business plan pro

business plan pro

Developing an Effective Business Plan

1. Introduction

Although these stories are often framed in the context of companies that failed, it is also common to hear similar accounts from company executives of all stature who assert that their company’s success can be attributed to a business plan, or lack thereof. What these two types of stories illustrate is the importance of having a plan, whether the company is large and complex, or small with a high degree of uncertainty. It is also illustrative to note that many businesses have altered elements of their plan or changed direction entirely and attributed part of their success to this flexibility that planning allowed.

The need for a comprehensive approach to developing a business plan grows increasingly critical in today’s constantly shifting economic environment. At the same time, many businesspeople often find themselves too busy to commit to planning. This trade-off is unwise. Planning is vital if a company is to successfully exploit its opportunities and remain a viable enterprise. There are countless stories of highly successful small and medium-sized companies that never had a business plan. The stories usually go on to relate how the company was forced to close its doors, or narrowly escaped with its life, due to some crisis, missed opportunity, or a succession of unforeseen events.

2. Executive Summary

The ideal executive summary is succinct and persuasive, and it should be no longer than two pages. This summary will be the first impression investors receive of your business plan, so it is often best to leave this section until last. It should be a persuasive and positive summary that draws the reader in and makes them want to learn more about your company. That is, after reading the executive summary, an investor should know what the business is, what it does, why it will be successful, where it is going, and how you intend to execute the plan. This is usually only necessary if you are seeking financing. Below, you’ll find several places in which you might need funding, and these would be good places to add an appendix of detailed financial projections. Again, it is important to stress that the executive summary is the first document that investors should see, that is, it is the last document that we should write. While it can be tough to fit on just one or two pages, a good summary includes: a brief description of the company, the purpose of the business plan (for example, if the purpose is to secure funding, then the amount and type of funding required), a clear and concise description of the products and services of the company, a summary of the market, and a detailed description of the strategy and implementation, a review of the company’s management team, and the financial projections. Leave the detail for operative or marketing plans. This logical flow of ideas is easy for the investor to follow, and it shows an astute business mind.

3. Market Analysis

Market analysis provides information, which will allow the business to familiarize itself with the market, in order to make informed decisions. The first question the entrepreneur must answer is: Who is the customer? This may seem obvious, but in many small businesses, the entrepreneur is certain who the customer is because they know the product or service; however, there may be another market altogether for that product or service. Answering this question provides the foundation on which a marketing strategy can be created. The next question is: What is the size of the market? In order to make informed sales estimates, a company needs to know the size of the market in which it will be doing business. A common misconception is that the analysis stops there, but there is still vital information that must be attained.

Market analysis is a critical component of the business plan. 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. The purpose of the market analysis is to take a look at the market from the customer’s point of view. The entrepreneur must look at the market from all angles in order to answer questions that will be the key to the positioning of the company.

4. Business Strategy

The most important part is setting the objective. This should be done in the longer-term objective[…]Step which includes how much and by when. This objective gives a clear pathway which leads to the success of the organization. Now the strategy should be formulated from the conclusions of the SWOT. […] What we like to achieve from this is the minimum cost or the maximum result. This is where we have to make the tradeoffs between the factors. […] But the war is not won only from the strategy, it gets won from the good executions. […] An example of the compare and contrast can be found by relating it to the military war where the strategy is formulated to outdo the opponent and the good execution leads to victory.

The plan starts with scanning the internal and external factors which affect the business. Internal factors include strengths and weaknesses of the organization, whereas the external factors end up with the opportunities and threats. This assessment of the factors is known as the SWOT analysis. Now it should match the resources and capacity to the main critical success factors of the business. […] But resources are always limited and must be used efficiently to ensure success.

Business strategy provides a strategic direction which focuses more on the competitive strategy. It is a detailed plan to achieve the many objectives of the organization. It includes the formulation of a strong and effective strategy which is very helpful and useful for the organization in attaining the overall long-term objective. And also, it plays a critical role in the failure and success of the business. It may result in more profit than expected or less loss than expected. But it leads to the success or collapse of the business. So considering this point, a well-defined strategic planning is very essential.

5. Financial Projections

As the owner/manager, you must keep a tight rein on all of your financial statements. You cannot rely on an accountant to take care of everything. If you use accounting software, make sure to understand how to utilize it. This will save you money from having to hire an accountant and it will be a very valuable skill to have for the future. Watch the number of assumptions you use to prepare the statements. A 1-800Flowers.com entrepreneur grew frustrated over the many wrong assumptions made at first. He finally decided to prepare several sets of statements with different assumptions to account for the rapid changes of the Internet economy. This can be a useful method for a new business in an unstable market. Always have contingency plans. Finally, it would not hurt to seek advice from the Small Business Administration, who will gladly help you with the preparation of proforma financial statements.

The first step in preparing proforma financial statements is to utilize a sales forecast. This should reflect the market research you have already conducted. You must know your product and have a good idea of who will buy your product. If you cannot afford to conduct market research, it may be a good idea to get the help of a consultant to aid in this portion of the plan. A good sales forecast is critical to the success of the plan. After your sales forecasts have been created, you can then construct the rest of the proforma financial statements. It is important to be consistent with each statement. The balance sheet, for example, must balance out. The beginning cash balance is simply the ending balance from the prior period. All statements should reflect the effects of the sales forecast.

Developing proforma financial statements will provide support for your financing request. Your goal is to convince the reader that your business is stable and will be a financial success. If your business is a start-up, your assumptions and projections are critical. A good rule of thumb for a start-up is to plan to show monthly projections for the first year and then move to annual projections. Use good, conservative assumptions that are well documented. If the reader is not convinced about your assumptions, they will be unwilling to provide the capital you are seeking. Do not underestimate your needs. Financing start-up businesses is always more difficult than financing an ongoing business. It is important to know what your assumptions were as you prepared your projections.