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Key Components of a Business Plan
by Dan Lavinsky
A good business plan has ten key components. Providing a comprehensive assessment of each of these components is critical in attracting investors.
1. Executive Summary. The Executive Summary provides a succinct synopsis of the business plan, and highlights the key points raised within. The Executive Summary must communicate to the prospective investor the size and scope of the market opportunity, the venture’s business and profitability model, and how the resources/skills/strategic positioning of the Company’s management team make it uniquely qualified to execute the plan. The Executive Summary must be compelling, easy-to-read, and no longer than 2-4 pages.
2. Company Analysis. This section provides a strategic overview of the company and describes how the company is organized, what products and services it offers/will offer, and goes into further detail on the company’s unique qualifications in serving its target markets.
3. Industry Analysis. This section evaluates the playing field in which the company will be competing, and includes well-structured answers to key market research questions such as the following:
What are the sizes of the target market segments?
What are the trends for the industry as a whole?
With what other industries do your services compete?
4. Analysis of Customers. The Customer Analysis section assesses the customer segment(s) that the company serves. In this section, the company must convey the needs of its target customers. It must then show how its products and services satisfy these needs to an extent that the customer will pay for them
5. Analysis of Competition. This section defines the competitive landscape of your business. It identifies who the direct and indirect competitors are, assesses their strengths and weaknesses and delineates your company’s competitive advantages.
The first five sections of a business plan are critical because in most cases, investors will not read the full plan. As such, winning the investor’s interest early is critical. In addition to providing background on the full business opportunity, these sections provide the market research to back up the business’ potential, another critical factor in gaining an investment.
The first five components of a business plan provide an overview of the business opportunity and market research to support it. The remaining five components of the plan focus mainly on strategy, primarily the marketing, operational, financial and management strategies that that firm will employ. This following details these elements.
6. Marketing Plan. The marketing plan details your strategy for penetrating the target markets. Key components include the following:
• A description of the company’s desired strategic positioning
• Detailed descriptions of the company’s product and service offerings and potential product extensions
• Descriptions of the company’s desired image and branding strategy
• Descriptions of the company’s promotional strategies
• An overview of the company’s pricing strategies
• A description of current and potential strategic marketing partnerships/ alliances
7. Operations/Design and Development Plans. These sections detail the internal strategies for building the venture from concept to reality, and include answers to the following questions:
• What functions will be required to run the business?
• What milestones must be reached before the venture can be launched?
• How will quality be controlled?
8. Management Team. The Management Team section demonstrates that the company has the required human resources to be successful. The business plan must answer questions including:
• Who are the key management personnel and what are their backgrounds? What management additions will be required to make the business a success?
• Who are the other investors and/or shareholders, if any?
• Who comprises the Board of Directors and/or Board of Advisors?
• Who are the professional advisors (e.g., lawyer, accounting firm).
9. Financial Plan. The Financial Plan involves the development of the company’s revenue and profitability model. It includes detailed explanations of the key assumptions used in building the model, sensitivity analysis on key revenue and cost variables, and description of comparable valuations for existing companies with similar business models.
In addition, the financial plan assesses the amount of capital the firm needs, the proposed use of these funds, and the expected future earnings. It includes Projected Income Statements, Balance Sheets and Cash Flow Statements, broken out quarterly for the first two years, and annually for years 1-5. Importantly, all of the assumptions and projections in the financial plan must flow from and be supported by the descriptions and explanations offered in the other sections of the plan. The Financial Plan is where the entrepreneur communicates how he/she plans to “monetize” the overall vision for the new venture.
10. Appendix. The Appendix is used to support the rest of the business plan. Every business plan should have a full set of financial projections in the Appendix, with the summary of these financials in the Executive Summary and the Financial Plan. Other documentation that could appear in the Appendix includes technical drawings, partnership and/or customer letters, expanded competitor reviews and/or customer lists.
Expertly and comprehensively discussing these components of an business plan helps entrepreneurs to better understand their business opportunity and assists them in convincing investors that the opportunity may be right for them too.
About the Author:
As President of Growthink Business Plans, Dave Lavinsky has helped the company become one of the premier business plan development firms. Since its inception, Growthink has developed over 200 business plans. Growthink clients have collectively raised over $750 million in financing, launched numerous new product and service lines and gained competitive advantage and market share.
