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What is a business plan?
The written plan of goals you want to achieve with your business, and how you want to achieve them, is called a business plan. It is a decision-making tool used when beginning or extending a venture.
Any new business requires a business plan to ensure that the business can make a profit. Fund-seeking entrepreneurs use a formal business plan to convince investors to contribute towards the capital of the business.
Existing businesses – looking to expand or change the business – also use business plans to prospect for new business, attract key employees or deal with suppliers. By revising their business plan regularly, existing companies can devise strategies to manage their companies better.
Most commonly, a business plan is used to apply for a bank loan to fund a business. To learn how to create a business plan for a bank in South Africa, see FNB and Standard Bank’s business plan guidelines. You can also download Standard Bank’s free business plan template in Word or PDF format.
A business plan consists of three primary parts:
- The business concept – details about the industry, the structure of the business, the product or service and the strategy for the success of the business.
- The marketplace section – an analytical description of potential customers and the strategy for achieving success against competitors.
- The financial section – the income and cash flow statement, balance sheet and other financial information.
The length of a business plan varies depending on the nature of the business and the purpose of the business plan. Typically, a business plan is 15 to 20 pages long. It usually details the goals for the business for the next three to five years.
An important part of compiling a business plan is in-depth research into the market and industry. Try to gain as much insight into the market you are targeting by talking to business owners, suppliers, potential customers, existing customers, staff members, business experts, etc. Also, research the industry online.
Business plan format
Although there are several types, the key components of all business plans are essentially the same. The format varies based on who the intended reader of the business plan is. Here is an example of a standard business plan format:
1. Table of Contents (1 page)
The table of contents page should include the correct page numbers of the sections of the business plan. Therefore, it is best to write this page last. In addition to the table of contents page, the plan must also have a cover and a title page.
2. Executive Summary (2 pages)
The purpose of the executive summary of a business plan is to entice the reader to read the rest of the plan. The executive summary is an overview of the key aspects of the plan. It should be compelling but also concise.
The executive summary should include:
- the business concept (a description of the business, product, market and target market);
- key financial aspects (sales, profits, cash flows, investment returns and capital requirements); and
- a short company overview (type of company, date formed, owners and key personnel and achievements).
3. Company Overview (1 – 2 pages)
This section is a high-level overview of the company and the industry in which it operates. It is a description of the business, the product and the industry.
The following should be included in the company overview:
- The name of the company and the type of ownership and registration;
- Details about the business location (address, zoning, reason for choosing location, monthly rentals, etc.)
- Significant assets and financial contributions to the business;
- The mission statement of the business;
- Company objectives and goals;
- The main features of the industry in which the business will operate;
- The most important company strengths and core competencies;
- An explanation of the product, target market and profitability of the plan.
4. The Opportunity, Industry and Market Description (2 – 3 pages)
The research you conducted will come into play in this section. This section offers a detailed explanation of the market and industry and the business’ position therein.
They key is to determine who your target market is through a market analysis. Then clearly explain how your products/services will fulfil the needs of your target market. A market analysis also helps to determine pricing, distribution strategies and growth potential within the industry.
Describe the following:
- The opportunity – the gap in the market;
- The industry – the forces affecting the industry (i.e. obstacles to entry, customers, suppliers, substitute products and competition); and
- The market – insights into the target market (i.e. size, growth and trends).
5. Strategy (1-2 pages)
Detail your positioning strategy and how the business will compete in the chosen market. In other words, what is unique about your product/service and how will the target market benefit from what you have to offer.
6. Business Model Explanation (1 page)
The business model depicts how the business will make money/profit. A business model covers the following aspects:
- Sources of revenue;
- Costs involved in generating the revenue;
- The profitability of the business (revenue minus costs);
- The investment required to get the business up and running; and
- Success factors and assumptions for making the profit model work.
7. Management and Organisation (2 pages)
The biographies of the members of your management team and their roles in the business. Who will be responsible for running the business and why are they well-suited to the task?
This section should include:
- The founders of the company and their qualifications and experience;
- The day-to-day management team and their individual competencies and responsibilities;
- The type of support staff needed to run the business; and
- An organisational chart to show the management hierarchy.
8. Marketing Plan (2 – 3 pages)
The marketing plan is a comprehensive explanation of your marketing strategy. In other words, how will you sell your service/product to your target market?
Your marketing plan should include:
- The value of your product/service to customers;
- A detailed description of the target market;
- How you want your target market to perceive your product/service;
- The pricing strategy for the product/service;
- Sales and distribution channels that will be used to get the product/service to the customer; and
- The promotion strategy (budget, public relations activities, promotions, advertising, etc.).
9. Operational Plan (2 pages)
The operational plan is a description of how the business will function. Include a description of the following:
- The operating cycle – how the business will deliver the service or create and sell the product;
- How skills and materials will be sourced;
- Which tasks will be outsourced and how business relationships will be managed; and
- The cash payment cycle of the business.
10. Financial Plan (3 – 5 pages)
A very important part of any business plan is the financial plan. It is a reasonable projection of the company’s financial future.
A good financial plan will determine how much capital the business needs to launch and/or grow. This section is especially important to potential investors and banks – who will determine the odds for the continued survival of the company based on this information.
A financial plan should include:
- Start-up expenses and capital: What it would cost to start/grow the company and how the money will be generated.
- Profit and loss projections/income statement: Financial sales and expenses projections (i.e. income, cost of goods, gross profit margin, net profit, total expenses, etc.).
- Cash flow projection: Reflects how much cash will be needed to cover expenses and when it will be needed. The cash flow projection amounts to a profit or loss at the end of each month or year.
- A balance sheet: A summary of the business’ equity, assets and liabilities.
- A break-even calculation
Income statements and cash flow projections must be generated for every month of the first year, every quarter of the second year and annually for every year thereafter. The balance sheet is only generated on an annual basis.
Short summaries of the analyses of the income statement, cash flow projection and balance sheet must also be included. Do not include too much detail in this section. Additional projections, charts and calculations must be added to the Appendix.
Additional reference documents are included in the appendix. This could include:
- Brochures and advertising materials;
- Industry studies and market research;
- Plans and blueprints;
- Photos and maps of location;
- Magazine or other articles;
- Detailed lists of equipment owned or to be purchased;
- Copies of leases and contracts;
- Letters of support from future customers;
- List of assets available as collateral for a loan; and/or
- Detailed financial calculations and projections.
Find more business plan examples and templates from Entrepreneur Magazine.