Tuesday, September 13, 2016

Necessary Components of an Effective Business Plan [Part 4-9]

Having to write a business plan is the most important facet of starting a business. Consequently, it’s also the greatest deterrent. Fear not. 
ORGANIZATION & MANAGEMENT is Part 4 to a well-written business plan.  This section provides profiles of key members of management.  At a minimum, it should include the structure of the organization, profiles of key management and Board of Directors (if you have one), and other important ownership information.
Necessary Components of an Effective Business Plan [Part 4-9]

The initial subsection of the Organization & Management portion of the business plan should be a structure of the organization.  The most effective and cleanest way to show the company’s structure is to provide readers with an organizational chart and narrative description.  This will demonstrate to your readers that you leave nothing to chance, there is a comprehensive plan in place, and that the most appropriate employee is in charge of each function of the business. Potential investors and employees alike find this to be very important.

Profiles of key management typically follow the organizations structure.  What are the individual roles and responsibilities for members of management?  What are their education and employment backgrounds and why are they being brought into the business as a member of the board or senior manager?  The details may appear unnecessary in one- or two-person businesses; however, individuals, especially investors, reading the business plan, expect to know everyone’s role and level of experience.  Provide a well thought-out, detailed write-up including the function of each department or facet of the business.

Again, if you have a Board of Directors, make sure to list all of the members and how you expect to keep them involved with your organization.  What salary and benefits packages do you plan to offer employees?  Are there any incentive opportunities?  Promotions?

One of the most important components for success in the growth of any company is the ability and track record of its owner/management team.  Let your readers know about the key people in your company and their backgrounds.  Provide resumes that include the following information:
  • Name
  • Position (include brief position description along with primary duties)
  • Primary responsibilities and authority
  • Education
  • Unique experience and skills
  • Prior employment
  • Special skills
  • Past track record
  • Industry recognition
  • Community involvement
  • Number of years with company
  • Compensation basis and levels (make sure these are reasonable -- not too high or too low)
Ensure you quantify achievements (e.g. "Managed a sales force of ten people," "Managed a department of fifteen people," "Increased revenue by 15 % in the first six months," "Expanded the retail outlets at the rate of two each year," "Improved the customer service as rated by our customers from a 60 % to a 90 % rating"). Also, highlight how the people surrounding you complement your own skills.  If you're just starting out, show how each person's unique experience will contribute to the success of your venture.

While not all businesses have a Board of Directors, the major benefit of an unpaid advisory board is that it can provide expertise that your company cannot otherwise afford.  A list of well-known, successful business owners/managers can go a long way toward enhancing your company's credibility and perception of management expertise.

If you have a Board of Directors, be sure to gather the following information when developing the outline for your business plan:
  • Names
  • Positions on the board
  • Extent of involvement with the company
  • Background
  • Historical and future contribution to the company's success
Finally, conclude this section by providing details regarding the legal structure of the business, followed by the ownership information.  Is the business incorporated?  What type of incorporation?  Maybe you have an LLC or partnership.  Are you setup as a sole proprietor?

The following ownership information is important and necessary for the Organizational Structure section of a successful business plan:
  • Owners’ names
  • Member interest breakdown (Who owns how much)
  • Company involvement
  • Ownership types (such as common and preferred stock, general partner, limited partner)
  • Any other existing equity equivalents such as warrants, options, convertible debt, etc.
  • Common stock
* * *
MARKETING AND SALES STRATEGIES is Part 5 of your business plan. Marketing is the process of creating customers: the lifeblood of your business.  In this section, the first thing you want to do is define your marketing strategy. There is no single way to approach a marketing strategy.  Your strategy should be part of an ongoing business-evaluation process and unique to your company.  However, there are common steps you can follow to help you think through the direction and tactics you would like to use to drive sales and sustain customer loyalty.

An overall marketing strategy should include, at a minimum, these four strategies:
  • A market penetration strategy
  • A growth strategy.  This strategy for building your business might include an internal strategy such as how to increase your human resources, an acquisition strategy such as buying another business, a franchise strategy for branching out, a horizontal strategy where you would provide the same type of products to different users, or a vertical strategy where you would continue providing the same products but would offer them at different levels of the distribution chain.
  • Channels of distribution strategy. Choices for distribution channels could include original equipment manufacturers (OEMs), an internal sales force, distributors, or retailers.
  • Communication strategy. How are you going to reach your customers? Usually a combination of the following tactics works the best: promotions, advertising, public relations, personal selling, and printed materials such as brochures, catalogs, flyers, etc.
After you have developed a comprehensive marketing strategy, you can then define your sales strategy.  This covers how you plan to actually sell your product.
Your overall sales strategy should include two primary elements:
  • A sales force strategy.  If you are going to have a sales force, do you plan to use internal or independent representatives?  How many salespeople will you recruit for your sales force?  What type of recruitment strategies will you use?  How will you train your sales force?  What about compensation for your sales force?
  • Your sales activities.  When you are defining your sales strategy, it is important that you break it down into activities. For instance, you need to identify your prospects.  Once you have made a list of your prospects, you need to prioritize the contacts, selecting the leads with the highest potential to buy first.  Next, identify the number of sales calls you will make over a certain period of time.  From there, you need to determine the average number of sales calls you will need to make per sale, the average dollar size per sale, and the average dollar size per vendor.
* * *
SERVICE OR PRODUCT LINE is Part 6 of your business plan.  What are you selling?  In this section, describe your service or product, emphasizing the benefits to potential and current customers.  For example, don't tell your readers which 89 foods you carry in your "Gourmet-to-Go" shop.  Tell them why busy, two-career couples will prefer shopping in a service-oriented store that records clients' food preferences and caters to even the smallest parties on short notice.

Focus on the areas where you have a distinct advantage.  Identify the problem in your target market for which your service or product provides a solution.  Give the reader hard evidence that people are, or will be, willing to pay for your solution. List your company's services and products and attach any marketing/promotional materials.  Provide details regarding suppliers, availability of products/services, and service or product costs. Also include information addressing new services or products which will soon be added to the company's line.

Overall, this section should include:
  • A detailed description of your product or service (from your customers' perspective).  You should include information about the specific benefits of your product or service.  You should also talk about your product/service's ability to meet consumer needs, any advantages your product has over that of the competition, and the present development stage your product is in (e.g. idea, prototype, etc.).
  • Information related to your product's life-cycle.  Ensure to include information about where your product or service is in its life cycle, as well as any factors that may influence its cycle in the future.
  • Any copyright, patent and trade secret information that may be relevant.  This should include information related to existing, pending or anticipated copyright and patent filings along with any key characteristics of your products/services for which you cannot obtain a copyright or patent.  This is where you should also incorporate key aspects of your products/services that may be classified as trade secrets.  Last, but not least, be sure to add any information pertaining to existing legal agreements, such as nondisclosure or non-compete agreements.
  • Research and development (R&D) activities you are involved in or are planning to be involved in.  These would include any in-process or future activities related to the development of new products/services.  This section would also include information about what you expect the results of future R&D activities to be.  Be sure to analyze the R&D efforts of not only your own business, but also that of others in your industry.
* * *
The FUNDING REQUEST is Part 7 of your business plan.  In this section, you will request the amount of funding you will need to start or expand your business.  If necessary, you can include different funding scenarios, such as best- and worst-case scenarios.  Remember that later, in the financial section, you must be able to back up these requests and scenarios with corresponding financial statements.

You will want to include the following in your funding request:
  • Your current funding requirement
  • Your future funding requirements over the next five years
  • How you will use the funds you receive
  • Any long-range financial strategies that you are planning that would have any type of impact on your funding request 
When you are outlining your current and future funding requirements, ensure you include the amount you want now and the amount you want in the future, the time period that each request will cover, the type of funding you would like to have (e.g. equity, debt), and the terms that you would like to have applied.

How you will use your funds is very important to a creditor.  Is the funding requested for capital expenditures?  Working capital?  Debt retirement?  Acquisitions?  Whatever it is, be sure to list it in this section. 

Last of all, ensure that you include any strategic information related to your business that may have an impact on your financial situation in the future, such as going public with your company, having a leveraged buyout, being acquired by another company, the method with which you will service your debt, or whether or not you plan to sell your business in the future.  Each of these is extremely important to a future creditor, since they will directly impact your ability to repay your loan(s).
* * *
FINANCIALS is Part 8 of your business plan.  The financials should be developed after you've analyzed the market and set clear, realistic objectives.  Only then, can you allocate resources efficiently.  The following is a list of the critical financial statements to include in your business plan packet:

Historical Financial Data.
  If you own an established business, you will be requested to supply historical data related to your company's performance.  Most creditors request data for the last three-to-five years, depending on the length of time you have been in business.

The historical financial data you would want to include would be your company's income statements, balance sheets, and cash flow statements for each year you have been in business (usually for up to three-to-five years).  Often, creditors are also interested in any collateral that you may have that could be used to ensure your loan, regardless of the stage of your business.

Prospective Financial Data.
  All businesses, whether start-up or growing, will be required to supply prospective financial data.  Most of the time, creditors will want to see what you expect your company to be able to do over the next five years. Each year's documents should include forecasted income statements, balance sheets, cash flow statements, and capital expenditure budgets.  For the first year, you should supply monthly or quarterly projections.  From there, you can stretch it to quarterly and/or yearly projections for years two-through-five.

Ensure that your projections match your funding requests.  Creditors will be on the lookout for inconsistencies.  It's much better if you catch mistakes before they do.  If you have made assumptions in your projections, be sure to summarize what you have assumed.  This way, the reader will not be left guessing. Finally, include a short analysis of your financial information.  Include a ratio and trend analysis for all of your financial statements (both historical and prospective).  Since pictures speak louder than words, you may want to add graphs of your trend analysis (especially if they are positive).
* * *
The APPENDIX, Part 9, is the final section that you should prepare for of your business plan.  However, this section should be provided to readers on an as-needed basis.  In other words, it should not be included with the main body of your business plan.  Your plan is your communication tool; as such, it will be seen by a lot of people.  Some of the information in the business section you will not want everyone to see. Specific individuals (such as creditors) may want access to this information in order to make lending decisions.  Therefore, it is important to have the appendix within easy reach.

The Appendix should include:
  • Credit history (personal & business)
  • Resumes of key managers
  • Product pictures
  • Letters of reference
  • Details of market studies
  • Relevant magazine articles or book references
  • Licenses, permits or patents
  • Legal documents
  • Copies of leases
  • Building permits
  • Contracts
  • List of business consultants, including attorney and accountant
* * *
Any copies of your business plan should be controlled.  Also, ensure that you keep a distribution record.  This will allow you to update and maintain your business plan on an as-needed basis.  Remember, too, that you should include a private placement disclaimer with your business plan if you plan to use it to raise capital. 
We sincerely hope that this guide has offered you some clarity and guidance as you move forward toward the creation of your own business plan. As an additional tool, we offer a fully assembled business plan template here, (insert link to shopping cart here). We wish you the very best of luck in your future business endeavors.   


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