Business Plan Content Refer To: Chapter 5, DEVELOPING AN EFFECTIVE BUSINESS PLAN Exhibit 5-4, Abbreviated Business Plan Outline in the text (see pages 133 to 134) summarizes the major sections common to most business plans, providing a birds-eye view of the overall content. A more detailed description of each of these sections is below. Other chapters in the book look at some sections of the business plan in more detail. TITLE PAGE The title page is the first page of the business plan and should contain the following information: Company name, address, phone number, fax number, and website Company logo, if available Names, titles, addresses, and phone numbers of the owners and key executives Date on which the business plan was issued Number of the copy (to help keep track of how many copies are outstanding) Name of the contact person, if other than the owners and key executives TABLE OF CONTENTS The table of contents provides a sequential listing of the sections of the plan, with page numbers. EXECUTIVE SUMMARY The executive summary is crucial for getting the attention of the oneminute investor. It must convey a clear and concise picture of the proposed venture and, at the same time, create a sense of excitement regarding its prospects. This means that it must be writtenand, if necessary, rewrittento achieve clarity and create interest. If the plan is to be presented to a funder, it should clearly state the amount of money being sought, and the capital structure. Even though the executive summary comes at the beginning of the business plan, it provides an overview of the whole plan and should be written last. Depending on the situation and the preference of the entrepreneur, an executive summary may be in the form of a synopsis or a narrative. SYNOPSIS The synopsis is the more straightforward of the two summary formats. A synopsis briefly covers all aspects of the business plan, giving each topic relatively equal treatment. It simply relates, in abbreviated fashion, the conclusions of each section of the completed business plan. Although it is relatively easy to prepare, the synopsis can be rather dry reading for the prospective investor. Copyright 2013 by Nelson Education Ltd. Business Plan: Additional Details - 2 - NARRATIVE Because the narrative tells the reader a story, it can convey greater excitement than the synopsis. However, composing an effective narrative requires a gifted writer who can communicate the necessary information and engender enthusiasm without crossing the line into hyperbole. A narrative is more appropriate for businesses that are breaking new ground, with a new product, a new market, or new operational techniques. It is also a better format for businesses that have one dominant advantage, such as holding an important patent or being run by a well-known entrepreneur. Finally, the narrative works well for companies with interesting or impressive backgrounds or histories.1 MISSION STATEMENT AND GOALS The firms mission statement concisely describes, in writing, the intended strategy and business philosophy for making the entrepreneurs vision a reality. In a few sentences, it should convey how combined efforts in all areas of the business will move it toward its goal. In addition, it should distinguish the firm from all others. Mission statements can and do vary in length, content, format, and specificity. However, it is essential that a mission statement remain simple, believable, and achievable. A mission statement Will tend to be two to four sentences long Does not copy other companies States your key competencies and your unique features Is believed in, by the founders, customers, and employees Shows your values While a good mission statement provides strategic vision and direction, goals are the short-term measure used to accomplish them. Goals are typically developed for functional areas, such as marketing, finance, and operations, and are developed annually. A common guideline for goal development employs the SMART acronym: Specific: state exactly what you want to accomplish Measurable: base the goal upon quantifiable outcomes Action oriented: list the steps to be taken to reach the goal Realistic: the goal has to be realistic to you, and take into consideration other factors such as the level of competition and customer trends Timely: the goal must have a target date Clarity of vision, an important element in any business plan, should be an expression of a companys highest aspirations. The In the Trenches feature illustrates how one successful entrepreneur used visioning to successfully expand his venture. 1 Adapted from Rhonda M. Abrams, The Successful Business Plan: Secrets and Strategies, 2nd ed. (Grants Pass, OR: Oasis Press, 1993). Copyright 2013 by Nelson Education Ltd. Business Plan: Additional Details - 3 - COMPANY OVERVIEW The main body of the business plan begins with a brief description of the firm. If the firm is already in existence, its history is included. This section informs the reader of the type of business being proposed, the firms objectives, the firms location, and whether it will serve a local or international market. In many cases, legal issuesespecially those concerning the firms form of organizationare addressed in this section of the plan. (Legal issues regarding the form of organization are discussed in Chapter 10.) In writing this section, the entrepreneur should answer the following questions: What are the basic nature and activity of the business? When and where was this business started? What has been achieved to date? What changes have been made in structure and/or ownership? In what stage of development is the firmfor example, seed stage or full product line? What are the firms objectives? What is its primary product or service? What customers will be served? What is the firms distinctive competence? What are the current and projected economic states of the industry? What is the firms form of organizationsole proprietorship, partnership, or corporation? Does the firm intend to become a publicly traded company or an acquisition candidate? PRODUCT AND/OR SERVICES PLAN As its title reveals, the products and/or services plan discusses those products and/or services to be offered to the firms customers. If a new or unique physical product is to be offered and a working model or prototype is available, a photograph of it should be included in this section of the business plan. Investors will naturally show the greatest interest in products that have been developed, tested, and found to be functional. Any innovative features should be identified and any patent protection explained. Although, in many instances, the product or service may be similar to those offered by competitorselectrical contracting, for exampleany special features should be clearly identified. MARKETING PLAN As stated earlier, prospective investors and lenders attach a high priority to market considerations. They do not want to invest in a product that is well engineered but unwanted by customers. The marketing plan, therefore, must identify user benefits and the type of market that exists. Depending on the type of product or service being offered, the marketing plan may be able to not only identify but also quantify the financial benefit to the userfor example, by showing how quickly a user can recover the cost of the product or service through savings in operating costs. Of course, benefits may also take such forms as savings in time or improvements in attractiveness, safety, or health. The marketing plan should document customer interest by showing that a market exists and that Copyright 2013 by Nelson Education Ltd. Business Plan: Additional Details - 4 - customers are ready to buy the product or service. This market analysis must be detailed enough to provide a reasonable estimate of demand. An estimate of demand must be analytically sound and based on more than assumptions if it is to be accepted as credible by prospective investors. Most business plans include a market analysis section, which provides a detailed evaluation of the competitive environment, including industry trends. The research processes described in Chapter 6 outline the customer and competitive research upon which the analysis in the business plan is based. Elements of the proposed marketing strategy, for example, the type of sales force and the methods of promotion and advertising that will be used, will be structured to address the customer opportunity and the competitive position. (Chapters 1, 6, and 7 provide additional coverage of the marketing plan.) MANAGEMENT PLAN Prospective investors look for well-managed companies. Of all the factors they consider, the quality of the management team is paramount; it is even more important than the nature of the product or service. Investors frequently say that they would rather have an A management team and a B product or service than a B team and an A product. Unfortunately, an entrepreneurs ability to conceive an idea for a new venture is no guarantee of his or her managerial ability. The management plan, therefore, must detail the proposed firms organizational structure and the backgrounds of those who will fill its key positions. Details regarding the human resource plans for the company should be included, with the skill and number of staff, as well as the hiring, training, and compensation processes outlined. Chapter 9 provides coverage of human resources for small businesses. Ideally, investors desire a well-balanced management teamone that includes financial and marketing expertise as well as production experience and innovative talent. Managerial experience in related enterprises and in other start-up situations is particularly valuable in the eyes of prospective investors. OPERATING PLAN The operating plan offers information on how the product will be produced or the service provided; its importance varies from venture to venture. This plan discusses such items as location and facilities: how much space the business will need and what type of equipment it will require. (These aspects of the operating plan are discussed at length in Chapter 12.) The operating plan should also explain the firms proposed approach to assuring quality, controlling inventory, and using subcontractors or obtaining raw materials. FINANCIAL PLAN Financial analysis constitutes another crucial piece of the business plan; it is contained in the financial plan section of the business plan. Pro forma statements, which are projections of the companys financial statements, are presented here for the next five years (or longer).