The reading level for this article is Novice
If you are submitting your business plan to an investor, financial institution or someone else, this is one section that is necessary. The introduction section of your business plan will set the stage and tone for the reader. Include an attention-getting cover page. Consider using your company logo and/or a picture of your product or service in action. Your table of contents should be organized and easy to follow. Pay special attention to the Executive Summary since many readers will go to it first and may never go beyond it.
The introduction section should contain a(n)
Introductory Letter
Cover Page
Table Of Contents
Executive Summary
A business is only as strong as the people who breathe life into it. Your management team and staff can be the difference between a successful business and one that fails. Therefore, it is important to include a section in your business plan that outlines the skills that your team members possess and how these skills will help bring your product or service to market.
The Team section of your business plan should include:
Management Team Profiles and Ownership Structure
Advisors
Professional Services
Human Resources Requirements
Management Team Profiles & Ownership Structure
No matter how large or small your business, good management is key to its success. It is important to think through and identify all management categories, necessary skill sets and possible job titles. It is not necessary to fill each position with a different person. You should, however, identify the people who are capable of assuming roles when necessary, whether it be yourself or someone else. It is suggested that you provide a current copy of everyone’s résumé in addition to including profiles of each member of your management team (even if the team is just you) that demonstrates his or her unique skills. Describe how each person will add to the team’s success.
Management Team Profiles & Ownership Structure section should cover the following:
What are the major categories of business management in your company (i.e. marketing, sales, research, administration)? Include an organizational chart of your business or explain the functions of yourself and key team members.
Who are the people who have agreed to work with your business? (Attach complete resumes of management team members) What are their job descriptions?
What positions are still unfilled at your company?
What skills and job experience will the people who fill these positions have?
What skills do you personally have (include any skills from last job or business – how do these skills correlate with your business?)?
Describe the compensation package for yourself and the management team (e.g. salary, benefits, profit sharing schemes etc.)
What work contracts, non-competition agreements and other contractual agreements have you put in place for your management team? (Include contracts in Appendix)
Describe the ownership structure of your business, mentioning percentages controlled by management team (if applicable).
Advisors
No matter what size your company, creating a board of advisors for your company is an excellent way to benefit from the skills and expertise of people you may not yet be able to afford to employ. By outlining your Advisor’s credentials, you can help to enhance the credibility of your management team. Therefore, it is important to include a section of your business plan on your board of advisors.
The Advisors section of your business plan should cover the following:
Outline who is on your board of advisors. List names, titles, employment, education, expertise and how their guidance will positively impact your business.
If you have not yet assembled your board of advisors, describe the types of people you will approach. (It is important to make sure you look for board members who can supplement skills your business may be lacking for example, if your business is technology based, try to include people with marketing and finance backgrounds.)
Professional Services
Another important aspect of your business plan should be a section that lists all the professional support services – such as your lawyer, accountant, banker and consultants – that your company will use. This list will show not only that you have considered all facets of your business, but also that you have a strong network of talent that will help your company grow. If you haven’t already investigated professional services, consider asking others in your industry for recommendations of support services and read trade magazines to find possible contacts.
The Professional Services section of your business plan should cover the following:
Who are your company’s key outside advisors (e.g. accountants, lawyers, consultants, bankers)?
Human Resources Requirements
Once you have defined your management team, you need to include details on the other employees your business may or may not need and what their function(s) will be. In the beginning it may be just you and a selection of freelance, contract or part-time help.You will need to think ahead and consider all the options you may be faced with.The purpose of this section will be to ensure that you have considered the labour situation in the area and industry in which you’re starting the business and have made allowances for the compensation and training of this staff.
The Human Resources Requirements of your business plan should cover the following:
How many people do you require for your business?
What specific skills do these employees need to possess?
What is the compensation package for each employee?
Is there sufficient local labour? How will you recruit people if there is not?
How much does this labour cost now? In the future?
How will you train your staff?
What is your policy for ongoing training for your staff?
Cover Page
In addition to the words “Business Plan”, your cover page should clearly identify who you are, your company name and how you can be contacted. Consider making it stand out by using images of your product/service in action.
Your Cover Page should include the following:
Your name
Company name
Address
Telephone number
Date
It might also include (if available):
Fax number
E-mail address
Website address
Company logo
Picture of product or service in action
Table of Contents
A reader may often use the table of contents to skip to the part of your plan they are most interested in. Therefore your table of contents should clearly outline the core sections and subsections of your plan. Wait until your business plan is complete to add page number.
Executive Summary
The executive summary is the most important part of your business plan. It is where you grab the attention of the reader by summarizing the highlights of your business plan in a short document. Succinctly state what the business is about and why it will be successful. Don’t assume people will read your plan cover-to-cover. It is a good idea not to write the executive summary until your entire plan is finished – that way you can select the most relevant information to be included in your summary.
Your Executive Summary should cover the following:
Describe your business concept. Be sure to include what industry sector you will be operating in (e.g. retail, manufacturing, wholesale etc.), the market you will serve, and your competitive advantage.
How will you differentiate your product or service from competitors?
What is the legal structure of your company (e.g. sole proprietorship, partnership or incorporated company)?
Is your company already in operation or is it a start-up operation? If it is operational, give a brief overview of your progress to date. Include achievements such as patents, prototypes, contracts, and market research indicating that the business is viable.
Who is involved in the venture? Briefly summarize your management team’s experience and credentials.
How much money (if any) are you seeking and for what purpose?
How much money has the founder(s) invested in the business to date? How has this money been spent?
Summarize your projected financial performance. Include projected gross revenues and net profits in the first year of business.
Do you intend to draw a salary from the businesses in the beginning? If not, how will you support yourself? If so, how much?
A clear understanding of your industry and your company’s position within it are crucial to your success. You’ve got to communicate what your purpose is as a company. This section describes the industry that your company will operate within, how you will position your product or service within that industry and why your business is viable. Your challenge is to clearly describe what your company is going to do and why that’s special. The Business Environment section includes the following subsections: Business Summary and History, Industry Overviewand the Position in the Industry.
Business Summary & History
This section should describe the overall picture, from the time the business was started (if started before writing your business plan) to what stage your business is at presently. This is where you should outline the work you have done so far and any sales (if any) you have made to date.
Industry Overview
It is important to give some background on the industry you will be working in. Describe some of the trends in your industry, along with the growth prospects of the industry. It is important to summarize the various sectors within your industry since this will set the stage for the description of where your company will operate.
Your Industry Overview should answer these questions:
What is the total size of your industry? (potential sales, number of customers, etc.)
Are there seasonal factors that affect the industry?
Describe any trends that affect your industry (eg. interest rate sensitivities, government regulations, seasonality). Are they increasing or declining?
What kind of long-term outlook does your industry have?
Position in the Industry
Most new businesses that succeed do so because they find a small part of an industry that they can call their own – commonly called a “niche”. You must describe what product or service you will be selling, what makes it unique and how you will carve out a place within the existing industry.
This section should cover the following:
Briefly describe your product(s) or service(s). Give an honest assessment of its strengths and weaknesses. Be sure to include how your product or service is unique.
Describe how you plan to protect what makes you unique. Do you have legal protection like patents, trademarks or copyrights?
Who are your competitors? What percentage of the market do they control? What are their strengths/weaknesses?
What are the barriers to entry in your business? How easy is it for your competitors to duplicate your unique product or service?
Describe what role technology plays in the creation of your product or service. Does this make it easier or more difficult for competitors to offer a similar product or service?
Your Marketing Plan should include everything you do to get your customers to buy your product or service. This is often the weakest part of a business plan so it is important you spend enough time to get all of the research you need to complete it successfully. Your Marketing Plan will include both your strategies for growing sales as well as the tactics you will employ to get there along with an overview of the competition in your market. The Marketing Plan section of a business plan is made up of five subsections: Target Market, Services/Products, Pricing Strategy, Sales/Distribution Plan,and Advertising and Promotions Plan.
Target Market
You need to have an understanding of the size of the target market for your product and the niche you are trying to carve out for your business. Explain the type of person or business that is likely to buy your product or service and how large this market is. Be sure to describe your direct competition, but don’t forget your indirect competition. Your indirect competitors are the businesses that sell a product that is not the same as yours but could be used as an alternative by your customer. For example, if you want to open an ice cream store, your competition will not only be other ice cream shops, but also the candy store down the street that offers an alternative to satisfying your customer’s sweet tooth.
Give a summary of the major trends in the marketplace. You’ll have to do a lot of research to complete this section and it is important that you credit your sources since this will add credibility to your facts and figures.
The Target Market section should cover the following:
Outline your target market. Include demographics statistics such as their age, gender, where they live, income etc. Also explain the psychographics of your target market. What do they have in common? What motivates them?
Estimate the total size of the target market for your product or service in terms of gross sales and units of product or service sold.
What trends are affecting the target market for your product or service? Consider industry trends, socioeconomic trends, government policy, and demographic shifts.
Summarize your competition. Includes estimates of their market share, and your sense of their financial health. Compare their product or service to yours in terms of quality, price, service, warranties, image, etc. Include both your direct competition and your indirect competition.
Services/Products
Your marketing strategy should communicate what makes your product or service unique. It is important to describe both the features and the benefits of your product or service. Features are descriptive attributes of your product such as the colour, weight, etc. The benefits describe what good things the customer will enjoy by using your product or service (e.g. save time, save money, feel better etc.).
Your Services/Products section should cover the following
What is the one thing above all else that makes your product or service unique?
What other features does your product or services have? Consider packaging, quality, price, service, etc.
What benefits will your customers enjoy by buying your product or service? Will they save money, feel better, be smarter, etc.?
Pricing Strategy
An important part of your strategy is determining how you will price your product or service. The secret here is to establish a reasonable base price that will enable you to make a fair profit. You may believe the easiest route is simply to set your prices in accordance with those of your competitors. That’s not always wise. Before you set a base price, you have to look at your own objectives and special considerations.
The Pricing Strategy section should cover the following:
What is your base price and how did you arrive at this figure? Provide a brief summary of your fixed and variable costs.
How are similar products and services priced? Explain how the price of your product or service will compete with market prices. If your price is higher, why would a customer choose your product? Do you offer superior service or a higher quality product? If your price is lower, how are you able to charge less – is the quality different, is your production process more efficient, do you sell in large volumes?
What do your costs include?
Are you offering discounts to students or seniors or for those who pay in cash rather than by credit?
Are you allowing trade-in, a layaway policy?
What kind of a return are you looking for in your investment and how soon are you anticipating recouping your investment?
Sales/Distribution Plan
Your Sales/Distribution Plan should detail how the transaction between you and your customer will take place. It should include a discussion about how you plan on selling your product or service and it should outline all of the different people and companies involved in getting your product into the hands of your customer. You should explain in detail what type of distribution channels are available to you (account representatives, sales people, Internet, delivery services, other companies that will carry your product) what benefits you will have by choosing them and the length of time it will take to get your product to your customer. Don’t forget to summarize your returns policy and describe any warranties or after-sales support you will offer customers.
Your Sales/Distribution Plan section should cover the following:
How will you distribute your product or service? Will it be by mail, through a wholesaler, through retail, through a Website, an independent sales representative etc.? Outline all of the players or technology involved in getting your product/service to the end customer.
How can customers pay for your product? What credit terms will you extend to your customer? Include any discounts you will offer for early payment or penalties for late payment.
Describe your return policy, service guarantees and/or any warranties you intend to offer customers.
What after-sales support will you offer? Will you charge for this service?
Advertising and Promotions Plan
Your Advertising and Promotions Plan must detail how you are going to communicate to your customers and prospects. There are many ways your business may communicate including advertising, public relations, brochures, a Website, trade shows, etc. If possible, include an example or mock-up of your communications pieces.
Your Advertising and Promotions Plan should cover the following:
Describe how or if you will advertise your product. Include what medium you will use (i.e. direct mail, Internet, radio, television, etc.) How much will this cost? How much business do you anticipate this will bring in?
Describe what plans you have to generate press for your business. What type of media will you target?
What kind of marketing material will you produce? Include brochures, sell sheets, business cards, etc.
Will you have a Website? If so, describe how you will use it to market your business.
What other forms of marketing will you use? Consider trade shows, telemarketing, etc.
Your plan needs to address the day-to-day running of your business. If your idea is still at an early stage, completing this section of the plan will help you to list the steps required to develop your product or service. Or, if you have already made some progress toward developing your product or service, this section of your business plan will help you to create a checklist of tasks that still need to be done.
The Operations section of your business plan should have two subsections: Stage of Development and Production Process.
Stage of Development
You need to identify what stage your business is at. In other words, are you still in the thinking or idea stages, or are you already manufacturing your product or developing your service? This part of your plan simply outlines the steps you have taken toward developing your business and what remains to be done.
Your Stage of Development section should cover the following:
How will your product or service be made? Describe the workflow in the creation of your product or service.
What are the problems that might occur in the development of your product or service? Have you created a checklist to ensure these problems are discovered?
Outline which industry associations you will be or already are a member of. Are there industry guidelines that you must follow? Are there government regulations that you must follow? Have you contacted these necessary industry associations?
Who are your suppliers? Do you have alternate suppliers if one doesn’t work out? What are their prices, terms and conditions?
What quality control measures have you instituted?
Production Process
Regardless of your type of business, you need to walk through the process of creating your product or delivering your service. This part of your business plan allows you to show an understanding of the process of manufacturing your product or delivering your service.
Your Production Process section should cover the following:
What are the basic requirements for your business? Consider land, equipment, office space etc. If you own or need land, buildings or equipment, you should explain what it’s worth or costs, how it is to be financed (e.g. bought or leased) and why it is vital to the success of the business.
When can you start producing your product or service? How long does it take to produce a unit or a set number of units of your product?
Where will you get the materials to produce your product/service? How much do they cost? Have you negotiated terms with suppliers?
What factors can affect your anticipated time frame for production (e.g. rush orders, material shortages)?
Will you make or buy the components necessary for the production of your product or service? Why?
What will you do if the demand for your goods or services fluctuates?
Have you conducted feasibility testing on your product (i.e. tested the process, prototyping and pricing)?How will you keep track of inventory? Will this be computerized or manual?
The finance section is your opportunity to determine how viable your business is financially. It will also act as a benchmark for you to gauge your progress against your original projections.
To create your financial plan you’ll first need to determine the type and amount of expenses your business will incur. This information will help you create the core financial statements for your business. The Income Statement, Cashflow Statement, and the Balance Sheet
It’s important to create a set of financial statements to show the expected results for the first or current year of operations. As well as estimates for projections based on certain assumptions regarding future events or operations for three to five years. If you are creating a business plan for an ongoing business, include financial statements from previous years.
It’s important to be realistic in your financial projections and be skeptical of overly optimistic projections. You may even want to include best, worst and most likely case scenarios.
Expenses
Your business will have two types of expenses: one-time expenses and operating expenses. As the name suggests, one-time expenses are those costs that you incur only once when setting up your business (e.g. incorporation fees). Operating expenses are ongoing costs that you will have to pay every month (e.g. rent for your office). Calculating these figures now is important because when you plug them into your cash flow statement, they will reveal how much start-up financing you will need to get your business to a point of self-sufficiency.
The following are worksheets to help you organize your expenses to help prepare the financial statements for your business plan.
One-Time Expenses
Your One-Time Expenses section may include, but is not limited to:
Downpayment on property or deposit on rent
Downpayment or deposit on fixtures and equipment (computer printer, fax machine, photocopier)
Cars/trucks
Decorating, remodelling, installation of equipment/fixtures, leasehold improvements
Starting inventory
Utility set-up fees
Promotion for opening
Licences and permits
Incorporation costs (where applicable)
Product development costs or franchise fees where applicable
Unexpected expenses
Operating Expenses
Your Operating Expenses section of your business plan may include, but is not limited to:
Your salary (management salaries)
Other salaries (eg. for your shipper, bookkeeper, receptionist)
Rent or mortgage payments
Raw materials
Storage
Distribution
Office supplies (eg. postage, pens, paper, photocopying, etc.)
Telecommunications (eg. telephone, fax, internet service, cellular, etc.)
Office equipment (eg. computer, printer, fax machine)
Electricity
Insurance
Promotion (including advertising)
Selling expenses
Car expenses or travel
Professional services (accountants and lawyers, for example)
Maintenance
Repayment of loan capital and interest
Other financial expenses (eg. sales discounts, bad debts)
Other expenses
Income Statement
An income statement shows your profit or loss for a particular period of time, detailing all revenues, expenses and other costs. As with the cash flow statement, it should be prepared on a monthly or quarterly basis to allow for proactive management of any changes.
While a cash flow statement is used to monitor a business’ cash position, the income statement is predominantly an accounting tool used to measure a business’ performance.
Think about when you will achieve break-even for your business venture. That is the level of sales in either dollars or units where revenue equals total costs.
Cash Flow Statement
The old saying that “cash is king” is true. Simply put, without cash, your business can’t operate. A cash flow statement is a reflection of how much money your business has at a particular point in time. If your cash inflows (collected revenue) exceed your cash outflows (disbursements), your cash flow is positive. If your cash outflows (disbursements) exceed your cash inflows (collected revenue), your cash flow is negative. A cash flow statement enables you to see where cash is low and when you will have a surplus and should be prepared on a monthly basis, or at minimum, quarterly, to allow for proactive management of any changes. The key is anticipating – and planning for – these fluctuations.
Although your cash flow and income statements appear to be similar, there is a very important difference. Your cash flow includes details of the time when revenue is collected or expenses are paid.
Avoid the following common mistakes when preparing your Income Statement and Cash Flow Statement:
Projecting overly optimistic sales growth – most businesses grow gradually
Ignoring seasonality – is your business busiest in the summer or winter?
Underestimating increases in expenses or cash outflows that come with an increase in sales
Assuming that collections will always be made in 30-60 days
Balance Sheet
A balance sheet is a snapshot of the financial state of your business at a particular point in time. It outlines your assets, liabilities and equity and helps you know the net worth of your business. A balance sheet should list current assets such as accounts receivable, inventory you have on hand, and your cash balance. It should also list fixed assets such as property, equipment, furniture and fixtures, and vehicles.
Current liabilities might include accounts payable and debts that you must pay within a year (suppliers & creditors). Long-term liabilities include long-term loans, like mortgages, equipment loans or loans you make to the business. Shareholder’s equity is made up of permanent funds put into the business yourself or from someone who invests in your business for a share of ownership (capital stock) and retained earnings.
Risks
>Every business has some degree of risk to it. It is important for you to think through and outline possible risks in your company. This will demonstrate that you understand the risks and, to the extent that you can, have made allowances for them. Detail how you plan to minimize or address the risks inherent to your business. Remember that the most important reason for writing a business plan is that it is an important tool to help you start and manage your business. Feel free to incorporate all identified risks within their respective sections of your business plan and make them clearly understood by any perspective reader of your business plan. For example, you can discuss human resource risks such as not being able to find skilled labour. Be honest about your risks and take them seriously because you can avoid many problems by thinking ahead.
Consider the following:
What are the possible risks within your industry?
What if the demand for your goods or services decreases?
What if the number of competitors increases?
What risks do you face in producing your product or service?
What risks do you face with the marketing plan you have outlined?
What if your major ad campaign turns sour?
What human resources risks do you face? Consider your management team, advisors and your employees.
What if your key employees quit?
What if you run out of cash? Where else would you go?
What if your major supplier has financial difficulties? What other suppliers exist?
What, if any, environmental risks does your product or service face? Do they conform to environmental rules of government, municipality, etc.?
Conclusions
Having considered the risks and your ability to deal with them, what’s the verdict? Remember, your business plan should be as vital and strong as the dream you have for your company. Clearly restate the goals and objectives for your business. If the purpose of your business plan is to get financing – state the amount required and what it will be used for. Your conclusion section should be concise, clear and leave a positive impression.
