6 Essential Components of an Effective Business Plan

February 1, 2020
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A business plan is a communication tool, which companies use to seek investment capital, secure loans, and to attract strategic business partners.

An effective business plan will help to lure investors and secure credit facilities, as it presents the business model, financials, and forecasts.

A business needs this tool to set goals, track progress towards these goals, and make the necessary changes as the business grows.

Why Should I Have a Business Plan?

Business plans carry many benefits, key among them being:

  1. Business outlook – They help companies to have a cohesive vision by laying down a roadmap for marketing, sales, manufacturing, human resources, and website design. With a well laid-out plan of action, businesses stand to improve their chances of success.
  2. Securing partnerships and capital. – Investors and lenders will need to see your roadmap to success for them to invest or fund your company. To mitigate risks associated with credit facilities, banks and private investors require realistic forecasts to determine how and when they will gain returns to their investment.
  3. Other benefits as outlined by Quickbooks Intuit

6 Essential Components of a Business Plan

You need a solid business plan as a foundation to your entrepreneurship. How could you possibly achieve this? The secret is in the following 6 elements that make up a sound business plan:

1. Executive summary

A business lady preparing a business plan
A business lady preparing a business plan – Image Credit: Unsplash.com

This section is written last, but must be captivating enough as to appeal to your audience. It provides an overview of the content covered in the report, as well as company background, achievements, goals, experience, founder details, and business location. Other elements included in this section include the mission and vision statements.

2. Nature of business

An open-market business
An open-market business – Image Credit: Unsplash.com

This section gives brief information about the industry in which the company operates. Here, the business must provide reliable, verifiable data about its markets as this information is used by investors to make funding decisions.

The organization structure is also described here, where the business states the nature of its operations, legal formation, products or services to be sold, and measures to achieve a competitive edge.

It is better to develop an organizational chart to demonstrate the business ownership, whether a sole proprietorship, partnership, or corporation.

3. Market analysis

A market analysis of a business plan
A market analysis of a business plan – Image Credit: Unsplash.com

Market analysis refers to an evaluation of the target market in which the business will be operating, in terms of size and market share, strengths, and weaknesses. At this level, the business should also cover barriers to market entry and legal requirements likely to hinder progress.

Understanding how the business will enter the market is crucial to its success. Reviewing consumer buying patterns (for instance during Black Friday) and competitor performance is equally important in preparing for upcoming holiday seasons.

It is also advisable that a business takes advantage of technology and developments available across the industry to improve on customer experience through efficient service delivery, product innovation, and lower costs of operations.

4. Product offering

What value are customers exchanging for their money? How often do they need your services? These questions can help the business to develop the right product, features, and benefits for the target market.

Other issues covered under the product offering section include product life cycle and anticipated research and development projects.

5. Sales and marketing

Sales & marketing team
Image Credit: Unsplash.com

This section discusses the strategy the business will use to penetrate the market, how it will grow, distribution channels, and communication structure for interacting with customers and other key stakeholders. This part also gives a structure of the company’s selling activities.

Actions transform ideas into results. Marketing can be done either through one-on-one meetings or through promotions. Either way, your method should appeal to your target market, leading to increased sales and profits.

6. Financial outlook

The financial outlook of a business plan
The financial outlook – Image Credit: Unsplash.com

The financial outlook is important to secure funding from lenders and investors. This information includes a historical analysis of the company’s financial statements, such as income statements, statement of cash flows, and statement of financial position for 3- to 5-year period. Additionally, the company should provide projections on the effect of its business or new product, or cash input.

Forecasts should be realistic to convince investors to pump capital into your business. This can be achieved by deriving projections from existing financials using tools, such as Wrike.

Takeway

Business plans are a must-have to set operational and financial goals, track business progress, and make the necessary changes as the company grows. Intellini helps startups, medium- and large-size companies to develop value- and action-oriented business plans. Feel free to contact us for details.

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