Essential Elements of a Business Plan

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You create a business plan when you prepare a document that sets out a plan of how you are going to achieve the objectives of your business. Whether or not your business is a major organization or a small home-based business, the following is an explanation of the seven main categories of any business plan.

The Executive Summary.
Usually, the ‘Executive Summary’ is no longer than one page. In clear and concise terms, this part of your document will contain a short description of your business, who you intend to sell your products to and what sets you (and your business) apart from your competitors. Only the most basic financial information is included in the ‘Executive Summary’.

In reality, when you present your business plan to potential investors, it is this part of the plan that most people will actually read.

Description of Business.
Here, you will need to prepare an in-depth analysis of your business. State the history of your company and how the products you offer came to exist. Give as detailed a profile as possible of the kind of customers you aim to attract. Draw a chart of your operating structure and provide any legal details that are of interest to a potential investor. For instance, state any applications you have made for a trademark or patent for your product. Most importantly, you need to state what makes you and your business unique and why a potential investor needs to do business with you.

Market Strategies.
Basically, this part of the business plan sets out your marketing plan. Start by going into detail about your target market. Describe the characteristics of the kind of person you envisage buying your product. Then, give an explanation of how you intend to sell your product. Here are a few options you can consider:
You are going to rent a shop.
You are going to set up a website.
You are going to appoint a distributor.

Here’s a tip: do not list out every single marketing option you can think of. Instead, pick two or three that you feel will be the most effective in terms of time and money.

Competitive Analysis.
The rule of thumb, when preparing your ‘Competitive Analysis’, is to use what is commonly called a ‘SWOT’ analysis:
‘S’ – Strength.
‘W’ – Weaknesses.
‘O’ – Opportunities.
‘T’ – Threats.

Determine the strengths and weaknesses of your business. Then, realistically set out what opportunities are open to you at this moment in time and also in the near future. Finally, when you consider ‘threats,’ think of the worst-case scenario and what you would do if you are faced with such a threat.

Development Timeline.
If your company is new, you need to prepare what is called a ‘Development Timeline’. This means that you have to identify the various milestones in your company. How long will you take to reach these milestones and when do you think you will start to make a profit? If you are already in business, but not making a profit, you need to explain what resources you need to ensure that a profit will be made. 


Management.
The ‘Management’ part of a business plan sets out the ‘Who’s Who’ in your company. You introduce the management team in your company and explain each person’s achievements and strengths. What skills does the management team bring to the company? How will such skills be of benefit to the company and give it that edge over other businesses? In reality, after first looking at the ‘Executive Summary’, the ‘Management’ is the very next section potential investors look at.

Financials.
The ‘Financials’ is the part that usually takes up the bulk of space in your business plan. To the untrained eye, it can be confusing as it is filled with things like balance sheets, earnings projections, capital requirements and so much more. If you are running a home-based business, you are unlikely to go into such detail. As such, the best way to do this is to prepare a forecast of your cash-flow for 12-months. Here’s how to prepare your cash-flow forecast for one month:
Give an estimate of how much you will earn in one month. Include everything from cash sales, savings or commissions earned. This is called ‘Total Cash In’.
Then, determine what your expenses for that month will be. Include things like utility bills, loans, purchase of equipment and stationery and any advertisement costs. This is ‘Total Cash Out’.
To get your monthly ‘Net Cash Flow’, subtract your ‘Total Cash Out’ from your ‘Total Cash In’. If you get a negative number, you’re losing money. Your aim should be to always have a positive number.

The categories set out above show that preparing a business plan need not be tedious. If your business is new, a business plan also helps you evaluate how good your idea is. If you are already in business, a business plan may help you realize that you can make more money than you originally thought was possible. Either way, the benefits of assessing the essential elements of a business plan will ensure that your business is on the path of success.


By Avantika