Elements of a business plan
A business plan is the basis for successfully building a company. It follows a specific business plan structure, includes certain topics, and sets out the future of the company. What are the exact contents of a business plan and what are its main components?
- Purpose of a business plan
- Business plan: target group
- Breakdown of the content of a business plan
- Business plan structure
- The most common errors in creating a business plan
There are a number of very important tasks involved with starting your own business. In order to do these tasks justice, it is absolutely necessary to create a business plan. This should always be done in writing. But what are the contents of a business plan, what functions does it fulfill, and what is its structure like?
Purpose of a business plan
The early days of any business are usually filled with a lot of unrest. After all, the founders have to make a multitude of extremely important decisions. Even changes to the original plan are the order of the day. At the same time the management has to budget with limited and scarce resources. A business plan is the best way to prevent this hectic period and to bring structure and order to the everyday working life. The business sets out the best route forward. When making decisions, this plan sets out the orientation of the management as it determines the strategic direction.
In addition, business plans help greatly with time planning. It also ensures order and structure: the founders can see exactly which measures are due at which point in time.
One of the most important elements of a business plan is the definition of the business’s goals. This is relevant not only for the profitability of the business but also the strategic and organizational aspects of it. The management should compare the goals with the results achieved on a regular basis. This enables the company to analyze the extent to which certain measures have fulfilled their purpose and the causes of any failures.
A business plan can also play an important role in the search for potential investors or sponsors. A detailed business plan is a necessity for the process of applying for loans and investments and enables businesses to convince potential sponsors with business ideas and concepts.
Business plan: target group
Since business plans are generally quite versatile and extensive, various target groups will be formed during the creation process. The target groups can be found both within the organization and also externally. The most important target groups of a business plan are:
- Founders or the executive board
- Managers and employees
- Creditors or banks
- Investors, sponsors, and shareholders
- Administrative bodies
Breakdown of the content of a business plan
The structure and content are the decisive factors of a successful business plan. The ideas and concepts should include all areas of an organization and should provide the appropriate answers for all possible questions. Due to how detailed the content of a business plan is, it should be divided into qualitative and quantitative components. These form the basis for the correct structure of a business plan.
This area includes information that cannot be formulated with figures. This concerns, for example, questions of organization or the direction of economic strategies. In the qualitative section, the following points in particular should be dealt with:
- The goal of the company: What is the goal of the management and which strategic goals must be achieved along the way?
- Management: Who is the head of the company? What qualifications and skills do the founders have? Has the management already had experience running their own company in the past?
- Legal structure: What legal structure does the company have? Where has the share capital come from?
- Products and services: Which products and services does the company offer? What are the USPs?
- Target group: What kind of people does the business want to reach with its products and services?
- Production: What materials and purchases are required to manufacture a product?
- Personal planning: How many employees will the company require? How exactly will the individual departments be divided?
- Marketing and advertising: Which advertising measures should be used? How do you plan to increase brand awareness and build a positive image?
- Structure: What will the organization and structure look like? How many departments will there be? Will there be a hierarchical structure?
After the founders have dealt in detail and carefully with the qualitative contents of the business plan, the second part deals with the quantitative content. This can be recorded in concrete figures.
- Investments: What investments are required? At what point should investments be made? How high are the expenses? When will the expenses pay off?
- Startup costs: How high are the initial costs incurred upon founding the company (e.g. legal fees?)
- Capital: How much capital does the company have? What areas should the money be spent on?
- Financing: Where will the money for the planned tasks come from? What are the consequences of any additional costs?
- Liquidity: How can you guarantee that the company will have sufficient funds at all times to pay the bills? How can liquidity be maintained in the long-term?
- Revenue: At what point will revenue be generated? When will sales be achieved and in what amount? How can revenue be gradually increased?
- Profits: How high are the profits? What investments should be made with the profits?
- Balance sheet: How will the various goals effect the balance sheet of the company? What are the assets and liabilities?
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Business plan structure
Every business plan should be binding. On top of that, numbered pages and a clear structure are required.
Cover page and table of contents
Like many other documents, a business plan begins with a cover page. This should consist of the title of the business plan, the date, the company name, and the industry or sector of your company. Next, you will need to create a table of contents. This provides the reader with orientation and direct access to the desired chapter.
The table of contents is followed by a summary, which should outline the most important elements of the business plan. This provides the potential investor with an overview without getting lost in the details. The summary should contain information on the company founder, the products and services, the legal form, the market, and the sales. In addition, the financial requirements, the financing plan and the founding date should also be included.
Next, a tabular curriculum vitae should follow. This contains the qualifications, skills and professional past of the founders. If several people found a company, several CVs are required.
Every company has a specific legal structure. In general in the States there are four main business structures: sole proprietorships, partnerships, corporations, and Limited Liability Company (LLC).
A sole proprietorship is probably the simplest business structure and requires the least amount of effort. The founder bears all responsibility, despite any other managing directors or attorneys involved. On the one hand, this of course has its disadvantages as if any losses incur, the founder must pay for them with their own private assets. On the other hand, the founder can keep the profits entirely to themselves.
Place of company formation
Here you should include the place your company was formed. Further information about the location should also be included such as the number of customers and competitors in the area. A new company should ideally be set up in the middle of its target area if possible. This cuts down long journeys for the customers to get to your business and the company can grow faster because it can serve more customers in less time.
This section should include all products and services that the company plans to offer. Here, it is very important to emphasize the unique selling point of your product or service. For example, you should provide an answer to the question “why should customers buy from this company and not from others?”
As soon as the target audience is identified, the company can increase its level of awareness and successfully sell products and services. New businesses should deal with the following points when defining the target group.
Type of consumer
Are the buyers of the products industrial and commercial customers or private households? Will the products be directly resold or will services be provided to the public sector?
Location of the target market
On what geographical scale should the company operate? Is it only the regional market with possible regional products or the entire domestic market? Will the business sell goods and services throughout Europe or perhaps even worldwide?
Sales structures of other companies
Do agencies or mixed distributors deal with similar products or is there a direct contact between the retailer and the customer?
Levels of purchasing decisions
Who of the target group decides whether or not a business’s product will be sold? This can be the top management of another company, the commercial management, or an individual consumer.
Are there seasonal fluctuations or periodic influences? Are there specific barriers to market entry that make it difficult to reach the target group from the outset?
The most common errors in creating a business plan
Company founders require a lot of time and patience for a business plan, but they also have to meet certain requirements. Otherwise, mistakes will quickly creep into the business plan structure and this will deter potential investors.
An essential factor of the long-term success of a business is a founder who is passionate about the idea behind the company and supports it 100 per cent. This persuasiveness has a positive effect on negotiations with investors and sponsors. If you don’t present your business plan well, it will be difficult to get your idea accepted. Other mistakes that make the success of a business plan difficult are:
- No concept: Without a concept that is characterized by structure and organization, it will be difficult for any company founder to convince potential investors of the business idea, no matter how good the idea is.
- Lack of knowledge about the industry: Only those who know the market in which they operate can successfully develop their business and adapt to rapid changes. Accordingly, the business plan should also deal with the competition.
- Naivety: Many take a new business too lightly. Anyone drawing up a business plan should carefully consider which chapters of the business plan are of particular interest to potential investors. The belief that once the difficult phase of starting a business is over, the rest will work itself out, will prove to be detrimental sooner or later.
- Spelling and grammar mistakes: As with applications or C.V.s, grammatical and spelling mistakes will give the reader a negative impression. Every business plan should undergo a series of proofreading rounds by both the author and other people also.
- Incorrect time management: All elements of a business plan must be precise and exact down to the smallest detail. This makes proper time management all the more important. There should always be enough time for research, writing and correction. The individual sections usually require more time than you may initially think and a large buffer time is therefore required.
- Unrealistic: In addition to the many positive aspects and ideas that come with setting up a business, you should always bear in mind the difficulties and challenges of a business plan that may arise. Those who work towards their goal realistically will be able to gradually correct any standard errors and transform the experience into a positive one.