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Creating a Real Business Plan for Your Business

When small businesses start out a clear business plan is essential. However, most would-be entrepreneurs stop short of the plate where planning is concerned.

While there are no hard and fast rules for writing a business plan, there are some fundamental issues that should be covered. The plan that an entrepreneur uses to manage the firm from day-to-day must be detailed enough to be useful. The plan that one uses to explain their business to others can be a scaled down version of the detailed working plan. The areas which should be included in the business plan are summarized below.

-Introduction: explains the nature of the business, its location and mission.

-Management: describes the principal(s) and their expertise, the expertise required to operate the business, and how this expertise will be supplied. If employees must be hired, the nature and number of employees should be stated.

-Marketing: describes the target market(s) to be pursued, the product/services for each market niche, pricing, distribution and promotional strategies. The selected market niches should be supported by financial projections which demonstrate likely market acceptance, expected sales growth, and budgets for marketing-related activities, such as promotion. To support the pricing strategy, a profit and loss analysis should be provided. This approach should also include a “break-even analysis”. This analysis shows how much product must be sold to cover the costs of running the business. The financial projections should demonstrate that with reasonable (not superhuman) effort, the firm should be able to sell at least that amount or more. If financing is required to open the business, it should be included in the costs used for the financial analysis.

-Production: a statement of the production processes used by the firm if a service, or a tangible product is being produced for sale. In the case of a retail operation, reselling (not production) is involved which eliminates the need for a production analysis.

-Financial assessment: reveals the likely market share and profits to be sustained for a period of three to five years. While the five year plan is largely speculative, such an exercise forces entrepreneurs to think in the longer term towards managing business growth, which is a very worthwhile exercise before starting the business. This exercise can result in changes to the initial business plan. A savvy entrepreneur will produce return-on-investment figures based on the financial forecasts. This will enable the comparison of the investment return of the business with those of other investments, such as mutual funds.

Many entrepreneurs will include appendices for financial statements, patent applications, or other relevant materials.

The marketing plan is the heart of the business plan. Entrepreneurs should be prepared to back up their marketing plan with research that will confirm their expectations regarding potential market share. If the business is not feasible (in other words, the marketing plan is not reliable or well designed) the rest of the business plan becomes moot.

Entrepreneurs must be prepared to change their business plan on the fly. In most cases, initial forecasts for sales are overly optimistic. Entrepreneurs may soften the blow by preparing three sets of financial forecasts: the realistic (likely) scenario, optimistic (wishful thinking) scenario, and pessimistic (nightmare) scenario. When planning for financial support the most cautious approach to take is the pessimistic scenario.

The entrepreneur should think of their business plan as a “bible” by which they will make business decisions far beyond the start-up of their business. Such decisions are likely to carry the business into the first few years of its life. Detailed sales forecasts may include estimates of sales and cash flow for the first three to five years. The business plan “bible” is not the same as the one you produced for your banker, or investors. The “bible” is a much more detailed working guideline for your business.

In most cases, entrepreneurs should seek professional advice for researching their business opportunity, producing a marketing plan, or preparing financial statements. Investing in professional help is the first step in giving your business a productive beginning.

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Karen Blotnicky is a marketing professor at Mount Saint Vincent University in Halifax, Nova Scotia and President of The Marketing Clinic in Bedford, Nova Scotia. She can be reached at karen@themarketingclinic.ca