Basic Structure of a Business Plan: The motivation and influence to start a business must examine with a careful assessment of personal readiness for entrepreneurship or investment.
Alexander (2010), offers that the motivation behind the business plan may be to sell a project to potential investors or internal organisational stakeholders.
A business plan may also serve as an implementation guide. Business plans begin with identification, assessment and exploitation of business environment to identify which aspect of the environment currently offers promising opportunity for investment.
According to Lawal (1993), a business plan is a statement detailing various preparations and considerations in a new business venture.
Many management students face the challenge of being able to prepare a good business plan. This business plans will look at the basic structure of business feasibility study and detailed components of business plan.
Some of the objectives of business plans are:
- It aids business planning by revealing all aspects of the intended business
- It assists in the determination of profitability and feasibility of the proposed business
- It enables investors to evaluate and inform their choice of investing in a
- It enables prospective investors to fulfill the requirements of the government and financial institutions.
A business plan will adopt the following layout:
- Title page
- Table of contents
- Executive summary
- The team
Management plan
- Why we are a winning team
Introduction
- Vision, mission, and values
- Business model adopted
Body of the report
- Describe the nature of the business
- Business environmental analysis
- Industry background
- Competitor analysis
- Market analysis
Operating plans (Technical specifications)
- Key resources and activities
- Factory and administrative building
- Machinery and equipment types, vendors and prices
- Raw materials and component availability and vendors’ prices
- Utilities (electrical power and water).
Management summary
- Personnel requirements
- Availability of qualified personnel
- Organisation charts of personnel
- Materials needed by personnel
- Marketing and distribution plans
- Determination of product price
- Value proposition
- Marketing plan
- Target market
- Promotion
- Distribution plan
Project costs
- Total cost of capital equipment
- Working capital
- Operating costs
- Possible financing arrangements
Financial and economic analysis
- Break even analysis
- Cash flow analysis
- Projected sales and profit or loss
- Statement over the first five years
- Loan repayment schedule
Critical environmental factors major risks involved in the business
- The economy
- Market analysis and key trends
- Competitor analysis
- Competitive advantage
Major risks involved in the business
- Limiting factors
- Critical success factors (CSFs)
- Specific risks and control measures
- Implementation roadmap and evaluation
Recommendations and conclusion
Appendices
- Detailed financial information
- CVs of Key management
Detailed Components of a Business Plan
Title Page
The title page is there to attract the reader to the report and assist them in finding the report at a later date. You would typically include:
- Title (and any subtitles) – this should distinguish the report and ensure it is easily identifiable from others.
- Author (internal reports only)
- Your organisation’s name (external reports only)
- Any reference numbers
- Degree of confidentiality
- Date
You might also include some kind of unobtrusive artwork such as logos (your organisation and the client) plus a simple graphic that relates to the report subject.
Table of contents
A table of contents is a list of all the sections that are included in the report (in the same order in which they appear) plus relevant page numbers.
Executive summary
The benefit of including an executive summary is for senior people who are constrained by time to peruse the whole contents to have a quick grasp of what the business plan is all about. Therefore a succinct, clear and well written executive summary should always reach the reader.
It is therefore advisable to write executive summary first before introduction or in place of introduction.
The executive summary should include;
- What the report is about
- What the problems are
- The conclusions you arrived at
- What you recommend
The skill in writing an executive summary is to give the overall picture without including too much detail.
One useful by-product of writing the executive summary is that by going through the writing process you will be able to check that the report itself is logical.
The Team
Potential investors are quick to profile the people that constitute the management team of a business proposal.
They are keen to know the team experience, knowledge and whether they have the connection or network to accomplish the venture they propose. Initial areas of concern include members’ successful track records and whether they can successfully build and implement the business proposed.
Introduction
The introduction prepares the reader for the report itself by reminding them of what they already know i.e. Report has been written and the question that the report answers.
The introduction should address the followings:
- Make the subject of the report clear
- State the purpose of the report
- Briefly explain the methods used to get the information
Body of the report
The body of the report should be split into sections with logical headings and sub-headings.
These will likely reflect the groupings and sub-groupings you created during the planning and structuring phase.
The headings are essentially ‘signposts’ that allow the reader to navigate to the relevant detail in a logical fashion to further investigate something they have read in the executive summary. Typical components of body of the report would include:
- Business description, which briefly explains; Overall vision, mission and objectives
- History, values and ownership
- Products and services
Business Environmental Analysis:
- Industry background
- Competitor analysis
- Market analysis
- Operating plans
PESTEL Analysis:
A PESTEL analysis describes the political (P), economic (E), social (S), technological (T), ecological (E), legal (L) factors that impact the business. For example:
- Political: A change in government policy may lead to a reduction in grants available
- Economic: high interest rates make it expensive to borrow money from a bank to fund expansion
- Social: An ageing population increases the demand for pharmaceuticals and old-age-related healthcare
- Technological: The evolution from traditional hand-held mobile phones with buttons to smart-phones with touch-sensitive screens
SWOT Analysis:
A SWOT analysis describes strengths (S), weaknesses (W), opportunities (O) and threats (T) of a business. For example:
- Strength: The business employs a highly skilled and dedicated workforce
- Weakness: The factory is full of old machinery that frequently breaks down
- Opportunity: there is huge demand for the businesses products overseas so they could start exporting their products
- Threat: A large new competitor could open an outlet in the same town where the business is currently the only supplier.
Competitor analysis
- Who are the competitors?
Market analysis
Current market situation (target market, customers’ needs, perceptions, buying behaviour trends etc.)
- Size, segmentation, growth/decline
Operating Plans
- Marketing plan/strategies
- Operations plan as identified under layout section
Management summary
- Who the key management personnel are and their backgrounds
- Organisational chart (summary only – can include more detail as appendix.
Financial and Economic Analysis
Summary of financial information: Income statement, statement of financial position, break even analysis and cash flow statement.
Projected profit or loss statement over the first five years should be analysed. Loan repayment schedule with their durations should be specified. Non-financial merit and demerits should be identified.
Marketing and distribution plans
What is the product determination of price, promotion and distribution plan
Project Costs
Total cost of capital equipment, working capital and possible financing arrangements are to be explored.
Critical environmental factors and the major risks involved in the business
Look at the environmental factors that constitute risks. Identify such risks in the proposed business.
Assess the risks, and include possible risk management policies procedures and countermeasures to be employed.
Conclusions and Recommendations
The conclusions and recommendations must follow logically from the rest of the report. When drawing the conclusion and recommendations section, consider the followings:
Do the conclusions and recommendations follow logically from the rest of the report?
- Draw out the main point(s) of the report and present a considered judgement of them
- Only draw conclusions that are justified by the evidence and facts contained in the body of the report
- Make recommendations based only on your discussion and conclusions
- Never introduce a new line of argument or material in the conclusion and recommendations section
- Check the conclusions and recommendations against the original objective of the report
- Make sure you have recommendations against the original objective of the report
- Make sure you have answered the reader’s key question
Finish with the final impression you want to make. You may include a disclaimer as applicable (especially in professional exam situation)
Appendices
The appendices should include detailed information that the reader can essentially do without in order to make sense of the main body of the report.
For example: calculations, examples questionnaires and CVs.
They are effectively the bottom level of the logical pyramids you constructed during the structuring phase.
In summary, appendices should be:
Included only if absolutely necessary.
Non-essential for understanding the main arguments
Referred to somewhere in the body of the context i.e. there must be a link
Mentioned as the final item in the table of contents
An alternative approach is to exclude appendices but invite the reader to contract the author should they wish to see a copy of the detail.
However, as a minimum, most business plans would include the following two appendices:
- Detailed financial information –
more detail than in the financial plan in the main body
- CVS of key management – certainly board members but also include for other key management personnel.
Strategic Business Plan
Many books, articles and business-plan pitch contests dissect the topic. A growing number of business plan contests are springing up among business start-ups across Nigeria and other Sub-Saharan Africa countries.
Nigeria universities now devote entire course to the subject of entrepreneurship. Judging from the importance accorded business plans, you would almost conclude that a meticulously worded business plans with the right grammar, charts, spreadsheets, statistical data and detailed financial projections would guarantee a potential entrepreneur spectacular business success.
Those parameters are actually right but experience has shown that sometimes, the more elaborately crafted the document, the more likely the venture will fail for lack of touch with reality.
What then is responsible for business plan failures? The truth is that most prospective start-ups concentrate on proving their “fantastic” idea to the investors rather than selling the right information that matter to intelligent investors.
Any seasoned investor understands that the strategies embedded in a start-up projected plans are an act of imagination.
Typically, most potential entrepreneurs and start-ups are wildly optimistic to predict revenues and profits without giving due diligence to environmental ‘possibilities.
They are fast to pad their projections without contemplating that keen investors know about the padding and that such maneuvers will not guarantee a “win-win” situation for both parties. Sahlman (1997), assesses four interdependent factors critical to building a business that lasts:
- The People
- The Opportunity
- The Environment
- Risk and Reward
- The People
Business plan writers should talk about the key players behind the scene. A brief profile of men and women starting and running the venture including external parties providing key services such as lawyers, IT experts, consultants, accountants and suppliers is important.
My first area of interest when I receive a business plan is the people: What do they know? Whom do they know? How well are they known?
This because without the right team, none of the other parts really adds up.
What and whom they know have to do with their insights and experience.
How familiar with the industry players and dynamics are matters of assurance to potential investors.
No investor will buy the idea of a novice. Investors prefer to invest in a team who have the knowledge of the new venture’s product and service; its production processes; the market it would serve; potential competitors and customers.
This is indicative of and not played together. Investors whether the team member can or have worked also prefer a team that is known because the real world prefers not to deal with start-ups.
They are too unpredictable! Venture capitalists will not invest in any idea that has not claimed your sweat – even if it will change the world; only implementation skills count.
Sahlman presented fourteen “Personal” questions every business plan should answer.
- Who are the entrepreneurs – people?
- What is their educational background?
- What is their working experience – and where have they worked?
- What have they accomplished – professionally and personally in the past?
- What is their reputation within the business community?
- What experience do they have that is directly relevant to the opportunity they are pursuing?
- What skills, abilities, and knowledge do they have?
- How realistic are they about the venture’s chances for growth and the challenges it will face?
- Who else needs to be on the team and who should they collect with?
- Are they prepared to recruit quality skilled people and take good care of them?
- How will they respond to challenges and problems?
- Do they have the strategic acumen to make inevitable hard decisions that need to be made?
- How committed are they to this venture?
- What are their motivations?
If these questions are not adequately answered in the business plans, then you should have a second thought about the venture.
The Opportunity
Opportunity in terms of good product or service, for whom cum visibility, chances of growth and velocity, its economies in percentage of the market share, the impact viz competition and profitability.
A comprehensive analysis of the opportunity will look at the product or service total market, whether it is large, rapidly growing or both.
The industry attractiveness is also a key success factor. Smart investors prefer to invest in businesses that yield a significant return on investment within five years.
Industry attractiveness is relative considering the short life cycle of some attractive products.
The computer disk-drive business was very attractive at launch but change in technology and customers needs cuts the product life short and within twenty years of the product launch, it ends in disaster.
A business plan should describe in details how it intends to build and launch the product or service into the market.
How economically viable is the cost of visibility and access to customers? A sensible business plan will give due diligence to analysing the direct revenues and the costs of producing and marketing the product.
The business model adopted should be the one that focus attention on the balance sheet side of the equation. Critical questions to be addressed in the quest for investor to understand the cash flow implication of pursuing an opportunity includes:
- When does the business guarantee return on capital employed?
- How long does it take to acquire a customer?
- How long will it take the business to gain customer loyalty for its product or service?
The business plan needs to spell out how it intends to respond to competition and varying customer behaviour to its product or service.
Opportunity may grow to expand the range of products or services, customer base, or geographic scope.
Start-ups should be careful of opportunity trap of a lifetime dominance of the market.
Any good innovation would be copied within three months of launch. For starters, every business plan should envisage and try to answer the following questions about the competition:
- When does the business have to buy resources such as supplies, inputs (raw materials) and people?
- Who are the new venture’s current competitors?
- What resources do they control in respect of their strengths and weaknesses?
- How will they respond to the new venture’s decision to enter the market?
- How ready is the new venture positioned to respond to its competitor’s reaction to its product or service?
Some checklists for new venture opportunity include:
- Who is the new venture’s customer?
- What is the customers’ buying behaviour?
- What degree of appeal does the product or service compels customer purchase?
- How will the product or service be priced?
- How will the product reach all the identified customer segments?
- How much does it cost (in time and resources) to acquire a customer?
- How much does it cost to produce and deliver the product or service?
- How much does it cost to support . or educate a customer about the product?
- How easy is it to retain a customer for your product?
The world of invention is pervaded with danger. The way your business plan responds to tackling envisaged dangers, will determine your chances with the investors.
The Environment
Business opportunity should be analysed in the context of environmental factors i.e. environmental forces or macroeconomic environment.
All opportunities have promise; all have vulnerabilities. A good business plan should x-ray the environmental possibilities relative to the good, the bad and the ugly that lie ahead of the new venture.
Sometimes, the environment makes it difficult for start-ups to start new enterprises.
On the other hand, the environment can turn an unattractive business into attractive one. The economic depression of 2015/16 combined with security threats in Nigeria made it tough for start-ups to get going.
This informed government’s provision of grants for SMEs entrepreneurs’ and start-ups in order to reactivate the economy.
In clear terms, the business plan should spell out first, its knowledge of the new venture’s environment in respect of how it will benefit or constrain the proposal.
Seconyd, it should demonstrate that the venture’s environment will inevitably change and describe how changes will affect the business.
Thirdly, what will management do in event of unfavourable change and how will management lobby some environmental forces such as regulations or industry standards it cannot directly influence?
The way and manner these contexts are handled in the proposal will determine investors’ interest to invest in the new venture.
Risk and Reward
Accepting risk means you are ready to do business. If the end justifies the means, then exposure to risk would be acceptable. But the best business plans go beyond that; they unfold possibilities of action and reaction.
They engage the people, the opportunity and the environment from multiple angles to predict the unknown.
The future is hard to predict. In reality, risk is, ‘very’ risky. There are no immutable distributions of event outcomes.
Entrepreneurs are risk seekers and true entrepreneurs want to reap all rewards and pass all the risks to investors. So what does that mean for a business plan?
It means that the business plan must confront the risks headlong ahead in respect of people, opportunity and environment.
What happens when a significant stakeholder leaves? What happens if competitors react ferociously than expected? What happens if “boko haram” insurgence in the north-east, the source of key raw material refused to abate? What will the management do?
The answers or assurance portrayed by business plans in response to these daunting questions will determine what will deliver the deal to those seeking capital for new venture.
For instance, a new venture might be highly geared and therefore very sensitive to high interest rates.
The business plan would do better by stating that management intends to hedge its exposure through financial future market by purchasing a contract that does well when interest rates go up.
That sort of gives assurance to investors.
Frankly speaking, business plans must relate candidly about the end of the business.
How will the investor eventually get his investment out of the business? What happens to profit or how does he get compensated with interest or dividends? Investors are more comfortable with a wide range of exit options.
Finally, investors feel a lot better about risk if the end of the business is discussed in advance.
The saying goes that, “if you do not know where you are going, you should be able to retrace your steps.” You must plot a roadmap for winding up and a map for getting there!
The Winning Deal
My candid advice to start-ups looking for grants and loans is to make their proposal a win-win case.
Do not make your business plan a defensive turf. Do not be prompted to present a successful business plan but present an enduring business that will grow, expand and last.
Professional investors know about your strategies and strong tactical plan to get the money.
They know how to recruit, compensate and motivate team members. They also know how to rescue a sinking business, so open up!
Too crafty proposals often backfire. Below are ten characteristics of a winning deal you might find helpful:
- They emphasise trust rather than unnecessary conditions
- They do not get frustrated if actual plans differ slightly from plan
- They do not provide exaggerated rewards that will make both parties behave destructively
- They are brief, not clumsy or voluminous
Know the product and relate with it well
Must have experimented with the product and might present a prototype
Determine how much money the new venture requires and in what stages
Pitfalls to Avoid
A business plan must not exhibit any of the following pitfalls listed below.
Arrogance as very few ideas are truly proprietary
- Too difficult to implement by the team
- They are simple and easy to understand
- They are fair to both parties
- Avoiding risk
- Emphasise only reward without identifying embedded risks
- Failure to demonstrate mastery of the entire entrepreneurial process
- Hiding the fatal flaws from unsuspecting investors
- Plan the business with the probability of a significant return and the possibility of negligible loss.
There can be no perfect business plan for sure. All successful entrepreneurs started with a m business plan.
Crafting a business plan built of the right information and analysis that addresses the ingredients of success – people, opportunity, environment and risk/reward is inevitable.