the target market is defined as Canadian university students between the ages of 18 and 25, the product component of the marketing mix should clearly be something that appeals to this target market.
• Carefully choose how you will target potential customers. Should you target them based on their demographic characteristics, psychographic characteristics, or geographic location?
• You will need to access research to answer this question. Based on what you discover, you will need to figure out the optimum mix of pricing, distribution, promotions, and product decisions to best appeal to how your targeted customers make their buying decisions.

Competition

• However, this information might fit instead under the market analysis section.
• Describes all your direct competitors
• Describes all your indirect competitors
• If you can, includes a competitor positioning map to show where your product will be positioned relative to competitors’ products

Figure 6 – Competitor Positioning Map (Illustration by Lee A. Swanson)

• What distinguishes your business from that of your competitors in a way that will ensure your sales forecasts will be met?
• You must clearly communicate the answers to these questions in your business plan to attract the needed support for your business. One caution is that it may sound appealing to claim you will provide a superior service to the existing competitors, but the only meaningful judge of your success in this regard will be customers. Although it is possible some of your competitors might be complacent in their current way of doing things, it is very unlikely that all your competitors provide an inferior service to that which you will be able to provide.

Marketing Strategy

• Covers all aspects of the marketing mix including the promotional decisions you have made, product decisions, distribution decisions related to how you will deliver your product to the markets targeted, and pricing decisions
• Outlines how you plan to influence your targeted customers to buy from you (what is the optimum marketing mix, and why is this one better than the alternatives)

Organizational Analysis

• Leads in to your marketing strategy or is positioned elsewhere depending upon how your business plan is best structured
• If doing so, always ensure this analysis results in more than a simple list of internal strengths and weaknesses and external opportunities and threats. A SWOT analysis should always prove to the reader that there are organizational strategies in place to address each of the weaknesses and threats identified and to leverage each of the strengths and opportunities identified.
• An effective way to ensure an effective outcome to your SWOT Analysis is to apply a TOWS Matrix approach to develop strategies to take advantage of the identified strengths and opportunities while mitigating the weaknesses and threats. A TOWS Matrix evaluates each of the identified threats along with each of the weaknesses and then each of the strengths. It does the same with each of the identified opportunities. In this way strategies are developed by considering pairs of factors
• The TOWS Matrix is a framework with which to help you organize your thoughts into strategies. Most often you would not label a section of your business plan as a TOWS Matrix. This would not normally add value for the reader. Instead, you should describe the resultant strategies—perhaps while indicating how they were derived from your assessment of the strengths, weaknesses, opportunities, and threats. For example, you could indicate that certain strategies were developed by considering how internal strengths could be employed toward mitigating external threats faced by the business.

Product Strategy

• If your product or service is standardized, you will need to compete on the basis of something else – like a more appealing price, having a superior location, better branding, or improved service. If you can differentiate your product or service you might be able to compete on the basis of better quality, more features, appealing style, or something else. When describing your product, you should demonstrate that you understand this.

Pricing Strategy

• If you intend to accept payment by credit card (which is probably a necessity for most companies), you should be aware of the fee you are charged as a percentage of the value of each transaction. If you don’t account for this you risk overstating your actual revenues by perhaps one percent or more.
• Sales forecasts must be done on at least a monthly basis if you are using a projected cash flow statement. These must be accompanied by explanations designed to establish their credibility for readers of your business plan. Remember that many readers will initially assume that your planned time frames are too long, your revenues are overstated, and you have underestimated your expenses. Well crafted explanations for all of these numbers will help establish credibility.

Distribution Strategy

• If you plan to use e-commerce, you should include all the costs associated with maintaining a website and accepting payments over the Internet.

Promotions Strategy

• If you are attracting customers away from competitors, how will these rivals respond to the threat you pose to them?
• If you intend to create new customers, how will you convince them to reallocate their dollars toward your product or service (and away from other things they want to purchase)?
• In what ways will you communicate with your targeted customers? When will you communicate with them? What specific messages do you plan to convey to them? How much will this promotions plan cost?
• If your entry into the market will not be a threat to direct competitors, it is likely you must convince potential customers to spend their money with you rather than on what they had previously earmarked those dollars toward. In your business plan you must demonstrate an awareness of these issues.
• Consider listing the promotional methods in rows on a spreadsheet with the columns representing weeks or months over probably about 18 months from the time of your first promotional expenditure. This can end up being a schedule that feeds the costs into your projected cash flow statement and from there into your projected income statements.
• If you phone or visit newspapers, radio stations, or television stations seeking advertising costs, you must go only after you have figured out details like on which days you would like to advertise, at what times on those days, whether you want your print advertisements in color, and what size of print advertisements you want.
• Carefully consider which promotional methods you will use. While using a medium like television may initially sound appealing, it is very expensive unless your ad runs during the non-prime times. If you think this type of medium might work for you, do a serious cost-benefit analysis to be sure.
• Some promotional plans are developed around newspaper ads, promotional pamphlets, printing business cards, and other more obvious mediums of promotion. Be certain to, include the costs of advertising in telephone directories, sponsoring a little league soccer team, producing personalized pens and other promotional client give-always, donating items to charity auctions, printing and mailing client Christmas cards, and doing the many things businesses find they do on-the-fly. Many businesses find it to be useful to join the local chamber of commerce and relevant trade organizations with which to network. Some find that setting a booth up at a trade fair helps launch their business.
• If you are concerned you might have missed some of these promotional expenses, or if you want to have a buffer in place in case you feel some of these opportunities are worthwhile when they arise, you should add some discretionary money to your promotional budget. A problem some companies get into is planning out their promotions in advance only to reallocate some of their newspaper advertisement money, for example, toward some of these other surprise purposes resulting in less newspaper advertising than had been intended.

Financial Plan

• It is nearly certain you will need to make monthly cash flow projections from business inception to possibly three years out. Your projections will show the months in which the activities shown on your fixed capital and working capital schedules will occur. This is nearly the only way to clearly estimate your working capital needs and, specifically, important things like the times when you will need to draw on or can pay down your operating loans and the months when you will need to take out longer-term loans with which to purchase your fixed assets. Without a tool like this you will be severely handicapped when talking with bankers about your expected needs. They will want to know how large of a line of credit you will need and when you anticipate needing to borrow longer-term money. It is only through doing cash flow projections will you be able to answer these questions. This information is also needed to determine things like the changes to your required loan payments and when you can take owner draws or pay dividends.
• Your projected cash flows are also used to develop your projected income statements and balance sheets.

Pro forma Cash Flow Statements

Pro forma income statements, pro forma balance sheets, investment analysis, projected financial ratios and industry standard ratios, critical success factors (sensitivity analysis).

Business Plan Development Guide

(6 reviews)

Lee Swanson, University of Saskatchewan

Copyright Year: 2017

Publisher: OPENPRESS.USASK.CA

Language: English

Formats Available

Conditions of use.

Learn more about reviews.

Reviewed by Kevin Heupel, Affiliate Faculty, Metropolitan State University of Denver on 3/4/20

The text does a good job of providing a general outline about writing and developing a written business plan. All of the important steps and components are included. However, the text is light on details, examples, and rationale for each element... read more

Comprehensiveness rating: 3 see less

The text does a good job of providing a general outline about writing and developing a written business plan. All of the important steps and components are included. However, the text is light on details, examples, and rationale for each element of the business plan. Some examples from actual business plans would be helpful.

Content Accuracy rating: 4

For the most part, the content is accurate. The content covers all important aspects of drafting a business plan. I thought the industry analysis could use more information about collecting primary and secondary sources; instead, this information was referenced in the marketing plan section.

Relevance/Longevity rating: 5

Most of the content relies on cites as far back as 2006; however, when it comes to developing and writing a business plan nothing has changed. Thus, the content is current and there is no concern about it becoming obsolete in the near future.

Clarity rating: 4

The text is clear. There are no difficult terms used and the writing is simple. The text uses a lot of bullet points though, which gets tedious to read for a few pages.

Consistency rating: 5

The text does a good job of maintaining consistency in terms of framework and terminology. The text is organized where it's easy to find the information you want in a quick manner.

Modularity rating: 3

The text has a lot of bullet points and the paragraphs are dense. However, the use of subheading is excellent.

Organization/Structure/Flow rating: 5

The book is organized as if you're writing a business plan from start to finish, which is helpful as a practical guide.

Interface rating: 5

There are no navigation problems, distortion of images/charts, or any other display features that may distract or confuse the reader.

Grammatical Errors rating: 5

The text is free of grammatical errors. The sentence structure is simple with many bullet points, which helps to avoid any grammatical issues.

Cultural Relevance rating: 5

This book was written by a Canadian professor and provides references to Canadian sources. However, the information in this text can be used for U.S. schools.

This book is very short and provides a good, general overview about the process of creating and writing a business plan. It won't help a reader if he/she is confused about a certain part of the business plan. The reader will have to find another source, such as "Preparing Effective Business Plans" by Bruce Barringer, Ph.D. The book provides links to good resources and a finished business plan that the reader can reference. I would recommend the book for undergraduate courses.

Reviewed by Kenneth Lacho, Professor of Management, The University of New Orleans on 6/19/18

1. Text is relevant to Canada. Not the United States 2. Needs to cover resources available to entrepreneur, e.g., federal government agencies, trade associations, chambers of commerce, economic development agencies. 3. Discuss local economy or... read more

1. Text is relevant to Canada. Not the United States 2. Needs to cover resources available to entrepreneur, e.g., federal government agencies, trade associations, chambers of commerce, economic development agencies. 3. Discuss local economy or economic area relevant to this proposed business. 4. Business model ok as a guide. 5. Suggested mission statement to cover: product/business, target customer, geographical area covered. 6. Need detailed promotion plan, e.g., personal selling, advertising, sales promotion, networking publicity, and social media. 7. How do you find the target market? 8. Chapter 6 too much detail on debt and equity financing. 9. Discuss how to find sources of financing, e.g., angels. 10. Expand coverage of bootstring, crowdfunding. 11. Chapter 4 – good checklist. 12. Chapter 3 - overlaps. 13. Chapter 7 – 3 pages of executive summary – double or single spaced typing. Number all tables, graphs. 14. Some references out-of-date, mostly academic. Bring in trade magazines such as Entrepreneur.

Content Accuracy rating: 5

In my opinion, the content is accurate and error free.

Relevance/Longevity rating: 4

The material is relevant to writing a business plan. I wonder if the Porter, SWOT VRIO, etc. material is too high level for students who may not be seniors or have non-business degrees (e.g., liberal arts). Porter has been around for a while and does have longevity. The author has to be more alert to changes in promotion, e.g., social media and sources of financing, e.g., crowdfunding.

Clarity rating: 3

As noted in No. 9, the tone of the writing is too academic, thus making the material difficult to understand. Paragraphs are too long. Need to define: Porter, TOWS Matrix, VRIO, PESTEL. A student less from a senior or a non-business major would not be familiar with these terms.

Consistency rating: 4

The text is internally consistent. The model approach helps keep the process consistent.

Modularity rating: 4

The process of developing a business plan is divided into blocks which are parts of the business plan. Paragraphs tend to be too long in some spots.

Organization/Structure/Flow rating: 4

The topics are presented in a logical step-wise flow. The language style is too academic in parts, paragraphs too long. Leaves out the citations. Provides excellent check lists.

There are no display features which confuse the reader.

Grammatical Errors rating: 4

The text has no grammatical errors. On the other hand, I found the writing to be too academic in nature. Some paragraphs are too long. The material is more like an academic conference paper or journal submission. Academic citations references are not needed. The material is not exciting to read.

The text is culturally neutral. There are no examples which are inclusive of a variety of races, ethnicities, and backgrounds.

This book best for a graduate class.

Reviewed by Louis Bruneau, Part Time Faculty, Portland Community College on 6/19/18

The text provides appropriate discussion and illustration of all major concepts and useful references to source and resource materials. read more

Comprehensiveness rating: 5 see less

The text provides appropriate discussion and illustration of all major concepts and useful references to source and resource materials.

Contents of the book were accurate, although it could have benefited from editing/proofreading; there was no evidence of bias. As to editing/proofreading, a couple of examples: A. “Figure 1 – Business Plan… “ is shown at the top of the page following the diagram vs. the bottom of the page the diagram is on. (There are other problems with what is placed on each page.) B. First paragraph under heading “Essential Initial Research” there is reference to pages 21 to 30 though page numbering is missing from the book. (Page numbers are used in the Table of Contents.)

The book is current in that business planning has been stable for sometime. The references and resources will age in time, but are limited and look easy to update.

Clarity rating: 5

The book is written in a straightforward way, technical terms that needed explanations got them, jargon was avoided and generally it was an easy read.

The text is internally consistent in terms of terminology and framework.

Modularity rating: 5

The book lends itself to a multi-week course. A chapter could be presented and students could work on that stage of Plan development. It could also be pre-meeting reading for a workshop presentation. Reorganizing the book would be inappropriate.

The topics in the text are presented in a logical, clear fashion.

Generally, the book is free of interface problems. The financial tables in the Sample Plan were turned 90° to maintain legibility. One potential problem was with Figure 6 – Business Model Canvas. The print within the cells was too small to read; the author mitigated the problem by presenting the information, following Figure 6, in the type font of the text.

I found no grammatical errors.

The text is not culturally insensitive or offensive in any way.

I require a business plan in a course I teach; for most of the students the assignment is a course project that they do not intend to pursue in real life. I shared the book with five students that intended to develop an actual start-up business; three of them found it helpful while the other two decided not to do that much work on their plans. If I were planning a start-up, I would use/follow the book.

Reviewed by Todd Johnson, Faculty of Business, North Hennepin Community College on 5/21/18

The text is a thorough overview of all elements of a business plan. read more

Comprehensiveness rating: 4 see less

The text is a thorough overview of all elements of a business plan.

The content is accurate and seems to lack bias.

Content seems relevant and useful . It does not help an entrepreneur generate ideas, and is very light on crowdfunding and other novel funding source content. It is more traditional. This can be easily updated in future versions, however. "Social Media" appears once in the book, as does "Crowd Funding".

The book is comprehensive, but perhaps not written in the most lucid, accessible prose. I am not sure any college student could pick this up and just read and learn. It would be best used as a "teach along guide" for students to process with an instructor.

The text seems consistent. The author does a nice job of consistently staying on task and using bullets and brevity.

Here I am not so certain. The table of contents is not a good guide for this book. It does make the book look nicely laid out, but there is a lot of complexity within these sections. I read it uncertain that it was well organized. Yes there are many good bits of information, however it is not as if I could spend time on one swathe of text at a time. I would need to go back and forth throughout the text.

Organization/Structure/Flow rating: 2

Similar to the above. I did not like the flow and organization of this. An editor would help things be in a more logical order.

Interface rating: 2

The interface is just OK. It is not an attractice interface, as it presents text in a very dense manner. The images and charts are hard to follow.

I did not find any grammatical errors.

Cultural Relevance rating: 4

I a not certain of the origins of Saskatchewan, but I do feel this is a different read. It is more formal and dense than it has to be. This would be a difficult read for my students. I do not feel it is insensitive in any way, or offensive in any way.

I would not adopt this book if given the chance. It is too dense, and not organized very well, even though the information is very good. The density and lack of modularity are barriers to understanding what is obviously very good information.

Reviewed by Mariana Mitova, Lecturer, Bowling Green State University on 2/1/18

Though this textbook has a prescriptive nature, it is quite comprehensive. The author strikes a good balance between presenting concepts in a concise way and providing enough information to explain them. Many every-day examples and live links to... read more

Though this textbook has a prescriptive nature, it is quite comprehensive. The author strikes a good balance between presenting concepts in a concise way and providing enough information to explain them. Many every-day examples and live links to other resources add to the completeness of the textbook.

Content seems accurate.

Since the content is somewhat conceptual, the text will not become obsolete quickly. In addition, the author seems to be updating and editing content often hence the relevance to current developments is on target.

The text is very clear, written in clear and straight-to-the point language.

The organization of content is consistent throughout the entire text.

The textbook is organized by chapters, beginning with overview of the model used and followed by chapters for each concept within the model. Nicely done.

The flow is clear, logical and easy to follow.

Overall, images, links, and text are well organized. Some headlines were misaligned but still easy to follow.

No concerns for grammar.

No concerns for cultural irrelevance.

Reviewed by Darlene Weibye, Cosmetology Instructor, Minnesota State Community and Technical College on 2/1/18

The text is comprehensive and covers the information needed to develop a business plan. The book provides all the means necessary in business planning. read more

The text is comprehensive and covers the information needed to develop a business plan. The book provides all the means necessary in business planning.

The text was accurate, and error-free. I did not find the book to be biased.

The content is up-to-date. I am reviewing the book in 2017, the same year the book was published.

The content was very clear. A business plan sample included operation timelines, start up costs, and all relevant material in starting a business.

The book is very consistent and is well organized.

The book has a table of contents and is broken down into specific chapters. The chapters are not divided into sub topics. I do not feel it is necessary for sub topics because the chapters are brief and to the point.

There is a great flow from chapter to chapter. One topic clearly leads into the next without repeating.

The table of contents has direct links to each chapter. The appearance of the chapters are easy to read and the charts are very beneficial.

Does not appear to have any grammatical errors.

The text is not culturally insensitive or offensive.

I am incorporating some of the text into the salon business course. Very well written book.

Table of Contents

Introduction

• Chapter 1 – Developing a Business Plan
• Chapter 2 – Essential Initial Research
• Chapter 3 – Business Models
• Chapter 4 – Initial Business Plan Draft
• Chapter 5 – Making the Business Plan Realistic
• Chapter 6 – Making the Plan Appeal to Stakeholders and Desirable to the Entrepreneur
• Chapter 7 – Finishing the Business Plan
• Chapter 8 – Business Plan Pitches

References Appendix A – Business Plan Development Checklist and Project Planner Appendix B – Fashion Importers Inc. Business Plan Business Plan Excel Template

Ancillary Material

About the book.

This textbook and its accompanying spreadsheet templates were designed with and for students wanting a practical and easy-to-follow guide for developing a business plan. It follows a unique format that both explains what to do and demonstrates how to do it.

About the Contributors

Dr. Lee Swanson is an Associate Professor of Management and Marketing at the Edwards School of Business at the University of Saskatchewan. His research focuses on entrepreneurship, social entrepreneurship, Aboriginal entrepreneurship, community capacity-building through entrepreneurship, and institutional-stakeholder engagement. Dr. Swanson’s current research is funded through a Social Sciences Humanities Research Council grant and focuses on social and economic capacity building in Northern Saskatchewan and Northern Scandinavia. He is also actively studying Aboriginal community partnerships with resource based companies, entrepreneurship centres at universities, community-based entrepreneurship, and entrepreneurial attitudes and intentions. He teaches upper-year and MBA entrepreneurship classes and conducts seminars on business planning and business development.

Contribute to this Page

The Secrets of a Great Personnel Plan

Investing in human resources (HR) is a key element of healthy personnel planning and strategy. A hallmark of effective leadership is efficient HR which means hiring employees in a cost-effective manner and mostly when needed. Your business plan should always include an informative and up-to-date personnel plan section to provide direction for the company and help entrepreneurs stay focused.

At the heart of every business owner is the desire to excel. The best way to excel is to define your plans and proceed with purpose. Your business plan comprises a business description , a competition analysis, a marketing plan, a personnel section, the HR section and key financial information.

The personnel plan is designed to help company owners put their plans into action. It helps to clarify objectives for the current and forthcoming year. Thus, a good understanding of personnel plan and how to implement it in your business is vital.

What is a personnel plan?

A personnel plan is a vital part of every company plan and financial forecast, which aids future and current budgeting and defines the type of employee to hire and when to hire such employees.

When you are seeking funding, venture capitalists and angel investors will want a breakdown of your team. Who are they? What talents and skills do they bring to the table? What is your hiring plan for the first year, second year, and so on? How will your team drive business growth and success?

All this information will include the positions you will need employees for, the period in which the management intends to fill the plan, and the financial implications of the implementation of the plan. Just as you would assess if your business is financially feasible , you’ll need to apply this same sentiment when hiring employees.

The personnel plan represents a consolidated strategy for hiring the best people for all company positions, while keeping an eye on future expansion.

Michael E. Gerber, the author of The E-Myth Revisited, posited that an effective personnel plan designed as an efficient workplace game will help employers prime employees for organizational goals while creating job satisfaction. This means that an effective hiring process is vital to an efficient process of personnel planning.

The majority of employers find personnel planning difficult especially those whose staff work in shifts. Organizational challenges like these can easily be taken care of with TimeTrack Duty Roster which helps employers create a suitable overview of their workforce and personalize shifts according to any number of criteria, including their location and skills.

Features of the TimeTrack Duty Roster

Key elements of a personnel plan

Each company’s needs may differ, but in general, these are common elements that should form part of every personnel plan.

Job description

• Clearly explained requirements of the various job functions. Use easy-to-understand language and phrases.

Organizational chart and type of hiring

• The chart of the organization should show who works for whom and provide a good overview of the overall management and employee structure of the company.
• The plan should be clear on whether employees are independent contractors or receive salaries. This is essential for labor compliance issues and the workers’ tax.

Remuneration (salary amount and assumptions)

• Details of hourly or yearly payments are defined, including relevant assumptions that comprise estimates of salary increases over time. You also need to account for company benefits, including health insurance. This may be a percentage of salary costs employers pay to staff.

Time of recruitment

• The hiring of employees is often done over time and staggered. Thus, your plan must include details about when an employee will start and the end date for temporary staff.

Incorporate key personnel into the business plan

Employees are the most valuable assets any company can have. This means that hiring the right person should always be a key priority for every company. Your staff will have a significant impact on revenue, customer experience/satisfaction and the success of the company.

Incorporating the personnel section into your business plan is an important part of strategic planning for long-term viability. The information below serves as guide on how to implement a personnel plan in your business.

Team dynamics

This presents an overview of all the key positions in your business and the backgrounds of staff in their critical roles and departments. Add the total number of staff and their experiences. Emphasize the strengths of individuals and how to upskill where necessary. A great team is typically the fulcrum of business success because they have the responsibility of and possess the ability to translate policies into business success.

Organizational structure

The structure of your company is represented in the company’s organizational chart, which shows the hierarchy of duties and management. Is authority finely distributed and are the various company teams properly mentioned? This includes customer service, product development, marketing, manufacturing and sales.

When planning the company’s organizational details, you will need a strategy to manage absences and leave. TimeTrack Leave Management feature helps you to finetune these details so you can easily (and quickly!) oversee employee absences, vacation time and keep track of working hours for compliance management.

TimeTrack Leave Management

Gaps and stumbling blocks

While it may be difficult to identify gaps in your team, chances are that if you look closely, you will observe a section of your company in need of quality talent. You need to figure out how to fill this gap. Don’t hide the weakness of your team from potential investors. Always remember that specialization will evolve as the company grows.

Where advisors, board members and consultants are applicable to your company, list them. Where they will fill key positions as the business grows, you need to list them and provide background on the value they provide.

The fine print

Every personnel plan needs to include a section addressing employment benefits , rights and conditions, especially for managers. Design your company’s management personnel plan and include a table of staff expenses, including both direct and indirect labor expenses, a burden rate and employee-related expenses, while adding payroll tax, workers’ compensation, salaries and health insurance.

Checklist for personnel planning

Personnel improvement

Improving conditions for personnel involve the identification of gaps, developing and implementing action plans  and taking follow-up actions. Managers should develop a performance improvement plan before taking disciplinary action against employees.

Identify skills or performance gaps

A gap analysis is designed to help you identify potential and current issues and is an essential part of the personnel process. Incorporate characteristics of human resource planning into your business planning.

Provide proof of a skills gap or underperformance of the workforce using a consistent format across all employment cadres. Design your format, including employee information and a description of performance discrepancies using expected and actual performance criteria.

Have a face-to-face meeting with your employees to share observed issues or concerns and gain insights into causal factors of underperformance. Use your documentation to share insights on performance challenges. Let the affected employees know they have committed specific policy infractions. Focus only on the outcomes of behaviors to help affected staff understand how their behaviors affect company success.

Develop action plans

Establish specific and measurable improvement goals for your workforce. Avoid generalizations and focus on key goals. Setting bit-sized goals is an effective way of working while monitoring task on time .

Provide detailed resources, including advanced tools that can help employees improve. This also means providing the management with essential tools that will help with the efficient oversight of the workforce.

Create a timeline for achieving performance improvement goals. This will help keep the staff on track towards achieving expectations. Don’t forget to identify metrics for measuring progress. Be specific about what you want employees to achieve and define the intended consequences in the event of failure to complete performance improvement plan. Be specific about actions you will take whether or not targets are met.

Schedule regular appointments to review the performance improvement plan with your employees and implement their feedback.

Incorporating a personnel plan into your business strategy is a key factor for efficient planning. To maximize the opportunity presented by personnel planning, use any of the effective and reliable TimeTrack planning and absence management software tools.

I am a researcher, writer, and self-published author. Over the last 9 years, I have dedicated my time to delivering unique content to startups and non-governmental organizations and have covered several topics, including wellness, technology, and entrepreneurship. I am now passionate about how time efficiency affects productivity, business performance, and profitability.

Time Tracking

• Absence Management Software
• Clock In System
• Time Attendance System
• Auto Scheduling
• Duty Roster
• Shift Planning
• Appointment Planning
• Task Planning
• Info Center
• Timesheet Templates
• Rota Templates
• Promotional Program
• Affiliate Program
• Success Stories

Want to create or adapt books like this? Learn more about how Pressbooks supports open publishing practices.

5.6 The Business Plan

Learning objective.

• Discuss the importance of planning for your business, and identify the key sections of a business plan.

If you want to start a business, you must prepare a business plan. This essential document should tell the story of your business concept, provide an overview of the industry in which you will operate, describe the goods or services you will provide, identify your customers and proposed marketing activities, explain the qualifications of your management team, and state your projected income and borrowing needs.

Purpose of a Business Plan

The business plan is a plan or blueprint for the company, and it’s an indispensable tool in attracting investors, obtaining loans, or both. Remember, too, that the value of your business plan isn’t limited to the planning stages of your business and the process of finding start-up money. Once you’ve acquired start-up capital, don’t just stuff your plan in a drawer. Treat it as an ongoing guide to your business and its operations, as well as a yardstick by which you can measure your performance. Keep it handy, update it periodically, and use it to assess your progress.

In developing and writing your business plan, you must make strategic decisions in the areas of management, operations, marketing, accounting, and finance—in short, in all the functional areas of business that we described in Chapter 1 “The Foundations of Business” . Granted, preparing a business plan takes a lot of time and work, but it’s well worth the effort. A business plan forces you to think critically about your proposed business and reduces your risk of failure. It forces you to analyze your business concept and the industry in which you’ll be operating, and it helps you determine how you can grab a percentage of sales in that industry.

The most common use of a business plan is persuading investors, lenders, or both, to provide financing. These two groups look for different things. Investors are particularly interested in the quality of your business concept and the ability of management to make your venture successful. Bankers and other lenders are primarily concerned with your company’s ability to generate cash to repay loans. To persuade investors and lenders to support your business, you need a professional, well-written business plan that paints a clear picture of your proposed business.

Sections of the Business Plan

Though formats can vary, a business plan generally includes the following sections: executive summary, description of proposed business, industry analysis, mission statement and core values, management plan, goods or services and (if applicable) production processes, marketing, global issues, and financial plan. Let’s explore each of these sections in more detail. ( Note : More detailed documents and an Excel template are available for those classes in which the optional business plan project is assigned.)

Executive Summary

The executive summary is a one- to three-page overview of the business plan. It’s actually the most important part of the business plan: it’s what the reader looks at first, and if it doesn’t capture the reader’s attention, it might be the only thing that he or she looks at. It should therefore emphasize the key points of the plan and get the reader excited about the prospects of the business.

Even though the executive summary is the first thing read, it’s written after the other sections of the plan are completed. An effective approach in writing the executive summary is to paraphrase key sentences from each section of the business plan. This process will ensure that the key information of each section is included in the executive summary.

Description of Proposed Business

Here, you present a brief description of the company and tell the reader why you’re starting your business, what benefits it provides, and why it will be successful. Some of the questions to answer in this section include the following:

• What will your proposed company do? Will it be a manufacturer, a retailer, or a service provider?
• What goods or services will it provide?
• Why are your goods or services unique?
• Who will be your main customers?
• How will your goods or services be sold?
• Where will your business be located?

Because later parts of the plan will provide more detailed discussions of many of these issues, this section should provide only an overview of these topics.

Industry Analysis

This section provides a brief introduction to the industry in which you propose to operate. It describes both the current situation and the future possibilities, and it addresses such questions as the following:

• How large is the industry? What are total sales for the industry, in volume and dollars?
• Is the industry mature or are new companies successfully entering it?
• What opportunities exist in the industry? What threats exist?
• What factors will influence future expansion or contraction of the industry?
• What is the overall outlook for the industry?
• Who are your major competitors in the industry?
• How does your product differ from those of your competitors?

Mission Statement and Core Values

This portion of the business plan states the company’s mission statement and core values . The mission statement describes the purpose or mission of your organization—its reason for existence. It tells the reader what the organization is committed to doing. For example, one mission statement reads, “The mission of Southwest Airlines is dedication to the highest quality of customer service delivered with a sense of warmth, friendliness, individual pride, and company spirit” (Southwest Airline’s, 2011).

Core values are fundamental beliefs about what’s important and what is (and isn’t) appropriate in conducting company activities. Core values are not about profits, but rather about ideals. They should help guide the behavior of individuals in the organization. Coca-Cola, for example, intends that its core values—leadership, passion, integrity, collaboration, diversity, quality, and accountability—will let employees know what behaviors are (and aren’t) acceptable (The Coca-Cola Company, 2011).

Management Plan

Management makes the key decisions for the business, such as its legal form and organizational structure. This section of the business plan should outline these decisions and provide information about the qualifications of the key management personnel.

A. Legal Form of Organization

This section dentifies the chosen legal form of business ownership: sole proprietorship (personal ownership), partnership (ownership shared with one or more partners), or corporation (ownership through shares of stock).

B. Qualifications of Management Team and Compensation Package

It isn’t enough merely to have a good business idea: you need a talented management team that can turn your concept into a profitable venture. This part of the management plan section provides information about the qualifications of each member of the management team. Its purpose is to convince the reader that the company will be run by experienced, well-qualified managers. It describes each individual’s education, experience, and expertise, as well as each person’s responsibilities. It also indicates the estimated annual salary to be paid to each member of the management team.

C. Organizational Structure

This section of the management plan describes the relationships among individuals within the company, listing the major responsibilities of each member of the management team.

Goods, Services, and the Production Process

To succeed in attracting investors and lenders, you must be able to describe your goods or services clearly (and enthusiastically). Here, you describe all the goods and services that you will provide the marketplace. This section explains why your proposed offerings are better than those of competitors and indicates what market needs will be met by your goods or services. In other words, it addresses a key question: What competitive advantage will the company’s goods and services have over similar products on the market?

This section also indicates how you plan to obtain or make your products. Naturally, the write-up will vary, depending on whether you’re proposing a service company, a retailer, or a manufacturer. If it’s a service company, describe the process by which you’ll deliver your services. If it’s a retail company, tell the reader where you’ll purchase products for resale.

If you’re going to be a manufacturer, you must furnish information on product design, development, and production processes. You must address questions such as the following:

• How will products be designed?
• What technology will be needed to design and manufacture products?
• Will the company run its own production facilities, or will its products be manufactured by someone else?
• Where will production facilities be located?
• What type of equipment will be used?
• What are the design and layout of the facilities?
• How many workers will be employed in the production process?
• How many units will be produced?
• How will the company ensure that products are of high quality?

This critical section focuses on four marketing-related areas—target market, pricing, distribution, and promotion:

• Target market . Describe future customers and profile them according to age, gender, income, interests, and so forth. If your company will sell to other companies, describe your typical business customer.
• Pricing . State the proposed price for each product. Compare your pricing strategy to that of competitors.
• Distribution . Explain how your goods or services will be distributed to customers. Indicate whether they’ll be sold directly to customers or through retail outlets.
• Promotion . Explain your promotion strategy, indicating what types of advertising you’ll be using.

In addition, if you intend to use the Internet to promote or sell your products, also provide answers to these questions:

• Will your company have a Web site? Who will visit the site?
• What will the site look like? What information will it supply?
• Will you sell products over the Internet?
• How will you attract customers to your site and entice them to buy from your company?

Global Issues

In this section, indicate whether you’ll be involved in international markets, by either buying or selling in other countries. If you’re going to operate across borders, identify the challenges that you’ll face in your global environment, and explain how you’ll meet them. If you don’t plan initially to be involved in international markets, state what strategies, if any, you’ll use to move into international markets when the time comes.

Financial Plan

In preparing the financial section of your business plan, specify the company’s cash needs and explain how you’ll be able to repay debt. This information is vital in obtaining financing. It reports the amount of cash needed by the company for start-up and initial operations and provides an overview of proposed funding sources. It presents financial projections, including expected sales, costs, and profits (or losses). It refers to a set of financial statements included in an appendix to the business plan.

Here, you furnish supplemental information that may be of interest to the reader. In addition to a set of financial statements, for example, you might attach the résumés of your management team.

Key Takeaways

• A business plan tells the story of your business concept, provides an overview of the industry in which you will operate, describes the goods or services you will provide, identifies your customers and proposed marketing activities, explains the qualifications of your management team, and states your projected income and borrowing needs.
• In your business plan, you make strategic decisions in the areas of management, operations, marketing, accounting, and finance. Developing your business plan forces you to analyze your business concept and the industry in which you’ll be operating. Its most common use is persuading investors and lenders to provide financing.

A business plan generally includes the following sections:

• Executive summary . One- to three-page overview.
• Description of proposed business . Brief description of the company that answers such questions as what your proposed company will do, what goods or services it will provide, and who its main customers will be.
• Industry analysis . Short introduction to the industry in which you propose to operate.
• Mission statement and core values . Declaration of your mission statement , which are fundamental beliefs about what’s important and what is (and isn’t) appropriate in conducting company activities.
• Management plan . Information about management team qualifications and responsibilities, and designation of your proposed legal form of organization.
• Goods, services, and the production process . Description of the goods and services that you’ll provide in the marketplace; explanation of how you plan to obtain or make your products or of the process by which you’ll deliver your services.
• Marketing . Description of your plans in four marketing-related areas: target market, pricing, distribution, and promotion.
• Global issues . Description of your involvement, if any, in international markets.
• Financial plan . Report on the cash you’ll need for start-up and initial operations, proposed funding sources, and means of repaying your debt.
• Appendices . Supplemental information that may be of interest to the reader.

(AACSB) Analysis

Let’s start with three givens: (1) college students love chocolate chip cookies, (2) you have a special talent for baking cookies, and (3) you’re always broke. Given these three conditions, you’ve come up with the idea of starting an on-campus business—selling chocolate chip cookies to fellow students. As a business major, you want to do things right by preparing a business plan. First, you identified a number of specifics about your proposed business. Now, you need to put these various pieces of information into the relevant section of your business plan. Using the business plan format described in this chapter, indicate the section of the business plan into which you’d put each of the following:

• You’ll bake the cookies in the kitchen of a friend’s apartment.
• You’ll charge $1 each or $10 a dozen.
• Your purpose is to make the best cookies on campus and deliver them fresh. You value integrity, consideration of others, and quality.
• Each cookie will have ten chocolate chips and will be superior to those sold in nearby bakeries and other stores.
• You expect sales of $6,000 for the first year.
• Chocolate chip cookies are irresistible to college students. There’s a lot of competition from local bakeries, but your cookies will be superior and popular with college students. You’ll make them close to campus using only fresh ingredients and sell them for $1 each. Your management team is excellent. You expect first-year sales of $6,000 and net income of $1,500. You estimate start-up costs at $600.
• You’ll place ads for your product in the college newspaper.
• You’ll hire a vice president at a salary of $100 a week.
• You can ship cookies anywhere in the United States and in Canada.
• You need $600 in cash to start the business.
• There are six bakeries within walking distance of the college.
• You’ll bake nothing but cookies and sell them to college students. You’ll make them in an apartment near campus and deliver them fresh.

The Coca-Cola Company, “Workplace Culture,” The Coca-Cola Company, http://www.thecoca-colacompany.com/citizenship/workplace_culture.html (accessed August 31, 2011).

Southwest Airline’s company Web site, about SWA section, http://www.southwest.com/about_swa/mission.html (accessed August 31, 2011).

Exploring Business Copyright © 2016 by University of Minnesota is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

Share This Book

5 Chapter 5 – The Business Plan

Developing your strategy.

As mentioned in Chapter 2 , it is critically important for any business organization to be able to accurately understand and identify what constitutes customer value. To do this, one must have a clear idea of who your customers are or will be. However, simply identifying customer value is insufficient. An organization must be able to provide customer value within several important constraints. One of these constraints deals with the competition—what offerings are available and at what price. Also, what additional services might a company provide? A second critically important constraint is the availability of resources to the business organization. Resources consist of factors such as money, facilities, equipment, operational capability, and personnel.

Here is an example: a restaurant identified its prime customer base as being upscale clientele in the business section of a major city. The restaurant recognized that it has numerous competitors that are interested in providing the same clientele with an upscale dining experience. Our example restaurant might provide a five-course, five-star gourmet meal to its customers. It also provides superlative service. If a comparable restaurant failed to provide a comparable meal than the example restaurant, the example restaurant would have a competitive advantage. If the example restaurant offered these sumptuous meals for a relatively low price in comparison to its competitors, it would initially seem to have even more of an advantage. However, if the price charged is significantly less than the cost of providing the meal, the service in this situation could not be maintained. In fact, the restaurant inevitably would have to go out of business. Providing excellent customer service may be a necessary condition for business survival but, in and of itself, it is not a sufficient condition.

So how does one go about balancing the need to provide customer value within the resources available while always maintaining a watchful eye on competitors’ actions? We are going to argue that what is required for that firm is to have a strategy .

The word strategy is derived from the Greek word strategos , which roughly translates into the art of the general, namely a military leader. Generals are responsible for marshaling required resources and organizing the troops and the basic plan of attack. Much in the same way, executives as owners of businesses are expected to have a general idea of the desired outcomes, acquire resources, hire and train personnel, and generate plans to achieve those outcomes. In this sense, all businesses, large and small, have strategies, whether they are clearly written out in formal business plans or reside in the mind of the owner of the business.

There are many different formal definitions of strategy with respect to business. The following is a partial listing of some of the definitions given by key experts in the field:

“A strategy is a pattern of objectives, purposes or goals and the major policies and plans for achieving these goals, stated in such a way as to define what business the company is in or is to be in and the kind of company it is or to be .” [1] “The determination of the long-run goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals .” [2] “What business strategy is all about, in a word, is competitive advantage .” [3]

We define the strategy of a business as follows: A firm’s strategy is the path by which it seeks to provide its customers with value, given the competitive environment and within the constraints of the resources available to the firm.

Whatever definition of strategy is used, it is often difficult to separate it from two other terms: strategic planning and strategic management. Both terms are often perceived as being in the domain of large corporations, not necessarily small to midsize businesses. This is somewhat understandable. The origin of strategic planning as a separate discipline occurred over fifty years ago. It was mainly concerned with assisting huge multidivisional or global businesses in coordinating their activities. In the intervening half-century, strategic planning has produced a vast quantity of literature. Mintzberg, Lampel, Ahlstrand, in a highly critical review of the field, identified ten separate schools associated with strategic planning. [4] With that number of different schools, it is clear that the discipline has not arrived at a common consensus. Strategic planning has been seen as a series of techniques and tools that would enable organizations to achieve their specified goals and objectives. Strategic management was seen as the organizational mechanisms by which you would implement the strategic plan. Some of the models and approaches associated with strategic planning and strategic management became quite complex and would prove to be fairly cumbersome to implement in all but the largest businesses. Further, strategic planning often became a bureaucratic exercise where people filled out forms, attended meetings, and went through the motions to produce a document known as the strategic plan. Sometimes what is missed in this discussion was a key element—strategic thinking. Strategic thinking is the creative analysis of the competitive landscape and a deep understanding of customer value. It should be the driver (see “Strategy Troika”) of the entire process. This concept is often forgotten in large bureaucratic organizations.

Strategy Troika

Strategic thinkers often break commonly understood principles to reach their goals. This is most clearly seen among military leaders, such as Alexander the Great or Hannibal. Robert E. Lee often violated basic military principles, such as dividing his forces. General Douglas MacArthur shocked the North Koreans with his bold landings behind enemy lines at Inchon. This mental flexibility also exists in great business leaders.

Solomon and Friedman recounted a prime example of true strategic thinking. [5] Wilson Harrell took a small, closely held, cleaning spray company known as Formula 409 to the point of having national distribution. In 1967, the position that Formula 409 held was threatened by the possible entry of Procter & Gamble into the same spray cleaning market. Procter & Gamble was a huge consumer products producer, noted for its marketing savvy. Procter & Gamble began a program of extensive market research to promote its comparable product they called Cinch. Clearly, the larger firm had a much greater advantage. Harrell knew that Procter & Gamble would perform test market research. He decided to do the unexpected. Rather than directly confront this much larger competitor, he began a program where he reduced advertising expenditures in Denver and stopped promoting his Formula 409. The outcome was that Procter & Gamble had spectacular results, and the company was extremely excited with the potential for Cinch. Procter & Gamble immediately begin a national sales campaign. However, before the company could begin, Harrell introduced a promotion of his own. He took the Formula 409 sixteen-ounce bottle and attached it to a half-gallon size bottle. He then sold both at a significant discount. This quantity of spray cleaner would last the average consumer six to nine months. The market for Procter & Gamble’s Cinch was significantly reduced. Procter & Gamble was confused and confounded by its poor showing after the phenomenal showing in Denver. Confused and uncertain, the company chose to withdraw Cinch from the market. Wilson Harrell’s display of brilliant strategic thinking had bested them. He leveraged his small company’s creative thinking and flexibility against the tremendous resources of an international giant. Through superior strategic thinking, Harrell was able to best Procter & Gamble.

Do You Have a Strategy and What Is It?

We have argued that all businesses have strategies, whether they are explicitly articulated or not. Perry stated that “small business leaders seem to recognize that the ability to formulate and implement an effective strategy has a major influence on the survival and success of small business.” [6]

The extent to which a strategy should be articulated in a formal manner, such as part of a business plan, is highly dependent on the type of business. One might not expect a formally drafted strategy statement for a nonemployee business funded singularly by the owner. One researcher found that formal plans are rare in businesses with fewer than five employees. [7] However, you should clearly have that expectation for any other type of small or midsize business.

Any business with employees should have an articulated strategy that can be conveyed to them so that they might better assist in implementing it. Curtis pointed out that in the absence of such communication, “employees make pragmatic short-term decisions that cumulatively form an ad-hoc strategy.” [8] These ad hoc (realized) strategies may be at odds with the planned (intended) strategies to guide a firm. [9] However, any business that seeks external funding from bankers, venture capitalists, or “angels” must be able to specify its strategy in a formal business plan.

Clearly specifying your strategy should be seen as an end in itself. Requiring a company to specify its strategy forces that company to think about its core issues, such as the following:

• Who are your customers?
• How are you going to provide value to those customers?
• Who are your current and future competitors?
• What are your resources?
• How are you going to use these resources?

One commentator in a blog put it fairly well, “It never ceases to amaze me how many people will use GPS or Google maps for a trip somewhere but when it comes to starting a business they think that they can do it without any strategy, or without any guiding road-map.” Harry Tucci, comment posted to the following blog: [10]

Types of Strategies

In 1980, Michael Porter a professor at Harvard Business School published a major work in the field of strategic analysis— Competitive Strategy . [11] To simplify Porter’s thesis, while competition is beneficial to customers, it is not always beneficial to those who are competing. Competition may involve lowering prices, increasing research and development (R&D), and increasing advertising and other expenses and activities—all of which can lower profit margins. Porter suggested that firms should carefully examine the industry in which they are operating and apply what he calls the five forces model. These five forces are as follows: the power of suppliers, the power of buyers, the threat of substitution, the threat of new entrants, and rivalry within the industry. We do not need to cover these five forces in any great detail, other than to say that once the analysis has been conducted, a firm should look for ways to minimize the dysfunctional consequences of competition. Porter identified four generic strategies that firms may choose to implement to achieve that end. Actually, he initially identified three generic strategies, but one of them can be bifurcated. These four strategies are as follows (see “Generic Strategies”): cost leadership, differentiation, cost focus, and differentiation focus. These four generic strategies can be applied to small businesses. We will examine each strategy and then discuss what is required to successfully implement them.

Generic Strategies

Low-Cost Advantage

A  cost leadership strategy requires that a firm be in the position of being the lowest cost producer in its competitive environment. By being the lowest-cost producer, a firm has several strategic options open to it. It can sell its product or service at a lower price than its competitors. If price is a major driver of customer value, then the firm with the lowest price should sell more. The low-cost producer also has the option of selling its products or services at prices that are comparable to its competitors. However, this would mean that the firm would have a much higher margin than its competitors.

Obviously, following a cost leadership strategy dictates that the business be good at curtailing costs. Perhaps the clearest example of a firm that employs a cost leadership strategy is Walmart. Walmart’s investment in customer relations and inventory control systems plus its huge size enables it to secure the “best” deals from suppliers and drastically reduce costs. It might appear that cost leadership strategies are most suitable for large firms that can exploit economies of scale. This is not necessarily true. Smaller firms can compete on the basis of cost leadership. They can position themselves in low-cost areas, and they can exploit their lower overhead costs. Family businesses can use family members as employees, or they can use a web presence to market and sell their goods and services. A small family-run luncheonette that purchases used equipment and offers a limited menu of standard breakfast and lunch items while not offering dinner might be good example of a small business that has opted for a cost leadership strategy.

Differentiation

A  differentiation strategy involves providing products or services that meet customer value in some unique way. This uniqueness may be derived in several ways. A firm may try to build a particular brand image that differentiates itself from its competitors. Many clothing lines, such as Tommy Hilfiger, opt for this approach. Other firms will try to differentiate themselves on the basis of the services that they provide. Dominoes began to distinguish itself from other pizza firms by emphasizing the speed of its delivery. Differentiation also can be achieved by offering a unique design or features in the product or the service. Apple products are known for their user-friendly design features. A firm may wish to differentiate itself on the basis of the quality of its product or service. Kogi barbecue trucks operating in Los Angeles represent such an approach. They offer high-quality food from mobile food trucks.” [12] They further facilitate their differentiation by having their truck routes available on their website and on their Twitter account.

Adopting a differentiation strategy requires significantly different capabilities than those that were outlined for cost leadership. Firms that employ a differentiation strategy must have a complete understanding of what constitutes customer value. Further, they must be able to rapidly respond to changing customer needs. Often, a differentiation strategy involves offering these products and services at a premium price. A differentiation strategy may accept lower sales volumes because a firm is charging higher prices and obtaining higher profit margins. A danger in this approach is that customers may no longer place a premium value on the unique features or quality of the product or the service. This leaves the firm that offers a differentiation strategy open to competition from those that adopt a cost leadership strategy.

Focus—Low Cost or Differentiation

Porter identifies the third strategy—focus. He said that focus strategies can be segmented into a  cost focus and a differentiation focus .

In a focus strategy, a firm concentrates on one or more segments of the overall market. Focus can also be described as a niche strategy. Focus strategy entails deciding to some extent that we do not want to have everyone as a customer. There are several ways that a firm can adopt a focus perspective:

• Product line. A firm limits its product line to specific items of only one or more product types. California Cart Builder produces only catering trucks and mobile kitchens.
• Customer. A firm concentrates on serving the needs of a particular type of customer. Weight Watchers concentrates on customers who wish to control their weight or lose weight.
• Geographic area. Many small firms, out of necessity, will limit themselves to a particular geographic region. Microbrewers generally serve a limited geographic region.
• Particular distribution channel. Firms may wish to limit themselves with respect to the means by which they sell their products and services. Amazon began and remains a firm that sells only through the Internet.

Firms adopting focus strategies look for distinct groups that may have been overlooked by their competitors. This group needs to be of sufficiently sustainable size to make it an economically defensible option. One might open a specialty restaurant in a particular geographic location—a small town. However, if the demand is not sufficiently large for this particular type of food, then the restaurant will probably fail. Companies that lack the resources to compete on either a national level or an industry-wide level may adopt focus strategies. Focus strategies enable firms to marshal their limited resources to best serve their customers.

As previously stated, focus strategies can be bifurcated into two directions—cost focus or differentiation focus. IKEA sells low-priced furniture to those customers who are willing to assemble the furniture. It cuts its costs by using a warehouse rather than showroom format and not providing home delivery. Michael Dell began his business out of his college dormitory. He took orders from fellow students and custom-built computers to their specifications. This was a cost focus strategy. By building to order, it almost totally eliminated the need for any incoming, work-in-process, or finished goods inventories.

A focus differentiation strategy concentrates on providing a unique product or service to a segment of the market. This strategy may be best represented by many specialty retail outlets. The Body Shop focuses on customers who want natural ingredients in their makeup. Max and Mina is a kosher specialty ice cream store in New York City. It provides a constantly rotating menu of more than 300 exotic flavors, such as Cajun, beer, lox, corn, and pizza. The store has been written up in the New York Times and People magazine. Given its odd flavors, Max and Mina’s was voted the number one ice cream parlor in America in 2004. [13]

Evaluating Strategies

The selection of a generic strategy by a firm should not be seen as something to be done on a whim. Once a strategy is selected, all aspects of the business must be tied to implementing that strategy. As Porter stated, “Effectively implementing any of these generic strategies usually requires total commitment and supporting organizational arrangements.” [14] The successful implementation of any generic strategy requires that a firm possess particular skills and resources. Further, it must impose particular requirements on its organization (see “Summary of Generic Strategies”).

Even successful generic strategies must recognize that market and economic conditions change along with the needs of consumers. Henry Ford used a cost leadership strategy and was wildly successful until General Motors began to provide different types of automobiles to different customer segments. Likewise, those who follow a differentiation strategy must be cautious that customers may forgo “extras” in a downturn economy in favor of lower costs. This requires businesses to be vigilant, particularly with respect to customer value.

Summary of Generic Strategies

Key Takeaways

• Any firm, regardless of size, needs to know how it will compete; this is the firm’s strategy.
• Strategy identifies how a firm will provide value to its customers within its operational constraints.
• Strategy can be reduced to four major approaches—cost leadership, differentiation, cost focus, and differentiation focus.
• Once a given strategy is selected, all of a firm’s operations should be geared to implementing that strategy.
• No strategy will be successful forever and therefore needs to be constantly evaluated.

The Necessity for a Business Plan

An intelligent plan is the first step to success. The man who plans knows where he is going, knows what progress he is making and has a pretty good idea of when he will arrive. Planning is the open road to your destination. If you don’t know where you’re going, how can you expect to get there? – Basil Walsh

In Chapter 1, we discussed the issue of failure and small businesses. Although research on small business failure has identified many factors, one reason that always appears at the top of any list is the failure to plan. Interestingly, some people argue that planning is not essential for a start-up business, but they are in a distinct minority. [15] The overwhelming consensus is that a well-developed plan is essential for the survival of any small (or large) business. [16] Perry found that firms with more than five people benefit from having a well-developed business plan. [17]

A recent study found that there was a near doubling of successful growth for those businesses that completed business plans compared to those that did not create one. It must be pointed out that this study might be viewed as being biased because the founder of the software company whose main product is a program that builds business plans conducted the study. However, the results were examined by academics from the University of Oregon who validated the overall results. They found that “except in a small number of cases, business planning appeared to be positively correlated with business success as measured by our variables. While our analysis cannot say the completing of a business plan will lead to success, it does indicate that the type of entrepreneur who completes a business plan is also more likely to produce a successful business.” [18]

Basically, there are two main reasons for developing a comprehensive business plan: (1) a plan will be extraordinarily useful in ensuring the successful operation of your business; and (2) if one is seeking to secure external funds from banks, venture capitalists, or other investors, it is essential that you be able to demonstrate to them that they will be recovering their money and making a profit. Let us examine each reason in detail.

Many small business owners operate under a mistaken belief that the only time that they need to create a business plan is at the birth of the company or when they are attempting to raise additional capital from external sources. They fail to realize that a business plan can be an important element in ensuring day-to-day success.

The initial planning process aids the operational success of a small business by allowing the owner a chance to review, in detail, the viability of the business idea. It forces one to rigorously consider some key questions:

• Is the business strategy feasible?
• What are the chances it will make money?
• Do I have the operational requirements for starting and running a successful business?
• Have I considered a well-thought-out marketing plan that clearly identifies who my customers will be?
• Do I clearly understand what value I will provide to these customers?
• What will be the means of distribution to provide the product or the service to my customers?
• Have I clarified to myself the financial issues associated with starting and operating the business?
• Do I have to reexamine these notions to ensure success?

Possessing an actual written plan enables you to have people outside the organization evaluate your business plan. Using friends, colleagues, partners, or even consultants may provide you with an unbiased evaluation of the assumptions.

It is not enough to create an initial business plan; you should anticipate making the planning process an annual activity. The Prussian military theorist von Moltke once argued that no military plan survives the first engagement with the enemy. Likewise, no company evolves in the same way as outlined in its initial business plan.

Overcoming the Reluctance to Formally Plan

By failing to prepare, you will prepare them to fail . -Benjamin Franklin

Unfortunately, it appears that many small businesses do not make any effort to build even an initial business plan, let alone maintain a planning process as an ongoing operation, even though there is clear evidence that the failure to plan may have serious consequences for the future success of such firms. This unwillingness to plan may be understandable in nonemployee businesses, but it is inexcusable as a business grows in size. Why, therefore, do some businesses fail to begin the planning process?

• We do not need to plan. One of the prime reasons individuals fail to produce a business plan is that they believe that they do not have to plan. This may be attributable to the size of the firm; nonemployee firms that have no intention of seeking outside financing might sincerely believe that they have no need for a formal business plan. Others may believe that they so well understand the business and/or industry that they can survive and prosper without the burdensome process of a business plan. The author of Business Plan for Dummies , Paul Tiffany, once argued that if one feels lucky enough to operate a business successfully without resorting to a business plan, then he or she should forget about starting a business and head straight to Las Vegas.
• I am too busy to plan. Anyone who has ever run a business on his or her own can understand this argument. The day-to-day demands of operating a business may make it seem that there is insufficient time to engage in any ancillary activity or prepare a business plan. Individuals who accept this argument often fail to recognize that the seemingly endless buzz of activities, such as constantly putting out fires, may be the direct result of not having thought about the future and planned for it in the first place.
• Plans do not produce results. Small-business owners (entrepreneurs) are action- and results-oriented individuals. They want to see a tangible outcome for their efforts, and preferably they would like to see the results as soon as possible. The idea of sitting down and producing a large document based on assumptions that may not play out exactly as predicted is viewed as a futile exercise. However, those with broader experience understand that there will be no external funding for growth or the initial creation of the business without the existence of a well-thought-out plan. Although plans may not yield the specified results contained within them, the process of thinking about the plan and building it often yield results that the owner might not initially appreciate.
• We are not familiar with the process of formal planning. This argument might initially appear to have more validity than the others. Developing a comprehensive business plan is a daunting task. It might seem difficult if not impossible for someone with no experience with the concept. Several studies have indicated that small business owners are more likely to engage in the planning process if they have had prior experience with planning models in their prior work experience. [19] Fortunately, this situation has changed rather significantly in the last decade. As we will illustrate, there are numerous tools that provide significant support for the development of business plans. We will see that software packages greatly facilitate the building of any business plan, including marketing plans and financial plans for small businesses. We also show that the Internet can provide an unbelievably rich source of data and information to assist in the building of these plans.

Although one could understand the reticence of someone new to small business (or in some cases even seasoned entrepreneurs), their arguments fall short with respect to the benefits that will be derived from conducting a structured and comprehensive business planning process.

Plans for Raising Capital

Every business plan should be written with a particular audience in mind. The annual business plan should be written with a management team and for the employees who have to implement the plan. However, one of the prime reasons for writing a business plan is to secure investment funds for the firm. Of course, funding the business could be done by an individual using his or her own personal wealth, personal loans, or extending credit cards. Individuals also can seek investments from family and friends. The focus here will be on three other possible sources of capital—banks, venture capitalists, and angel investors. It is important to understand what they look for in a business plan. Remember that these three groups are investors, so they will be anticipating, at the very least, the ability to recover their initial investment if not earn a significant return.

Bankers, like all businesspeople, are interested in earning a profit; they want to see a return on their investment. However, unlike other investors, bankers are under a legal obligation to ensure that the borrower pledge some form of collateral to secure the loan. [20] This often means that banks are unwilling to fund a start-up business unless the owner is willing to pledge some form of collateral, such as a second mortgage on his or her home. Many first-time business owners are not in a position to do that; securing money from a bank occurs most frequently for an existing business that is looking to expand or for covering a short-term cash-flow need. Banks may lend to small business owners who are opening a second business provided that they can prove a record of success and profitability.

Banks will require a business plan. It should be understood that bank loan officers will initially focus on the financial components of that client, namely, the income statement, balance sheet, and the cash-flow statement. The bank will examine your projections with respect to known industry standards. Therefore, the business plan should not project a 75 percent profit margin when the industry standard is 15 percent, unless the author of the plan can clearly document why he or she will be earning such a high return.

Some businesses may raise funds with the assistance of a Small Business Administration (SBA) loan. These loans are always arranged through a commercial bank. With these loans, the SBA will pledge up to 70 percent of the total value of the loan. This means that the owner still must provide, at the very least, 30 percent of the total collateral. The ability to secure one of these loans is clearly tied to the adequacy of the business plan.

Venture Capitalists

Another possible source of funding is venture capitalists . The first thing that one should realize about venture capitalists is that they are not in it just to make a profit; they want to make returns that are substantially above those to be found in the market. For some, this translates into the ability to secure five to ten times their initial investment and recapture their investment in a relatively short period of time—often less than five years. It has been reported that some venture capitalists are looking for returns in the order of twenty-five times their original investment. [21]

The financial statement, particularly the profit margin, is obviously important to venture capitalists, but they will also be looking at other factors. The quality of the management team identified in the business plan will be examined. They will be looking at the team’s experience and track record. Other factors needed by venture capitalists may include the projected growth rate of the market, the extent to which the product or the service being offered is unique, the overall size of the market, and the probability of producing a highly successful product or service.

Businesses that are seeking financing from banks know that they must go to loan officers who will review the plan, even though a computerized loan assessment program may make the final decision. With venture capitalists, on the other hand, you often need to have a personal introduction to have your plan considered. You should also anticipate that you will have to make a presentation to venture capitalists. This means that you have to understand your plan and be able to present it in a dynamic fashion.

Angel Investors

The third type of investor is referred to as angel investors , a term that originally came from those individuals who invested in Broadway shows and films. Many angel investors are themselves successful entrepreneurs. As with venture capitalists, they are looking for returns higher than they can normally find in the market; however, they often expect returns lower than those anticipated by venture capitalist. They may be attracted to business plans because of an innovative concept or the excitement of entering a new type of business. Being successful small business owners, many angel investors will not only provide capital to fund the business but also bring their own expertise and experience to help the business grow. It has been estimated that these angel investors provide between three and ten times as much money as venture capitalists for the development of small businesses. [22]

Angel investors will pay careful attention to all aspects of the proposed business plan. They expect a comprehensive business plan—one that clearly specifies the future direction of the firm. They also will look at the management team not only for its track record and experience but also their (the angel investor’s) ability to work with this team. Angel investors may take a much more active role in the management of the business, asking for positions on the board of directors, taking an equity position in the firm, demanding quarterly reports, or demanding that the business not take certain actions unless it has the approval of these angel investors. These investors will take a much more hands-on approach to the operations of a firm.

• Planning is a critical and important component of ensuring the success of a small business.
• Some form of formal planning should not only accompany the start-up of a business but also be a regular (annual) activity that guides the future direction of the business.
• Many small business owners are reluctant to formally plan. They can produce many excuses for not planning.
• Businesses may have to raise capital from external sources—bankers, venture capitalists, or angel investors. Each type of investor will expect a business plan. Each type of investor will be more or less interested in different parts of the plan. Business owners should be aware of what parts of the plan each type of investor will focus on.

Building a Plan

Before talking about writing a formal business plan, someone interested in starting a business might want to think about doing some personal planning before drafting the business plan. Some of the questions that he or she might want to answer before drafting a full business plan are as follows:

• Why am I going into this business?
• What skills and resources do I possess that will help make the business a success?
• What passion do I bring to this business?
• What is my risk tolerance?
• Exactly how hard do I intend to work? How many hours per week?
• What impact will the business have on my family life?

What do I really wish from this business?

• Am I interested in financial independence?
• What level of profits will be required to maintain my personal and/or family’s lifestyle?
• Am I interested in independence of action (no boss but myself)?
• Am I interested in personal satisfaction?
• Will my family be working in this business?
• What other employees might I need? [23]

Having addressed these questions, one will be in a much better position to craft a formal business plan.

Gathering Information

Building a solid business plan requires knowing the economic, market, and competitive environments. Such knowledge transcends “gut feelings” and is based on data and evidence. Fortunately, much of the required information is available through library resources, Internet sources, and government agencies and, for a fee, from commercial sources. Comprehensive business plans may draw from all these sources.

Public libraries and those at educational institutions provide a rich resource base that can be used at no cost. Some basic research sources that can be found at libraries are given in this section— be aware that the reference numbers provided may differ from library to library .

Library Sources

Background sources.

• Berinstein, Paula. Business Statistics on the Web: Find Them Fast—At Little or No Cost (Ref HF1016 .B47 2003).
• The Core Business Web: A Guide to Information Resources (Ref HD30.37 .C67 2003).
• Frumkin, Norman. Guide to Economic Indicators , 4th ed. (Ref HC103 .F9 2006). This book explains the meanings and uses of the economic indicators.
• Solie-Johnson, Kris. How to Set Up Your Own Small Business , 2 volumes (Ref HD62.7 .S85 2005). Published by the American Institute of Small Business.

Company and Industry Sources

• North American Industry Classification System, United States (NAICS), 2007 (Ref HF1042 .N6 2007). The NAICS is a numeric industry classification system that replaced the Standard Industrial Classification (SIC) system. An electronic version is available from the US Census Bureau .
• Standard Industrial Classification Manual (Ref HA40 .I6U63 1987). The industry classification system that preceded the NAICS.
• Value Line Investment Survey (Ref HG4751 .V18). Concise company and industry profiles are updated every thirteen weeks.

Statistical Sources

• Almanac of Business and Industrial Financial Ratios (Ref HF5681 .R25A45 2010).
• Business Statistics of the United States (Ref HC101 .A13123 2009). This publication provides recent and historical information about the US economy.
• Economic Indicators (1971–present). The Council of Economic Advisers for the Joint Economic Committee of Congress publishes this monthly periodical; recent years are in electronic format only. Ten years of data are presented. Electronic versions are available in ABI/INFORM and ProQuest from September 1994 to present and Academic OneFile from October 1, 1991.
• Industry Norms and Key Business Ratios (Dun & Bradstreet; Ref HF5681 .R25I532 through Ref HF5681 .I572 [2000–2001 through 2008–2009]).
• Rma Annual Statement Studies (Ref HF5681 .B2R6 2009–2010). This publication provides annual financial data and ratios by industry.
• Statistical Abstract of the United States (Ref HA202 .S72 2010). This is the basic annual source for statistics collected by the government. Electronic version is available at www.census.gov/compendia/statstatab .
• Survey of Current Business (1956–present). The Bureau of Economic Analysis publishes this monthly periodical; recent years are in electronic format only.

At some libraries, you may find access to the following resources online:

• Mergent Webreports. Mergent (formerly Moody’s) corporate manuals are in digitized format. Beginning with the early 1900s, the reports include corporate history, business descriptions, and in-depth financial statements. The collection is searchable by company name, year, or manual type.
• ProQuest Direct is a database of general, trade, and scholarly periodicals, with many articles in full text. Many business journals and other resources are available.
• Standard and Poor’s Netadvantage is a database that includes company and industry information.

Internet Resources

In addition to government databases and other free sources, the Internet provides an unbelievably rich storehouse of information that can be incorporated into any business plan. It is not feasible to provide a truly comprehensive list of useful websites; this section provides a highly selective list of government sites and other sites that provide free information.

Government Sites

• US Small Business Administration (SBA) . This is an excellent site to begin researching a business plan. It covers writing a plan, financing a start-up, selecting a location, managing employees, and insurance and legal issues. A follow-up page at http://www.sba.gov provides access to publications, statistics, video tutorials, podcasts, business forms, and chat rooms. Another page— http://www.sba.gov/about-offices-list/2 —provides access to localized resources.
• SCORE Program . The SCORE program is a partner of the SBA. It provides a variety of services to small business owners, ranging from online (and in-person) mentoring, workshops, free computer templates, and advice on a wide range of small business issues.

In developing a business plan, it is necessary to anticipate the future economic environment. The government provides extensive statistics online.

• Consumer Price Index . This index provides information on the direction of prices for industries and geographic areas.
• Producer Price Index . Businesses that provide services or are focused on business-to-business (B2B) operations may find these data more appropriate for estimating future prices.
• National Wage Data . This site provides information on prevailing wages and can be broken down by occupation and location down to the metropolitan area.
• Consumer Expenditures Survey . This database provides information on expenditures and income. It allows for a remarkable level of refinement by occupation, age, or race.
• State and Local Personal Income and Employment . These databases provide a breakdown of personal income by state and metropolitan area.
• GDP by State and Metropolitan Region . This will provide an accurate guide to the overall economic health of a region or a city.
• US Census . This is a huge site with databases on population, income, foreign trade, economic indicators, and business ownership.

There are nongovernment websites, either free or charging a fee, that can provide assistance in building a business plan. A simple Google search for the phrase small business plan yields more than 67 million results. Various sites will either help with writing the plan, offer to write the plan for a fee, produce reports on industries, or assist small businesses by providing a variety of support services. The Internet offers a veritable cornucopia of information and support for those working on their business plans.

Forecasting for the Plan

Prediction is very difficult, especially about the future. Nils Bohr, Nobel Prize winner

Any business plan is a future-oriented document. Business plans are required to look between three and five years into the future. To produce them and accurately forecast sales, you will need estimates of expenses and other items, such as the required number of employees, interest rates, and general economic conditions. There are many different techniques and tools that can be used to forecast these items. The type of techniques used will be influenced by many factors, such as the following:

• The size of the business. Smaller businesses may have fewer resources to apply a wide variety of forecasting techniques.
• The analytical sophistication of people who will be conducting the forecast. The owner of a home business may have no prior experience with forecasting techniques.
• The type of the organization. A manufacturing concern that sells to a stable and relatively predictable environment that has been in existence for years might be able to employ a variety of standard statistical forecasting techniques; however, a small firm operating in a new or a chaotic environment might have to rely on significantly different techniques.
• Historical records. Does the firm have historical records for sales that can be used to project into the future?

There is no universal set of forecasting techniques that can be used for all types of small and midsize businesses. Forecasting can fall into a fairly comprehensive range of techniques with respect to level of sophistication. Some forecasting can be done on an intuitive basis (e.g., back-of-the-envelope calculations); others can be done with standard computer programs (e.g., Excel) or programs that are specifically dedicated to forecasting in a variety of environments.

A brief review of basic forecasting techniques shows that they can be divided into two broad classes:  qualitative forecasting methods and quantitative forecasting methods . Actually, these terms can be somewhat misleading because qualitative forecasting methods do not imply that no numbers will be involved. The two techniques are separated by the following concept: qualitative forecasting methods assume that one either does not have historical data or that one cannot rely on past historical data. A start-up business has no past sales that can be used to project future sales. Likewise, if there is a significant change in the environment, one may feel uncomfortable using past data to project into the future. A restaurant operates in a small town that contains a large automobile factory. After the factory closes, the restaurant owner should anticipate that past sales will no longer be a useful guideline for projecting what sales might be in the next year or two because the owner has lost a number of customers who worked at the factory. Quantitative forecasting, on the other hand, consists of techniques and methods that assume you can use past data to make projections into the future.

“Overview of Forecasting Methods” provides examples of both qualitative forecasting methods and quantitative forecasting methods for sales forecasting. Each method is described, and their strengths and weaknesses are given.

Overview of Forecasting Methods

Forecasting key items such as sales is crucial in developing a good business plan. However, forecasting is a very challenging activity. The further out the forecast, the less likely it will be accurate. Everyone recognizes this fact. Therefore, it is useful to draw on a variety of forecasting techniques to develop your final forecast for the business plan. To do that, you should have a fairly solid understanding of the strengths and weaknesses of the various approaches. There are many books, websites, and articles that could assist you in understanding these techniques and when they should or should not be used. In addition, one should be open to gathering additional information to assist in building a forecast. Some possible sources of such information would be associations, trade publications, and business groups. Regardless of what technique is used or the data source employed in building a forecast for business plan, one should be prepared to justify why you are employing these forecasting models.

Web Resources for Forecasting

• Three methods of sales forecasting ( sbinfocanada.about.com/od/cashflowmgt/a/salesforecast.htm ). This site provides three simplified approaches to sales forecasting.
• Time-critical decision making for business administration ( home.ubalt.edu/ntsbarsh/stat-data/forecast.htm ). This site has an e-book format with several chapters devoted to analytical forecasting techniques.

Building your first business plan may seem extremely formidable. This may explain why there are so many software packages available to assist in this task. After building your first business plan, that steep learning curve should make subsequent plans for the business or other businesses significantly easier.

In preparing to build a business plan, there are some problem areas or mistakes that you should be on guard to avoid. Some may be technical in nature, while others relate to content issues. For the technical side, first and foremost, one should make sure that there are no misspellings or punctuation errors. The business plan should follow a logical structure. No ideal business plan clearly specifies the exact sections that need to be included nor is there an ideal length. Literature concerning business plans indicates that the appropriate length of the body of a business plan line should be between twenty and forty pages. This does not include appendixes that might provide critical data for the reader.

In developing a lengthy report, sometimes it is easy to fall into clichés or overused expressions. These should be avoided. Consider the visuals in the report. Data should be placed in either clearly mapped-out tables or well-designed graphs. The report should be as professional-looking as possible. Anticipate the audience that will be reading the report and write in a way that easily reaches them; avoid using too much jargon or technical terms.

The content in any business plan centers on two areas: realism and accuracy.

Components of the Plan

There is no idealized structure for a business plan or a definitive number of sections that it must contain. The following subsections discuss the outline of a plan for a business start-up and identify some of the major sections that should be part of the plan.

The cover page provides the reader with information about either the author of the plan or the person to contact concerning the business plan. It should contain all the pertinent information to enable the reader to contact the author, such as the name of the business, the business logo, and the contact person’s address, telephone number, and e-mail address.

The table of contents enables the reader to find the major sections and components of the plan. It should identify the key sections and subsections and on which pages those sections begin. This enables the reader to turn to sections that might be of particular importance.

Executive Summary

The  executive summary is a section of critical importance and is perhaps the single most important section of the entire business plan. Quite often, it is the first section that a reader will turn to, and sometimes it may be the only section of the business plan that he or she will read. Chronologically, it should probably be the last section written. [24] The executive summary should provide an accurate overview of the entire document, which cannot be done until the whole document is prepared.

If the executive summary fails to adequately describe the idea behind the business or if it fails to do so in a captivating way, some readers may discard the entire business plan. As one author put it, the purpose of the executive summary is to convince the reader to “read on.” [25] The executive summary should contain the following pieces of information:

• What is the company’s business?
• Who are its intended customers?
• What will be its legal structure?
• What has been its history (where one exists)?
• What type of funding will be requested?
• What is the amount of that funding?
• What are the capabilities of the key executives?

All this must be done in an interesting and captivating way. The great challenge is that executive summaries should be relatively short—between one and three pages. For many businesspeople, this is the great challenge—being able to compress the required information in an engaging format that has significant size limitations.

Business Section

Goals. These are broad statements about what you would like to achieve some point in the near future. Your goals might focus on your human resource policies (“We wish to have productive, happy employees”), on what you see as the source of your competitive advantage (“We will be best in service”), or on financial outcomes (“We will produce above average return to our investors.”) Goals are useful, but they can mean anything to anyone. It is therefore necessary to translate the goals into objectives to bring about real meaning so that they can guide the organization. Ideally, objectives should be SMART —specific, measurable, achievable, realistic, and have a specific timeline for completion. Here is an example: one organizational goal may be a significant rise in sales and profits. When translating that goal into an objective, you might word the objectives as follows: a 15 percent increase in sales for the next three years followed by a 10 percent increase in sales for the following two years and a 12.5 percent increase in profits in each of the next five years. These objectives are quite specific and measurable. It is up to the decision-maker to determine if they are achievable and realistic. These objectives—sales and profits—clearly specify the time horizon. In developing the plan, owners are often very happy to develop goals because they are open to interpretation, but they will avoid objectives. Goals are sufficiently ambiguous, whereas objectives tie you to particular values that you will have to hit in the future. People may be concerned that they will be weighed on a scale and found wanting for failing to achieved their objectives. However, it is critical that your plan contains both goals and objectives. Objectives allow investors and your employees to clearly see where the firm intends to go. They produce targeted values to aim for and, therefore, are critical for the control of the firm’s operations.

Vision and Mission Statements. To many, there is some degree of confusion concerning the difference between a vision statement and a mission statement.  Vision statements articulate the long-term purpose and idealized notion of what a business wishes to become. In the earliest days of Microsoft, when it was a small business, its version of a vision statement was as follows: “A computer on every desk and in every home.” In the early 1980s, this was truly a revolutionary concept. Yet it gave Microsoft’s employees a clear idea (vision) that to bring that vision into being, the software being developed would have to be very “user-friendly” in comparison to the software of that day. Mission statements , which are much more common in small business plans, articulate the fundamental nature of the business. This means identifying the type of business, how it will leverage its competencies, and possibly the values that drive the business. Put simply, a mission statement should address the following questions:

• Who are we? What business are we in?
• Who do we see as our customers?
• How do we provide value for those customers?

Sometimes vision and mission statements are singularly written for external audiences, such as investors or shareholders. They are not written for the audience for whom it would have the greatest meaning—the management team and the employees of the business. Unfortunately, many recognize that both statements can become exercises of stringing together a series of essentially meaningless phrases into something that appears to sound right or professional . You can find software on the web to automatically generate such vacuous and meaningless statements.

Sometimes a firm will write a mission statement that provides customers, investors, and employees with a clear sense of purpose of that company. Zappos has the following as its mission statement: “Our goal is to position Zappos as an online service leader. If we can get customers to associate Zappos as the absolute best in service, then we can expand beyond shoes.” [26] The mission statement of Ben & Jerry’s Ice Cream focuses both on defining their product and their values: “To make, distribute and sell the finest quality all-natural ice cream and euphoric concoctions with a continued commitment to incorporating wholesome, natural ingredients and promoting business practices that respect the Earth and the Environment.” [27]

Keys to Success . This section identifies those specific elements of your firm that you believe will ensure success. It is important for you to be able to define the competencies that you intend to leverage to ensure success. What makes your product or service unique? What specific set of capabilities do you bring to the competitive scene? These might include the makeup of and the experience of your management team; your operational capabilities (e.g., unique skills in design, manufacturing, or delivery); your marketing skill sets: your financial capabilities (e.g., the ability to control costs); or the personnel that make up the company.

Industry Review

In this section, you want to provide a fairly comprehensive overview of the industry. A thorough understanding of the industry that you will be operating in is essential to understand the possible returns that your company will earn within that industry. Investors want to know if they will recover their initial investment. When will they see a profit? Remember, investors often carefully track industries and are well aware of the strengths and limitations within a particular industry. Investors are looking for industries that can demonstrate growth. They also want to see if the industry is structurally attractive. This might entail conducting Porter’s five forces analysis; however, this is not required in all cases. If there appear to be some issues or problems with industry-level growth, then you might want to be able to identify some segments of the industry where growth is viable.

Products or Services

This section should be an in-depth discussion of what you are offering to customers. It should provide a complete and clear statement of the products or the services that you are offering. It should also discuss the core competencies of your business. You should highlight what is unique, such as a novel product or service concept or the possession of patents. You need to show how your product or service specifically meets particular market needs. You must identify how the product or the service will satisfy specific customers’ needs. If you are dealing with a new product or service, you need to demonstrate what previously unidentified needs it will meet and how it will do so. At its birth, Amazon had to demonstrate that an online bookstore would be preferable to the standard bookstore by offering the customer a much wider selection of books than would be available at an on-site location.

This section could include a discussion of technical issues. If the business is based on a technological innovation—such as a new type of software or an invention—then it is necessary to provide an adequate discussion of the specific nature of the technology. One should take care to always remember the audience for whom you are writing the plan. Do not make this portion too technical in nature. This section also might discuss the future direction of the product or service—namely, where will you be taking (changing) the product or the service after the end of the current planning horizon? This may require a discussion of future investment requirements or the required time to develop new products and services. This section may also include a discussion of pricing the product or the service, although a more detailed discussion of the issue of pricing might be found in the marketing plan section. If you plan to include the issue of pricing here, you should discuss how the pricing of the product or the service was determined. The more detailed you are in this description, the more realistic it will appear to the readers of the business plan. You may wish to discuss relationships that you have with vendors that might have an impact on reducing cost and therefore an impact on price. It is important to discuss how your pricing scheme will compare with competitors. Will it be higher than average or below the average price? How does the pricing fit in with the overall strategy of the firm?

This section must have a high degree of honesty. Investors will know much about the industry and its limitations. You need to identify any areas that might be possible sources of problems, such as government regulations, issues with new product development, securing distribution channels, and informing the market of your existence. Further, it is important to identify the current competitors in the industry and possible future competitors.

Marketing Plan

An introductory marketing course always introduces the four Ps: product, price, place, and promotion. The marketing section of the business plan might provide more in-depth coverage of how the product or the service better meets customer value than that of competitors. It should identify your target customers and include coverage of who your competitors are and what they provide. The comparison between your firm and its competitors should highlight differences and point to why you are providing superior value. Pricing issues, if not covered in the previous section, could be discussed or discussed in more detail.

The issue of location, particularly in retail, should be covered in detail. Perhaps one of the most important elements of the marketing plan section is to specify how you intend to attract customers, inform them of the benefits of using your product or service, and retain customers. Initially, customers are attracted through advertising. This section should delineate the advertising plan. What media will be used—flyers, newspapers, magazines, radio, television, web presence, direct marketing, and/or social media campaigns? This section should cover any promotional campaigns that might be used.

The Management Team

Physical resources are not the only determinant of business success. The human resources available to a firm will play a critical role in determining its success. Readers of your business plan and potential investors should have a clear sense of the management team that will be running a business. They should know the team with respect to the team’s knowledge of the business, their experience and capabilities, and their drive to succeed. Arthur Rock, a venture capitalist, was once quoted as saying, “I invest in people, not the idea.” [28]

This section of the business plan has several elements. It should contain an organizational chart that will delineate the responsibilities and the chain of command for the business. It should specify who will occupy each major position of the business. You might want to explain who is doing what job and why. For every member of the management team, you should have a complete résumé. This should include educational background (both formal and informal) and past work experience, including the jobs they have held, responsibilities, and accomplishments. You might want to include some other biographical data such as age, although that is not required.

If you plan to use specific advisers or consultants, you should mention the names and backgrounds of these people in this section of the plan. You should also specify why these people are being used.

An additional element of your discussion of the management team will be the intended compensation schemes. You should specify the intended salaries for the management team while also including issues of their benefits and bonuses or any stock position that they may take in the company. This section should also identify any gaps in the management team and how you intend to fill these positions.

Depending on the nature of the business, you might wish to include in this section the personnel (employees) that will be required. You should identify the number of people that are currently working for the firm or that will have to be hired; you should also identify the skills that they need to possess. Further discussion should include the pay that will be provided: whether they will be paid a flat salary or paid hourly, if and when you intend to use overtime, and what benefits you intend to provide. In addition, you should discuss any training requirements or training programs that you will have to implement.

Financial Statements

The financial statements section of the business plan should be broken down into three key subsections: the income statement, the balance sheet, and the cash-flow statement. Before proceeding with these sections, we discuss the assumptions used to build these sections. The opening section of the financial statements section should also include, in summary format, projections of sales, the sales growth rate, key expenses and their growth rates, net income across the forecasting horizon, and assets and liabilities. [29]

As previously discussed, bankers—and to lesser extent venture capitalists—will be primarily concerned with this section of the business plan. It is vital that this section—whether you are an existing business seeking more funding or a start-up—have realistic financial projections. The business plan should contain clear statements of the underlying assumptions that were used to make these financial projections. The clearer the statements and the more realistic the assumptions behind these statements, then the greater the confidence the reader will have in these projections. Few businesspeople have a thorough understanding of these financial statements; therefore, it is advisable that someone with an accounting or a financial background review these statements before they are included in the report. We will have a much more in-depth discussion of these statements in Chapter 9 .

The future planning horizon for financial projections is normally between three and five years. The duration that you will use will depend on the amount of capital that the business is seeking to raise, the type of industry the business is in, and the forecasting issues associated with making projections. Also, the detail required in these financial statements will be directly tied to the type and size of the business.

Income Statement

The  income statement examines the overall profitability of a firm over a particular period of time. As such, it is also known as a profit-and-loss statement. It identifies all sources of revenues generated and expenses incurred by the business. For the business plan, one should generate annual plans for the first three to five years. Some suggest that the planner develop more “granulated” income statements for the first two years. By granulated, we mean that the first year income statement should be broken down on a monthly basis, while the second year should be broken down on a quarterly basis.

Some of the key terms (they will be reviewed in much greater detail in Chapter 10 ) found in the income statement are as follows:

• Income. All revenues and additional incomes produced by the business during the designated period.
• Cost of goods sold. Costs associated with producing products, such as raw materials and costs associated directly with production.
• Gross profit margin. Income minus the cost of goods sold.
• Operating expenses. Costs in doing business, such as expenses associated with selling the product or the service, plus general administration expenses.
• Depreciation. This is a special form of expense that may be included in operating expenses. Long-term assets—those whose useful life is longer than one year—decline in value over time. Depreciation takes this fact into consideration. There are several ways in which this declining value can be determined. It is a noncash expenditure expense.
• Total expenses. The cost of goods sold plus operating expenses and depreciation.
• Net profit before interest and taxes. This is the gross profit minus operating expenses; another way of stating net profit is income minus total expenses.
• Interest. The required payment on all debt for the period.
• Taxes. Federal, state, and local tax payments for the firm.
• Net profit. This is the net profit after interest and taxes. This is the term that many will look at to determine the potential success of business operations.

Balance Sheet

The  balance sheet examines the assets and liabilities and owner’s equity of the business at some particular point in time. It is divided into two sections—the credit component (the assets of the business) and the debit component (liabilities and equity). These two components must equal each other. The business plan should have annual balance sheet for the three- or five-year planning horizon. The elements of the credit component are as follows:

• Current assets. These are the assets that will be held for less than one year, including cash, marketable securities, accounts receivable, notes receivable, inventory, and prepaid expenses.
• Fixed assets. These assets are not going to be turned into cash within the next year; these include plants, equipment, and land. It may also include intangible assets, such as patents, franchises, copyrights, and goodwill.
• Total assets. This is the sum of current assets and fixed assets.

Liabilities consist of the following:

• Current liabilities. These are debts that are to be paid within the year, such as lines of credit, accounts payable, other items payable (including taxes, wages, and rents), short-term loans, dividends payable, and current portion of long-term debt.
• Long-term liabilities. These are debts payable over a period greater than one year, such as notes payable, long-term debt, pension fund liability, and long-term lease obligations.
• Total liabilities. This is the sum of current liabilities and long-term liabilities.
• Owner’s equity. This represents the value of the shareholders’ ownership in the business. It is sometimes referred to as net worth. It may be composed of items such as preferred stock, common stock, and retained earnings.

Cash-Flow Statement

From a practical and survival standpoint, the  cash-flow statement may be the most important component of the financial statements. The cash-flow statement maps out where cash is flowing into the firm and where it flows out. It recognizes that there may be a significant difference between profits and cash flow. It will indicate if a business can generate enough cash to continue operations, whether it has sufficient cash for new investments, and whether it can pay its obligations. Businesspeople soon realize that profits are nice, but cash is king.

Cash flows can be divided into three areas of analysis: cash flow from operations, cash flow from investing, and cash flow from financing. Cash flow from operations examines the cash inflows from revenues and interest and dividends from investments held by the business. It then identifies the cash outflows for paying suppliers, employees, taxes, and other expenses. Cash flow from investing examines the impact of selling or acquiring current and fixed assets. Cash flow from financing examines the impact on the cash position from the changes in the number of shares and changes in the short- and long-term debt position of the firm. Given the critical importance of cash flow to the survival of the small business, it will be covered in much more detail in Chapter 10 .

Additional Information

Depending on the nature of the business and the amount of funding that is being sought, the plan might include more materials. For an existing business, you may wish to include past tax statements and/or personal financial statements. If the business is a franchise, you should include all legal contracts and documents. The same should be done for any leasing, licensing, or rent agreements. This section should be seen as a catchall incorporating any materials that would support the plan. One does not want to be in the position of being asked by readers of the plan—“Where are these documents?”

The financial section of the business plan should include summaries of the three key financial elements. The details behind the financial statements should be included as an appendix along with clear statements concerning the assumptions that were used to build them. The appendixes may also include different scenarios that were considered in building the plan, such as alternative market growth assumptions or alternative competitive environments. Demonstrating that the author(s) considered “what-if” situations tells potential investors that the business is prepared to handle changing conditions. It should include items such as logos, diagrams, ads, and organizational charts.

Developing Scenarios

Change is constant. – Benjamin Disraeli

Business plans are analyses of the future; they can err on the side of either optimistic projections or conservative projections. From the standpoint of the potential investor, it is always better to err on the side of conservatism. Regardless of either bias, business plans are generally built on the basis of expected futures and past experience. Unfortunately, the future does not always emerge in a clearly predicated manner. One can have a dramatic change that can have significant impact on the business. Often such changes occur in the external environment and are beyond the control of the business management team. These external changes can occur within the technical environment; it can be based on changes in customer needs, changes with respect to the suppliers, changes in the economic environment—at the local, national, or global level. Dramatic change can also occur within the organization itself—the death of the owner or members of the management team. [30]

One way for an organization to deal with significant changes is a process known as scenario planning . The real origins of scenario planning can be traced back to the early nineteenth century activity known as Kreigsspiel—war gaming—a system for training officers developed by the Prussian command. This process of looking at future wars was adopted by many militaries in the later nineteenth century. In the 1950s, a more formal format was used at the RAND Institute for examining possible future changes in the military and geopolitical environments. The early 1980s saw it applied to industrial settings. Royal Dutch Shell examined the question of what would happen if there were a significant drop in the price of oil. This was after two oil crises that pushed the price of oil up significantly. The notion that oil prices would drop was considered to be an extremely unlikely event, but it did occur. Royal Dutch Shell was one of the few oil companies that did not suffer because its scenario analyses enabled them to be ready to deal with that situation. [31]

What could be the possible use of scenario planning for small businesses? There are several areas in which small businesses should apply scenario planning to be better prepared for future disruptions.

Identify Significant Changes That Might Impact the Business

Consider major shifts in the customer’s notion of value. As mentioned in Chapter 2 , the firm should always be examining what constitutes value in the eyes of the consumer and how that might shift. Henry Ford’s model T car was a global success because customers initially valued a reliable vehicle at a low price. Ford Motor Company continued to meet the customer’s notion of value by constantly driving down the unit cost. However, by the mid-1920s, customers’ notion of value included not only price but also issues such as styling and improved technologies. General Motors was able to recognize that there were changes in the customer’s value notion and provided them with a range of vehicles. Ford failed to recognize that change and suffered a significant drop in sales.

Shifts in the economic environment. The recent recession clearly indicates that economies can suffer significant shifts in a short period of time. These shifts can have dramatic impact on all business operations. Small-business owners have seen significant tightening of bank credit and changes with respect to the requirements for using credit cards. One could easily imagine the critical importance for small businesses to consider the impacts that would follow significant changes in interest rates. Southwest Airlines, in anticipation of possible fluctuations in oil prices, used futures contracts to deal with dramatic shifts in the price of oil. When oil prices rose significantly, they were in a much better position than their competitors.

The entrance of new competitors. Small businesses should always be ready to consider the impact of facing new competitors and new types of competition. Consider the case of small local retail outlets when a Walmart superstore opens in the area.

Consideration of Disasters

The best way to deal with any potential disaster is not while it is occurring or after it has happened but before it occurs. Small businesses should anticipate what they will do in the case of physical disasters, such as fire, earthquakes, or floods. Other disasters might involve the bankruptcy or loss of a major supplier or a major customer. A restaurant or a food market should have a contingency plan in the case of a power failure that might lead to food spoilage. Such a business might also want to conduct a scenario planning exercise to see what its responses would be in the case of a customer complaining of food poisoning. Other disaster scenarios that should be considered by small businesses include the impact and ramifications of having the computer system crash; having the service for the website crash; or having the website hacked, with the possible loss of customer information.

New Opportunities

Almost all businesses, large and small, must be prepared to seize new opportunities. This may mean that they have to consider the impact of technological change on the business or how technology can offer them new business opportunities. The technology of stereo lithography, a process by which three-dimensional objects are built layer by layer, has been available for more than a decade. Bespoke Innovations saw the potential for using this technology. Bespoke Innovations can develop, in a short period of time, custom artificial legs for a price of $5,000–$6,000 and with features that are not found in $60,000 prostheses. [32]

Scenario planning should be a periodic exercise, but it should be conducted no more than once a year. The actual frequency might be dependent on the perceived rate of change for the industry or the presence of storm clouds on the horizon. Scenario planning has several distinct activities, which may be as follows:

• Pick one area that might occur in the future that would have significant impact on the business. What if the national joblessness rate remains at over 9 percent for the next three to five years? What if a major customer decides to buy from a competitor or that customer is in financial trouble? What if there are changes in the national defense budget? A luncheonette in New London, Connecticut, where Electric Boat builds nuclear submarines, wants to consider the impact of changes in the defense budget. A decrease in the budget for building nuclear submarines would reduce the number of subs made in New London, which might lead to layoffs at Electric Boat and fewer customers for the luncheonette.
• Identify factors that might impact that issue. This sometimes is referred to as a PEST analysis, where the P stands for political issues, E stands for economic issues, S stands for sociocultural issues, and T stands for technology issues. Each factor would be analyzed to see how it might impact the scenario. In our previous luncheonette example, the restaurant might want to consider an upcoming election to see how each party would support defense appropriations, and it might look at the overall economy to determine whether a downturn in the economy might lead to a cut in defense appropriations. It is unlikely that sociocultural issues would impact defense appropriations. Technology issues, whether a breakthrough in some design by the United States or by some other country, might determine the number and location of submarines built in the United States.
• Rank the relative importance of the previous factors. Not all factors under consideration can be considered equally important. It is critical in a scenario planning exercise to see which factors are most important so that decision-makers can focus on the ramifications of those factors in the analysis.
• Develop scenarios. Having identified the relative importance of the factors, the next stage would be to develop a limited number of possible scenarios (no more than two or three). Each scenario would map out possible outcomes for each key factor. Based on these values, the group conducting the scenario planning exercise would develop insights into this possible future world.
• How do the scenarios impact your business? For each future scenario, the team should examine how that possible future state would impact the operation of the business. Continuing with the luncheonette example, the owner might see that a particular political party would be elected in the next election and the economy will still be in the doldrums. Together, this might indicate a cut in the naval building budget. This will translate into a reduced number of submarines built in New London and a reduction in employment at Electric Boat. The luncheonette’s sales will obviously drop off. Now the owner must consider what it might do in that situation.

Scenario planning offers the opportunity for small business owners to examine the future on a long-term basis. It should force them to look at external environments and conditions that can have a dramatic impact on the survival of their firm. It broadens their thinking and creates an environment of increased flexibility. It enables a business to respond to those sudden shocks that might destroy other firms.

Computer Aids

Business plans can be built using a combination of word-processing and spreadsheet programs by those who are adept at using them. However, the entire process of constructing a comprehensive business plan can be greatly simplified by using a dedicated business plan software package. These packages are designed to produce reports that have all the required sections for a business plan, they greatly facilitate the creation of the financial statements with charts, and they often allow for the inclusion of materials from other programs. Most of them are fairly reasonably priced from $50 to $150.

There are many such packages on the market, and they range from those designed for novices to those that can generate annual plans by easily incorporating data from external sources, such as the accounting programs of a business. When evaluating competing programs, there are some primary and secondary factors that should be considered. [33] The primary factors are as follows:

• Ease of building the report. The various sections of the report should be clearly identified, and the authors should be able to work on each section independent of their sequence within the report. Text and data entry should be simple and allow for easy corrections or revisions.
• Financial statements. The software should facilitate building the income statement, the balance sheet, and the cash-flow statement. For multiyear projections, the software should support the forecasting process.
• Import from other programs. The software should be able to incorporate data from a variety of programs, such as Word and Excel. Ideally, it should be able to import data from a variety of accounting programs.
• Support services. The software company should bundle a variety of support services, including clear instructions, tutorials, and access to Internet or call-number support. Many packages provide sample business plans for different industries.

The secondary factors are as follows:

• Access to research support. Some software packages include access to business publications and databases to aid with market research.
• Export options. These packages allow for the report or parts of the report to be exported to different formats—Word, Excel, PowerPoint, HTML, or PDF.
• Ancillary analysis tools. Some packages either directly include or offer additional programs for market planning, budgeting, or valuation.

The following is a partial listing of companies that have business planning software:

• Business Plan Pro . This company provides business planning software with sample plans for a wide number of industries plus options for acquiring industry data at national, state, or local levels. The company also has programs for marketing planning and legal issues advice.
• Business Plan Software . This company offers a number of products, including business planning software, a strategic planning program, financial projection and cash-flow forecasting programs, and marketing planning software.
• Plan Magic . This company offers a suite of planning products ranging from particular industries to financial and marketing planning software.
• The business planning for a start-up business should consider if the owner(s) is/are ready to accept the challenges of operating a business.
• Comprehensive business plans will require information about the industry, competitors, and customers. Owners or the writers of the business plan should be aware of where they can obtain this information.
• Forecasting is critical to the success of any business. There are many different approaches to forecasting: some are simple extrapolations of trends, while others can be computationally complex. The business should use a forecasting system that is not only accurate but also makes the users feel comfortable.
• Although business plans come in different “sizes and shapes,” they should have some key sections: executive summary, mission statement, industry analysis, marketing plan, description of the management team, and financial projections.
• Some businesses should make it a practice of conducting scenario analyses. This is a process of examining possible future events and what should be the response of the business.
• The complexity and difficulty of building a comprehensive business plan can be significantly reduced by using one of the available business-planning software packages.
• Kenneth Arrow, The Concept of Corporate Strategy (Homewood, IL: Irwin, 1971), 28. ↵
• Alfred Chandler, Strategy and Structure (Cambridge, MA: MIT Press, 1962), 13. ↵
• Kenichi Ohmae, The Mind of the Strategist (Harmondsworth, UK: Penguin Books, 1983), 6. ↵
• Henry Mintzberg, Joseph Lampel, and Bruce Ahlstrand, Strategic Safari: A Guided Tour through the Wilds of Strategic Management (New York: Free Press, 1998). ↵
• Paul Solman and Thomas Friedman, Life and Death on the Corporate Battlefield: How Companies Win, Lose, Survive (New York: Simon and Schuster, 1982), 24–27. ↵
• Stephen C. Perry, “A Comparison of Failed and Non-Failed Small Businesses in the United States: Do Men and Women Use Different Planning and Decision Making Strategies?,” Journal of Developmental Entrepreneurship 7, no. 4 (2002): 415. ↵
• Stephen C. Perry, “An Exploratory Study of U.S. Business Failures and the Influence of Relevant Experience and Planning,” (Ph.D. diss., George Washington University, 1998; dissertation available through UMI Dissertation Services, Ann Arbor, MI), 42. ↵
• David A. Curtis, Strategic Planning for Smaller Businesses: Improving Corporate Performance and Personal Reward (Cambridge, MA: Lexington Books, 1983), 29. ↵
• Henry Mintzberg, The Rise and Fall of Strategic Planning (New York: Free Press, 1994), 46. ↵
• Rieva Lesonsky, “A Small Business Plan Doubles Your Chances for Success, Says a New Survey, Small Business Trends, June 20, 2010, accessed October 10, 2011, smallbiztrends.com/2010/06/business-plan-success-twice-as-likely.html. ↵
• Michael Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: Free Press, 1980), 21. ↵
• Kogi Truck Schedule,” Kogi BBQ, accessed October 10, 2011, kogibbq.com. ↵
• Max and Mina’s Ice Cream, accessed October 10, 2011, www.maxandminasicecream.com. ↵
• Jason Cohen, “Don’t Write a Business Plan,” Building43, January 27, 2010, accessed October 10, 2011, www.building43.com/blogs/2010/01/27/dont-write-a -business-plan. ↵
• T. C. Carbone, “Four Common Management Failures and How to Avoid Them,” Management World 10, no. 8 (1981): 38. Patricia Schaeffer, “The Seven Pitfalls of Business Failure and How to Avoid Them,” Business Know-How, 2011, accessed October 10, 2011, www.businessknowhow.com/startup/business-failure.htm. Isabel M. Isodoro, “10 Rules for Small Business Success,” PowerHomeBiz.com , 2011, www.powerhomebiz.com/vol19/rules.htm . Rubik Atamian and Neal R. VanZante, “Continuing Education: A Vital Ingredient of the ‘Success Plan’ for Small Business,” Journal of Business and Economic Research 8, no. 3 (2010): 37. ↵
• Rieva Lesonsky, “A Small Business Plan Doubles Your Chances for Success, Says a New Survey,” Small Business Trends, June 20, 2010, accessed October 10, 2011, smallbiztrends.com/2010/06/business-plan-success-twice-as-likely.html. ↵
• H. Hodges and T. Kent, “Impact of Planning and Control Sophistication in Small Business,” Journal of Small Business Strategy 17, no. 2 (2006–7): 75. ↵
• Tim Berry, “What Bankers Look for in a Business Plan…and What You Should Expect When Taking Your Business Plan to a Bank,” AllBusiness.com, November 7, 2006, accessed October 10, 2011, www.allbusiness.com/business-planning-structures/business-plans/3878953-1.html. ↵
• Marc Mays, “Small Business Venture Capital Strategies,” eZine Articles, 2010, accessed October 10, 2011, ezinearticles.com/?Small-Business-Venture-Capital-Strategies &id=4714691. ↵
• “The Importance of Angel Investing in Financing the Growth of Entrepreneurial Ventures,” Small Business Notes, September 2008, accessed October 10, 2011, www.smallbusinessnotes.com/aboutsb/rs331.html. ↵
• Melinda Emerson, “Life Plan before Business Plan,” Small Business Trends, March 22, 2010, accessed October 10, 2011, smallbiztrends.com/2010/03/life-plan -before-business-plan.html. ↵
• Jeffry Timmons, Andrew Zachary, and Stephen Spinelli, Business Plans That Work—A Guide for Small Business (New York: McGraw-Hill, 2004), 113. ↵
• Carolyn Brown, “The Dos and Don’ts of Writing a Winning Business Plan,” Black Enterprise, April 1996, 114–122. ↵
• “Inc. 500 Mission Statements,” MissionStatements.com, accessed October 10, 2011, www.missionstatements.com/inc_500_mission_statements.html. ↵
• “Mission Statement,” Ben & Jerry’s, accessed October 10, 2011, www.benjerry.com/activism/mission-statement. ↵
• “Invest in People, Not Ideas,” Michael Karnjanaprakorn, January 15, 2009, accessed October 10, 2011, www.mikekarnj.com/blog/2009/01/15/invest-in-people-not-ideas. ↵
• Amir M Hormozi, Gail S. Sutton, Robert D. McMinn, Wendy Lucio, “Business Plans for New or Small Businesses: Paving the Path to Success,” Management Decision 40, no. 8 (2002): 755. ↵
• “Workshops and Events,” SCORE, accessed October 10, 2011, www.score.org/events/workshops. ↵
• P. McNamee, Tools and Techniques for Strategic Management (New York: Pergamon Press, 1985), 187. ↵
• Ashlee Vance, “A Technology Sets Inventors Free to Dream,” New York Times, September 14, 2010. ↵
• “2012 Business Plan Software Product Comparisons,” TopTenReviews.com, accessed October 10, 2011, business-plan-software-review.toptenreviews.com. ↵

The path by which a firm seeks to provide its customers with value, given the competitive environment and within the constraints of the resources available to the firm.

A firm is in the position of being the lowest cost producer in its competitive environment.

A firm provides products or services that meet customer value in some unique way.

A firm seeks to provide value through low cost for a subset of the market given the competitive environment and within the constraints of the resources available to the firm.

A firm concentrates on providing a unique product or service to a segment of the market.

Individuals who provide money for start-up businesses or additional capital for a business to grow. They invest to make not only a profit but also returns that are substantially above those found in the market.

Individuals who initially invested in Broadway shows and films. As with venture capitalists, they are looking for returns higher than they can normally find in the market; however, they often are expecting returns lower than those anticipated by the venture capitalist.

Methods that assume that one does not have historical data or cannot rely on past historical data.

Methods that consist of techniques that assume you can use past data to make projections of the future.

The introduction to the business plan that describes the company’s business, the intended customers, the legal structure, the type and amount of funding that will requested, and the capabilities of the key executives.

A document that articulates the long-term purpose and idealized notion of what the business wishes to become.

A document that articulates the fundamental nature of the business. It should address what business the company is in, the company’s potential customers, and how customer value will be provided.

A report that provides an examination of the overall profitability of a firm over a particular period of time.

A report that examines the assets, liabilities, and owner’s equity of the business at some particular point in time.

A document that maps out where cash is flowing into a firm and where it flows out. It recognizes that there may be a significant difference between profits and cash flow.

A process that examines the impact and possible responses to events that may be unlikely but that would have significant impact on a business.

Small Business Management Copyright © by Jason Anderson is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

Share This Book

We use essential cookies to make Venngage work. By clicking “Accept All Cookies”, you agree to the storing of cookies on your device to enhance site navigation, analyze site usage, and assist in our marketing efforts.

Manage Cookies

Cookies and similar technologies collect certain information about how you’re using our website. Some of them are essential, and without them you wouldn’t be able to use Venngage. But others are optional, and you get to choose whether we use them or not.

Strictly Necessary Cookies

These cookies are always on, as they’re essential for making Venngage work, and making it safe. Without these cookies, services you’ve asked for can’t be provided.

Show cookie providers

• Google Login

Functionality Cookies

These cookies help us provide enhanced functionality and personalisation, and remember your settings. They may be set by us or by third party providers.

Performance Cookies

These cookies help us analyze how many people are using Venngage, where they come from and how they're using it. If you opt out of these cookies, we can’t get feedback to make Venngage better for you and all our users.

• Google Analytics

Targeting Cookies

These cookies are set by our advertising partners to track your activity and show you relevant Venngage ads on other sites as you browse the internet.

• Google Tag Manager
• Infographics
• Daily Infographics
• Graphic Design
• Graphs and Charts
• Data Visualization
• Human Resources
• Training and Development
• Beginner Guides

Blog Business

How to Write a Business Plan Outline [Examples + Templates] 

By Letícia Fonseca , Aug 11, 2023

When venturing into crafting a business plan, the initial hurdle often lies in taking that first step.

So, how can you evade those prolonged hours of staring at a blank page? Initiate your journey with the aid of a business plan outline.

As with any endeavor, an outline serves as the beacon of clarity, illuminating the path to confront even the most formidable tasks. This holds particularly true when composing pivotal documents vital to your triumph, much like a business plan.

Nonetheless, I understand the enormity of a business plan’s scope, which might make the task of outlining it seem daunting. This is precisely why I’ve compiled all the requisite information to facilitate the creation of a business plan outline. No need to break a sweat!

And if you’re seeking further assistance, a business plan maker and readily available business plan templates can offer valuable support in shaping your comprehensive plan.

Read on for answers to all your business plan outline questions or jump ahead for some handy templates. 

Click to jump ahead:

What is a business plan outline (and why do you need one), what format should you choose for your business plan outline, what are the key components of a business plan outline.

• Business plan template examples
• Writing tips to ace your outline 

A business plan outline is the backbone of your business plan. It contains all the most important information you’ll want to expand on in your full-length plan. 

Think of it this way: your outline is a frame for your plan. It provides a high-level idea of what the final plan should look like, what it will include and how all the information will be organized. 

Why would you do this extra step? Beyond saving you from blank page syndrome, an outline ensures you don’t leave any essential information out of your plan — you can see all the most important points at a glance and quickly identify any content gaps. 

It also serves as a writing guide. Once you know all the sections you want in your plan, you just need to expand on them. Suddenly, you’re “filling in the blanks” as opposed to writing a plan from scratch!

Incidentally, using a business plan template like this one gives you a running head start, too: 

Perhaps most importantly, a business plan outline keeps you focused on the essential parts of your document. (Not to mention what matters most to stakeholders and investors.)  With an outline, you’ll spend less time worrying about structure or organization and more time perfecting the actual content of your document. 

If you’re looking for more general advice, you can read about  how to create a business plan here . But if you’re working on outlining your plan, stick with me.

Return to Table of Contents

Most business plans fit into one of two formats. 

The format you choose largely depends on three factors: (1) the stage of your business, (2) if you’re presenting the plan to investors and (3) what you want to achieve with your business plan. 

Let’s have a closer look at these two formats and why you might choose one over the other.

Traditional format

Traditional business plans  are typically long, detailed documents. In many cases, they take up to 50-60 pages, but it’s not uncommon to see plans spanning 100+ pages. 

Traditional plans are long because they cover  every aspect  of your business. They leave nothing out. You’ll find a traditional business plan template with sections like executive summary, company description, target market, market analysis, marketing plan, financial plan, and more. Basically: the more information the merrier.

This business plan template isn’t of a traditional format, but you could expand it into one by duplicating pages:

Due to their high level of detail, traditional formats are the best way to sell your business. They show you’re reliable and have a clear vision for your business’s future. 

If you’re planning on presenting your plan to investors and stakeholders, you’ll want to go with a traditional plan format. The more information you include, the fewer doubts and questions you’ll get when you present your plan, so don’t hold back. 

Traditional business plans require more detailed outlines before drafting since there’s a lot of information to cover. You’ll want to list all the sections and include bullet points describing what each section should cover. 

It’s also a good idea to include all external resources and visuals in your outline, so you don’t have to gather them later. 

Lean format

Lean business plan formats are high level and quick to write. They’re often only one or two pages. Similar to a  business plan infographic , they’re scannable and quick to digest, like this template: 

This format is often referred to as a “startup” format due to (you guessed it!) many startups using it. 

Lean business plans require less detailed outlines. You can include high-level sections and a few lines in each section covering the basics. Since the final plan will only be a page or two, you don’t need to over prepare. Nor will you need a ton of external resources. 

Lean plans don’t answer all the questions investors and stakeholders may ask, so if you go this route, make sure it’s the right choice for your business . Companies not yet ready to present to investors will typically use a lean/startup business plan format to get their rough plan on paper and share it internally with their management team. 

Here’s another example of a lean business plan format in the form of a financial plan: 

Your business plan outline should include all the following sections. The level of detail you choose to go into will depend on your intentions for your plan (sharing with stakeholders vs. internal use), but you’ll want every section to be clear and to the point. 

1. Executive summary

The executive summary gives a high-level description of your company, product or service. This section should include a mission statement, your company description, your business’s primary goal, and the problem it aims to solve. You’ll want to state how your business can solve the problem and briefly explain what makes you stand out (your competitive advantage).

Having an executive summary is essential to selling your business to stakeholders , so it should be as clear and concise as possible. Summarize your business in a few sentences in a way that will hook the reader (or audience) and get them invested in what you have to say next. In other words, this is your elevator pitch.

2. Product and services description

This is where you should go into more detail about your product or service. Your product is the heart of your business, so it’s essential this section is easy to grasp. After all, if people don’t know what you’re selling, you’ll have a hard time keeping them engaged!

Expand on your description in the executive summary, going into detail about the problem your customers face and how your product/service will solve it. If you have various products or services, go through all of them in equal detail. 

3. Target market and/or Market analysis

A market analysis is crucial for placing your business in a larger context and showing investors you know your industry. This section should include market research on your prospective customer demographic including location, age range, goals and motivations. 

You can even  include detailed customer personas  as a visual aid — these are especially useful if you have several target demographics. You want to showcase your knowledge of your customer, who exactly you’re selling to and how you can fulfill their needs.

Be sure to include information on the overall target market for your product, including direct and indirect competitors and how your industry is performing. If your competitors have strengths you want to mimic or weaknesses you want to exploit, this is the place to record that information. 

4. Organization and management

You can think of this as a “meet the team” section — this is where you should go into depth on your business’s structure from management to legal and HR. If there are people bringing unique skills or experience to the table (I’m sure there are!), you should highlight them in this section. 

The goal here is to showcase why your team is the best to run your business. Investors want to know you’re unified, organized and reliable. This is also a potential opportunity to bring more humanity to your business plan and showcase the faces behind the ideas and product. 

5. Marketing and sales

Now that you’ve introduced your product and team, you need to explain how you’re going to sell it. Give a detailed explanation of your sales and marketing strategy, including pricing, timelines for launching your product and advertising.

This is a major section of your plan and can even live as a separate document for your marketing and sales teams. Here are some  marketing plan templates to help you get started .

Make sure you have research or analysis to back up your decisions — if you want to do paid ads on LinkedIn to advertise your product, include a brief explanation as to why that is the best channel for your business. 

6. Financial projections and funding request

The end of your plan is where you’ll look to the future and how you think your business will perform financially. Your financial plan should include results from your income statement, balance sheet and cash flow projections. 

State your funding requirements and what you need to realize the business. Be extremely clear about how you plan to use the funding and when you expect investors will see returns.

If you aren’t presenting to potential investors, you can skip this part, but it’s something to keep in mind should you seek funding in the future. Covering financial projections and the previous five components is essential at the stage of business formation to ensure everything goes smoothly moving forward.

7. Appendix

Any extra visual aids, receipts, paperwork or charts will live here. Anything that may be relevant to your plan should be included as reference e.g. your cash flow statement (or other financial statements). You can format your appendix in whatever way you think is best — as long as it’s easy for readers to find what they’re looking for, you’ve done your job!

Typically, the best way to start your outline is to list all these high-level sections. Then, you can add bullet points outlining what will go in each section and the resources you’ll need to write them. This should give you a solid starting point for your full-length plan.

Business plan outline templates

Looking for a shortcut? Our  business plan templates  are basically outlines in a box! 

While your outline likely won’t go into as much detail, these templates are great examples of how to organize your sections.

Traditional format templates

A strong template can turn your long, dense business plan into an engaging, easy-to-read document. There are lots to choose from, but here are just a few ideas to inspire you… 

You can duplicate pages and use these styles for a traditional outline, or start with a lean outline as you build your business plan out over time:

Lean format templates

For lean format outlines, a simpler ‘ mind map ’ style is a good bet. With this style, you can get ideas down fast and quickly turn them into one or two-page plans. Plus, because they’re shorter, they’re easy to share with your team.

Writing tips to ace your business plan outline

Business plans are complex documents, so if you’re still not sure how to write your outline, don’t worry! Here are some helpful tips to keep in mind when drafting your business plan outline:

• Ask yourself why you’re writing an outline. Having a clear goal for your outline can help keep you on track as you write. Everything you include in your plan should contribute to your goal. If it doesn’t, it probably doesn’t need to be in there.
• Keep it clear and concise. Whether you’re writing a traditional or lean format business plan, your outline should be easy to understand. Choose your words wisely and avoid unnecessary preambles or padding language. The faster you get to the point, the easier your plan will be to read.
• Add visual aids. No one likes reading huge walls of text! Make room in your outline for visuals, data and charts. This keeps your audience engaged and helps those who are more visual learners. Psst,  infographics  are great for this.
• Make it collaborative. Have someone (or several someones) look it over before finalizing your outline. If you have an established marketing / sales / finance team, have them look it over too. Getting feedback at the outline stage can help you avoid rewrites and wasted time down the line.

If this is your first time writing a business plan outline, don’t be too hard on yourself. You might not get it 100% right on the first try, but with these tips and the key components listed above, you’ll have a strong foundation. Remember, done is better than perfect. 

Create a winning business plan by starting with a detailed, actionable outline

The best way to learn is by doing. So go ahead, get started on your business plan outline. As you develop your plan, you’ll no doubt learn more about your business and what’s important for success along the way. 

A clean, compelling template is a great way to get a head start on your outline. After all, the sections are already separated and defined for you! 

Explore Venngage’s business plan templates  for one that suits your needs. Many are free to use and there are premium templates available for a small monthly fee. Happy outlining!

Module: Entrepreneurship

Create your business plan.

The following written guide will help you create a business plan and map out how you will start and run your business successfully. The different parts are described in the order in which they appear in a business plan.

Executive Summary

The executive summary is often considered the most important section of a business plan. This section briefly tells your reader where your company is, where you want to take it, and why your business idea will be successful. If you are seeking financing, the executive summary is also your first opportunity to grab a potential investor’s interest.

The executive summary should highlight the strengths of your overall plan and therefore be the last section you write.

Below are several key points that your executive summary should include based on the stage of your business.

If You Are an Established Business

If you are an established business, be sure to include the following information:

• The mission statement : This explains what your business is all about. It should be between several sentences and a paragraph.
• Company information : Include a short statement that covers when your business was formed, the names of the founders and their roles, your number of employees, and your business location(s).
• Growth highlights : Include examples of company growth, such as financial or market highlights (for example, “XYZ Firm increased profit margins and market share year-over-year since its foundation). Graphs and charts can be helpful in this section.
• Your products/services : Briefly describe the products or services you provide.
• Financial information : If you are seeking financing, include any information about your current bank and investors.
• Summarize future plans : Explain where you would like to take your business.

With the exception of the mission statement, all of the information in the executive summary should be covered in a concise fashion and kept to one page. The executive summary is the first part of your business plan many people will see, so each word should count.

If You Are a Start-up or New Business

If you are just starting a business, you won’t have as much information as an established company. Instead, focus on your experience and background as well as the decisions that led you to start this particular enterprise.

Demonstrate that you have done thorough market analysis. Convince the reader that you can succeed in your target market; then address your future plans.

Company Description

This section of your business plan provides a high-level overview of the different elements of your business. The goal is to help readers and potential investors quickly understand the goal of your business and its unique proposition.

What to Include in Your Company Description

• Describe the nature of your business and list the marketplace needs that you are trying to satisfy.
• Explain how your products and services meet these needs.
• List the specific consumers, organizations, or businesses that your company serves or will serve.
• Explain the competitive advantages that you believe will make your business a success such as your location, expert personnel, efficient operations, or ability to bring value to your customers.

Market Analysis

The market analysis section of your business plan should illustrate your industry and market knowledge as well as any of your research findings and conclusions.

What to Include in Your Market Analysis

• Industry description and outlook : Describe your industry, including its current size and historic growth rate as well as other trends and characteristics (e.g., life cycle stage, projected growth rate). Next, list the major customer groups within your industry.
• Information about your target market : One of the first steps in the process is determining your target market and why they would want to buy from you. Narrow your target market to a manageable size. Many businesses make the mistake of trying to appeal to too many target markets. Research and include the following information about your market:
• Distinguishing characteristics : What are the critical needs of your potential customers? Are those needs being met?  What are the demographics of the group and where are they located? Are there any seasonal or cyclical purchasing trends that may impact your business?
• Size of the primary target market : In addition to the size of your market, what data can you include about the annual purchases your market makes in your industry? What is the forecasted market growth for this group?
• How much market share can you gain? : What is the market share percentage and number of customers you expect to obtain in a defined geographic area? Explain the logic behind your calculation.
• Pricing and gross margin targets : Define your pricing structure, gross margin levels, and any discount that you plan to use.
• Competitive analysis : Ask which areas are being ignored by your competitors. Creating a niche for your business is essential. Your competitive analysis should identify your competition by product line or service and market segment. Assess the characteristics of the competitive landscape (e.g., market share, strengths and weaknesses, barriers to market entry, etc.). Don’t Become a jack-of-all-trades. Learn to strategize.
• Regulatory restrictions : Include any customer or governmental regulatory requirements affecting your business, and how you’ll comply.

Once you’ve completed this section, you can move on to the Organization and Management section of your business plan.

Organization and Management

This section should include your company’s organizational structure, details about the ownership of your company, profiles of your management team, and the qualifications of your board of directors.

Who does what in your business? What is their background and why are you bringing them into the business as board members or employees? What are they responsible for? The people reading your business plan want to know who’s in charge, so tell them. Give a detailed description of each division or department and its function.

Service or Product Line

Once you’ve completed the Organizational and Management section of your plan, the next part of your business plan is where you describe your service or product, emphasizing the benefits to potential and current customers. Focus on why your particular product will fill a need for your target customers.

What to Include in Your Service or Product Line Section

• A description of your product/service : Include information about the specific benefits of your product or service – from your customers’ perspective. You should also talk about your product or service’s ability to meet consumer needs, any advantages your product has over that of the competition, and the current development stage your product is in (e.g., idea, prototype).
• Details about your product’s life cycle : Be sure to include information about where your product or service is in its life cycle, as well as any factors that may influence its cycle in the future.
• Intellectual property : If you have any existing, pending, or any anticipated copyright or patent filings, list them here. Also disclose whether any key aspects of a product may be classified as trade secrets. Last, include any information pertaining to existing legal agreements, such as nondisclosure or non-compete agreements.
• Research and development (R&D) activities : Outline any R&D activities that you are involved in or are planning. What results of future R&D activities do you expect? Be sure to analyze the R&D efforts of not only your own business, but also of others in your industry.

Marketing and Sales

Once you’ve completed the Service or Product Line section of your plan, the next part of your business plan should focus on your marketing and sales management strategy for your business.

Marketing is the process of creating customers, and customers are the lifeblood of your business. In this section, the first thing you want to do is define your marketing strategy. You’ll learn more about this in the Marketing module of this course.

After you have developed a comprehensive marketing strategy, you can then define your sales strategy. This covers how you plan to actually sell your product. Sales is also covered later in the course.

Next, if you are seeking financing for your business, you’ll need to complete the next part of your plan—Funding Request.

Funding Request

If you are seeking funding for your business venture, use this section to outline your requirements, including the following:

• Your current funding requirement
• Any future funding requirements during the next five years
• How you intend to use the funds you receive: Is the funding request for capital expenditures? Working capital? Debt retirement? Acquisitions? Whatever it is, be sure to list it in this section.
• Any strategic financial situational plans for the future, such as: a buyout, being acquired, debt repayment plan, or selling your business.

When you are outlining your funding requirements, include the amount you want now and the amount you want in the future. Also include the time period that each request will cover, the type of funding you would like to have (e.g., equity, debt), and the terms that you would like to have applied.

Once you have completed your funding request, move on to the next part of your plan—Financial Projections.

Financial Projections

You should develop the Financial Projections section after you’ve analyzed the market and set clear objectives. That’s when you can allocate resources efficiently. The following is a list of the critical financial statements to include in your business plan packet.

Historical Financial Data

If you own an established business, you will be requested to supply historical data related to your company’s performance. Most creditors request data for the last three to five years, depending on the length of time you have been in business. Typical financial data to include are your company’s income statements, balance sheets, and cash flow statements for each year you have been in business. Often, creditors are also interested in any collateral that you may have that could be used to ensure your loan, regardless of the stage of your business.

Prospective Financial Data

All businesses, whether start-up or growing, will be required to supply prospective financial data. Most of the time, creditors will want to see what you expect your company to be able to do within the next five years. Each year’s documents should include forecasted income statements, balance sheets, cash flow statements, and capital expenditure budgets.

Make sure that your projections match your funding requests; creditors will be on the lookout for inconsistencies.

Lastly, you may want to include an Appendix to your plan.

The Appendix should be provided to readers on an as-needed basis and should not be included with the main body of your business plan. Specific individuals (such as creditors) may want access to this information to make lending decisions. The appendix can include items such as your credit history, résumés, letters of reference, and any additional information that a lender may request.Therefore, it is important to have the appendix within easy reach.

Any copies of your business plan should be controlled; keep a distribution record. This will allow you to update and maintain your business plan on an as-needed basis.

Check Your Understanding

Answer the question(s) below to see how well you understand the topics covered above. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.

Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.

• Revision and adaptation. Authored by : Linda Williams and Lumen Learning. License : CC BY: Attribution
• Check Your Understanding. Authored by : Lumen Learning. License : CC BY: Attribution
• What I Do at Work. Authored by : The Scott. Located at : https://www.flickr.com/photos/thescott365/3183484673/ . License : CC BY-NC: Attribution-NonCommercial
• Create Your Business Plan. Provided by : U.S. Small Business Association. Located at : https://www.sba.gov/writing-business-plan . License : Public Domain: No Known Copyright

Privacy Policy

Want to create or adapt books like this? Learn more about how Pressbooks supports open publishing practices.

This chapter describes the purposes, principles, and the general concepts and tools for business planning, and the process for developing a business plan.

Purposes for Developing Business Plans

Business plans are developed for both internal and external purposes. Internally, entrepreneurs develop business plans to help put the pieces of their business together. Externally, the most common purpose is to raise capital.

Internal Purposes

As the road map for a business’s development, the business plan

• Defines the vision for the company
• Establishes the company’s strategy
• Describes how the strategy will be implemented
• Provides a framework for analysis of key issues
• Provides a plan for the development of the business
• Helps the entrepreneur develop and measure critical success factors
• Helps the entrepreneur to be realistic and test theories

External Purposes

The business plan provides the most complete source of information for valuation of the business. Thus, it is often the main method of describing a company to external audiences such as potential sources for financing and key personnel being recruited. It should assist outside parties to understand the current status of the company, its opportunities, and its needs for resources such as capital and personnel.

Business Plan Development Principles

Hindle and Mainprize (2006) suggested that business plan writers must strive to effectively communicate their expectations about the nature of an uncertain future and to project credibility. The  liabilities of newness  make communicating the expected future of new ventures much more difficult than for existing businesses. Consequently, business plan writers should adhere to five specific  communication principles .

First, business plans must be written to meet the  expectations  of targeted readers in terms of what they need to know to support the proposed business. They should also lay out the  milestones  that investors or other targeted readers need to know. Finally, writers must clearly outline the  opportunity , the  context  within the proposed venture will operate (internal and external environment), and the  business model  (Hindle & Mainprize, 2006).

There are also five  business plan credibility principles  that writers should consider. Business plan writers should build and establish their credibility by highlighting important and relevant information about the venture  team . Writers need to  elaborate  on the plans they outline in their document so that targeted readers have the information they need to assess the plan’s credibility. To build and establish credibility, they must  integrate scenarios  to show that the entrepreneur has made realistic assumptions and has effectively anticipated what the future holds for their proposed venture. Writers need to provide comprehensive and realistic  financial links  between all relevant components of the plan. Finally, they must outline  the deal , or the value that targeted readers should expect to derive from their involvement with the venture (Hindle & Mainprize, 2006).

General Guidelines for Developing Business Plans

Many businesses must have a business plan to achieve their goals. Using a standard format helps the reader understand that the you have thought everything through, and that the returns justify the risk. The following are some basic guidelines for business plan development.

As You Write Your Business Plan

1. If appropriate, include nice, catchy, professional graphics on your title page to make it appealing to targeted readers, but don’t go overboard.

2. Bind your document so readers can go through it easily without it falling apart. You might use a three-ring binder, coil binding, or a similar method. Make sure the binding method you use does not obscure the information next to where it is bound.

3. Make certain all of your pages are ordered and numbered correctly.

4. The usual business plan convention is to number all major sections and subsections within your plan using the format as follows:

1. First main heading

1.1 First subheading under the first main heading

1.1.1. First sub-subheading under the first subheading

2. Second main heading

2.1 First subheading under the second main heading

Use the  styles  and  references  features in Word to automatically number and format your section titles and to generate your table of contents.  Be sure that the last thing you do before printing your document  is update your automatic numbering and automatically generated tables. If you fail to do this, your numbering may be incorrect.

5. Prior to submitting your plan,  be 100% certain  each of the following requirements are met:

• Everything must be completely integrated. The written part must say exactly the same thing as the financial part.
• All financial statements must be completely linked and valid. Make sure all of your balance sheets balance.
• Everything must be correct. There should be NO spelling, grammar, sentence structure, referencing, or calculation errors.
• Your document must be well organized and formatted. The layout you choose should make the document easy to read and comprehend. All of your diagrams, charts, statements, and other additions should be easy to find and be located in the parts of the plan best suited to them.
• In some cases it can strengthen your business plan to show some information in both text and table or figure formats. You should avoid  unnecessary repetition , however, as it is usually unnecessary—and even damaging—to state the same thing more than once.
• You should include all the information necessary for readers to understand everything in your document.
• The terms you use in your plan should be clear and consistent. For example, the following statement in a business plan would leave a reader completely confused: “There is a shortage of 100,000 units with competitors currently producing 25,000. We can help fill this huge gap in demand with our capacity to produce 5,000 units.” This statement might mean there is a total shortage of 100,000 units, but competitors are filling this gap by producing 25,000 per year; in which case there will only be a shortage for four years. However, it could mean that the annual shortage is 100,000 units and only 25,000 are produced each year, in which case the total shortage is very high and is growing each year.
• You must always provide the complete perspective by indicating the appropriate time frame, currency, size, or other measurement.
• If you use a percentage figure, you must indicate to what it refers—otherwise the number is meaningless to a reader.
• If your plan includes an international element, you must indicate in which currency or currencies the costs, revenues, prices, or other values are quoted. This can be solved by indicating up-front in the document in which currency all values will be quoted. Another option is to indicate each time which currency is being used, and sometimes you might want to indicate the value in more than one currency. Of course, you will need to assess the exchange rate risk to which you will be exposed and describe this in your document.

6. Ensure credibility is both established and maintained (Hindle & Mainprize, 2006).

• If a statement presents something as a fact when this fact is not generally known, always indicate the source. Unsupported statements damage credibility.
• Be specific. A business plan is simply not of value if it uses vague references to high demand, carefully set prices, and other weak phrasing. It must show hard numbers (properly referenced, of course), actual prices, and real data acquired through proper research. This is the only way to ensure your plan is considered credible.
• Your strategies must be integrated. For example, your pricing strategy must complement and mesh perfectly with your product/service strategy, distribution strategy, and promotions strategy. For example, you probably shouldn’t promote your product as a premium product if you plan to charge lower-than-market prices for it.

7. Before finalizing your business plan, re-read each section to evaluate whether it will appeal to your targeted readers.

Existing business plans

The Word and Excel templates in this book

• Business Plan Template (Word)
• Business Plan Template (Excel)

Business Plan Development Tools

Credibility and communication.

According to Hindle and Mainprize (2006), strong business plans effectively communicate the necessary information to the targeted readers while also establishing the credibility of the plan and the entrepreneur. The Credibility and Communication Meter icon is used throughout this book to highlight where and how business plan writers can improve the quality of the information and enhance their and their plan’s credibility.

Use the following tools to improve the information in and credibility of your plans:

The Ratchet Effect

A ratchet is a tool that most of us are familiar with. It is useful because it helps its user accomplish something with each effort expended while guarding against losing past advancements.

With each word, sentence, paragraph, heading, chart, figure, and table you include in your final business plan, the ratchet should move ahead a notch because you achieve two important things.

First, only needed and relevant information is included.

Second, your additions build credibility in a relevant way.

Apply the ratchet effect by making sure that each and every sentence and paragraph conveys needed and relevant information that adds to your and your plan’s credibility. Use the following principles:

Rarely—and only if it truly needs to be said again—repeat something that you have already said in your plan.

Avoid using killer phrases, like “there is no competition for our product” or “our product will sell itself, so we will not need to advertise it.” Any savvy reader will understand that these kinds of statements are naive and demonstrate a lack of understanding about how the market and other real-life factors actually work.

Avoid contradicting yourself. Make sure that what is said in the written part of your plan completely syncs with what is said in the other parts of your plan. Likewise, ensure that what you include in the financial parts of your plan is completely in sync with what is said the written part.

The Magic Formula

Apply the following magic formula throughout your write your plan.

(a)…  consideration X affects my business because …

(b)… consideration X is subject to this trend into the future …

(c)… which means that we have decided to do this … (or) will implement this strategy … in response to how the expected trends for consideration X will affect my business

Here is an example of how you can use the magic formula to develop part of the pricing strategy in the marketing plan part of your business plan:

We expect that our expenses to run our business will rise with the rate of inflation, which means that we must plan to increase the prices on our products to establish and maintain our profitability. The Bank of Canada (201x) has projected that the general inflation rate in <the city in which my business will operate> will be 3.0% in 201x, 3.5% in 201y, and 4.0% in 201z. In our projected financial statements, therefore, we have inflated both our expenses and our prices by those rates in those years.

Context and Framing

You must provide the right context when you describe situations, strategies, and other components of your plan. Business plan readers should never be left to guess why you indicate in a business plan that you will do something. Proper context is needed to help you frame the information you present.

When you frame the stories you tell correctly, the ratchet effect will happen and your plan will be stronger. One example of effective framing is when you, as the writer of the plan and the entrepreneur, clearly indicate how your education, expertise, relevant experiences, and network of contacts will make up for any lack of direct experience you have in running this particular kind of business. An example of ineffective framing is when you indicate that you lack experience with this type of business, or when you fail to specify how and why your levels of experience will affect the business’s development.

Prioritizing Problems

Don’t get hung up on something that doesn’t need an immediate solution. Instead, flag it for future consideration and move on. When you return to re-address the issue, it might no longer be a problem or you might have by then figured out a solution.

Process for Developing Business Plans

The business plan development process described next has been extensively tested with entrepreneurship students and has proven to provide the guidance entrepreneurs need to develop a business plan appropriate for their needs: a  high power business plan .

Developing a high power business plan has six stages, which can be compared to a process for hosting a dinner for a few friends. A host hoping to make a good impression with their anticipated guests might analyze the situation at multiple levels to collect data on new alternatives for healthy ingredients, what ingredients have the best prices and are most readily available at certain times of year, the new trends in party appetizers, what food allergies the expected guests might have, possible party themes, and so on. This analysis is the  Essential Initial Research  stage.

In the  Business Model  stage, the host might construct a menu of items to include with the meal along with a list of decorations to order, music to play, and costume themes to suggest to the guests. The mix of these kinds of elements chosen by the host will aid in the success of the party.

The  Initial Business Plan Draft  stage is where the host rolls up their sleeves and begins to make some of the food items, puts up some of the decorations, and generally gets everything started for the party.

During this stage, the host will begin to realize that some plans are not feasible and that changes are needed. The required changes might be substantial, like the need to postpone the entire party and ultimately start over in a few months, and others might be less drastic, like the need to change the menu when an invited guest indicates that they can’t eat food containing gluten. These changes are incorporated into the plan during the  Making the Business Plan Realistic  stage to make it realistic and feasible.

The  Making the Plan Appeal to Stakeholders and Desirable to the Entrepreneur  stage involves further changes to the party plan to make it more appealing to both the invited guests and to make it a fun experience for the host. For example, the host might learn that some of the single guests would like to bring dates and others might need to be able to bring their children to be able to attend. The host might be able to accommodate those desires or needs in ways that will also make the party more fun for them—maybe by accepting some guests’ offers to bring food or games, or maybe hiring a babysitter to entertain and look after the children.

The final stage— Finishing the Business Plan— involves the host putting all of the final touches in place for the party in preparation for the arrival of the guests.

Figure 1 – Business Plan Development Process (Illustration by Lee A. Swanson)

Essential Initial Research

A business plan writer should analyze the environment in which they anticipate operating at each of the levels of analysis:  Societal ,  Industry ,  Market , and  Firm . This stage of planning is called the  Essential Initial Research  stage, and it is a necessary first step to better understand the trends that will affect their business and the decisions they must make to lay the groundwork for, which will improve their potential for success.

In some cases, much of this research should be included in the developing business plan as its own separate section to help show readers that there is a market need for the business being considered and that it stands a good chance of being successful.

In other cases, a business plan will be stronger when the components of the research are distributed throughout the business plan to provide support for the outlined plans and strategies outlined. For example, the industry- or market-level research might outline the pricing strategies used by identified competitors, which might be best placed in the  Pricing Strategy  part of the business plan to support the decision made to employ a particular pricing strategy.

Business Model

Inherent in any business plan is a description of the  Business Model  chosen by the entrepreneur as the one that they feel will best ensure success. Based upon their analysis from the Essential Initial Research stage, an entrepreneur should determine how each element of their business model—including their revenue streams, cost structure, customer segments, value propositions, key activities, key partners, and so on—might fit together to improve the potential success of their business venture (see  Chapter 3 – Business Models ).

For some types of ventures, at this stage an entrepreneur might launch a lean start-up (see the “Lean Start-up” section in  Chapter 2 – Essential Initial Research ) and grow their business by continually pivoting, or constantly adjusting their business model in response to the real-time signals they get from the markets’ reactions to their business operations. In many cases, however, an entrepreneur will require a business plan. In those cases, their initial business model will provide the basis for that plan.

Of course, throughout this and all of the stages in this process, the entrepreneur should seek to continually gather information and adjust the plans in response to the new knowledge they gather. As shown in Figure 1 by its enclosure in the  Progressive Research  box, the business plan developer might need to conduct further research before finishing the business model and moving on to the initial business plan draft.

Initial Business Plan Draft

The  Initial Business Plan Draft  stage involves taking the knowledge and ideas developed during the first two stages and organizing them into a business plan format. Many entrepreneurs prefer to create a full draft of the business plan with all of the sections, including the front part with the business description, vision, mission, values, value proposition statement, preliminary set of goals, and possibly even a table of contents and lists of tables and figures all set up using the software features enabling their automatic generation. Writing all of the operations, human resources, marketing, and financial plans as part of the first draft ensures that all of these parts can be appropriately and necessarily integrated. The business plan will tell the story of a planned business startup in two ways: 1) by using primarily words along with some charts and graphs in the operations, human resources, and marketing plans and 2) through the financial plan. Both must tell the same story.

The feedback loop shown in Figure 1 demonstrates that the business developer may need to review the business model.  Additionally, as shown by its enclosure in the  Progressive Research  box, the business plan developer might need to conduct further research before finishing the Initial Business Plan Draft stage and moving on to the Making Business Plan Realistic stage.

Making Business Plan Realistic

The first draft of a business plan will almost never be realistic. As the entrepreneur writes the plan, it will necessarily change as new information is gathered. Another factor that usually renders the first draft unrealistic is the difficulty in making certain that the written part—in the front part of the plan along with the operations, human resources, and marketing plans—tells the exact same story as the financial part does. This stage of work involves making the necessary adjustments to the plan to make it as realistic as possible.

The  Making Business Plan Realistic  stage has two possible feedback loops. The first means going back to the Initial Business Plan Draft stage if the initial business plan needs to be significantly changed before it is possible to adjust it so that it is realistic. The second feedback loop circles back to the Business Model stage if the business developer needs to rethink the business model. As shown in Figure 1 by its enclosure in the  Progressive Research  box, the business plan developer might need to conduct further research before finishing the Making Business Plan Realistic stage and moving on to the Making Plan Appeal to Stakeholders stage.

Making Plan Appeal to Stakeholders and Desirable to the Entrepreneur

A business plan can be realistic without appealing to potential investors and other external stakeholders, like employees, suppliers, and needed business partners. It might also be realistic (and possibly appealing to stakeholders) without being desirable to the entrepreneur. During this stage, the entrepreneur will keep the business plan realistic as they adjust plans to appeal to potential investors, stakeholders, and themselves.

If, for example, investors will be required to finance the business’s start, some adjustments might need to be relatively extensive to appeal to potential investors’ needs for an exit strategy from the business, to accommodate the rate of return they expect from their investments, and to convince them that the entrepreneur can accomplish all that is promised in the plan. In this case, and in others, the entrepreneur will also need to get what they want out of the business to make it worthwhile for them to start and run it. So, this stage of adjustments to the developing business plan might be fairly extensive, and they must be informed by a superior knowledge of what targeted investors need from a business proposal before they will invest. They also need to be informed by a clear set of goals that will make the venture worthwhile for the entrepreneur to pursue.

The caution with this stage is to balance the need to make realistic plans with the desire to meet the entrepreneur’s goals while  avoiding becoming discouraged enough to drop the idea of pursuing the business idea . If an entrepreneur is convinced that the proposed venture will satisfy a valid market need, there is often a way to assemble the financing required to start and operate the business while also meeting the entrepreneur’s most important goals. To do so, however, might require significant changes to the business model.

One of the feedback loops shown in Figure 1 indicates that the business plan writer might need to adjust the draft business plan while ensuring that it is still realistic before it can be made appealing to the targeted stakeholders and desirable to the entrepreneur. The second feedback loop indicates that it might be necessary to go all the way back to the Business Model stage to re-establish the framework and plans needed to develop a realistic, appealing, and desirable business plan. Additionally, this stage’s enclosure in the  Progressive Research  box suggests that the business plan developer might need to conduct further research.

Finishing the Business Plan

The final stage involves putting the important finishing touches on the business plan so that it will present well to potential investors and others. This involves making sure that the math and links between the written and financial parts are accurate. It involves ensuring that all the needed corrections are made to the spelling, grammar, and formatting. The final set of goals should be written to appeal to the target readers and to reflect what the business plan says. An executive summary should be written and included as a final step.

Chapter Summary

This chapter described the internal and external purposes for business planning. It also explained how business plans must effectively communicate while establishing and building credibility for both the entrepreneur and the venture. The general guidelines for business planning were covered as were some important business planning tools. The chapter concluded with descriptions of the stages of the business development process for effective business planning.

Business Plan Development Guide  by Lee A. Swanson is licensed under a  Creative Commons Attribution-ShareAlike 4.0 International License , except where otherwise noted.

MBA 705 Workbook Copyright © by kstuke is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License , except where otherwise noted.

Digital Object Identifier (DOI)

https://doi.org/kstuke

Share This Book

Recommended

Wework targets chapter 11 exit by may 31, secures $8 billion in rent reduction.

Thanks for contacting us. We've received your submission.

WeWork said on Tuesday it aimed to emerge from Chapter 11 bankruptcy in the U.S. and Canada by May 31 and had negotiated more than $8 billion, or over 40%, reduction in rent commitments from landlords.

The shared office space provider, once privately valued at $47 billion, filed for bankruptcy in November as it racked up losses on its long-term leases after demand for office space plunged during the pandemic and from a shift to hybrid working.

The SoftBank-backed company’s post-bankruptcy business plan is premised on a significant reduction in future rent costs from its landlords.

The company said on Tuesday it had agreed to amend about 150 leases with better economic terms, such as reduced rent payments, and it is in the process of exiting another 150 leases. The company will maintain 150 leases without change, and it is still negotiating with landlords for about 50 additional locations.

WeWork’s lease negotiations will allow the company to exit from bankruptcy as a leaner business, ready to provide workspaces that will benefit both employers and landlords during a period of uncertainty in commercial real estate markets, according to WeWork’s global head of real estate, Peter Greenspan.

“The need for these types of services and spaces has only increased, so it is a good time to go through this process with the landlords and rethink how we monetize this all this office space that used to be filled with traditional, long-term leases,” Greenspan said in an interview.

WeWork did not exit any geographic markets when it scaled back its leases, instead pulling back in some cities, like New York, where the company grew too fast or experimented with other products outside of its core coworking space business, Greenspan said.

Start your day with the latest business news right at your fingertips

Subscribe to our daily Business Report newsletter!

Thanks for signing up!

Please provide a valid email address.

By clicking above you agree to the Terms of Use and Privacy Policy .

Never miss a story.

WeWork in November reached an agreement with more than 90% of its bondholders to convert $3 billion of debt into equity. SoftBank, which currently owns about 70% of the company, would retain an equity stake under the proposed restructuring.

Meanwhile, WeWork co-founder Adam Neumann has submitted a bid of more than $500 million to buy back the company , with the financing process currently unclear. WeWork declined to comment on Neumann’s specific bid, saying it receives and reviews “expressions of interest from third parties on a regular basis.”

Under Neumann, WeWork rapidly expanded to become the most valuable U.S. startup. But his pursuit for growth at the expense of profit and revelations about his eccentric behavior led to his ouster and derailed an initial public offering in 2019.

Share this article:

• Election 2024
• Entertainment
• Newsletters
• Photography
• Personal Finance
• AP Buyline Personal Finance
• Press Releases
• Israel-Hamas War
• Russia-Ukraine War
• Global elections
• Asia Pacific
• Latin America
• Middle East
• Election Results
• Delegate Tracker
• AP & Elections
• March Madness
• AP Top 25 Poll
• Movie reviews
• Book reviews
• Personal finance
• Financial Markets
• Business Highlights
• Financial wellness
• Artificial Intelligence
• Social Media

AT&T notifies users of data breach and resets millions of passcodes

FILE - An AT&T sign is seen at a store in Pittsburgh, Monday, Jan. 30, 2023. AT&T said, Saturday, March 30, 2024, it has begun notifying millions of customers about the theft of personal data recently discovered online. (AP Photo/Gene J. Puskar, File)

• Copy Link copied

AT&T said it has begun notifying millions of customers about the theft of personal data recently discovered online.

The telecommunications giant said Saturday that a dataset found on the “dark web” contains information such as Social Security numbers for about 7.6 million current AT&T account holders and 65.4 million former account holders.

The company said it has already reset the passcodes of current users and will be communicating with account holders whose sensitive personal information was compromised.

It is not known if the data “originated from AT&T or one of its vendors,” the company said in a statement. The compromised data is from 2019 or earlier and does not appear to include financial information or call history, it said. In addition to passcodes and Social Security numbers, it may include email and mailing addresses, phone numbers and birth dates.

While the data surfaced on a hacking forum nearly two weeks ago, it closely resembles a similar data breach that surfaced in 2021 but which AT&T never acknowledged, said cybersecurity researcher Troy Hunt .

“If they assess this and they made the wrong call on it, and we’ve had a course of years pass without them being able to notify impacted customers,” then it’s likely the company will soon face class action lawsuits, said Hunt, founder of an Australia-based website for warning people when their personal information has been exposed.

An AT&T spokesperson didn’t immediately return a request for comment Saturday.

It is not the first crisis this year for the Dallas-based company. An outage in February temporarily knocked out cellphone service for thousands of U.S. users. AT&T at the time blamed the incident on a technical coding error, not a malicious attack.