The Sections of a Business Plan
Business plans are complex documents that usually have anywhere from seven chapters to nine chapters of information that are presented to a potential business partner, funding source, or a related entity that is going to be reviewing a business. This article is going to focus on the varying chapters of the business plan and certain points about how they should be developed so that the business can be clearly understood by the reader of the document.
First, every business plan starts with an executive summary. In this portion of the business plan and overview of how much money is looking to be raised or the nature of the business plan is provided. Beyond that there should also be a discussion regarding what products and services offered by the business, how much capital is being raised if any, a brief overview of the anticipated profit and loss statement of the business over a three year to five year period, and an overview of the management team. Usually, a well-written executive summary runs about two pages to three pages in length. This is the most important section of the business plan given that many readers will go through the section and depending on what they see will continue to go through the rest of the business plan. In fact, the way that most people read a business plan is that they first start with the executive summary, flip to the financial section, and then read through the rest of
the document once they see the potential growth of the business. An executive summary should focus modestly on the products and services being offered unless this is a business that offers a highly unique and patented piece of technology or related product.
The second section of the business plan should discuss the amount of money that is being raised by an entrepreneur. Here, many business plan writing firms will insert a table that clearly showcases the usage of the funds being sought. This section of the analysis also provides preliminary terms as it relates to the amount of the business being sold in exchange for the capital, the management teams equity positions, who sits on the board of directors, and the potential exit strategies that can be used by the business. Most importantly, the exit strategies should be reasonable in length and should discuss with the potential value of the business would be over a three-year to five-year period. Some businesses will side to take a ten year approach to this, however – usually a five-year valuation overview is sufficient as it relates to varying exit strategies.
The third section of the business plan often encapsulates H the products and services that are being offered by the business. Usually, this section shouldn't range anywhere from one page to three pages depending on the number and types of services being offered with the products being sold. For proprietary products this section can include images of prototypes and schematics for the actual production.
The fourth section of the business plan usually discusses the overview of the organization as it relates to its corporate structure. Common corporate structures that are used for these types of for profit making entities include limited liability companies, corporations, partnerships, sole proprietorships, limited liability partnerships, and related corporate entities in order to carry out business operations. As always, if an entrepreneur is determining what type of entity to use than it would be in their best interest to speak to a business attorney or a certified public accountant as to what types of corporate entities are appropriate given the backgrounds of the management team, investors, and the nature business operations. This section of the business plan often discusses the mission statement and vision statements of the business as well is well as any organizational values and objectives.
Fifth, this section should outline the industry research, economic overview, customer profile, and competitive issues that the business will face on a day-to-day basis. For many people, this is the most difficult part of the business plan to write as a number of reports and information must be sourced in order to complete the section. This is especially true as it reads relates to local and regional demographic profiles of individuals that are going to be the customers of the business. However, as it relates to industry research a substantial portion of this information can be found online through both private and publicly available information sources.
The sixth section of the business plan often focuses on the competitive advantages that the business will have over other market agents. This section usually lasts about one page and is usually in a bullet point format showcasing why people will use this service over other competitors in the industry. One of the things is also frequently included in this section is an overview of the ways of the business will grow over the first five years of operation.
The seventh section of the business plan discusses marketing. Here, organizational objectives as it relates to increasing the brand-name visibility of the business can be provided in-depth. A three page to four page overview of the different marketing strategies that will be used should be included as well and this should discuss print advertising, social media management, online sales operations, and the relationships of the business were developed with potential customers over a significant time frame. This is usually one of the easier sections of the business plan to write given that the owner typically has a number of ideas that allows the business to easily reach its potential customer base very quickly. In some cases, an entrepreneur that is developing a business plan will also have the section of the document overview the pricing for any products and services that are being sold.
The eighth section of the business plan should include a discussion regarding the personnel and employees of the business. Here, an organizational chart is provided to showcase the varying hierarchies of management within the organization. A table showcasing the employee headcount, payroll per employee, and total payroll expenses should be included here as well. In some cases, an entrepreneur will also provide extensive job titles and job descriptions within the section so that the reader understands exactly who is being employed and what their role will be within the organization or corporation.
The ninth section of the business plan is the financial model. As has been discussed at this website thoroughly, the financial model is usually the most difficult section of the business plan for most entrepreneurs to create given that pro forma financial models are forward-looking. This financial plan should include a three-year profit and loss statement, common size income statement, cash flow analysis, balance sheet, breakeven analysis, and business ratios page. General assumptions regarding the growth of the business as well as underlying information regarding federal tax, estate tax, and personnel taxes should be included within this section of the document as well.
Once the nine chapters are complete usually many business plan writers will include 3 to 4 appendices that showcase where the information for the business plan came from and other relevant statistics. Usually, the first appendix is the SWOT analysis. Here, there is a focus on the strengths, weaknesses, opportunities, and threats that are normally faced by any organization. This portion of the document is about 1 to 2 pages in length and is done in a bullet point format.
The second appendix is usually the critical risks and issues page. It is naïve to think that every business is going to run smoothly at all times. As such, many entrepreneurs take to developing this section of the business plan so that the reader understands that the individual comprehends that there will be ongoing issues and problems that must be dealt with on a day-to-day basis. In this section of the document there is also a risk scoring table that discusses any of the issues on a points based system so that these more important matters can be dealt with as a priority.
The third appendix usually focuses on the reference sources that were used in the business plan. This includes appropriate citations and other information that should be included.
The last appendix of the business plan is usually the expanded profit and loss and cash flow statements. Generally, most business plans provide for month-to-month profit and loss and cash flow analysis statements while the remaining years are done on a quarterly basis. For an entrepreneur or business person that is looking to raise capital this is imperative given that most financial institutions want to see a month-to-month and quarterly financial statements is a standard yearly profit and loss is showcased within the business plan.
Overall, a well written business plan will contain all of those elements in one way or another. Usually, if all these elements are included within a business plan appropriately the length of the document usually ranges anywhere from 35 pages to 45 pages. However, there may be times where it is appropriate to have a shorter business plan or longer business plan depending on need. The key is not to make it too short for any longer than it has to be.