Typically creditors like your Bank, Inventory Finance Company and Suppliers will require an annual review of your financial status to qualify your lines of credit. While your financial statements may be enough information, the external plan is your Ace in the Hole to substantiate approval of your credit lines.
Your external business plan must convince readers that your venture has the potential to be successful. Your enthusiasm, dedication and confidence in your company should be evident to the reader. You want to avoid highly technical terms and diagrams that the reader may not be familiar with. You will want to write the plan as if the reader is not familiar with the type of business you are starting or operating.
The most effective business plans are dynamic documents that evolve as your business grows and changes. Your plan should reflect the current reality of your business, the environment in which it operates, and your present and future goals.
If you're starting a business, a business plan can help you:
- Turn your ideas and capital into a viable business
- Secure financing from lenders and investors
- Identify strengths, weaknesses, opportunities, and threats
- If you're managing an existing business, a business plan can help you:
- Communicate your vision to your employees and external parties
- Develop accurate financial forecasts
- Compare planned vs. actual performance
If you're growing your business, a business plan can help you:
- Raise capital to expand
- Create a strategy to manage growth
- Take advantage of opportunities and mitigate risks
If you're exiting your business, a business plan or succession plan can help you:
- Develop a plan to transfer ownership, sell your business, or close your business
- Establish a timeline for the transition process
- Identify financial and regulatory requirements
What should be included in a business plan?
Although business plans vary in terms of length and scope, all successful business plans contain common elements. The plan should take into consideration your particular business and its environment. Here are some sections that you may want to include in your business plan:
Executive Summary
The executive summary is an overview of the key points contained in your business plan and is often considered the most important section of an external business plan. It is usually the first section that a potential investor or lender will read, and may be the only section to be read if it is not prepared properly.
This important summary should:
- Include highlights from each of the other sections to explain the basics of your business
- Be sufficiently interesting to motivate the reader to continue reading the rest of your business plan
- Be short and concise - no more than two pages long
You will want to describe your business concept, competitive advantage, legal structure (e.g. sole proprietorship, corporation), the market and your own experience.
Although the executive summary is the first section of the plan, you should write it last.
Business strategy
This section should briefly but clearly describe what your business is all about. This segment should include the following elements:
- Introduction: This section should give readers a very brief overview of your business - where you've been, where you are now and where you're going in the future.
- Current Position: Your current position should outline what stage of the business lifecycle is your organization in? Your industry - is it growing, stable, or contracting? Your achievements - what have you achieved so far?
- Competitive Advantage: You want to describe what is your advantage over the competition, who your competitors are and what are their strengths and weaknesses?
- Growth Plan: What are your short and long term goals as they relate to your growth expectations?
- Marketing Strategy: Describe the activities you will use to promote and sell your product or service. You should touch on each of the "four Ps" of the marketing mix: Product, Price, Place and Promotion.
Operational plan
The next step is to build your operational plan. This is where your external plan begins to overlap with your internal plan. This includes a Financial Performance Analysis of your last 5 years of financial statements, your strategies for achieving your goals and objectives, and a comprehensive financial forecast of your next year's business operations. I will address this section in part 2 of this article.
Sounds rather overwhelming doesn't it? Not really, because you already have the experience and knowledge to prepare the Business Strategy for the first part of the external business plan. You may be adept at preparing this yourself or you can seek out a consulting service to help organize and write the plan.
This article is an excerpt from a more comprehensive list of business plan requirements. If you would like a copy or think you will need help, contact me for a free consultation.
