components of a business plan

components of a business plan

Components of a Business Plan

1. Executive Summary

The executive summary is often considered the most important section of a business plan. This section is intended to be a concise overview of the whole plan. It should touch on each of the component parts, including the vision, the mission, the keys to success, the goals, and the objectives. This should be considered as a snapshot of the whole business plan. It’s sometimes easier to write this section after you have written all the other sections. Writing the whole plan will also give you a deeper insight into the inner workings of the business. This will make it easier for you to extract the more impactful data and write a more powerful summary. The executive summary should be no more than 2 pages long, with brief summaries of other sections of the business plan. Short bullet points can work for this section. The idea is to keep the text engaging and informative, whilst making the best use of the white space available. Remember, most readers will only skim read so the thinner the books, the more power the summary will have on the final decision-making process.

2. Company Description

e. SWOT Analysis In this part of the company description, carry out a SWOT analysis. This is an assessment of the strengths and weaknesses in your business, and the opportunities and threats present in the environment that surrounds your business. An honest analysis is always a useful tool, as it can help identify areas on which to improve, or avoid where there is insufficient profitability.

d. Goals and Objectives In this section consider what it is that you want to achieve. This could be anything from rapid expansion of your business, developing a new product or service, or even selling the business on when it reaches a certain point.

c. Who is your target market? At this, you should give some insight into describing your target customers. You may want to consider creating a customer profile; this is a detailed pen picture of your typical customer and it allows you to visualize what your customer does, what they like, what they read, what they earn, and most importantly where you can find them!

b. What makes your business unique? By this, we mean what is it about your business that sets it apart from others in your market. This could be a unique business model, a patent on a product you have developed, or perhaps just exclusive access to a large and currently untapped market.

a. What do you do? This should be a clear and succinct statement which describes where your business fits into the market you operate in. Try to avoid using industry jargon, as this can make it difficult for some readers to understand.

The company description section is designed to give readers and investors a high level understanding of the shape, size and scope of your business, and the markets you operate in. This section should include: an overview of your business and what makes it unique; a description of the market in which you operate; the goals that you have for your business; an analysis of your business’s strengths, weaknesses, opportunities and threats and financial forecast. This is often considered the most important part of business planning. If you are seeking finance for your business, it is vital that you provide banks and investors with the right level of detail in order to help tell your story in the way that it needs to be told.

3. Market Analysis

There are two types of information gathered in the market analysis. “Primary” information provides specific and detailed data about your target market, while “secondary” information will help you understand it. Primary information is costly to obtain but it will guarantee the accuracy and relevancy of the information. Gathering and documenting primary information involves extensive market research and this can be increasingly time-consuming. Primary information sources include surveys, questionnaires that are conducted through personal interviews, telephone surveys, mail or email. These have been acknowledged as the best way to gather high-quality data and can be either in a qualitative or quantitative form. A qualitative survey will gather information in a descriptive form in regards to the nature of the problem and how the people feel about, whereas the quantitative survey it may involve tools to develop a question or situation into a set of variables which can be quantified to describe the market situation more precisely. This can also be done using the same forms of interviewing although with more structured questions. Data from the Australian Bureau of Statistics, industry and professional publications, specialised industry associations, and advertising and marketing information companies are all high-quality sources of secondary information. This method, on the other hand, is inexpensive and can be done quickly, however, the results may at times be irrelevant and may not answer any questions.

This is one of the critical areas of the business plan. The market analysis examines the target market of the company. A well-structured and informative section demonstrating a thorough understanding of the following components: market size, trends and projections, industry structure, target or niche market, and the company’s market share potential, leads to increased confidence in the venture and substantially enhanced probability of funding. An understanding of the industry automatically demonstrates an understanding of the target market and its needs.

4. Marketing and Sales Strategy

Marketing and Sales Strategy provides readers with an insight into the company’s marketing and sales activities, the methods employed to increase sales, the target markets, and its strategies to capture them. With regards to marketing, details should be provided on how the company plans to implement marketing activities to create awareness about the company and its products. Methods employed should be clearly discussed, i.e. advertising, public relations, Internet marketing, trade shows, etc., to identify key markets and build customer prospects. For each activity, the cost, expected response, and expected sales outcomes should be discussed. The topic on sales is a detailed elaboration on how the company plans to sell its products and the sales methods employed. The most important part is the sales force strategy where the company needs to build, manage, and motivate a sales force that is able to implement the sales methods and achieve the sales targets for the company. It involves setting clear objectives for sales personnel and the allocation of resources to provide them with tools and direction to be successful. Events on sales promotions and forecasting should finalize the discussion on sales. The sales promotion would require a detail on the planned promotional activities, and forecasting is a quantitative estimate of the sales and sales impact of the marketing activity. This is essential in enabling to determine the success of the marketing and sales activities and can be used to improve next year’s planning.

5. Financial Projections

Accept the fact that your forecasts will be wrong: what you are trying to do is minimize the degree of forecast error. Forecasts are predictions of how a variable will behave in the future often by using past data as a guide. The first level of forecast prepared by a new business may be nothing more than an expectation of positive results. But as financial systems are developed and knowledge on estimating cost behavior is gained, the company can begin to build more formal and objective estimations of revenue and expense concerning specific action. This depth of quantification must maintain a flexible correlation with expected activities and avoid the pitfall of using fixed values in an unpredictable business environment. A dynamic forecast will continually contemplate hypothetical changes in business activity with the generation of best and worst case scenarios. A company should be cautious to avoid formalizing expectations as budget and remain open to challenging its own assumptions.

Before going into the details of how to make financial projections, it is important to give a little introduction. It has been found that many entrepreneurs, mainly those who are small or are just starting, fail to prepare financial projections. There can be many reasons for this but the most interesting and common one that I have found after asking a few of these entrepreneurs is that they do not prepare it because they think no one can guess what will happen tomorrow so what is the use to forecast and secondly, they do not know how to prepare forecasts. So here is the answer to their second problem. Whether you are starting a new business or launching a new product, the experienced business person knows that putting together a reliable set of financial projections is a critical first step in guiding the business to success. A company in its infancy, where the likelihood of failure is statistically high, must have a sturdy and flexible set of financial models which can survive the shock of negative variances. By using these models to establish defined goals and tracking its performance against these goals, a company can decisively manage resource levels and focus activities of functional units towards a common objective. These are the steps to define a practical and effective financial projection plan.

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