A business plan is a document that describes and explains a business that is going to be carried out, as well as different aspects related to it, such as its objectives, the strategies they will use to achieve these objectives, the production process, the investment required and the expected profitability.
|Complete Guide for Creating a Creative Business Plan and Its Usefulness|
It is often thought that drawing up a business plan is a complex task for which it is necessary to gather a lot of information and do an exhaustive investigation; but the truth is that it is a task that anyone who is very clear on the objectives he wants to achieve with the plan and know its structure, can perform.
To develop a business plan there is no defined structure, but we can adopt the one we think best according to the objectives we want to achieve with the plan.
A common structure that includes all the parts that a business plan should have is the following:
- Executive summary: the executive summary is a summary of the other parts of the business plan, which includes a brief description of the business, the reasons that justify its implementation, the work team, the investment required and the profitability of the project.
- Business definition: the definition of the business describes the business and the products or services that are going to be offered, the business objectives and the strategies that will achieve those objectives, and the basic business data are indicated, such as the name and the location.
- Market study: the market study describes the main characteristics of the target audience and future competition, and develops the forecast of the demand and the marketing plan.
- Technical study: the technical study describes the physical requirements necessary for the operation of the business, the production process, the infrastructure and the size of the premises, the production capacity and the layout of the plant.
- Organization: the organization describes the legal and organizational structure of the business, the areas or departments, the positions and functions, the personnel requirements, personnel expenses, and information systems.
- Study of investment and financing: this part indicates the investment that will be required to start up the business and make it work during the first production cycle and the external financing that will be sought if that were the case.
- Study of income and expenses: in this part, the projections of business income and expenses are developed, including the sales budget, the proposed cash or projected cash flow, and the operating budget or projected profit and loss statement.
- Project evaluation: finally, in this part, the financial evaluation of the future business is developed, which includes the calculation of the period of recovery of the investment and the results of the profitability indicators used.
It is usually thought that a business plan is only made when starting a new business; But the truth is that this is also usually done when you already have a business in progress and, for example, you are going to launch a new product to the market, venture into a new market, or enter a new business category.
It is also often thought that a business plan is something that only belongs to large companies; But the truth is that regardless of whether it is a large or small business, the development of a business plan is a stage that every entrepreneur must go through when starting it, especially nowadays, where due to the great existing competition, the possibilities of moving forward a new business are not very favorable.
The reasons why it is important to always elaborate on a business plan, are basically three.
The reasons why it is important to always elaborate on a business plan
|The reasons why it is important to always elaborate on a business plan|
1. Reasons for administration
A business plan serves as a guide to start up and subsequently manage a business, as an instrument of planning, organization, coordination and control and evaluation.
This mainly serves as a planning tool because it allows us to plan the use of resources, strategies, and courses of action or steps to follow, and thus be more efficient in the start-up and subsequent management of the business, reduce uncertainty and minimize risk.
But it also serves as an instrument of organization since it allows us, among other things, to determine who will be responsible for carrying out the necessary activities for the implementation and administration of the business, as a coordination instrument since it helps us to coordinate related activities, and as an instrument of control and evaluation since it allows us to compare the results obtained with the planned ones.
2. Feasibility reasons
A business plan also allows to verify the viability or feasibility of a business; that is, to know if this can be carried out or it is necessary to look for new ideas.
For example, through the study of the market, it allows us to know if the product or service that is going to be offered will have a good acceptance in the consumers, or if we have the necessary resources and capacity to be able to face the existing competition.
Also, through the calculation of the investment and the projection of income and expenses, we can know the profitability of the future business, and so know, in addition to whether the business is viable or not, if it is attractive enough in terms of profitability as to be carried out or it is better to look for other alternatives.
3. Reasons for financing
Finally, a good business plan allows to demonstrate to third parties, the viability of a business and its attractiveness and, therefore, helps to obtain financing.
For example, in case of wanting to obtain a loan, it allows us to demonstrate before a bank, financial institution or lender (including family and friends who doubt to lend us money) that our business will be profitable and that we will be able to pay the debt contracted in a timely manner, and so we can convince them to grant it to us.
Or, in case of looking for an investor or a partner for our business, it allows us to demonstrate the attractiveness of our idea, the seriousness of our project and the profitability of the future business, and thus convince them to invest or associate with us.
How to make a business plan?
|How to make a business plan?|
Developing a business plan is not a simple task that can be done from one moment to another, but that requires time and dedication, since a business plan has several parts and requires a lot of information, and it may be necessary to do so. Realization of one or several previous investigations that allow to obtain it.
However, it is not a complex task for which it is necessary to have previously read several books that tell us how to do it or write more than 200 pages that probably nobody will read, but anyone can do as long as they know their project or business, and know the necessary steps.
The following is a complete guide that will show you step by step how to make a business plan through the development of each of its parts.
1# The cover and the table of contents
|The cover and the table of contents|
The cover is the cover and first page of the business plan. This should include the name of the project or business, the name of its author or authors, the year in which it was written and the business logo in case of having one. The cover is the first thing that the reader sees of a business plan, so we must make sure to give it a professional appearance and thus make a good first impression on it.
While the table of contents or index is a list with the parts or sections of the business plan and the next page of it. It aims to let the reader know what is going to find in the plan, as well as to quickly find the part or section that he wants to read.
2# The executive summary
The executive summary is a summary of the most important points of the other parts of the business plan, so despite going to the beginning of this, must be drawn after having completed the other parts.
|The executive summary|
The objective of the executive summary is that the reader has a general and brief overview of the business plan, can understand in a single reading what the business consists of, and generate interest in it for the project and deepen the reading of the rest parts of the plan.
That is why the executive summary must be a summary (it is advisable not to cover more than three pages), it must be able to clearly explain what the business consists of, however, complex it may be, and it must be capable of generating interest for the project and invite reading (for example, using positive language, highlighting the factors that will allow the viability and sustainability of the project, not covering many pages, etc.).
The section of the executive summary should include the following elements:
- The basic data of the business: the name of the project or business, its location, the type of company, etc.
- The business description: a brief description of the business and the product or service that will be offered.
- The differentiating characteristics: the characteristics of the business, product or service that will allow us to differentiate ourselves or distinguish ourselves from the competition.
- The competitive advantages: the aspects that will allow us to have some advantage before the other competitors.
- The vision and the mission: the mission and the vision of the business.
- The reasons that justify the start-up of the business: the reasons why the business idea has been found attractive or for which it is thought will be successful.
- The objectives of the business: the main objectives to be achieved once the business is launched.
- Business strategies: the main strategies that will be used to achieve the objectives.
- The work team: the people who will carry out the project and who will subsequently manage the business.
- The investment required: the investment of the project, the amount with which it is already available and the amount that will be required.
- The profitability of the project: the results of the profitability indicators used.
- The environmental impact of the project: a summary of the environmental impact of the business that includes how it will be reduced or controlled.
- The conclusions of the project: the conclusions reached once the development of the business plan has been completed.
At the time of writing the executive summary, we must take into account the objectives of the same, and many times the reader of a business plan (for example, a potential financier or investor) only decides to read this part to make a decision, so that we must pay special attention in its preparation.
3# The definition of the business
|The definition of the business|
After the executive summary, the next part or section of the business plan is the definition of the business. This describes the business that is going to be carried out, as well as basic aspects related to this, such as the reasons that justify its implementation.
The objective of the business definition is for the reader to understand what the business is going to be, and know the reasons why it is considered that this will be successful.
The section of the business definition should include the following elements:
1. The basic data of the business
The name of the project or business and other basic information such as the location of the business, the type of company under which it will be legally constituted and the type of economic activity to which it will be dedicated (production, marketing or service provision).
2. The description of the business
A description of the business that will be carried out as well as the product or service that will be offered (what the business consists of, what the product or service will be offered, what its main features or benefits will be, etc.).
3. The differentiating characteristics
The characteristics with which the business, product or service will count, and that will allow us to differentiate ourselves or distinguish ourselves from the competition.
Examples of differentiating features could be a special attribute in the product, low prices, good customer service, etc.
4. The competitive advantages
The aspects that will allow us to have some advantage before the other competitors.
Examples of competitive advantages could be an already established distribution system, a good location, the association with a supplier, etc.
5. The target market
The target market to which we are going to address, the main characteristics of the consumer that makes it up, and the reasons why we have chosen that market.
To choose the target market it might be necessary to previously carry out a market segmentation that helps us with this task.
6. The vision and the mission
The vision (where it is going in the long term) and the mission (its purpose or reason for being) of the future business.
7. The reasons that justify the start-up of the business
The reasons why the business idea has been found attractive or for which the project is considered to be successful.
Examples of these reasons could be an unsatisfied need or an unresolved problem in the consumers, a growing market, a competitive advantage that we have and that we want to take advantage of, etc.
8. The business objectives
The objectives of the business, both general and specific, that will be sought once it has been launched.
Examples of general objectives could be to be the leading company in the market, to be a recognized brand in the market, etc., while examples of specific objectives could be to increase sales by 20% for the second semester, achieve a market share 15% before the end of the first year, etc.
9. The business strategies
The main business strategies that will be used and that will allow reaching the proposed objectives.
Examples of strategies could be to have first quality supplies, have points of sale strategically located, make use of marketing items, etc.
4# The market study
|The market study|
The market study describes aspects related to the market, such as the industry to which the business will belong, the target market to which it will be directed, and the competition that it will have.
The objective of the market study is to show the reader relevant information from the market and indicate how this information will be used, and thus to demonstrate to a large extent the feasibility of the business.
The section of the market study should include the following elements:
1. The analysis of the industry
The analysis of the industry describes the industry or sector in which the business will be located, including its background and how it has evolved over time.
At this point, we could point out, for example, the size of the industry, our position within it, its main actors, past, current, and future sales, prospects for growth, trends, etc.
To obtain this information, we could go to several sources such as the Internet, publications and business magazines, or government offices where we can obtain reports, statistics, trends, etc.
2. The analysis of the target market
The analysis of the target market is the most important part of the market study. This describes the target market to which the business will be directed (to choose it, it might be necessary to previously carry out a market segmentation to help us with this task).
At this point, we could point out, for example, what are the tastes, preferences and desires of the consumer that shapes it, where he/she buys, when he/she buys, how often he/she buys, how much it spends on average, what are the consumption habits, customs, attitudes, etc.
To obtain this information, the usual thing is to go directly to the consumer and ask him a question such as:
- Do you use this type of product?
- What are your favorite models?
- What characteristics would you add or change?
- Where do you usually buy it?
Another common way to obtain information from consumers is to go to the places where they usually acquire the product or service that will be offered and observe their behaviors, for example, the models that most demand, the questions or objections that tend to do to sellers, etc.
3. The analysis of the competition
The analysis of the competition describes the future competitors of the business, both direct (companies that produce or sell products or services similar to the one to be offered) and indirect (companies that produce or sell substitute products or services that will be offered).
At this point we might note, for example, how many, what are the main, where they are located, what is your experience, what their capacity, materials or supplies used for their products, what their prices are, what their points sale, what advertising media they use, what their strengths and weaknesses are, etc.
To obtain this information it is usual to go to places where competitors are located and observe the products or services they offer, their prices, their advertising strategies, etc., or visit their premises and observe the products or services you sell more, their processes, the attention they provide to consumers, etc.
4. The forecast of demand
The forecast of the demand or forecast of sales is an estimate of the sales of the future business for the period of time in which the business plan is projected.
The forecast of the demand is obtained through the analysis of the industry, the analysis of the objective market, and the analysis of the competition.
For example, when making the analysis of the target market we could try to explain how willing the consumer is to acquire our product or service, including in the application of our survey questions such as:
- Would you be willing to try this new product?
- How much would you be willing to pay for it?
- How much do you usually pay for similar products?
- How often do you buy similar products?
Or, when making the analysis of the competition, we could try to calculate the average number of clients who have what will be our main competitors, as well as the average consumption that these customers tend to make.
The forecast of the demand will serve us later to elaborate the sales budget (in the part of the study of the income and expenses), for what we must try ( most successful possible) to do it.
5. The marketing plan
The marketing plan indicates the main marketing strategies or commercial strategies that will be used to serve the target market.
Marketing strategies are often divided into strategies for the four elements that make up the marketing mix (product, price, place, and promotion).
Examples of marketing strategies could be:
- Product: the innovative features that the product will have, the services it will include, etc.
- Price: the price of introduction that the product will have and the price it will have once the demand has increased, the discount rates that will be used, etc.
- place: the agents with whom you will work, the points of sale where the product will be sold, etc.
- Promotion: the advertising media that will be used, the sales promotions that will be offered, etc.
To formulate marketing strategies, the analysis of the industry, the analysis of the target market, and the analysis of the competition must be taken into account.
5# The technical study
|The technical study|
The technical study or operational plan describes the physical requirements of the business, as well as its operation.
The objective of the technical study is to show the reader what the daily operations of the business will be like, and the person who has prepared the business plan and has planned these operations well.
That is why the technical study should provide enough information, but without being too technical or exhaustive to the point of losing the interest of the reader to read it, or that he can not understand it due to its complexity.
The section of the technical study should include the following elements:
1. The physical requirements
At this point, we make a list of the physical requirements necessary for the operation of the business (buildings, land, machinery, equipment, tools, vehicles, furniture, supplies or raw materials, etc.), including their respective costs.
2. The business process
At this point, we describe the stages that will comprise the daily operations of the business, starting with purchases, through the transformation of products, and finishing with the storage and distribution of it.
For a better description of the business process or production process, it is advisable to include in this technical related aspects, such as the purchasing policy, the inventory size, the rules or standards that will be used to perform quality control, etc. as well as making a flow chart.
3. The business premises
At this point, we make a description of the place where the business will operate, for example, we indicate its infrastructure, size, location and the reasons why this location has been chosen, etc.
For a better description of the business premises, it is also advisable to include in this related technical aspects, such as the production capacity with which it will count, the capacity that will be used, the location or layout of the machinery, equipment and furniture. (layout of the floor), etc., as well as making use of plans showing their location and/or where the distribution of their elements is shown.
6# The organization
The organization describes how the business will be organized and how the different areas, departments or organic units that will make it up will be related to each other.
The objective of the organization is to show the reader how the business areas will be divided or arranged, and that will be a well-organized business that will have good coordination among its areas.
The section of the organization should include the following elements:
1. The structure or legal form
At this point, we indicate whether the business will be constituted in the form of natural personnel or in the form of a legal entity, whether it will be an individual company or a company with others, and the type of company under which it will be legally constituted.
2. The organic structure
At this point, we indicate the type of organization that the business will have (functional, by product, matrix, etc.), the areas, departments or organic units that will form it, and the hierarchical relationships that will occur between them.
For a better description of the organic structure of the business, it is advisable to represent this through an organization chart.
3. The charges and functions
At this point, we indicate the positions that each area, department or organic unit of the business will have, the general functions that each one will have and, if possible, their specific functions or tasks, as well as their obligations and responsibilities.
4. The personnel requirement
At this point, we indicate the personnel that will be required for each position.
For a better description of the personnel requirement, it is advisable to draw up a staff allocation chart, where we indicate the positions of each area, the number of vacancies, and the profile required for each position (experience, knowledge, skills, and skills that a person must have in order to apply).
5. Personnel expenses
At this point, we indicate the salaries and benefits that will be assigned to each position.
For a better description of personnel expenses, it is also advisable to draw up a table with the projection of all the expenses that will be had in the personnel for the period of time in which the business plan is projected.
6. The information systems
At this point, we describe the processes of entry, storage, processing and output of information that the business will have.
For example, we indicate how the information will be recorded (purchases, customer data, etc.), who will be responsible for recording this information, where it will be stored, processed and organized, and how it will be provided when required (through reports, etc.).
7. The profile of the management team
At this point, we describe the work team with which we already have to start up and then direct the business (this, above all, if the main objective of the business plan is to present it to potential investors).
For example, we indicate the professionality of each of the team members, the experience they have in the type of business, their projects, their achievements, the knowledge, skills, and abilities that will contribute to the business, etc.
To complement this information we could also include the resumes in the documents attached to the plan.
7# The study of investment and financing
|The study of investment and financing|
The study of investment and financing indicates the structure of the investment and describes the aspects related to the financing of the project.
The objective of the study of investment and financing is to show the reader what will be the capital required to start up the business, how this capital will be used, and how it will be obtained or pretended to be obtained.
The section of the investment and financing study should include the following elements:
1. Fixed investment
At this point, make a list of all the fixed assets (physical elements necessary for the operation of the business that will not be for sale) that will be required, with their respective estimated costs.
Fixed assets are usually divided into:
- Furniture and furnishings: includes furniture and various equipment such as, for example, tables, chairs, desks, shelves, computers, printers, telephones, cash registers, calculators, fire extinguishers, etc.
- Machinery and equipment: includes what is necessary for the manufacture of the product or for the provision of the service, such as, for example, production machines, drills, lathes, welders, tools, etc.
- Vehicles: includes the vehicles necessary for the transport of the personnel of the business.
- Land and buildings: include the land, buildings, and infrastructure, as well as the investment required for the refurbishment of the premises (remodeling, installations, painting, finishes, decoration, etc.).
2. Intangible assets
At this point, we make a list of all the intangible assets (intangible elements necessary for the operation of the business) that will be required, with their respective estimated costs.
Intangible assets are usually divided into:
- Research and development: project studies, market research, product design, etc.
- Formation and legalization expenses: legal business constitution, obtaining licenses and permits, registrations, etc.
- Start-up expenses: search, selection, and training of personnel, opening marketing, promotion, and publicity, etc.
- Unforeseen: amount destined in cases of emergency.
3. Working capital
Working capital is the money necessary for the operation of the business during the first productive cycle (time from the start of business operations until money is obtained in sufficient quantities to continue operating normally without requiring more investment).
At this point, we make a list of all the elements that will make up the working capital, with their respective estimated costs.
4. The total investment
The total investment of the project is obtained by adding the fixed investment, the intangible assets, and the working capital.
At this point, we indicate the amount to which the fixed investment amounts, the amount to which the intangible assets amount and the amount to which the working capital amounts, and then the amount to which the total investment of the project amounts.
5. The financing structure
At this point, we indicate whether the project will be financed in its entirety with its own capital, or will require some type of external financing.
If we use external financing, we indicate what percentage of the total investment will be covered by our own capital, and what percentage will be covered by external capital (for example, we could finance the project by 40% with our own capital, and in a 60% with external capital).
6. The sources of financing
In case of making use of external financing and knowing in advance the source (or sources) of where it will be obtained, in this point, we describe supposed source (or sources) and we indicate the characteristics of the credit.
For example, in case of having obtained a loan from a bank, we make a brief description of the supposed bank and we indicate the characteristics or conditions of the loan that it will grant us (amount, term, cost, etc.).
Also, at this point it is advisable to draw up a table where we indicate the fees that we will have to pay during the period of time the loan lasts (which will later serve us to prepare the budget for the payment of the debt in the part of the study of the income and expenses).
8# The study of income and expenses
|The study of income and expenses|
The study of the income and expenses indicates the future income and expenses of the business for the period of time in which the business plan is projected.
The time in which a business plan is planned usually depends on the objectives of the business and the type of business that will be carried out. The usual is to make a projection of 3 to 5 years, making monthly projections for the first 12 months, and the annual projections for the following 2, 3 or 4 years.
The objective of the study of income and expenses is to show the reader the projections of income and expenses that the business will have, as well as the relationship that will occur between them.
The section of the study of income and expenses should include the following elements:
1. Income budgets
At this point, we develop the revenue budgets for the period of time in which we prepare the business plan.
Unless there are no other types of income, the income budgets are basically the following:
Sales budget (for its preparation we must guide the forecast of the demand that we have previously developed in the part of the market study).
2. The budgets of expenditures
At this point, we develop the budgets of expenditures for the same period of time in which we have projected the income.
The budgets of expenses are basically the following:
In a production company:
- Production budget.
- Raw material requirement budget.
- The budget for the purchase of raw material.
- The budget for payment of raw material.
- Direct labor budget.
- The budget of manufacturing overhead.
- The budget for production costs.
- The budget for administrative expenses.
- Sales expense budget.
- Amortization of intangibles.
- The budget of the payment of the debt.
In a marketing company (dedicated to the purchase and sale of products):
- Shopping budget.
- Payment budget.
- The budget for administrative expenses.
- Sales expense budget.
- Amortization of intangibles.
- The budget of the payment of the debt.
3. The point of balance
At this point, we find the equilibrium point of the business (the point of activity or sales volume where revenues are equal to expenditures).
4. The projected cash flow
At this point, we develop the projected cash flow or cash budget.
5. The projected profit and loss statement
At this point, we develop the projected profit and loss statement or operating budget.
6. The projected balance
At this point, we develop the projected general balance.
9# The evaluation of the project
|The evaluation of the project|
The evaluation of the project shows the development of the financial evaluation made to the project.
The objective of the evaluation of the project is to show the reader that the project is profitable, how long the investment will be recovered, and how much is expected to be obtained for it.
The section of the project evaluation should include the following elements:
1. The period of recovery of the investment
The period of recovery of the investment indicates the period of time it will take to recover the invested capital.
To find it, we must take into account the investment of the project (the study of investment and financing) and the results of the projected cash flow (the study of income and expenses).
For example, if the total investment of the project is12,000 $ and in the first year we will have a cash flow of 4,000$, in the second year of 5,000$ and in the third year of 6,000$ we could say that the period of recovery of the investment is 3 years.
2. The return on investment Index (ROI)
The return on investment index (ROI) is a financial indicator that allows us to measure the profitability of the project.
The ROI formula is:
ROI = (Utilities / Investment) x 100
For example, if the total investment of the project is 20,000$ and the total of profits that are expected to be obtained during the period of time in which the business plan is projected is 4,000$, applying the ROI formula:
ROI = (4000/20000) x 100
It gives us an ROI of 20%, with which we could affirm that the project is profitable and that it offers a profitability of 20%.
3. The NPV and the IRR
The NPV and the IRR are other financial indices commonly used when evaluating the profitability of a project.
The Net Present Value (NPV) measures the profit that the project will have when discounting the purchase to the total of the future money flows (which are previously updated through a certain discount rate).
While the Internal Rate of Return (IRR) is the maximum discount rate that the project can have to be considered profitable.
In case the project includes the obtaining of a financial credit, for a better evaluation it is usually divided the NPV and the IRR in NPV and economic IRR (for which the economic cash flow is taken into account), and in NPV and Financial IRR (for which the financial cash flow is taken into account).
10# The action plan
|The action plan|
The action plan describes the program or schedule of the main activities that will be carried out for the execution of the project or start-up of the business.
This usually includes, in addition to the description of these activities, responsible for each of these, the dates on which they will start, and the terms they will have.
11# The conclusions and recommendations
|The conclusions and recommendations|
The section of conclusions and recommendations indicates the conclusions that have been obtained when preparing the business plan and the recommendations that are given as a result of each of the conclusions obtained.
12# The annexes
Finally, the attachments or documents are documents that provide additional information to the reader and are included at the end of the business plan in order not to overload the main part and end up making it difficult to read.
These documents are usually made up of the surveys carried out in the market study, the lease contract, the contracts with the main suppliers, the agreements with partners, the promotional material (advertisements, brochures, catalogs, etc.), the specifications production techniques, the detail of the cost structure, the resumes of the members of the management team, among others.