Keep reading to learn the basic components of a business plan, why they’re useful, and how they differ from an investment plan.
What Is a Business Plan?
A business plan is a guide for how a company will achieve its goals. For anyone starting a business, crafting a business plan is a vital first step. Having these concrete milestones will help track the business’s success (or lack thereof). There are different business plans for different purposes, and the best business plans are living documents that respond to real-world factors as quickly as possible.
How Does a Business Plan Work?
If you have an idea for starting a new venture, a business plan can help you determine if your business idea is viable. There’s no point in starting a business if there is little or no chance that the business will be profitable, and a business plan helps to figure out your chances of success. In many cases, people starting new businesses don’t have the money they need to start the business they want to start. If start-up financing is required, you must have an investor-ready business plan to show potential investors that demonstrates how the proposed business will be profitable. Business owners have leeway when crafting their business plan outline. They can be short or long, and they can include whatever detail you think will be useful. There are basic templates you can work from, and you’ll likely notice some common elements if you look up examples of business plans.
Market Analysis
The market analysis will reveal whether there is sufficient demand for your product or service in your target market. If the market is already saturated, your business model will need to be changed (or scrapped).
Competitive Analysis
The competitive analysis will examine the strengths and weaknesses of the competition and help direct your strategy for garnering a share of the market in your marketing plan. If the existing market is dominated by established competitors, for instance, you will have to come up with a marketing plan to lure customers from the competition (lower prices, better service, etc.).
Management Plan
The management plan outlines your business structure, management, and staffing requirements. If your business requires specific employee and management expertise, you will need a strategy for finding and hiring qualified staff and retaining them.
Operating Plan
The operating plan describes your facilities, equipment, inventory, and supply requirements. Business location and accessibility are critical for many businesses. If this is the case for your business, you will need to scout potential sites. If your proposed business requires parts or raw materials to produce goods to be sold to customers, you will need to investigate potential supply chains.
Financial Plan
The financial plan is the determining factor as to whether your proposed business idea is likely to be a success. If financing is required, your financial plan will determine how likely you are to obtain start-up funding in the form of equity or debt financing from banks, angel investors, or venture capitalists. You can have a great idea for a business, along with excellent marketing, management, and operational plans, but if the financial plan shows that the business will not be profitable enough, then the business model is not viable and there’s no point in starting that venture.
Business Plan vs. Investment Proposal
The business plan is largely an internal document, intended to guide the decisions of executives, managers, and employees. The investment proposal, on the other hand, is designed to be presented to external agencies.
