If you are starting a small business and intend to get a loan from a bank or attract investors, they will most likely request a business plan. After all, no one wants to loan money or invest money in something that they have no clue about. The business plan will give potential lenders and investors insight into your business idea, goals, and strategy for achieving those goals. Additionally, it is a good idea for existing businesses to regularly review and update their business plan as the business and the industry in which the business operates are continuously changing and evolving.

What are some of the key components of a business plan?
While business plans can be tailored to each business's individual needs, most business plans include an executive summary, a company overview, and sections that detail the management team, products and/or services offered, industry analysis, marketing strategy, the financial plan, and key milestones and metrics used to evaluate the business. The Internet is full of resources on business plans and examples. Some basic information is provided below.

What is an executive summary?
An executive summary is a short (typically no more than one page) overview of the business plan. Think of it this way, if a busy executive only has time to read one page of your business plan, you need to tell them what you are going explain in the rest of the document in one, simple, easy-to-read section. If they're interested or if they want more details, they can always read the entirety of the document. The executive summary is your sales pitch in one page or less. Make it count!

What is included in the company overview?
The company overview provides some of the basic information about your company. You should describe what your company will do, how it is unique, and what problem it solves. You can include a summary of the history of the business (if there is a history), the owners, the legal structure, the location, etc. You should also include a mission and/or vision statement.

What is included about the management team?
The management team section is optional but does give you a chance to show off your expertise. The management team section typically includes bios of the members of the management team, including a description of the role of each of the members. You can also point out any shortcomings that you see and how you plan to address them.

How detailed is the description of products and services?
The description of products and services should be very detailed. This is where you present your exact ideas about your products/services and why they are unique. Rather than simply saying "We will sell pizza," you should say something like "Our customers will build their own pizza from a buffet of toppings. Our pizza chefs will then place the pizzas into a stone-fired pizza oven that is visible to the customers from the dining room, creating a unique pizza creation and dining experience." You can also describe how you will obtain the supplies you need and what the perceived customer demand is for your product and/or service.

What is included in the industry summary?
Now that you have described your business, you need to focus on the industry that your business will operate in. You can start with a general overview of your industry and follow it up with details about how your business fits into that industry. This may be a good place to include a SWOT analysis or a Porter's five forces analysis.

What is a SWOT analysis?
A SWOT analysis is an analysis of your business in terms of its strengths, weaknesses, opportunities, and threats. It is usually shown in a matrix form. The strengths and weaknesses are internal in origin, meaning they contain the attributes of your business. The opportunities and threats are external in origin, meaning they contain the attributes of the environment in which your business operates. Using the pizza restaurant example above, a strength may be that you have thirty years of pizzeria management experience. A weakness may be that since this is a start-up, you will be draining cash. An opportunity may be that there are no pizzerias with dine-in availability within twenty miles of your location. A threat may be the consumer trend to eat healthier with whole-wheat and gluten-free options. A good SWOT analysis should be well thought out and have several items in each area. Who knows, after completing your SWOT analysis you might just decide you should offer gluten-free crust after all!

What is a Porter's five forces analysis?
Porter's five forces is a framework to analyze the level of competition within an industry and analyze the business strategy in relation to that competition. This framework was developed by Michael E. Porter in order to help companies assess the nature of an industry's competitiveness and to develop an appropriate strategy.

What are Porter's five forces?
Porter's five forces are: competitive rivalry, bargaining power of suppliers, bargaining power of customers, threat of new entrants, and threat of substitutes. Competitive rivalry analyzes how intense the existing competition is in the industry. It includes things like the number of competitors, quality differences, and customer loyalty.

The bargaining power of suppliers determines how much power a business's supplier has and how much control it has over the potential to raise its prices. It includes things like the number of suppliers, size of suppliers, your ability to substitute, and the costs of changing suppliers. The bargaining power of customers analyzes the customers' ability to affect prices and quality. It includes things like the number of customers, the size of orders, price sensitivity, and the cost of changing for the customer.

The threat of new entrants analyzes how easy it is for a competitor to enter your industry. This includes things like how much time or cost it takes to start up a business in your industry, what special knowledge is required, economies of scale required, technology protection, and any barriers to entry.The threat of substitutes analyzes the substitute products or services that could be offered in place of the products or services offered in your industry. Substitute products are products the consumer perceives as meeting the same need and that could replace your product.

What goes into the marketing strategy section?
The marketing strategy explains how you will convince people to buy your product and/or service. The marketing strategy should identify your target market, including the geographic area, customer demographics, and customer lifestyle, values, and purchasing motivations. The marketing strategy should also identify what percentage of the market you will attempt to gain (market share). You should include a description of the image you wish for your business to portray and any slogans or branding. Additionally, the marketing section should discuss the ways you will reach your customers through advertising and provide cost estimates for the advertising activities. The marketing section should identify your top competitors and their strengths and weaknesses, being sure to address how your business is superior. Finally, the marketing plan should address pricing of your products and/or services.

What is included in the financial plan?
The financial plan is a critical piece of the business plan. For a start-up business, the financial plan will project your financial results in the future and help you identify how much money you will need to start and run your business. A typical financial plan starts with a sales forecast. As discussed in the chapter entitled "Budgeting, Planning, and Controlling," the budgeting process starts with sales. Additionally, the financial plan includes budgeted financial statements (income statement, balance sheet, and cash flow statement). Existing companies will also include actual financial statements and data, as well.

What are the key milestones and metrics?
Key milestones represent specific tasks you plan to accomplish, including dates they should be accomplished by. In addition, a business plan should identify specific metrics that will be used to measure the success of the business. These can be referred to as KPIs, or key performance indicators. These metrics should cover financial and non-financial areas and can be aligned with the balanced scorecard approach, which is discussed in the chapter entitled "Financial Statement Analysis." In addition to identifying KPIs, goals should be set. For example, if you determine that current ratio is a KPI, you should determine what your target current ratio should be. When setting KPIs and goals, it is helpful to use the "smart" approach. The "smart" approach entails setting goals that are specific, measurable, attainable, relevant, and timely.

Do you need to hire a professional to draft a business plan?
No, you don't need to hire a professional to draft a business plan. As mentioned earlier, there are a wealth of resources that can help you draft a business plan. However, if you are new to business and need to find investors or lenders, it couldn't hurt to get some professional advice or assistance.

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Excerpted from The Handy Accounting Answer Book by Amber Gray
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