- Executive Summary
- Entrepreneur Profile
- Business Description
- Product & Industry
- Market Analysis
- Management, Operations & HR
- Legal & Regulatory Requirements
- Business Financials
This article is a guide for new startup entrepreneurs who are interested in making a business plan, particularly businesses categorized as small & medium enterprises (SMEs). The article aims at helping understand the factors to be considered when making a business plan for your new business.
A business plan is a guide used to plan and manage a business. An effective business plan outlines both operational and financial characteristics of the business. It also describes future expectations and financial estimates. A business plan not only lists both short and long-term goals but also provides an effective strategy to achieve them. A business plan is treated as a living document, i.e. it is modified based on changes that are experienced by the business. For example, price fluctuation of fuel and electricity, unavailability of raw material, seasonal factors, etc. are some of the expected changes in an environment and must be accounted for in the business plan.
A business plan cannot guarantee success but it can reduce chances of failure and help preempt causes of failure.
Cover Page and Table of Contents
Cover Page is the first introduction of a business plan and may contain important information like:
- Name and logo of the business
- Name of key entrepreneur/s
- Location, address and contact details
It is useful and recommended to include a Table of Contents page to professionally reference the contents of your business plan.
Contents of A Business Plan
The following list of contents of a business plan is an indicative list and may be modified as per
The executive summary is your first opportunity to attract the reader’s interest. Provide an overview of the key features of your business idea. Executive Summary is usually written at the completion of the business plan, once all details have been finalized. The executive summary covers the following areas:
- Proposed project name and location
- Product(s) / Service(s) offered, and their brief descriptions
- Installed capacity and initial utilization
- The most critical considerations or factors for success of the project
- Total cost of setting up the business; Internal Rate of Return (IRR), payback period, break-even, Net Present Value (NPV) and other tools of financial performance measurement.
Profile of Entrepreneur
Investors and stakeholders mark the possible success rate of a business based upon the profile and background experience of its entrepreneur. Your business plan must reflect your skill set, relevant expertise in managing your proposed business and educational background. You may also include projects and activities that you have undertaken which highlight management and leadership qualities. Additionally, include brief CVs of experts working with you as partners or consultants in your business. Remember to highlight your strengths that will potentially add value to your business.
This section of your business plan helps readers and potential investors understand the goal of your business and its unique selling point. Explain the competitive advantages that you believe will make your business a success such as your location, expert personnel, efficient operations or ability to bring value to your customers.
Give a short description of the industry; discuss the present situation as well as future possibilities. Provide information on all the markets within the industry, including any products or developments that will benefit or adversely affect your business. What are the trends affecting them and do these trends bode well for your future success? Industry description may include:
- Name the sector in which you are going to start your business
- Location & its rationale
- Demand and growth trends of the industry
- Supply of the industry (total units provided by the current businesses in the same field)
- Industry life cycle (introduction/ growth/ maturity/ decline)
- Major threats and opportunities
- Justify whether there is shortage or surplus in the market
- Legal status of the business and legal requirements
A strategic location is that which is conveniently accessible for all supply chain members in general and customers in particular.
Describe the nature of your product / service and list the customers’ needs that you are addressing. What products and/or services do you offer now and/or what will you develop and offer in the future? Explain how they meet customers’ requirements. It may cover the following areas:
- Introduction & justification of the business opportunity
- SWOT analysis
- Description of the product and its key features
- Pricing of the product / service
- After sales / customer services
- Photographs or brochures
Before starting your business, it is important for you to research your business industry, market, customers and competitors to identify your potential target market. Market strategies are the result of a careful market study. A market study enables the entrepreneur to become familiar with all aspects of the market so that the targeted customers can be defined and the company can be positioned accordingly.
Market analysis is gathering of information which you can use to refine your product / service. The easiest way of doing that is by asking questions from your potential customers. You can use social media platforms such as Facebook and LinkedIn for cost savings. However, a more traditional approach of handing out printed questionnaires is also a widely used method of conducting research.
Gender, age, income, education, geographic location, personality traits, values, attitudes, interests, and lifestyles determines the demographics of your audience.
Other sources of information may include formal researches conducted, information available through Government platforms such as Federal Bureau of Statistics, relevant Ministries, Chambers and Associations, and international organizations such as Trade Map, UNDP, USAID. A market analysis comprises of:
Understand your target customers based upon their demographics and seasonal requirements (if applicable).
Determine the strengths and weaknesses of possible competitors within your market, strategies to provide you with a distinct advantage, barriers to prevent competition from entering your market and areas of competitive advantage.
Promotion& Sales Plan
How do you plan to market your business? How will you reach your target customers? What promotional tactics and marketing channels will you use? How will you price your products and/or services? What brand positioning do you desire for each? What is your sales strategy?
Identify your unique selling point: Besides basic products or services, what are you selling actually? For example: Your town has several restaurants all selling one common product that is food. But each food menu is targeted towards a specific need or customers.
Learn to make choices: It’s important to clearly define what you’re selling. You do not want to become a jack-of all trades and master of none because this can have a negative effect on your business growth. As a smaller business it is a better option to divide your products or services into manageable market niches. Small operations can then offer specialized goods and services that are attractive to a specific group of prospective buyers.
Identify your niche: Niche is any position of opportunity for which one is suitable, such as a particular market in business. Creating a niche for your business is essential to success. Often, business owners can identify a niche based on their own market knowledge, but it can also be helpful to conduct a market study with prospective customers to uncover needs which are not fulfil yet. During your research process, identify the following:
- Which areas your competitors are already well-established
- Which areas are being ignored by your competitors
- Potential opportunities for your business
Management and Human Resource Plan
You need to find a suitable organization and management structure for your business that comprises of your current team and / or hiring that must be made in order to execute your business. The plan aims to address all management related questions including, if you will build a Board of Advisers or Directors, and if so, who will you seek? The human resource plan of your business includes; operational staff, support staff and management team. Add detailed Job Descriptions to each position created to provide clarity on expected deliverable from the team members.
A lean organization is a well functioning and efficient business.
Management Structure – Organogram
An organogram is a graphical representation, in the form of a chart, of the organization structure of your business. It indicates the relationship between various persons employed by the business and also provides an overview of reporting and management lines.
Regulatory & Compliance Requirements
Following are some important legal considerations when making a business plan:
- Determine a Legal Structure for the Business: Select the type of ownership that works best for you, such as; sole proprietorship, partnership, Limited Liability Company (LLC), Corporation/Company, non-profit or cooperative.
- Register your Business Name, Trademark and Logo (if any).
- Register for Income, Sales and Professional Taxes (as applicable): To register for Income tax, the company will apply for a National Tax Number (NTN) at the tax facilitation of the Regional Tax Office of the Federal Board of Revenue.
- Sales tax, like the income tax can be registered for, by applying for a Sales Tax Number at the tax facilitation center of the Regional Tax Office.
- Obtain Business Licenses and Permits: Get a list of federal, provincial and local licenses and permits required for your business
The business structure you choose will have legal and tax implications.
Operations and Production Plan
The operations and production plan describes how your business will function on a day-to-day basis. The plan should clearly list the process of production, irrespective of whether you are manufacturing goods or providing services. It should enlist all tasks to be undertaken from beginning to end, i.e. from the production floor to the end customer. The operations and production plan takes into account, installed capacities of machinery and equipment in the case of manufacturing of goods. The machine / process with the lowest installed capacity will determine daily average production. That is your key determinant of capacity in the over all production process.
Starting capacity is lower than installed capacity. It takes a few years for the production process to become efficient and achieve higher capacity utilization.
While it is advised to keep inventory levels in check, at the same time it is essential to maintain regularity in production process flows by ensuring adequate and timely supply of raw materials. Draw up a process flow chart to organize the production process; identify bottlenecks and devise a strategy to create efficiency in the production process.
In the services sector, a measure of efficient operations lies in the customer satisfaction ratings. Time and quality of service is of utmost importance!
In case of a service providing business, it is advised to list all processes involved in accomplishing final service delivery to your customer. The process must include factors like persons required for a task, time taken and the dependence of a task on other activities. Thereby, you will be able to determine critical areas of focus when delivering services to the client.
A financial plan reflects the project costs, expense and revenue flows, proposed sources of investment / financing and recording of financial results. A financial plan may be categorized into three sections;
A primary objective of outlining project costs is to determine funding requirements of the business. Funding requirements stem from fixed investments (e.g. plant and machinery, land and building, etc.) and working capital requirements (e.g. inventory of raw material and finished goods, cash in hand, etc.). Any strategic financial plan for future, such as major investments, acquisitions, loan repayments, or adding new product lines in the business and associated new revenue streams must be included in your financial plan for the business.
There’re two distinct categories of project costs:
Capital costs are considered costs incurred for procurement of fixed assets.
Working Capital costs are associated with short-term investments in assets such as inventory, minimum cash balance maintained in the bank for use by the business, etc.
Total Project Cost is the total money required to set up a business. It is the sum total of Capital Cost and Working Capital. Further, the money and finances given to your business by yourself is considered Equity, i.e. it is the owner’s money contributed to the establishment and / or running of the business. Owner’s Equity may be returned to the owner from income leftover after covering expenses for the year. In case of loss, the Owner shall bear the loss.
In case more money is required and / or the owner is willing to avail formal sources of financing, such as a bank loan, that money will need to be repaid, regardless of profit or loss to the business. Therefore, this money is called Debt.
A business can be financed with a proportion of each; equity and debt. In the example given above, the same is shown as a percentage. The sum of debt and equity shall be equal to total financing required by the business. Include the time period that each funding request will cover, the type of funding you would like to have (e.g., equity, debt), and the terms that you would like to have applied.
Look for opportunities to generate cash from your business cash flows by maintaining your cash flow cycle related to working capital and liability repayments. Manage your expenses to control cash flows of your business. Make your payments late, staying within industry norms and keep receivables to a minimum. Set standards for keeping a check on your inventory levels; Higher the inventory, greater chances of tying up your cash. Low inventory levels may result in lagging production processes.
When outlining funding requirements, include the amount you want now and the amount you want in the future, based upon calculations and estimates.
Expenses and Revenues
Expenses and revenues are forecasted to reflect the current and future funding requirements of a business. Expenses include cost of raw material, staff salaries, utilities, interest payments, etc. All monies to be paid for services or products utilized to manage business operations will be taken into account through expenses.
When calculating expenses, take into account payments to be made before start of business operations, also known as pre-operating or startup expense.
Estimating revenue streams takes into account quantities to be produced and sold and selling price of the service / product. Revenue calculations must include changes in selling price, due to inflation and other market related factors.
It includes the projected financial statements for Income Statement, Balance Sheet & Cash Flow.
Projected statements provide an overview of the financial standing of your proposed business during the course of its operations.
Financial projections form an essential part of the business plan, not only for investors and lenders but also for the management.
In order to determine and reflect the health of your business it is advised to use financial analysis tools such as ratio calculations, Net Present Value (NPV), Internal Rate of Return (IRR) and Payback period.