- Content of a business plan
This article explains what goes into a business plan and why. It is not specific to any particular kind of business plan, nor does it presume any specific layout. Please do not read the section headings as titles of business plan sections. For information on the various presentation formats of a business plan see the main article Business plan.
Though business plans have many different presentation formats, business plans typically cover five major content areas:
- Background information
- A marketing plan
- An operational plan
- A financial plan
- A discussion of the decision making criteria that should be used to approve the plan.
Some of these content areas may be more or less important depending on the kind of business plan. There is no fixed content for a business plan. Rather the content and format of the business plan is determined by the goals and audience. A business plan should contain whatever information is needed to decide whether or not to pursue a goal.
Once a business plan has been developed, the key decision making points are usually summarized in an executive summary.
- 1 Executive summary
- 2 Organizational background
- 3 Marketing plan
- 4 Operational plan
- 5 Financial plan
- 6 Risk analysis
- 7 Decision making criteria
The executive summary summarizes the key points of the business plan. It should define the decision to be made and the reasons for approval. The specific content will be highly dependent on the core purpose and target audience. To get a sense of the difference the purpose and target audience can make, here are three different sets of key points for an executive summary - one for a loan request, one for a start-up seeking venture finance, and one for an internal plan. Items unique to a particular kind of plan are highlighted in bold:
A loan request executive summary might contain the following information:
- Company information: name of company, years in business, legal structure, minority and majority owners
- Brief description of project
- Amount and length of loan
- Objective reasons why the bank should be confident that the loan will be paid back. This likely will include
- Financial track record
- The future revenue stream
- Any contracts in place that might guarantee the revenue stream is more than just a forecast.
For a new venture, the executive summary might contain:
- Company information: name of company, proposed legal structure, current legal structure, minority and majority investors.
- Amount of investment requested
- Expected terminal value
- Description of market opportunity
- Objective reasons why the market opportunity can be exploited by this particular team
For an internal project plan, the executive summary might look like this:
- Company information: not applicable
- Description of project
- Project mandate: who requested the proposal, who is being assigned to carry it out
- Strategic, tactical and financial justifications
- Summary of resources needed: staff, funds, facilities
In some cases information will overlap. For example, some of the reasons why a loan is likely to be repaid might equally as well be used as justification for the kind of extraordinary return expected by venture capitalists.
In some cases the business plan as a whole contains similar information, but for one type of plan it is mere detail and for another it is a key decision making factor. For instance, both start-ups and internal projects need staff and facilities. However the staffing and facilities needs are considered details in a plan for start-up financing. In a plan for internal projects they are key elements and, in fact, may be the only resources needed.
In a written plan, information may appear in a separate section, an appendix, or may be omitted all together depending on the nature of the plan. If the plan is directed at people outside of the company, a brief synopsis may appear in the executive summary. This will be supplemented with a more detailed discussion elsewhere in the plan.
- Number of Employees
- Annual sales figures
- Key product lines
- Location of facilities
- Current stage of development (start-ups)
- Corporate structure (options are):
- Names of the majority investor, if any
- Founding date
- Major successes
- Strategically valuable learning experiences
- Board members
- Senior managers
- Managing partners
- Head scientists and researchers
The marketing plan has five objectives: If the product is a new product with no existing market, one must identify all substitute products. For each significant substitute product one must explain:
- Name, features, why substitute, why proposed product better
- Switching costs and why new product justifies switching
- Expected adoption dynamics
- Expected role once market begins to develop (see above for existing products)
- Chosen Price points
- Proposed Pricing strategy
In economics, demand management is the art or science of controlling economic demand to avoid a recession. The term is also used to refer to management of the distribution of, and access to goods and services on the basic of needs. An example is social security and welfare services. Rather than increasing budgets for these things, governments may develop policies that allocate existing resources according to a hierarchy of need.
- Distribution strategy
- List of major distributors
- Current status of negotiations
Promotion and brand development
The plan outlines how one would service their clients cost effectively.
- Supply chain requirements
- Production inputs
- Facility requirements - size, layout, capacity, location
- Equipment requirements
- Warehousing needs for raw materials, finished goods
- Space requirements
Information and communications technology plan
- Systems needed
- Operations: Billing, HR, SCM, CRM, Knowledge bases, etc.
- Websites: internal, public
- Security and privacy requirements
- Hardware requirements
- Off-the-shelf software needed
- Custom development requirements
- List of roles
- Management structure
- Head count approval
- For each role
- Job descriptions
- Number of employees
- Proposed compensation
- Training plan
Training requirements should look to address two issues - a benefit to motivate staff and developing the capability of the organisation to deliver the business objectives. Ideally all training requirements should be based on as an assessment of the business plan objectives, the required competence and capability to deliver these objectives and understanding of the current capacity and capability of the organisation. Simple question to ask to assess the appropriateness of the training - as a result of the training how much better will the organization be at delivering its objectives. Remember that training covers a wide range of activities from project work and on the job training to professional qualifications. Most learning takes place outside of formal training activities.
Intellectual property plan
- Intellectual property inventory
- Portfolio development plan
Some business plans gain competitive advantage by buying companies up and down the value chain. Some gain competitive advantage by buying up companies and consolidating them. Sometimes a business plan will seek to earn a superior return by adding superior management talent to an existing weak company.
For more information see Mergers and Acquisitions.
When acquisitions form a major part of the business strategy, the acquisition plan needs to be included in the business plan.
- Acquisition strategy
- Proposed acquisition targets
- Effect on market structure (if consolidation plan is being proposed)
Organizational learning plan
The organizational learning plan discusses what lessons will be learned from the marketing, operational, and finance plans and how those lessons will be consolidated to gain strategic advantage.
- Market sensing - organization's method for collecting information about customers (George Day)
- Strategic Staircase - the accumulation of future competencies by building on existing competencies. (Michael Hays, Costas Markides)
Cost allocation model
If variable costs play an important role in the business plan, it may be helpful to include a cost allocation model. This is particularly true if one has a unique business model that creates competitive advantage by transforming traditionally fixed costs into variable costs.
- Fixed cost
- Variable costs Operational plan
The plan outlines how one would service their clients cost effectively.
For more information, see Financial plan.
- Key investors or owners
- Angels, friends, and family
- Existing loans and liabilities
- Terms, obligations
- World Bank
- Sometimes called pro formas
- Balance sheet
- Income statement
- Cash flow statement
- 1-3-5-7 year projections (depends on length of project)
- For loans, repayment period determines length of projections, i.e. a six month loan doesn't need seven year forecasts
- For investments point at which returns stabilize (terminal value) determines length of forecast
- Annual, quarterly, and monthly versions should be provided
- Graphs of key values often helpful: gross revenue, EBITDA, NPV, etc.
- Financial portions of the marketing, asset development, and operations are often placed in this section rather than in the section discussing the plan. They are viewed as elaboration on the various line items in the pro-formas.
For more information, see risk analysis.
Parts of this section are from an analysis of a business plan
- Market risks - lack of surgeons; large geographical area so that we don't compete against our own clients;
- New entrants to market
- Ease of entry
- Potential threat to market share- advertising companies
- Slower than expected adoption
- New entrants to market
- Operational risks
- Staffing risks- imbedding the right candidate for the right surgeon
- Availability of skilled workforce- x-pharma reps, x-equipment reps
- Union issues
- Financing risks
- Poorly worded investor contracts at risk for litigation
- Investor pull-out
- Lack of follow-on funding to complete project
- Managerial risks
- Poor board or investor dynamics
- Agency risk particular to the venture
Risk management plan
Detailed plans are more often found as part of internal plans. Plans written for funders may need to include a high level of description if there are significant controllable risks.
- Methods and procedures to limit liabilities
- Reserve funds
- Continuity of operations plan
Decision making criteria
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