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The Importance of a Business Plan

A business plan is an essential tool for every small business, especially if you plan to apply for a loan. Most lenders require that you provide a copy of your business plan so that they can evaluate the stability of your business and its potential for future growth.

Even if you don’t intend to seek business financing, writing a business plan can be a valuable exercise because it forces you to think strategically about many important aspects of your business. Your business plan is a place to define where your business is today, where you want to take it in the future, and the strategies you will use to get it there.

A business plan is not something that you should write once and forget about. Instead, revisit your plan regularly and update it to reflect the changes in your business. Should you ever decide to sell your business; your plan can become a valuable tool in demonstrating the growth you have achieved.

Business Plan Outline

Every business plan is unique depending on the nature of the company and how the information is organized.

Following is an outline that you can use to begin developing a plan for your business.

1. Executive Summary
This section should showcase the key features for your company. This is essentially a summary of the rest of the plan so it may be easiest to write this section last. The Executive Summary should include the following:
  • Overview of your company’s mission.
  • Description of products and services offered.
  • Names and responsibilities of company founders.
  • Company details including date started, number of offices and where they are located, and number of employees.
  • Highlights of key financial data and a summary of the plans for the future.
  • Details about key investors.
  • Summary of plans for future growth.
2. Market Analysis
Here you will detail the economic health of your industry, the opportunity for growth, and how your business is gaining market share. The Market Analysis should include the following:
  • Description of your industry and the outlook for the future.
  • Your target market (an identifiable niche) and the size of that market.
  • The needs of your target market and how your company is meeting them.
  • How your company plans to gain market share.
  • Trends and potential changes that could affect your target market and/or your industry.
  • Competitive analysis that identifies your key competitors and how your company is different or better.
3. Company Description
This is a high-level overview of your company’s operations, how you are positioned for growth, and strategies you are using to gain market share. The Company Description should include the following:
  • Explanation of the nature of your business.
  • Marketplace needs and how your company satisfies those.
  • Your company’s unique selling proposition or how you stand out amongst the competition.

4. Organization and Management
If you have staff or advisors, share details about them here. The Company Description should include the following:
  • Organization chart that illustrates the management structure.
  • Information about owners including name, percentage of ownership and level of involvement in the company.
  • Management profiles including name, education, unique experience, and compensation.
  • Board of Directors’ profiles including name, experience, and level of involvement in the company.
5. Marketing and Sales Management
Marketing and sales strategies are different for every company, yet they are also crucial to successful business growth. The Marketing and Sales Management section should include the following:
  • Detailed marketing plan, including specific strategies employed on an ongoing basis.
  • Explanation of your sales process including how you acquire leads and convert them to customers.

6. Service and/or Product Line
Here you will describe your company’s products and/or services and explain their unique value in the marketplace. The Service/Product Line section should include the following:
  • An overview of your products and/or services.
  • Advantages your products/services have over the competition.
  • Any copyright, patent or relevant trade information.
  • Details about future research and development initiatives.
7. Funding Request
The lender wants to know how you plan to utilize funds borrowed and your ability to repay the loan. The Funding Request section should include the following:
  • The amount of funding you are requesting today.
  • The amount of any funding you will require in the future.
  • Proposed terms for paying back the loan.
  • How the funding will be used (for working capital, debt consolidation, etc.).
8. Financials
A lender will need to see relevant financial data in order to understand the company’s ability to repay the loan. The Financials section should include the following:
  • Historical financial data including income sheets, cash flow statements and balance sheets for up to three years.
  • Prospective financial estimates for up to five years including forecasted income statements, cash flow statements and balance sheets.
  • Details of any assets that may be leveraged for the financing agreement.
  • A summary of the anticipated growth of your business. This may include graphic illustrations such as charts.
9. Appendix
If you are applying for financing, you will likely be required to provide additional paperwork with your plan. The Appendix of your business plan may include any or all of the following:
  • Personal and business credit history.
  • Resumes of key managers.
  • Letters of reference.
  • Evidence of industry statistics and trends.
  • Legal documents including copies of leases, permits, etc.
  • Key business consultants including attorney, accountant, etc.
The Small Business Administration provides a detailed outline for developing a business plan on their web site.

Stephanie Chandler is a small business expert and the author of several business and marketing books. She has been featured in Entrepreneur magazine, BusinessWeek and Inc.com. She can be reached at www.StephanieChandler.com