Length of a Business Plan – One of the most common questions we get from clients is how long the plan should be. We have seen plans that are three pages and others that are eighty pages. Generally, the length of the plan depends more on the complexity of the business and the depth of planning you have done, than any “formula” which suggests that it should be a certain number of pages long.
Two Types of Business Plans - There are hundreds, if not thousands of different formats for writing business plans. In my 40+ years of working with both large and small clients, I have found that one type of format works best for a small business and another works better for a medium or large organization. In this chapter, we will provide a format for both, as small organizations do grow larger over time. However, it should be noted that in the nine years I have been working with relatively small companies I have tended to recommend the “Small Company Business Plan” which is reviewed below. The plan for larger companies follows it in this chapter. There is no reason that an entrepreneur cannot mix and match sections if it works for them.
Small Company Business Plan - The intent of the Small Company Business Plan is to provide in one simple document the information that a company should develop to effectively plan its business and contain enough information so that the document could be used with investors if raising money for the organization is necessary. This plan contains only eight sections as follows:
SECTION ONE: Business Definition - This consists of a succinct description of what the business is, so that an uninvolved party would have no difficulty understanding what the organization is offering in terms of products or services.
SECTION TWO: Market Environment - This section is intended to provide a framework for the environment into which the business is entering. It is NOT intended to contain growth statistics about national or regional market size and growth as one might include in a business plan for a large company, but rather a discussion of the general market the company is entering. For example, if the entrepreneur is going to open a lady’s shoe store, the discussion should talk about the number of competitors in the area and the relative importance of them as potential threats to the desire to develop a local ladies shoe franchise. If the entrepreneur is opening a human relations consulting firm, the discussion would focus on the number of other similar types of organizations that exist within the regional market, and what is perceived to be the demand for this type of consulting service.
SECTION THREE: Target Market - This is a discussion of the primary target market for the product or service from the perspective of the buyers of the offering. For example, if the company is making a new type of toy, the target market is not the children who will play with the toy, but the retail outlets or wholesalers who will carry the toy. This does NOT suggest that the marketing will not be directed at the end users (i.e., children or parents) but the primary target is the buyers, because without the distribution you would never get to the children.
SECTION FOUR: Product/Service Positioning or “Reason Why” - This section should briefly indicate the unique point of difference of the product or service that will be offered, so that the target audience has a reason to buy. Said differently, it is what you would like your customers to think about your company when the name is raised. One commonly used example is BMW cars. They have long had the positioning as the Ultimate Driving Machine. TD Bank has positioned itself as the convenient bank, with more locations, better hours, etc.
SECTION FIVE: Marketing Plan - This consists of a one-year program that outlines in detail how you will come to market with your product or service, in terms of developing awareness of the item/service, generating trial/purchase, generating distribution, etc. It should also include a point of view on the type of customer service you plan to provide to build and maintain a good reputation for your company.
A key part of the marketing plan is the development of an appropriate name and logo for the company, and also a 5-7-word slogan/tagline that would be used in addition to the name to help describe the business (more about this elsewhere in the book).
SECTION SIX: SWOT Analysis - This is a section where the company would look at what the strengths, weaknesses, opportunities and threats are relative to the venture. It is an excellent exercise to help in the analysis process when starting a new business.
SECTION SEVEN: Operations Section - This is the section that describes how the business will be structured, and what tasks each of the people in the organization will be responsible to accomplish. For example, it will describe how the product/service will be created or manufactured, and what will be the process of “selling” it to the target market.
SECTION EIGHT: Financial Analysis - This is the principal section that an investor will study, to determine whether they will want to become involved in the organization. It also is the most important section for the entrepreneur in terms of projecting the possible income that the business will be able to generate. At a minimum, it should include the following sub-sections:
a.Start-up Costs - What funds are required to begin the business before the first dollar of revenue is generated.
b.Sources and Uses of Funds Generated - This is a brief section that identifies the total financial needs and where the money will come from and then how it will be used to get the company launched
c.Financial Projections (pro forma P&L) - This is a document that will outline the first three-year projection of revenues and expenses for the business and indicate what the projected profit or loss will be during each of those years. This document is covered in detail elsewhere in the book.
d.Cash Flow Analysis - This is a report that will help to determine the cash needs of the business over the first year of operation. Unlike the pro forma P&L, this document deals with money collected rather than revenue projections utilized in the Pro Forma. This document is also covered in detail elsewhere in the book.
Medium or Large Company Business Plan - The following will provide a description of the various sections of a business plan for a medium or large company. Each of these is essential to the plan. Should you wish to add other sections that would be fine based on your own judgment.
* Executive Summary - This is the first section of any business plan but the last one that should be written. The goal of this section is to provide a 1-2-page overview of the key information in your plan, so a reader could quickly read the summary and get a general idea about the business category you will be entering, how you will approach the venture and what the anticipated financial results are that you are anticipating.
* Market Overview - This section should consist of a very brief, but thorough overview of the business category in which you will be entering. Specifically, what are the key characteristics of the business in terms of operations, marketing, sales and distribution? What have been the growth-patterns of the business in the past and what is the anticipation for the future? In the event you are creating a new category where there is no specific history, this section should provide information about other similar categories and what you have learned from their dynamics and growth patterns that will provide a sufficient background for your specific entry into the related business.
* Competitive Environment – This is a very important section as it provides a detailed analysis of the various competitors in market in terms of their overall business strategy, how they have performed, and what you believe to be the key reason for their success. For example, were they the first in the market, do they have the strongest brand name, the best distribution system, the largest advertising budget? Each of these is very important. Further this section should explore the key messages of the various brands that would give their customer a “reason why” to purchase them versus the other similar brands