Tips for a successful Business Plan
Sooner or later, every start-up faces the challenge of developing a business plan. This blog article explains what companies should pay attention to during a business planning process.
What is a Business Plan and why is it needed?
A business plan is a document in which a company presents its future objectives and strategies to achieve them. Developing such a plan serves two main purposes. On the one hand start-ups can submit it to investors or banks in order to receive funding. On the other hand a business plan is an opportunity for companies to figure out their goals and strategies. Especially start-ups in the technological and scientific sector struggle to convert their complex ideas into organic growth. That’s why business plans are often drafted by young businesses seeking to gain an understanding of their business model. The process of setting up a business plan helps them to structure, rethink and to reflect. Companies should thus not simply regard a business plan as a means to an end but rather as an end in itself.
How is a Business Plan structured?
A business plan usually has a length of 20 to 50 pages and consists of several different sections. Besides the fact that the executive summary is situated in the beginning and the financial part is to be found at the end, no certain order of sections has to be kept. However, the sections should be arranged in a coherent order and touch upon a number of issues. Here is a guideline:
- Executive Summary: This one- or two-page introduction is always the first chapter and provides a short but comprehensive overview to the reader. It should mention the solution offered by the company, the business model, the target market, the (founding) team, the main results of the financial forecast and the financial need. Since it gives the reader a first impression about the business, it is considered as being the most important part of the plan. It determines whether an investor will continue reading or abandon the company. Although the plan starts with the executive summary, the summary is usually written when the rest of the document is already finished. This is because the chapter aims at generating an overall impression that in turn results from the reflections during the business planning process.
- Company Overview: This section briefly describes the company’s organisational and legal structure, its location as well as its formation history. Moreover, it outlines the tasks and responsibilities that are carried out by the workforce and the resources that are at the business’s disposal.
- (Management) Team: This chapter should contain an organigram in order to visualise structures and processes within the company. It also presents the founders of the business and their qualifications and experiences.
- Product and solution: This section discusses a common problem faced by consumers. The business has to reveal how its products or services tackle this issue and what the unique selling point of these solutions is. In this way the company stresses that it is taking customer needs and benefits seriously. Additionally, the business has to present and classify its product range and service offerings. In order to give assurance to potential investors, this chapter should also elucidate how the company’s inventions are legally protected against imitation.
- Business Model: In addition to describing its solution, the company should illustrate how it is making money out of it and charging the customers.
- Market Analysis: This analysis assesses the current market situation by including graphs, charts and data. It should define the target market, the ideal customer und demonstrate how the company will reach out to the target audience as well as how the products will be delivered to them. Apart from this, a subchapter of the market analysis can deal with the business’s competitors. A competitive analysis analyses their strengths and weaknesses and points out how the business will gain a competitive advantage over them. This requires a transparent risk analysis elaborating on potential issues that could negatively impact the business.
- Sales and Marketing: No product will ever reach its target audience without appropriate promotion. The reader should be informed about how the company is pricing its products, how the products will be distributed and how the audience will be addressed through marketing and advertising efforts.
- Future goals: The plan has to define the company’s measurable objectives as well as the development of the business model and international organisation in the short and long term. Moreover, a mission statement can be added to illustrate the long-term goals of the business. It is vital to know that mission statements aim at measures to be implemented consistently over time, for instance improving the customer service. Some companies also include a vision statement in order to add uniqueness to their plans: How will the company’s future look like when it has achieved its mission?
- Financial Plan and Projections: This chapter examines the financial affairs of the company. It answers the questions: Will the company be profitable in the medium to long-term? How much money is needed to maintain or start the business? How much money will be needed in the next few years? As potential investors are expected to provide money, they will want to know what the funds are planned to be used for and how high the current business expenses are. Therefore, this section has to set out the projected income statements and balance sheets for the upcoming two or three years.
Companies should avoid bothering the reader with too many details. If necessary, supporting material such as articles on the company or CVs of the key personnel can be attached at the end.
Is External Help required?
Often, companies benefit from outside expertise guiding them through the business planning process. They may, for instance, work together with experienced consultants who have the know-how needed to develop an elaborated and comprehensive plan. Those are also the ones who can distribute it within an investor network.
However, not every start-up has the resources to afford professional consultants. Therefore, a less individualised but mostly free or publicly funded option is to get in touch with chambers of commerce, public business development agencies or start-up consultancy services of universities. They can offer information material and orientation help. An outside view is worth it either way.
Written by Jonathan Pflanzer, Stuttgart Region Economic Development Corporation. The text is based on an interview with Kathrin Grützmann, Innovationhouse Germany.