In previous articles, we introduced the concept of business planning: what it is, why it is important and which type of businesses need such a plan. We also covered the benefits of having a business plan.
We continue this business planning series with an overview of the 10 main sections required within any business plan. Subsequent articles will elaborate on each of these sections. Whilst all the sections are essential irrespective of the type of business, the length and the level of details for each section will be dependent on the complexity of the business. The plan could be relatively short (10 pages) for a simple retail business or thousands of pages for building a complex project such as a nuclear plant.
The following structure is recommended by XEED because there is natural flow from one section to the next which makes it easy for the reader to follow the business plan.
- Executive Summary
As the title indicates, this section provides a short summary of all other sections of the business plan. It should therefore be written last, i.e. after all other sections have been completed (or mostly completed). The reader should get a broad understanding of the business from this executive summary.
- Vision & Mission
A vision statement sets out the desired future state of the company; long-term 5 -10 years objective for the business.
A mission statement defines the company’s raison d’etre – why it exists. It includes what the company does and how it intends to achieve its objectives.
The vision and mission statement are critical for the business because they set-out the aimed "destination" for the business. Therefore all activities carried out by the business should drive towards this destination.
- External Context
Businesses must understand the external environment in which they operate in order to stand a chance to succeed. A simple model called the PESTLE Analysis can be used for this evaluation: Political, Economical, Social, Technological, Legal & Environmental factors that are outside the control of the business, yet impact the business's ability to operate. Such factors could open-up new opportunities for business or restrict the business.
For example, recent increase in foreign exchange rates in Nigeria (an Economic factor) significantly increased the cost of importing goods and will be detrimental to any business that relies on importation of supplies. On the other hand, plans by the Senate President to promote #MadeInNigeria and introduce legislation (Legal factor) to discourage importation of goods will be favourable to those businesses that produce locally.
Businesses therefore need to be constantly aware of these external factors and what impact (positive or negative) these will have on their business.
- Products and Services
This section covers a description of the products and/or services that a business is planning to offer its target customers. The products and/or services will be described in as much details as required to give the reader a good understanding of the product. The description could include the physical features and the benefits to the customer and/or end user. Pictures and/or videos could also be used to make this more realistic for the reader. Complex technical details should be avoided in the main text and could be included in an annex.
- Market Context
Once the company's product or service have been clearly articulated, the business should consider the wider market context where the product/service will be offered. The market context covers the company's customers and its competitors.
In order to fully understand the customer, it is important to be able to fully describe them, including an insight into their needs, their preferences, their behaviours and why they will choose your product or service compared to competitor’s offerings and alternatives.
An understanding of the competitive landscape in which the business will operate is also critical for any business as this would influence the purchasing decision of the target customer.
- Sales and Marketing
By this stage of the business planning process, we should have a clear understanding of our customer and the product or service we are offering to them. We should also know why these customers would choose our products and services over a competing offer. This indicates that there is a potential for a viable business.
The next step is then to assess how to make our product or service accessible to the target customer. First, it is important to make potential customers aware of the product through a range of marketing strategies. Secondly, we must identify the channels through which we want our target customers to physically buy the product or consume the service.
- Key Personnel
The objective of this section is to describe the core team, their qualifications, skills, experience and any other information that justifies and supports their ability to deliver the business goals and objectives.
The management team of the business are particularly critical to its success since they will be making the key decisions that determine the direction of the business. In addition, other key personnel should also be included within this section.
All businesses have a range of operations that enables the business to run smoothly. These operations include production, transportation, warehousing, supplier chain management, payment etc. Organisations without appropriate processes will operate inefficiently resulting in higher costs and lower profits. Therefore, it is important for any business to fully evaluate and optimise those processes.
The key processes are described in this section of the business plan.
- Risk and Assumptions
Some elements of the business plan are based on assumptions. Through the business planning process, we should aim to validate most of those assumption. For instance, we can validate the cost of leasing a warehouse by getting quotes from such locations. Nonetheless, some elements cannot be validated which means that a degree of uncertainly will always remain. Those uncertainties introduce risks into the business. For instance, if the actual number of customers are much lower than projected, this could impact level of revenues and business profitability.
This section of the business plan will describe the key risks and how the business aims to mitigate those risks if they materialise.
This final section of the business plan details the full financial implication of the business that has been described in the previous sections. The financials enable the business to determine whether its planned activities will lead to a viable business or not.
The main financial indicators include sales revenues, costs, profit, cash flow and funding requirements. All these may sound like jargon at the moment, but in a few weeks these will become clearer.
In subsequent editions, we will go deeper into how to develop each of these sections of the business plan. We will provide various tools and templates that will aid the process. The process of producing a business plan could be tasking, but is extremely worthwhile to every business. In order to ensure that we develop a business plan that is valuable both now and in the future, we must be prepared to put in the necessary effort. So get ready for an exciting journey of discovery over the next few months.
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