A Babson College study discovered a written business plan wasn't all that important — unless you were trying to raise money. In cases. There are seven major components of a business plan, and each one is a complex document. Key elements that should be included are: Business concept. What I've learned as an entrepreneur and investor is that it's important to outline your business plan carefully. Consider all the variables so you.
business plan aspects of key
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This is a fantastic summary. Very easy to read and understand. With a distribution strategy formed, you must develop a promotion plan. The promotion strategy in its most basic form is the controlled distribution of communication designed to sell your product or service. In order to accomplish this, the promotion strategy encompasses every marketing tool utilized in the communication effort. This includes:. Once the market has been researched and analyzed, conclusions need to be developed that will supply a quantitative outlook concerning the potential of the business.
The first financial projection within the business plan must be formed utilizing the information drawn from defining the market, positioning the product, pricing, distribution, and strategies for sales. The sales or revenue model charts the potential for the product, as well as the business, over a set period of time. Most business plans will project revenue for up to three years, although five-year projections are becoming increasingly popular among lenders.
When developing the revenue model for the business plan, the equation used to project sales is fairly simple. It consists of the total number of customers and the average revenue from each customer. In the equation, "T" represents the total number of people, "A" represents the average revenue per customer, and "S" represents the sales projection. The equation for projecting sales is: Using this equation, the annual sales for each year projected within the business plan can be developed.
Of course, there are other factors that you'll need to evaluate from the revenue model. Since the revenue model is a table illustrating the source for all income, every segment of the target market that is treated differently must be accounted for. In order to determine any differences, the various strategies utilized in order to sell the product have to be considered. As we've already mentioned, those strategies include distribution, pricing and promotion.
The competitive analysis is a statement of the business strategy and how it relates to the competition. The purpose of the competitive analysis is to determine the strengths and weaknesses of the competitors within your market, strategies that will provide you with a distinct advantage, the barriers that can be developed in order to prevent competition from entering your market, and any weaknesses that can be exploited within the product development cycle.
The first step in a competitor analysis is to identify the current and potential competition. There are essentially two ways you can identify competitors. The first is to look at the market from the customer's viewpoint and group all your competitors by the degree to which they contend for the buyer's dollar. The second method is to group competitors according to their various competitive strategies so you understand what motivates them.
Once you've grouped your competitors, you can start to analyze their strategies and identify the areas where they're most vulnerable. This can be done through an examination of your competitors' weaknesses and strengths. A competitor's strengths and weaknesses are usually based on the presence and absence of key assets and skills needed to compete in the market.
To determine just what constitutes a key asset or skill within an industry, David A. Aaker in his book, Developing Business Strategies , suggests concentrating your efforts in four areas:. According to theory, the performance of a company within a market is directly related to the possession of key assets and skills. Therefore, an analysis of strong performers should reveal the causes behind such a successful track record.
This analysis, in conjunction with an examination of unsuccessful companies and the reasons behind their failure, should provide a good idea of just what key assets and skills are needed to be successful within a given industry and market segment. Through your competitor analysis, you will also have to create a marketing strategy that will generate an asset or skill competitors don't have, which will provide you with a distinct and enduring competitive advantage.
Since competitive advantages are developed from key assets and skills, you should sit down and put together a competitive strength grid. This is a scale that lists all your major competitors or strategic groups based upon their applicable assets and skills and how your own company fits on this scale. To put together a competitive strength grid, list all the key assets and skills down the left margin of a piece of paper.
Along the top, write down two column headers: After you've finished, you'll be able to determine just where you stand in relation to the other firms competing in your industry. Once you've established the key assets and skills necessary to succeed in this business and have defined your distinct competitive advantage, you need to communicate them in a strategic form that will attract market share as well as defend it.
Competitive strategies usually fall into these five areas:. Many of the factors leading to the formation of a strategy should already have been highlighted in previous sections, specifically in marketing strategies. Strategies primarily revolve around establishing the point of entry in the product life cycle and an endurable competitive advantage.
As we've already discussed, this involves defining the elements that will set your product or service apart from your competitors or strategic groups. You need to establish this competitive advantage clearly so the reader understands not only how you will accomplish your goals, but also why your strategy will work. The purpose of the design and development plan section is to provide investors with a description of the product's design, chart its development within the context of production, marketing and the company itself, and create a development budget that will enable the company to reach its goals.
Each of these elements needs to be examined from the funding of the plan to the point where the business begins to experience a continuous income. Although these elements will differ in nature concerning their content, each will be based on structure and goals. The first step in the development process is setting goals for the overall development plan. From your analysis of the market and competition, most of the product, market and organizational development goals will be readily apparent.
Each goal you define should have certain characteristics. Your goals should be quantifiable in order to set up time lines, directed so they relate to the success of the business, consequential so they have impact upon the company, and feasible so that they aren't beyond the bounds of actual completion. Goals for product development should center on the technical as well as the marketing aspects of the product so that you have a focused outline from which the development team can work.
For example, a goal for product development of a microbrewed beer might be "Produce recipe for premium lager beer" or "Create packaging for premium lager beer. This expertise usually needs to be present in areas of key assets that provide a competitive advantage. Without the necessary expertise, the chances of bringing a product successfully to market diminish.
With your goals set and expertise in place, you need to form a set of procedural tasks or work assignments for each area of the development plan. Procedures will have to be developed for product development, market development, and organization development. In some cases, product and organization can be combined if the list of procedures is short enough. Procedures should include how resources will be allocated, who is in charge of accomplishing each goal, and how everything will interact.
For example, to produce a recipe for a premium lager beer, you would need to do the following:. The development of procedures provides a list of work assignments that need to be accomplished, but one thing it doesn't provide are the stages of development that coordinate the work assignments within the overall development plan.
To do this, you first need to amend the work assignments created in the procedures section so that all the individual work elements are accounted for in the development plan.
The next stage involves setting deliverable dates for components as well as the finished product for testing purposes. There are primarily three steps you need to go through before the product is ready for final delivery:. This is one of the most important elements in the development plan. Scheduling includes all of the key work elements as well as the stages the product must pass through before customer delivery.
It should also be tied to the development budget so that expenses can be tracked. But its main purpose is to establish time frames for completion of all work assignments and juxtapose them within the stages through which the product must pass. When producing the schedule, provide a column for each procedural task, how long it takes, start date and stop date. If you want to provide a number for each task, include a column in the schedule for the task number. That leads us into a discussion of the development budget.
When forming your development budget, you need to take into account all the expenses required to design the product and to take it from prototype to production.
As we mentioned already, the company has to have the proper expertise in key areas to succeed; however, not every company will start a business with the expertise required in every key area. Therefore, the proper personnel have to be recruited, integrated into the development process, and managed so that everyone forms a team focused on the achievement of the development goals. Before you begin recruiting, however, you should determine which areas within the development process will require the addition of personnel.
This can be done by reviewing the goals of your development plan to establish key areas that need attention. After you have an idea of the positions that need to be filled, you should produce a job description and job specification. Once you've hired the proper personnel, you need to integrate them into the development process by assigning tasks from the work assignments you've developed.
Finally, the whole team needs to know what their role is within the company and how each interrelates with every position within the development team. In order to do this, you should develop an organizational chart for your development team. Finally, the risks involved in developing the product should be assessed and a plan developed to address each one. The risks during the development stage will usually center on technical development of the product, marketing, personnel requirements, and financial problems.
By identifying and addressing each of the perceived risks during the development period, you will allay some of your major fears concerning the project and those of investors as well. The operations and management plan is designed to describe just how the business functions on a continuing basis.
The operations plan will highlight the logistics of the organization such as the various responsibilities of the management team, the tasks assigned to each division within the company, and capital and expense requirements related to the operations of the business.
In fact, within the operations plan you'll develop the next set of financial tables that will supply the foundation for the "Financial Components" section. There are two areas that need to be accounted for when planning the operations of your company. The first area is the organizational structure of the company, and the second is the expense and capital requirements associated with its operation.
The organizational structure of the company is an essential element within a business plan because it provides a basis from which to project operating expenses.
This is critical to the formation of financial statements, which are heavily scrutinized by investors; therefore, the organizational structure has to be well-defined and based within a realistic framework given the parameters of the business.
Although every company will differ in its organizational structure, most can be divided into several broad areas that include:. These are very broad classifications and it's important to keep in mind that not every business can be divided in this manner. In fact, every business is different, and each one must be structured according to its own requirements and goals. Once you've structured your business, however, you need to consider your overall goals and the number of personnel required to reach those goals.
In order to determine the number of employees you'll need to meet the goals you've set for your business, you'll need to apply the following equation to each department listed in your organizational structure: In this equation, C represents the total number of customers, S represents the total number of customers that can be served by each employee, and P represents the personnel requirements.
For instance, if the number of customers for first year sales is projected at 10, and one marketing employee is required for every customers, you would need 51 employees within the marketing department: Once you calculate the number of employees that you'll need for your organization, you'll need to determine the labor expense.
The factors that need to be considered when calculating labor expense LE are the personnel requirements P for each department multiplied by the employee salary level SL. Therefore, the equation would be: Using the marketing example from above, the labor expense for that department would be: Once the organization's operations have been planned, the expenses associated with the operation of the business can be developed.
These are usually referred to as overhead expenses. Overhead expenses refer to all non-labor expenses required to operate the business. Expenses can be divided into fixed those that must be paid, usually at the same rate, regardless of the volume of business and variable or semivariable those which change according to the amount of business. In order to develop the overhead expenses for the expense table used in this portion of the business plan, you need to multiply the number of employees by the expenses associated with each employee.
Therefore, if NE represents the number of employees and EE is the expense per employee, the following equation can be used to calculate the sum of each overhead OH expense: In addition to the expense table, you'll also need to develop a capital requirements table that depicts the amount of money necessary to purchase the equipment you'll use to establish and continue operations.
It also illustrates the amount of depreciation your company will incur based on all equipment elements purchased with a lifetime of more than one year.
In order to generate the capital requirements table, you first have to establish the various elements within the business that will require capital investment. For service businesses, capital is usually tied to the various pieces of equipment used to service customers.
Capital for manufacturing companies, on the other hand, is based on the equipment required in order to produce the product. Manufacturing equipment usually falls into three categories: With these capital elements in mind, you need to determine the number of units or customers, in terms of sales, that each equipment item can adequately handle.
This is important because capital requirements are a product of income, which is produced through unit sales. This is where you identify and provide details about your target market size, historical and forecasted growth rates, demographics, needs, purchasing trends, etc. Competitive Analysis. What are their strengths and weaknesses? What are they trying to achieve? How do they market their businesses? What are the barriers you must overcome to compete and what opportunities you can take advantage of?
Use this area to formulate a strategy to stand out from the crowd. Lay out how your company operates. Include your organizational structure, ownership information, profiles of your management team, and number of employees.
13 Key Components of a Business Plan
The key elements of a business plan are much the same,whether for a large business or a small business. This doesn't mean your business plan must be as. A business plan can help you attract investors, obtain a loan and operate proactively, rather than reactively. When structuring a business plan, include. Somebody asked me what the key elements of a good business plan were, and I' m glad they did—it's one of my favorite topics.