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How to Understand a Business Plan

A business plan is your road map. A guide. But there is no one right way to do it. A business plan should be unique and specific to your business. There are several parts - components - that are usually included, but the scope, and in some cases even the order, is subject to change. A plan should reflect your business. It should guide your business. Outline your business. Don’t get too hung up on making your plan fit into some template you found online (this one included).

Why write one in the first place? Most business experts such as Investopedia identify two main advantages to having a business plan in place.

First, as mentioned, it offers a clear and written guide to move forward. It’s an outline for growth. A “what to do next”. A business plan can and should change over time, and most are written to a maximum of five years down the road.  

Second, a business plan is essential if you’re going to seek investors. Anyone thinking about giving you their hard-earned cash will want to know you have a vision. A plan to launch, grow, and promote your business. Without it, you’re navigating without a map...you “might” end up at your destination, but you’ll just as likely (even more so?) end up lost. A business plan, plain and simple, shows you know what you’re doing.

Understanding Business Plan Components

When in doubt, turn to the table of contents (as most plans will include one) to see what and where everything is found in the plan. A plan is typically laid out in a very logical and systematic way. Again, there is no “wrong” way to do it, but most follow the same basic structure:

  •          Executive Summary - appearing at or near the beginning, your executive summary is just that - a summary. In no more than 2-4 pages, summarize all the main and big ideas that appear elsewhere in the plan. It should give a fairly quick but accurate idea as to what your business is about, what and how you’re going to sell, goals, objectives, tactics, and strategies.
  •          Business Offering (Service or Product Line) - this section outlines and explains in detail what your business will be selling, be it product, service, or a combination of the two. What makes it special? Better than the competition?
  •          Marketing Plan/Analysis - this section demonstrates your knowledge of your market. How are you going to reach them? How big is the target market, and how much growth and competition can it support? What marketing and promotion will you do?
  •          Organization and Management - you want to highlight the people involved in your business, their background, credentials, and experience. Who is in charge of what? What are their official titles? What internal organization will be in place?
  •          Strategy - how are you going to do this? What different strategies are you going to utilize to hit your goals and objectives? Details, details, details. This is not the place to be vague and wishy-washy. Be specific and precise (especially if you’re going to provide your plan to potential investors).
  •          Financial Projections - what’s the potential profit in the market? What about long and short-term losses? Where will cash come from in the early days? What’s the break-even threshold? Project forward for at least three years.

Some business plans may include these components under slightly different names, while others may include additional sections such as company overview, exit strategy, funding request, operational plan, SWOT analysis (strengths, weaknesses, opportunities, and threats), additional resources, or practically anything else. There is no list of required sections, although the six bullet-listed above appear in most.

Other Useful Links

Create Your Business Plan (US)

Writing Your Business Plan (Canada)

Writing a Business Plan (UK)

Reading through another company’s business plan shouldn’t be difficult. Read the Executive Summary first to get a rough idea and set the context, then flip to the sections that matter most to you. As an investor, perhaps you’ll want to read the Financial Projections before anything else. Is there serious earning potential? As a potential employee, you’ll likely want to see who is steering the ship, so you’d flip to the Organization/Management section. Use the table of contents (and a good business plan ALWAYS includes one), and flip back and forth as necessary. Don’t feel like you need to read it all, cover to cover, in one sitting.

A business plan is important. Whether you’re writing one for your business, or reading that of someone else’s, take your time. Let it sink in. It should make everything clear, and answer all questions, by the end. If not, you need to reexamine it.

Photo Credit: plantoo47

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