Joe Johnson, Ph.D.
Entrepreneur. Investor. Startup Expert.
Important Business Plan Components
Your business plan will have multiple components. While the finished document will generally present them in this order, you don’t have to write them sequentially. Start with what you know best and move on from there. If a component isn’t relevant to your business, consider scrapping it or putting something else in its place that will provide a better overview of your business. Every business is different and no two plans will look the same. If you’re working from a template, be sure to modify it as necessary to create a plan as original as your idea.
Before beginning to create the business plan, consider whether you really need the entire traditional document or merely certain aspects of it. If you’re planning to apply for bank loans, there’s a high likelihood that you’ll be asked for a traditional business plan. If you’re bootstrapping, give some thought to which parts of the business plan might help you determine your next steps and work from there.
For those who have already started operations and are either creating a new business plan or retooling an older one, you probably won’t need to recreate the entire document. For example, if you’re working on a business plan for a new endeavor within an established company in order to provide a framework for operations, the executive summary and company overview probably aren’t necessary.
Please realize that this is simply one version of a business plan. Other sites or templates may detail some of the segments in a different order or call them by a different name. Neither of those points matters so much as the content. The goal is to distill all of the content necessary to convey your vision into a single document that can be shared with investors or within the company.
The executive summary covers the main goals of the business and provides information about what you do and what you want from the reader (e.g. funding). Many people write this section last because it functions a bit like an overview. Once you’ve written all of the other components, it’s easy to return and quickly write the executive summary.
An executive summary is only one or two pages long. If you’ve completed the one-page pitch, you should have most of the information you need to write your summary.
If you’re writing a business plan solely to keep yourself on track, the executive summary is not a necessary component since it’s primarily intended to introduce potential investors to your business.
Your company overview will detail the issue or need your company is addressing with its products or services. It will cover the state of the industry, as well as current trends and how they’re expected to affect your business.
You’ll need to include a mission statement, identify your business structure (i.e. LLC, Partnership, S-corporation, etc.), and discuss your history (if you have one). If there are any unconventional or confusing elements, be sure to explain them in detail.
Products and Services
This is your opportunity to discuss the products and services that will set your business apart. After covering the industry in the previous section, here you’ll focus on the particular mechanisms that will make your company shine.
Be specific. How will your products and services work? How much will they cost? Will there be memberships or subscriptions, or just a one-time fee? Are there similar products on the marketplace? What makes your products and services unique? How will you differentiate yourself? How do your products and services address the problems, needs, or issues previously identified?
Address the competition you’ve identified and assess how their products and services compare to yours. Be honest and clear in your descriptions. Avoid exaggeration and clichés such as, “It will change the world”, or “It will revolutionize/disrupt the way people do (whatever)”. Phrases such as those don’t serve as explanations and they make it seem as though you’re not really familiar with the benefits of your own products. If you must state that your product will revolutionize an industry or change the status-quo, explain exactly how it will accomplish that miracle.
In this section, you’ll detail the audience for your products or services. Not only do you want to define your customer, you’ll also want to state how many potential customers you anticipate. This number can be buttressed by providing market research that delves into your target segment.
To be clear, your target market isn’t “everyone”. If you’re a local business providing eco-friendly dog grooming, your target market would be environmentally conscious dog owners within your town.
Define your buyer persona or ideal customer. Keeping with the dog grooming example, our buyer persona may be Jenny, a 30-year-old woman who values the planet and buys organic when she can. She frequents the farmers’ market and is often accompanied by her dog. She treats her dog like her best friend and wants to provide the best for it.
Marketing and Sales Plan
Now that we’ve identified our market and described our buyer persona, it’s time to explain how we’ll reach Jenny and sell her our products and services. In the marketing and sales plan section, you should illustrate how you’ll target your market segment, how your pricing system will work, and what partnerships you’ll need to create or resources you’ll need to access to make this happen.
The goal is to highlight how you’ll position yourself within the market, what you’ll be charging, and how you’ll be promoting your products and services.
To reach Jenny, we may plan to partner with pet boutiques and advertise at dog parks and farmers’ markets. We may invest in an informative website detailing our services and providing unique content such as dog grooming tips. We’ll explain how our service is set apart from its competitors, focus on the eco-friendly aspects of our grooming service, and provide introductory pricing to entice her to try our service. The rest of the marketing and sales plan will detail pricing changes following the introductory period, as well as other marketing strategies such as SEO and pay-per-click advertising.
Milestones and Metrics
So, when is this all going to happen and how will we know we’ve been successful? The milestones and metrics section of the business plan specifies the schedule by which we expect to accomplish particular goals. It defines each goal and provides a measurable outcome that can serve as a yardstick for success.
Showcase your history by including any goals you’ve already met. Follow those successes with a timeline of short-term and long-term goals and the metrics by which they’ll be measured.
For example, metrics for our dog grooming business might include the number of grooming sessions booked, sales of our proprietary dog wash, and the number of grooming “memberships”.
The first month or two of operations will include finding and leasing a space, preparing the space, launching the website, and manufacturing the dog wash. All of these activities would be listed on a timeline and would represent our initial milestones. Additional milestones might include booking 12 grooming sessions in a day or selling 50 memberships. Some of the metrics might be tied to numbers in the financial plan.
If you have a team, the management team section of the business plan is where you spotlight their skills, talents, and previous successes. You want to illustrate why this is the right team for your business and how each individual’s role and skill set will help to advance the company’s goals.
While wading into the numbers side of your business might seem intimidating, it’s necessary to illustrate your chances of success and to better understand the feasibility of your enterprise.
Your financial plan is a forecast of the future. You should provide a monthly forecast for the first 12 months and annual projections for up to five years. Depending on your audience, you may not need to forecast a full five years, though investors and banks tend to prefer it.
Your sales plan should state the income anticipated from your products or services within your target market, as well as the associated expenses (cost of goods sold) for providing those products or services.
Additionally, your financial plan should include a personnel plan if you intend to hire, a profit and loss statement to illustrate profitability, a cash flow statement, and a balance sheet.
A profit and loss statement, also known as an income statement, should detail your income and expenses. WikiHow provides information on creating a simple P&L statement.
Your cash flow statement will show how much cash you have on hand at any given moment, providing an indication of the right time to make certain purchases. Entrepreneur provides a sample.
A balance sheet highlights your liabilities and equity in the business. This PDF from Entreprenuership.org provides information on how to construct a balance sheet.
If you’re planning on seeking investment, you should also describe how those funds will be used. Lastly, if you intend to sell your business or go public, you’ll want to include a framework for doing that, your exit strategy.
If you’re unsure of how to proceed with a financial plan, check out the additional resources at the end of this post for templates to assist you.
If you have any extraneous charts or supporting materials to support your claims or to help illustrate your product or services, you should append them to your business plan. A formal appendix isn’t necessary, but can be a useful tool, especially for an internal document illustrating product construction details or patents.
Business Plan Tips
- Keep it concise. A good business plan doesn’t have to be a long business plan. Be sure to present all of the necessary information and cut anything that isn’t necessary.
- Be clear. Use concise phraseology, include all pertinent information, and explain ideas or concepts when necessary.
- Write for your audience. An internal document will likely utilize different vocabulary than a document for investors. Keep your audience in mind when editing. Don’t worry about it too much while writing, as it’s often best to simply get your ideas down initially. Whether you edit or have someone else do so, that’s the appropriate time to focus on the needs of the reader and how they’ll view your document.
- Steer clear of jargon and clichés. They don’t add anything to the conversation and are frequently confusing to outsiders.
- Don’t be afraid to change course. If something doesn’t make sense, investigate and make changes as necessary. For example, if someone else is offering the same product or service, how will you differentiate yourself? If you can’t articulate a response, it’s time to pivot.
- As you read and reread your business plan, think like an investor. Look for holes and ask yourself the hard questions. Then go back and revise to ensure that you address anything that comes to mind.
Looking for Help on Your Business Plan?
Writing a business plan can be a daunting task. Don’t expect to sit down and knock it all out in a day. Take your time to ensure that you’re able to capture all of the information necessary to create a valuable document for future reference.
If you’re having trouble getting your plan together, these resources may help:
- One-Page Pitch <Download Link>
- Financial Templates from Score
- Entrepreneur’s How To Write a Business Plan
- SBA’s Build Your Business Plan Tool
- SBA’s Writing Your Business Plan Portal
If you’ve considered these business plan details and feel as though it’s just not for you, don’t worry. There are other ways to express your business ideas and goals, including the business model canvas, which I’ll be covering next.
About the Author
Dr. Joe Johnson is an entrepreneur, investor, and startup expert. He is the founder and principal of GoodField Investments and the GoodField Foundation (www.GoodField.com).
Joe has a Ph.D. in Entrepreneurial Leadership and an MBA. He is the author of the upcoming book on The Science of Why Most Entrepreneurs Fail and Some Succeed.
Most importantly, he is the incredibly blessed husband of one amazing wife and father of six wonderful children. He resides in Bradenton, Florida. For more information on Dr. Johnson and his work, go to www.JoeJohnson.com.