Components of a Business Plan
If you don't know the difference between a tablecloth and a spreadsheet, you'll definitely want to enlist some professional help. However, even if you're planning to eventually hire a business consultant to write your plan for you, you should still try to write a rough draft on you own. The first step in doing so is to familiarize yourself with the basics by reading through these typical components of a hypothetical business plan.
After you've read through these components, you should look at as many example business plans as possible, just to get a sense of what's out there. To get a company's business plan, all you have to do is call and ask for one. Many will not give it to you, but some may. If you pretend like you're going to invest in the company, then many will. Just be sure to give them a false telephone number or they'll hassle you for money until you die.
1. Executive Summary. The executive summary is so important that we've devoted an entire step to it. For now just know that you should stick it in FIRST, even before the table of contents. Narcolepsy strikes very quickly, so read Step 3 and don't take chances.
2. Table of Contents. A table of contents is exactly what you'd expect. No doubt you'll be editing your first draft like crazy, so double and triple check that your table of contents is well-organized and still correctly numbered after all the changes you've made. Also, strive to squeeze it all into a single page.
3. Company Description. Here's your chance to dazzle strangers with the history of your company. Most business plans deal with the expansion and improvement of existing businesses rather than with the funding of start-ups. Now's the time to brag (factually) about how you transformed American Watermelon Ltd. from a booth in your garage to a strong local employer that's ripe to burst onto the national scene. Here are some things to include:
* Tell 'em how you got started and how the company has grown.
* Provide a history of sales, profits, and other important numbers.
* Lead up to a description of where you are now, and what plans you have for the future.
Make this an honest account; investors will doubt the credibility of someone who appears never to have run into any problems. Talking about how you had initial challenges and then overcame them with flying colors will make you look all the better.
4. Product/Service. Describe the thing in jargon free-language. How does it smell? What does it do? What differentiates it from all the other whatchamacallits out there? How does it improve people's lives? What prevents someone else from doing the same thing more cheaply? What kind of equipment do you need? Do you have, or can you get, patent protection? Put yourself in the shoes of the investor and ask yourself what you yourself would want to know before agreeing to part with a large amount of money ("large" being most likely at least tens of thousands of dollars).
5. Market Analysis. In the next few sections, you're demonstrating that you're a clever old salt who's been hanging around the coffee machine long enough to know all about things like distribution problems, government regs, technological opportunities, and employee relations in your chosen line of work. Market analysis includes your sagacious discussion of industry characteristics and trends, projected growth, customer behavior, complementary products/services, barriers of entry, and so on. To do this effectively, you'll have to do a ton of research. Angels and VCs are suckers for good solid research (as they should be!), so pull out all the stops. Talk about how similar products/services have done well in the market, how you're fulfilling an obvious need, and exactly who you expect to purchase your whatchamacallit. Show them that in the foggy morass of corporate America, you're one of the meanest, wiliest swamp creatures around.
6. Marketing Plan. Following your exposition of what the market is like comes your grand strategy of how you and your fellow managers intend to sit masterfully atop this market like a frog prince on a pond stone of solid gold. In other words, you have to detail exactly what steps you will take to ensure that customers know about your product/service and prefer it over the competition. Be as detailed as you can, and give several different tactics (start off with the cheapest marketing tactic, and proceed to the most expensive).
7. Operations Plan. The nuts and bolts. You gave them vague assurances in your executive summary that you'd be able to run your business; now they want to understand precisely what's involved in running the show. Location, bricks and mortar, equipment needs, and labor requirements are laid out here in black and white.
8. Financial Plan. The numbers. Ugh! Unless you were the kind of kid who thought trigonometry was fun, there's a good chance you're not too fond of financial tables. Yet, even if you have a very fine accountant whom you trust as your best friend, it's a wise idea to acquire a rudimentary knowledge of sales forecasts, profit-and-loss statements, cash flow projections, balance sheets, and standard biz ratios. Investors will expect you to be completely independent in this important area of knowledge; if they call you saying they'd like to set up a meeting with you, they will as you questions about your financial plan and you will be expected to act intelligently.
9. Management. Never underestimate the importance of the collective genius of your management team. VCs will take a great management team with a mediocre business model over a great business model with mediocre management any day of the week. If you have somebody in the team (or at least on your board or among your advisors), who's had serious entrepreneurial success, you'll earn double bonus points from investors. Wouldn't you trust a business plan that said that Bill Gates was on the Board of Advisors?
10. Exit Strategy. Not all biz plans have one of these. The exit strategy is for the investor, not the entrepreneur. It's basically a plan for him/her to get out of his/her investment in three to seven years. The exit usually comes in the form of a merger, acquisition, or more spectacularly, an initial purchase offering (IPO, a.k.a. "going public!"). Including one of these strategies in your plan shows the potential investor that you understand his/her need to get stinking rich as much as your own.
11. Appendices. Chuck into the appendices all those necessary extra bits, such as managers' résumés, promotional materials, product photos, and independent assessments. Emphasis on the word "necessary;" clutter in a bulging set of appendices is as bad as verbosity elsewhere in the plan.
Obviously there's a lot involved. But don't panic. You're just getting started. Pretty soon this stuff'll be like mother's milk to you (and you'll never look at mom the same way again).
Center for Nonprofit Excellence
NONPROFIT BUSINESS PLANNING
SAMPLE OUTLINE
The difference between a Strategic Plan and a Business Plan:
A Strategic Plan is a leadership tool that sets the future direction for the entire organization. It spells out the organization’s mission, vision, primary goals and strategies. A Business Plan is a management tool that sets short-term objectives and defines the steps necessary to achieve them.
The difference between business planning for for-profit businesses and nonprofit businesses is that nonprofits have a “double bottom line” – they have to pay attention to both making enough money to operate the organization effectively and efficiently AND to fulfilling their mission.
• Nonprofit “business” includes mission-related programs, products, or services that are delivered at no charge or for a fee. A nonprofit can also deliver services or products for a fee that are UNRELATED to its mission. In this situation, the nonprofit should consult a lawyer to determine if there are certain tax consequences such as unrelated business income (UBIT), possible loss of tax exempt status, “commerciality doctrine” issues, and the like.
Feasibility Study
Before an organization begins the business plan, a feasibility study should be completed to determine if the business concept is solid. Would it be possible? In the feasibility study the organization gets the answers to these questions:
• Who is your target market?
• Do they want:
o What you (want to) provide?
o When you (want to) provide it?
o Where you (want to) provide it?
o How you (want to) provide it?
o At the price you (want to) provide it?
The only way to answer those questions is to ask the people in your target market – through individual phone calls, through written or electronic surveys, through focus groups. It is not safe to make assumptions of the answers – it is very important to ask before beginning a new project or organization and then continue to ask on a regular basis.
It is also important to research the product or service’s field or industry:
• What are the trends – i.e. do more people need and are buying this product or service?; if it is government funded, what are the budget implications at this time? How will the trends affect the organization’s plan?
• Is the field or industry growing or declining?
• What characterizes success in other organizations providing the same service or product? What makes the competition successful or not?
• Are there laws or rules and regulations that affect the production, delivery, or other aspects of this product or service?
Once you have completed the feasibility study and believe that the new service or product can be successful, the business plan can be developed.
Business Plan
A business plan can take many forms, but the most important part of the business plan is the planning—that is, doing your homework (a large portion of which is done during the feasibility study); analyzing the market and your “customer;” developing a budget, making financial projections, and determining your break-even point; assessing those core competencies that your organization has to deliver the products or services and what gaps need to be filled; and developing a marketing plan and timeline to deliver the products or services.
The business plan is usually 25 – 50 pages long (not including appendices) although some will be shorter or longer depending upon the “business.” While there is no one format that a business plan must follow, below are some important parts of the business plan that should be included or addressed as you write your plan:
Part 1: The Executive Summary
The Executive Summary is one of the most important sections of the business plan, because it can often be the only part of the plan that a stakeholder might read. It should summarize and highlight the critical parts of your plan, providing a concise overview of the entire plan along with a history of the organization, or if this is a start-up organization, the rationale for beginning the new nonprofit corporation or service/project. It should include the reasons why you think your business idea (for the particular service/project or the entire new organization) will be successful. Although the Executive Summary is the last section written, it is placed at the beginning of your plan. It should be a summary (i.e., no more than 4 pages).
A. Contents of the Executive Summary
a. The Mission Statement. The mission statement briefly explains the purpose of your business.
b. Date new business is to begin and/or when the organization was founded and why
c. Description of the board of directors and the functions they perform
d. Description and number of employees and volunteers and main functions of key staff
e. Location of organization and where the services will be provided
f. Description of the services to be provided
g. Funding sources and plan for sustainability
h. Market research conducted – how the need for the service was identified, who is the competition
i. If an established organization developing a new service, a brief history of the organization
j. Summary of strategic plan if available
Part 2: Service or Product Line
A. Describe your service or product
B. What is the problem that your service or product addresses?
C. What are the goals for the service and/or product?
D. What are the objectives for each service or product?
Part 3: Market Research & Analysis
Conduct any additional market research not completed in the feasibility study. The market analysis should include:
A. The general state of the service sector related to your business
B. The documented need for this service or if there a new need that you are addressing, has there been a change in the community/sector/etc. that impacts the need for this service.
C. Conclusions gained from the market research
D. Description of the competition
E. What is the projected growth rate for this service;
F. who are the customers
G. Where is the target market located geographically? Neighborhood or community level, city, region, state, international?
H. Size of the primary target market – how many now, what is the projected growth
I. Why the (new) organization thinks it will be able to get a share of this market
Part 4: Organization & Management
A. Organizational Structure
a. Create an organizational chart along with a narrative description of what the chart means – who reports to whom, what are the primary duties and responsibilities for both board members and key staff
b. Include Staff Profiles – for ED/CEO and other key managers
i. Name; Position; Education; Unique experience and skills – anything that will support their ability to assist in making this project successful
B. If there are other positions needed but vacant now:
a. What skills/expertise are needed and why?
b. How will the gaps in skills/expertise be filled and when?
c. Will volunteers be used and if so, how will they be supervised?
Part 5: Marketing and Sales Strategies
A. Market penetration strategy - plans for service/product growth/expansion
a. Communication strategy - How will the customers know about the service?
B. Advertising Plan
a. What will be used to advertise the product? – brochures, ads, website, newspaper articles, etc.
i. Estimated costs to develop, produce and distribute
Part 6: Financials
A. Where will the money come from to fund the program, product, or service? (grants, loans, fees, etc.) How will the funds be used?
a. Prepare an annual budget for the first year of development and/or operations
i. Include all revenue and expenses
b. Prepare summary budget projections for the next three – five years
c. Include a cash flow projection
d. Include a list of capital expenses if relevant
B. Financial Data
a. If this is a new product or service for an existing organization, include at least two years of the following:
i. income statements
ii. balance sheets
iii. cash flow statements
b. Include a written explanation for any assumptions in your projections.
Part 7: The Appendix
A. The appendix section should not be included with the main body of your business plan.
a. The appendix may include:
• resumes of CEO/Executive Director and other key management staff
• letters of support
• details of market research
• relevant articles, publicity
• accreditations, endorsements, licensure when applicable
• copy of by-laws, state charter, 501(c)(3) letter of approval
• list of board members including affiliations
B. Keep track of all copies of your business plan. A distribution record of those who have a copy of your plan will allow you to update and maintain your business plan on an as-needed basis.
C. Consider including a statement on the front of your plan similar to the one below:
This document is confidential and proprietary. It may not be circulated or disclosed in whole or part without the written permission of the Center for Nonprofit Excellence. No representations or guarantees are made or implied. Plans and projections are subject to change. All stated amounts are approximate and estimated.
SAMPLE BUSINESS PLAN OUTLINE
The following outline is provided as an example of a nonprofit business plan
outline. Not every component of this outline will be applicable to your venture.
The organization and content of plans will vary based upon the unique character
of each venture. However, every submission must begin with an
Executive Summary.
(1) Executive Summary. This section is a brief overview (one page
maximum) providing the name of the organization, the key contact
person, a brief overview of the proposed venture, its objectives, and a