Drafting Your Plan
For anyone who dreads the thought of writing anything longer or more complex than a text or a tweet, words like "describe", "discuss", or "detail" are synonyms for a splitting headache and the main ingredients for an upset stomach.
All the Write Stuff
If you're among the faint of heart when it comes to putting complete sentences and paragraphs down on paper, it's a good idea to stock up on pain pills and Pepto before you sit down to write the guts of your business plan. This is going to be like the world's longest essay exam. Deep details count big. Generalities, not so much.
You have to prove that you've done your homework, that you know your stuff. Temples will throb. Stomachs will churn. But the discomfort will be worth it in the long run, especially if you're using your plan to convince lenders or investors that you're a good bet for financing.
While every good plan is custom-tailored to reflect the advantages and challenges of a specific business, most contain these elements:
The Company Profile
Start with a general description of your business, touching only briefly on your main products or services. (You’ll go into more detail about those later.) This is also the place to describe the formation of your business, its legal and organizational structures, as well as any acquisitions, subsidiaries or important history.
The Product or Service
This is where you’ll provide a detailed description of product or service lines, including how important each is to the company. It’s best to include sales projections, and it's also important to include product evaluations, comparisons to competitors’ products or product lines, competitive advantages over other producers, and whether demand for the product responds to factors other than price.
Discuss key management and supervisory personnel. Describe their responsibilities and provide resumes describing the skills and experience important to your business. Include their present salaries and other compensation such as stock options and bonuses. Discuss planned staff additions. Describe other employees, including the number of employees at year end, total payroll expenses for each of the previous five years (broken down by wages, benefits, etc.), method of compensation, and the departmental or divisional breakdown of the workforce.
Provide names, addresses, and business affiliations of principal holders of the firm’s common stock and other types of equity securities. Discuss the degree to which they are involved in management. Describe principal non-management owners. Provide the names of the board of directors, areas of expertise, and the role of the board. Specify the amount of stock currently authorized and issued.
Marketing Strategy-Market Analysis
Describe the industry and its outlook. Identify the principal markets (commercial/ industrial, consumer, government, international). Include current industry size as well as its anticipated size in the next 10 years. Identify the sources of your projections. Describe major characteristics of the industry and the effects of major social, economic, technological or regulatory trends on the industry
Describe major customers, including names, locations, products or services sold to each, percentage of annual sales volume for each customer over previous five years, duration and condition of contracts in place.
Describe the market and its major segments. Describe principal market participants and their performance. Identify the firm’s target market. For each customer, include the requirements of each and the current ways of filling these requirements. Also include information on the buying habits of the customers and the impact on the customer of using the product or service.
Describe your competitors and how your company compares. This is a more detailed narrative than that contained in the description of the product or service.
Describe prospective customers and their reaction to the firm and any of the firm’s products or services they have seen or tested.
Describe your marketing strategy, including overall strategy; pricing policy; method of selling, distributing and servicing the product; geographic penetration, field/product support, advertising, public relations and promotion; and priorities among these activities.
Describe how you will identify prospective customers and how and in what order you will contact the relevant decision-makers. Also, describe the sales effort the firm will have (e.g., sales channels and terms, number of salespersons, number of sales contacts, anticipated time, initial order size) and estimated sales and market share.
Here’s where you talk about the technical status of your product. Is it ready to sell? Still in development? What steps are necessary to bring the product market? Discuss the firm’s patent or copyright position. Include how much is patented and how much can be patented (i.e., how comprehensive and effective the patents or copyrights will be). Include a list of patents, copyrights, licenses or statements of proprietary interest in the product or product line.
Describe new technologies that may become practical in the next five years which may affect the product. Also describe new products the firm plans to develop to meet changing market needs. Describe regulatory or approval requirements and status, and discuss any other technical and legal considerations that may be relevant to the technological development of the product. Include a discussion of research and development efforts and future plans for research and development.
Here’s where you focus on how you will perform production or deliver its service. Describe capacity and status in terms of physical facilities: are they owned or leased; size and location; sales volume and unit capacity; expansion capabilities; capital equipment. Include a facilities plan and description of planned capital improvements and a timetable for those improvements.
Describe suppliers including name and location of principal suppliers; length of lead time required; usual terms of purchase; amounts, duration and conditions of contracts; and subcontractors. Also describe the current and planned labor supply, including number of employees; unionization; stability (seasonal or cyclical); and fringe benefits (insurance, profit sharing, pension, etc.).
Provide a profile of key patents and describe technologies and skills required to develop and manufacture the products. Provide a cost breakdown for material, labor, and manufacturing overhead for each product, plus cost vs. volume curves for each product. Provide block and workflow diagrams of the manufacturing process where appropriate, and provide a schedule of work for the next one to two years. Describe the production or operating advantages of the firm. Discuss whether they are expected to continue.
Provide name and address of key advisers, including auditor, legal counsel, and banker. Describe financial controls including the cost system and budgets used. Describe cash requirements, now and over the next five years, and how these funds will be used. Specify financial needs to be raised from debt and from equity. Discuss plans to “go public,” if you have any. Relate this to future value and liquidity of investments.
Provide financial statements and projections for next five years. These should include:
- Profit and loss or income statements by month at least until break-even and then by quarter
- Balance sheets as of the end of each year; cash budgets and cash flow projections
- Capital budgets for equipment and other capital acquisitions
- Key assumptions you have made in your pro formas and how these assumptions reflect industry performance.
If you’re looking for money, most lenders and venture capitalists will require a funding request indicating the desired financing, capitalization, use of funds, and future financing; a financial statement for the past three years; current financial statements; monthly cash flow financial projections including the proposed financing for two years, and projected balance sheets, income statement, and statement of changes in financial position for two years including the proposed financing.
The Next Step
One you've got the basics in place, you're ready to write your plan's executive summary, considered by many to be the most important section.
Consultants at our Small Business Assistance Office can help you understand more about business plans. And our network of Small Business Development Centers has experts located in nine main regional offices and several satellite centers statewide.
Our Guide to Starting a Business in Minnesota provides a detailed look at this and other important issues.
Watch this 30-minute tutorial on business plans developed by the Small Business Administration.