Key Components of a Business Plan Part 2
by Dan Lavinsky
A good business plan has ten key components, all of which are necessary if you want your business plan to be a success. In Part I of this series, the first five elements were discussed. In Part II, learn about the remaining five elements of a good business plan.
The first five components of a business plan provide an overview of the business opportunity and market research to support it. The remaining five components of the plan focus mainly on strategy, primarily the marketing, operational, financial and management strategies that that firm will employ. This article details these elements.
Marketing Plan. The marketing plan details your strategy for penetrating the target markets. Key components include the following:
- A description of the company’s desired strategic positioning
- Detailed descriptions of the company’s product and service offerings and potential product extensions
- Descriptions of the company’s desired image and branding strategy
- Descriptions of the company’s promotional strategies
- An overview of the company’s pricing strategies
- A description of current and potential strategic marketing partnerships/ alliances
Operations/Design and Development Plans. These sections detail the internal strategies for building the venture from concept to reality, and include answers to the following questions:
- What functions will be required to run the business?
- What milestones must be reached before the venture can be launched?
- How will quality be controlled?
Management Team. The Management Team section demonstrates that the company has the required human resources to be successful. The business plan must answer questions including:
- Who are the key management personnel and what are their backgrounds? What management additions will be required to make the business a success?
- Who are the other investors and/or shareholders, if any?
- Who comprises the Board of Directors and/or Board of Advisors?
- Who are the professional advisors (e.g., lawyer, accounting firm)?
Financial Plan. The Financial Plan involves the development of the company’s revenue and profitability model. It includes detailed explanations of the key assumptions used in building the model, sensitivity analysis on key revenue and cost variables, and description of comparable valuations for existing companies with similar business models.
In addition, the financial plan assesses the amount of capital the firm needs, the proposed use of these funds, and the expected future earnings. It includes Projected Income Statements, Balance Sheets and Cash Flow Statements, broken out quarterly for the first two years, and annually for years 1-5. Importantly, all of the assumptions and projections in the financial plan must flow from and be supported by the descriptions and explanations offered in the other sections of the plan. The Financial Plan is where the entrepreneur communicates how he/she plans to “monetize” the overall vision for the new venture.
Appendix. The Appendix is used to support the rest of the business plan. Every business plan should have a full set of financial projections in the Appendix, with the summary of these financials in the Executive Summary and the Financial Plan. Other documentation that could appear in the Appendix includes technical drawings, partnership and/or customer letters, expanded competitor reviews and/or customer lists.
Expertly and comprehensively discussing these components in their business plan helps entrepreneurs to better understand their business opportunity and assists them in convincing investors that the opportunity may be right for them too.