The Purpose of the Business Plan
So, why are you writing a business plan (other than it’s a requirement for the KU Certificate in Entrepreneurship)?
Because it’s a great communication tool: it succinctly describes what you are trying to accomplish, how you will achieve those goals and what resources you’ll need to be successful. That’s a message equally important to other new venture employees, potential investors, creditors and supplier or anyone who might become one of those.
And probably most importantly, it’s a great learning tool. And, as we know, knowledge is power or in this case, insight into your business’ consumers and the market can represent an unfair competitive advantage, exactly the leverage point which can catapult you over the competition and enable goal achieving success.
How?
Because it represents your best thinking at a specific point in time and subsequent comparisons with what actually happened will provide you with insights and intelligence that you can use to get smarter about your business and increase the odds of success.
For example, the plan’s projections showed total annual sales of our product to be $4.2M but actual sales data received later indicated a much smaller market demand at only $3.3M annually. Why were our projections off? (Don’t dwell on your inaccuracy; focus on what constituted the difference so you can use this learning experience to provide better, more accurate projections in the future). Let’s look at some of the reasons that could account for the difference between the projection and the actual market performance, with a corresponding action step we might adopt to capitalize on this new information: the consumer demand for products/services in this category may have declined because their needs for benefits which this product/service provides is now addressed by a new entry into the market. Were there any new entrants into the market? Do they provide different/better solutions to the problem your product/service addresses? If yes to both, we’ll need to re-engineer our offering to improve our product’s performance by increasing its value to potential customers (add benefits or increase value provided through purchase incentives or price reductions). What does the lower sales performance imply for the balance of our spending plan? Should our planned inventory levels be reduced to avoid costly overstocks? And what is the customer now saying about our product, are they as aware and interested as we originally thought they would be? Maybe we’re not generating enough awareness for our product to translate into the expected sales. A quick potential customer survey and then reflect those research findings in increased advertising with a changed message to highlight a more important benefit might be the right approach.
And the opportunity to learn by comparing your expectations to subsequent performance is continuous; so writing the plan to provide clear direction to all company stakeholders (anyone having an interest in t he company) and provide an excellent platform for learning and improving performance are key reasons for this effort. Finally, the more conscientious the effort now, the greater the learning later; so make it good.
The Key Plan Components
Business plans can be of varied lengths and composition. Summary plans of only five pages are intended to provide an initial determination of the likely feasibility and results of a new venture creation, and are acceptable in some environments. Much longer plans, for example 30-50 pages are more operational plans and detail the tactics to be used to implement the business plan’s direction.
The business plan referenced in this manual is no more than 20 pages long with a 10 page appendix. You should not exceed either page limitation: if you can’t cover the information required in that number of pages, you’re not being sufficiently succinct, and your plan’s persuasion will suffer. If you can adequately cover the topic in fewer words, that’s fine but make sure that you carefully and diligently consider each topic.
We ask you to prepare the classically formatted plan with the content as described as follows to fully prepare you: you are unlikely to need or be asked by a potential investor to provide a more comprehensive document. And in fact you may find instances when an abbreviated plan will suffice but by preparing the full scope business plan you’ll be best prepared for any eventuality.
The key components (sections) of a business plan include the following:
Executive Summary: This is contains the essence of each of the key components of the business plan. Write this section last as it can be more easily and accurately completed by excerpting the most important elements from the plan itself.
Product Description: This provides an expanded version of your business concept to include a comprehensive description of the business, an explanation of the key benefits and how they’re uniquely delivered to your customer (ie: applicable processes or technology and the explanation of how it works), the competitive advantage your business presents, extension opportunities for increased future sales and the exit strategy you will use to realize the financial value you’ve created in your business.
Timelines: Charts which identify at a high level (ie: by quarter or by year) the pre-launch development steps necessary to bring your business to market from its current stage and the key post launch phases of the business’ growth milestones, along with the funding necessary to achieve those milestones.
Industry Analysis: Identification of the overall size of the addressable market, that is the space in which your business will compete; also including your projection of the most likely future size of this category as well as any key factors which are likely to impact that projection.
Competition: Identification and assessment of your business’ offering vs. direct competition.
Market Research and Analysis: Identification and quantification of the prime prospects for your business’ offering. Cite the sources of your market research efforts.
Marketing Strategies: This section will provide an explanation of the business model (how the firm expects to make money), the positioning it will strive to achieve in the minds of its target customers, and the marketing tools the business will employ to achieve that positioning and the sales goals (which will be detailed later). Finally, how the product/service will be sold, distributed and support post the sale (customer service) will be identified here.
Revenue Streams: Will provide an explanation of the pricing approach for the primary product/service and any secondary revenue opportunities are identified here.
Financial Plan: The financial statements themselves (Income Statement, Balance Sheet and Cash Flow Statement) will inserted at the first pages in the Appendix; in this section an abbreviated Income statement showing the first three years of the company’s sales, expenses and profits should be captured here.
Funding Plan: This section will identify the Sources and Uses of funding, that is where the funds necessary to start the business will come from and on what they’ll be spent.
Company Valuation: An estimate of how much your company will be worth at the projected time of exit is calculated in this section. This is important to provide you and the investors with a best guess of how the business will realize its financial return on investment.
Downside Risks, Upside Opportunities: Includes those pressures which could either negatively or positively impact your projected sales and profits.
Management Team: Identify who will be the key managers of the company, with their resumes in the Appendix.
Company Ownership: The legal structure for the company and why that structure was chosen is very briefly (1-2 sentences) included here.
Compensation: An estimate of the compensation plan for the key officers is summarized here.
Reasons for Investment/Conclusion: An opportunity to ‘make the sale’ by convincing the reader as to the advantages of investing in your company.
The Business Plan Template, the Business Plan Instructional Guide and the Finished Business Plan are included in this manual to help facilitate the preparation of your own plan and to enhance the entrepreneurial learning associated with this effort.
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