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Business Plans 101: Part 1

Written by: Diane Tarshis

Article Overview: A successful business needs a solid foundation. Most entrepreneurs’ missteps are avoidable through proper planning—taking the time to think through and work through all aspects of developing and running a business. This planning should be formalized by writing a business plan. This article explains the purpose of a business plan and includes a detailed discussion of what should be included in the narrative (or "words") portion.

Business Plans 101: Part 1

A successful business needs a solid foundation. Most entrepreneurs’ missteps are avoidable through proper planning—taking the time to think through and work through all aspects of developing and running a business. This planning should be formalized by writing a business plan.


What is a Business Plan?

A business plan is a road map. Its primary purpose is to act as an operating blueprint for your business. Writing one forces the entrepreneur to think through all the issues necessary to build a successful business. Issues that may, at first glance, appear to be mundane and simple, such as describing your business, can become quite complex. Putting words to paper forces you, the business owner, to focus on exactly what you plan to do and how you will do it. Poor planning, or the lack of planning, is one of the primary reasons that businesses fail.

Most entrepreneurs avoid writing a business plan until they are confronted with an unavoidable obstacle: the need for financing. The first question out of an investor’s mouth, whether an angel, venture capitalist or banker, will be, “May I see your business plan?” If you do not have one, the conversation ends there. Regardless of whether you need outside financing, a business plan is an important investment. Once you start your business, you will have little time to reflect and plan—you will be caught up in the day-to-day issues of running your business. Before you start your business is the time to think about the big picture.


What Needs to be Included in a Business Plan?

There are two primary components to a business plan: (1) the narrative or text portion (i.e., the words) and (2) the quantitative or financial portion (i.e., the numbers). The words should clearly explain your business concept, the strategies you plan to implement, the competitive environment and so on. This information will drive the numbers you use when preparing your pro forma financial statements. Below is a detailed description of what should be included in the narrative portion of a business plan. Note: A detailed discussion of the financial portion is included in Part 2 of Business Plans 101.


Part 1. The Narrative

In the narrative portion of your business plan, you need to describe the following:

1. Business Description
- Describe it simply and clearly
- What is the opportunity? In other words, what pain are you solving for paying customers?
- What do customers currently pay to solve that problem?
- Your business model, i.e., source(s) of revenue

2. Products and/or Services Offered
- What are you selling?
- At what price?
- What are the features and benefits of what you are selling?
- What makes it different and desirable?
- Why will customers buy it from you?
- How will products be manufactured or services be provided?

3. Market Analysis
- Industry overview—describe the size of your industry and its unique characteristics
- Define your target markets. What is the size of your target market? What is its growth potential?
- Is the market competitive? If not, why not?
- Who are your customers?
- Why will they buy from you?
- How will you reach your customers, i.e., what is your marketing/sales plan?

4. Location
- Where will your business be located? Why this site? Any zoning issues?
- Do you need to rent space? If so, how much square footage do you need?
- At what cost? Who pays for utilities?
- Are there zoning issues?
- Are renovations or build-out required? If so, who pays?

5. Competition
- Give an overview of the competitive landscape
- What is your competitive advantage?
- Is it defensible, i.e., if it works, will your competitors be able to copy you easily?
- List your five closest competitors and describe:
~ who they are
~ their products/services
~ their strengths and weaknesses
~ how you will be better than them

6. Management
- Why are you (and your team) qualified to build this business?
- What is your (and your team’s) professional background and experience?
- Do you have relevant personal experience in this industry?
- Describe any advisors or other professionals who are assisting you (and their backgrounds)

7. Personnel
- Who will you be hiring? At what pay rate?
- For what positions? Describe their responsibilities
- Who reports to whom?
- What is the staffing/hiring plan? i.e., when will you fill each position?

8. Application and Expected Effect of Investment/Loan
- How much money are you trying to raise?
- What, specifically, will it be used for?

If you cover all of these issues well, the reader should not be left with any obvious questions. The challenge is to have a business plan that tells a coherent story, and to have the numbers support that story.

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Article Tags: angel venture, blueprint, business concept, business issues, business owner, competitive environment, detailed description, financial portion, financing a business, first glance, little time, pro forma financial statements, road map, running a business, solid foundation, successful business, text portion, venture capitalist, what is a business plan, writing a business plan



Related Forum Posts
New Study - Women prepare better business plans - I found an article in Business Week and I found this quite interesting. [quote:ka7lg35i]Who Prepares Better Business Plans, Men or Women? A new study based on four years of data from men and women in a training program for microenterprises finds that they come out the same in quality scores. "However, women scored significantly better on the presentation of their plan to judges," conclude the study's authors, Ronald G. Cook, Paul Belliveau, and Christine Lentz of Rider University, in a paper presented at a recent meeting of the Small Business Institute. [/quote:ka7lg35i] What do you guys think?
Money I made while in School - While in university I did have a Student Loan (still paying that bugger off) and had a part-time job as a Call Center agent (inbound). *Canada* I also designed websites (outsourced all the work). I just worked on getting new customers, managed the projects to completion and helped create Marketing Plans for my clients (Online and Offline). *Canada* When I was studying the in the States I also made some money as a Part-time Flight instructor. *USA*
My entry - 1. The Best Business Books Ever: The 100 Most Influential Business Books You'll Never Have Time to Read - this is a fascinating book about the history of Business theory, and I'd recommend it to anybody. 2. The Big Book of Small Business: You Don't Have to Run Your Business by the Seat of Your Pants, by Tom Gegax. Ditto. 3. PADI: The Business of Diving Book Okay, so this book won't be of use to anyone who doesn't want to start a scuba store, but I did, and this book was of course invaluable to me in reaching that goal.
Business Coaching Internship Review - I joined in during the first phase of the internship and at this point we are committed to doing research and development of RSC Business Group operating in Toronto. RSC Business Group already has products and services in Coaching Small businesses in Los Angeles but we didn't want to assume that the same products were wanted and needed in the Toronto market. Our goal at this point is to commit to interviewing 1000 business owners to capture this data. Through the teleconference internship I've been involved in we've been focusing on Communication Skills and on active listening which are practiced when we conduct our interviews and Coach our clients when they come on board. This is a lot harder than it sounds! Part of the internship is also creating the Toronto RSC Business Group's departments, job descriptions, Marketing and Communication plans etc that a business owner would create for their own company. This trains us in the way we would coach a company as well. The internship is phased in two parts and there is compensation plan involved as well for the clients you personally bring in. These clients are coached directly by Robert Chun as you begin but you are given a chance to learn his techniques. I haven't gone through this experience yet though. It's hard to explain Robert Chun's method of Coaching as it happens at a psychological level in his ability to listen and question the person being coached into the next steps they need to take. The Teleconferences are 2 hours long but it's very interactive. If you have a desire to explore this area of Business I'd recommend contacting Vwodek listed above and get invited to a Coaching Conference call. You can decided then if it's for you. Note: it is a commitment but the skills you walk away with whether you plan on working with RSC Business Group or not is invaluable.
Patent information - I'm also interested in Part 2. Thanks.


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