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12 Key Elements of a Business Plan (Top Components Explained)

Starting and running a successful business requires proper planning and execution of effective business tactics and strategies .

You need to prepare many essential business documents when starting a business for maximum success; the business plan is one such document.

When creating a business, you want to achieve business objectives and financial goals like productivity, profitability, and business growth. You need an effective business plan to help you get to your desired business destination.

Even if you are already running a business, the proper understanding and review of the key elements of a business plan help you navigate potential crises and obstacles.

This article will teach you why the business document is at the core of any successful business and its key elements you can not avoid.

Let’s get started.

Why Are Business Plans Important?

Business plans are practical steps or guidelines that usually outline what companies need to do to reach their goals. They are essential documents for any business wanting to grow and thrive in a highly-competitive business environment .

1. Proves Your Business Viability

A business plan gives companies an idea of how viable they are and what actions they need to take to grow and reach their financial targets. With a well-written and clearly defined business plan, your business is better positioned to meet its goals.

2. Guides You Throughout the Business Cycle

A business plan is not just important at the start of a business. As a business owner, you must draw up a business plan to remain relevant throughout the business cycle .

During the starting phase of your business, a business plan helps bring your ideas into reality. A solid business plan can secure funding from lenders and investors.

After successfully setting up your business, the next phase is management. Your business plan still has a role to play in this phase, as it assists in communicating your business vision to employees and external partners.

Essentially, your business plan needs to be flexible enough to adapt to changes in the needs of your business.

3. Helps You Make Better Business Decisions

As a business owner, you are involved in an endless decision-making cycle. Your business plan helps you find answers to your most crucial business decisions.

A robust business plan helps you settle your major business components before you launch your product, such as your marketing and sales strategy and competitive advantage.

4. Eliminates Big Mistakes

Many small businesses fail within their first five years for several reasons: lack of financing, stiff competition, low market need, inadequate teams, and inefficient pricing strategy.

Creating an effective plan helps you eliminate these big mistakes that lead to businesses' decline. Every business plan element is crucial for helping you avoid potential mistakes before they happen.

5. Secures Financing and Attracts Top Talents

Having an effective plan increases your chances of securing business loans. One of the essential requirements many lenders ask for to grant your loan request is your business plan.

A business plan helps investors feel confident that your business can attract a significant return on investments ( ROI ).

You can attract and retain top-quality talents with a clear business plan. It inspires your employees and keeps them aligned to achieve your strategic business goals.

Key Elements of Business Plan

Starting and running a successful business requires well-laid actions and supporting documents that better position a company to achieve its business goals and maximize success.

A business plan is a written document with relevant information detailing business objectives and how it intends to achieve its goals.

With an effective business plan, investors, lenders, and potential partners understand your organizational structure and goals, usually around profitability, productivity, and growth.

Every successful business plan is made up of key components that help solidify the efficacy of the business plan in delivering on what it was created to do.

Here are some of the components of an effective business plan.

1. Executive Summary

One of the key elements of a business plan is the executive summary. Write the executive summary as part of the concluding topics in the business plan. Creating an executive summary with all the facts and information available is easier.

In the overall business plan document, the executive summary should be at the forefront of the business plan. It helps set the tone for readers on what to expect from the business plan.

A well-written executive summary includes all vital information about the organization's operations, making it easy for a reader to understand.

The key points that need to be acted upon are highlighted in the executive summary. They should be well spelled out to make decisions easy for the management team.

A good and compelling executive summary points out a company's mission statement and a brief description of its products and services.

An executive summary summarizes a business's expected value proposition to distinct customer segments. It highlights the other key elements to be discussed during the rest of the business plan.

Including your prior experiences as an entrepreneur is a good idea in drawing up an executive summary for your business. A brief but detailed explanation of why you decided to start the business in the first place is essential.

Adding your company's mission statement in your executive summary cannot be overemphasized. It creates a culture that defines how employees and all individuals associated with your company abide when carrying out its related processes and operations.

Your executive summary should be brief and detailed to catch readers' attention and encourage them to learn more about your company.

Components of an Executive Summary

Here are some of the information that makes up an executive summary:

The name and location of your company
Products and services offered by your company
Mission and vision statements
Success factors of your business plan

2. Business Description

Your business description needs to be exciting and captivating as it is the formal introduction a reader gets about your company.

What your company aims to provide, its products and services, goals and objectives, target audience , and potential customers it plans to serve need to be highlighted in your business description.

A company description helps point out notable qualities that make your company stand out from other businesses in the industry. It details its unique strengths and the competitive advantages that give it an edge to succeed over its direct and indirect competitors.

Spell out how your business aims to deliver on the particular needs and wants of identified customers in your company description, as well as the particular industry and target market of the particular focus of the company.

Include trends and significant competitors within your particular industry in your company description. Your business description should contain what sets your company apart from other businesses and provides it with the needed competitive advantage.

In essence, if there is any area in your business plan where you need to brag about your business, your company description provides that unique opportunity as readers look to get a high-level overview.

Components of a Business Description

Your business description needs to contain these categories of information.

Business location
The legal structure of your business
Summary of your business’s short and long-term goals

3. Market Analysis

The market analysis section should be solely based on analytical research as it details trends particular to the market you want to penetrate.

Graphs, spreadsheets, and histograms are handy data and statistical tools you need to utilize in your market analysis. They make it easy to understand the relationship between your current ideas and the future goals you have for the business.

All details about the target customers you plan to sell products or services should be in the market analysis section. It helps readers with a helpful overview of the market.

In your market analysis, you provide the needed data and statistics about industry and market share, the identified strengths in your company description, and compare them against other businesses in the same industry.

The market analysis section aims to define your target audience and estimate how your product or service would fare with these identified audiences.

Market analysis helps visualize a target market by researching and identifying the primary target audience of your company and detailing steps and plans based on your audience location.

Obtaining this information through market research is essential as it helps shape how your business achieves its short-term and long-term goals.

Market Analysis Factors

Here are some of the factors to be included in your market analysis.

The geographical location of your target market
Needs of your target market and how your products and services can meet those needs
Demographics of your target audience

Components of the Market Analysis Section

Here is some of the information to be included in your market analysis.

Industry description and statistics
Demographics and profile of target customers
Marketing data for your products and services
Detailed evaluation of your competitors

4. Marketing Plan

A marketing plan defines how your business aims to reach its target customers, generate sales leads, and, ultimately, make sales.

Promotion is at the center of any successful marketing plan. It is a series of steps to pitch a product or service to a larger audience to generate engagement. Note that the marketing strategy for a business should not be stagnant and must evolve depending on its outcome.

Include the budgetary requirement for successfully implementing your marketing plan in this section to make it easy for readers to measure your marketing plan's impact in terms of numbers.

The information to include in your marketing plan includes marketing and promotion strategies, pricing plans and strategies , and sales proposals. You need to include how you intend to get customers to return and make repeat purchases in your business plan.

5. Sales Strategy

Sales strategy defines how you intend to get your product or service to your target customers and works hand in hand with your business marketing strategy.

Your sales strategy approach should not be complex. Break it down into simple and understandable steps to promote your product or service to target customers.

Apart from the steps to promote your product or service, define the budget you need to implement your sales strategies and the number of sales reps needed to help the business assist in direct sales.

Your sales strategy should be specific on what you need and how you intend to deliver on your sales targets, where numbers are reflected to make it easier for readers to understand and relate better.

6. Competitive Analysis

Providing transparent and honest information, even with direct and indirect competitors, defines a good business plan. Provide the reader with a clear picture of your rank against major competitors.

Identifying your competitors' weaknesses and strengths is useful in drawing up a market analysis. It is one information investors look out for when assessing business plans.

The competitive analysis section clearly defines the notable differences between your company and your competitors as measured against their strengths and weaknesses.

This section should define the following:

Your competitors' identified advantages in the market
How do you plan to set up your company to challenge your competitors’ advantage and gain grounds from them?
The standout qualities that distinguish you from other companies
Potential bottlenecks you have identified that have plagued competitors in the same industry and how you intend to overcome these bottlenecks

In your business plan, you need to prove your industry knowledge to anyone who reads your business plan. The competitive analysis section is designed for that purpose.

7. Management and Organization

Management and organization are key components of a business plan. They define its structure and how it is positioned to run.

Whether you intend to run a sole proprietorship, general or limited partnership, or corporation, the legal structure of your business needs to be clearly defined in your business plan.

Use an organizational chart that illustrates the hierarchy of operations of your company and spells out separate departments and their roles and functions in this business plan section.

The management and organization section includes profiles of advisors, board of directors, and executive team members and their roles and responsibilities in guaranteeing the company's success.

Apparent factors that influence your company's corporate culture, such as human resources requirements and legal structure, should be well defined in the management and organization section.

Defining the business's chain of command if you are not a sole proprietor is necessary. It leaves room for little or no confusion about who is in charge or responsible during business operations.

This section provides relevant information on how the management team intends to help employees maximize their strengths and address their identified weaknesses to help all quarters improve for the business's success.

8. Products and Services

This business plan section describes what a company has to offer regarding products and services to the maximum benefit and satisfaction of its target market.

Boldly spell out pending patents or copyright products and intellectual property in this section alongside costs, expected sales revenue, research and development, and competitors' advantage as an overview.

At this stage of your business plan, the reader needs to know what your business plans to produce and sell and the benefits these products offer in meeting customers' needs.

The supply network of your business product, production costs, and how you intend to sell the products are crucial components of the products and services section.

Investors are always keen on this information to help them reach a balanced assessment of if investing in your business is risky or offer benefits to them.

You need to create a link in this section on how your products or services are designed to meet the market's needs and how you intend to keep those customers and carve out a market share for your company.

Repeat purchases are the backing that a successful business relies on and measure how much customers are into what your company is offering.

This section is more like an expansion of the executive summary section. You need to analyze each product or service under the business.

9. Operating Plan

An operations plan describes how you plan to carry out your business operations and processes.

The operating plan for your business should include:

Information about how your company plans to carry out its operations.
The base location from which your company intends to operate.
The number of employees to be utilized and other information about your company's operations.
Key business processes.

This section should highlight how your organization is set up to run. You can also introduce your company's management team in this section, alongside their skills, roles, and responsibilities in the company.

The best way to introduce the company team is by drawing up an organizational chart that effectively maps out an organization's rank and chain of command.

What should be spelled out to readers when they come across this business plan section is how the business plans to operate day-in and day-out successfully.

10. Financial Projections and Assumptions

Bringing your great business ideas into reality is why business plans are important. They help create a sustainable and viable business.

The financial section of your business plan offers significant value. A business uses a financial plan to solve all its financial concerns, which usually involves startup costs, labor expenses, financial projections, and funding and investor pitches.

All key assumptions about the business finances need to be listed alongside the business financial projection, and changes to be made on the assumptions side until it balances with the projection for the business.

The financial plan should also include how the business plans to generate income and the capital expenditure budgets that tend to eat into the budget to arrive at an accurate cash flow projection for the business.

Base your financial goals and expectations on extensive market research backed with relevant financial statements for the relevant period.

Examples of financial statements you can include in the financial projections and assumptions section of your business plan include:

Projected income statements
Cash flow statements
Balance sheets
Income statements

Revealing the financial goals and potentials of the business is what the financial projection and assumption section of your business plan is all about. It needs to be purely based on facts that can be measurable and attainable.

11. Request For Funding

The request for funding section focuses on the amount of money needed to set up your business and underlying plans for raising the money required. This section includes plans for utilizing the funds for your business's operational and manufacturing processes.

When seeking funding, a reasonable timeline is required alongside it. If the need arises for additional funding to complete other business-related projects, you are not left scampering and desperate for funds.

If you do not have the funds to start up your business, then you should devote a whole section of your business plan to explaining the amount of money you need and how you plan to utilize every penny of the funds. You need to explain it in detail for a future funding request.

When an investor picks up your business plan to analyze it, with all your plans for the funds well spelled out, they are motivated to invest as they have gotten a backing guarantee from your funding request section.

Include timelines and plans for how you intend to repay the loans received in your funding request section. This addition keeps investors assured that they could recoup their investment in the business.

12. Exhibits and Appendices

Exhibits and appendices comprise the final section of your business plan and contain all supporting documents for other sections of the business plan.

Some of the documents that comprise the exhibits and appendices section includes:

Legal documents
Licenses and permits
Credit histories
Customer lists

The choice of what additional document to include in your business plan to support your statements depends mainly on the intended audience of your business plan. Hence, it is better to play it safe and not leave anything out when drawing up the appendix and exhibit section.

Supporting documentation is particularly helpful when you need funding or support for your business. This section provides investors with a clearer understanding of the research that backs the claims made in your business plan.

There are key points to include in the appendix and exhibits section of your business plan.

The management team and other stakeholders resume
Marketing research
Permits and relevant legal documents
Financial documents

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Martin luenendonk.

Martin loves entrepreneurship and has helped dozens of entrepreneurs by validating the business idea, finding scalable customer acquisition channels, and building a data-driven organization. During his time working in investment banking, tech startups, and industry-leading companies he gained extensive knowledge in using different software tools to optimize business processes.

This insights and his love for researching SaaS products enables him to provide in-depth, fact-based software reviews to enable software buyers make better decisions.

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11 Steps to a Successful Feasibility Analysis

October 25, 2021
Posted by: BPlan Experts
Categories: Entrepreneurship, Planning, Startups

The term feasibility analysis, as its name implies, is a tool used to determine the viability of a company idea. A feasibility study identifies all the resources needed to start a company and analyze the financial and legal aspects of the business plan. So, what’s a business plan? A business plan is a document that details the business idea. The goal of the business plan is to accurately describe the project, its expected results, and financial requirements.

Table of Contents

What is feasibility analysis?

Most people think of feasibility analysis as a product like an automobile that needs to undergo various tests. There is no need to invest huge amounts of money testing a car that does not require it. In other words, the car should perform well but without a risk of an unexpected failure. Since most businesses are not as simple as the car, the concept of feasibility study also applies to business plans. Feasibility analysis are usually expensive but they are a must for any startup. A feasibility analysis identifies all the resources needed to start a company and projects the financial and legal aspects of the business plan. The following sections will help you with the feasibility study process.

First Step: Ideation & Defining the scope of the project

Ideation is the “getting it all off the ground” stage of a feasibility analysis. It involves identifying the problem, what needs to be done, the solution, and how the company will succeed. For example, you might get an idea for a baby pacifier glove. You want to make these baby gloves for day-care providers who deal with drooling and soap. What do you need to do? First, you need to identify the end goal. Will your pacifier glove be used for daycare providers or children?

You need to know what will be the focus of your business and how you plan to market your product. After all, a business plan without a marketing plan is like driving a car without a steering wheel. This is also the stage when you determine if the company is feasible.

Second Step: Market Analysis

The next step involves an in-depth assessment of the market for the product being developed. This assessment entails identifying the current market for the product or service, a detailed survey of current companies in the targeted market, and a list of competitors. The market analysis determines the market for the product, along with the legal and logistical requirements, who can make the investment required to market and produce the product, and how competitive the product will be.

Third Step: Industry Research

When thinking of your venture, go beyond marketing and sales and start looking for the industry. Is the industry niche? Does it require special expertise? What industries are similar to yours? How will these factors affect the overall cost of production? Determine who the competition is, what their market share is, and if the industry will still exist in the future.

Fourth Step: Opportunity Analysis

Following the industry research, we will perform an opportunity analysis to determine the market niche, business model, revenue, and other factors which may have the greatest impact on the financial success of the startup. An opportunity analysis takes into account factors such as the role that existing or potential markets have on an idea’s viability during the feasibility analysis.

Fifth Step: Operational Research

Operational research is a type of research that explores various options and contingencies to help an investor or entrepreneur understand the feasibility of a project. The process involves brainstorming and evaluating different options and problems, ultimately generating new options, potential outcomes, and solutions to the problems that were originally identified. These steps are just some of the fundamentals of startup feasibility analysis.

If you want to start a successful company, you must do the research required to understand your market and your competitors, along with every possible opportunity that can help your company grow. How else can you prepare your company for the future? As with any venture, preparation is the key.

Sixth Step: Competitor Analysis

The next step in the feasibility analysis process is the competitive analysis, to come up with a competitive advantage that is unique to your business idea. What’s a competitive advantage? It’s a strategy that can be used to take advantage of the existing market or a strategy that can allow a company to achieve market dominance. A competitive analysis is a quick visual inspection of your industry, looking at your competition to determine how they’re doing. Although this step may seem minor, it’s one of the most important steps in the feasibility study process.

Seventh Step: Industry Best Practices

There’s a lot of research to be done to determine which industry best practices are most pertinent for your business and your target market. However, as mentioned before, this research is not limited to the needs of the industry. Companies have found ways to adapt to different markets. From shoe manufacturing to sandal making, and even selling hot dogs for a living, each industry needs to determine what they need to change to stay competitive. Even the smallest companies have this process of constantly evolving to help them stay successful.

An industry best practice is a set of standards that members of an industry follow. To remain competitive, the standard defines how the industry behaves, how they adapt to change, and what they need to achieve in the future. While doing feasibility analysis you should do this in-depth.

Eighth Step: Business Model Generation

Once the financial and legal aspects have been analysed, the business plan can be generated. The name business model generation implies that, essentially, you should be able to generate a working business plan for your idea. Once you have a business model that would work, you can then develop it into a working business plan. If you are a first-time entrepreneur and want to write a business plan for your idea, take a look at my “Write a business plan like an expert in 2021”. Congratulations, you’re almost ready to start building your startup.

Ninth Step: Risks & Mitigation Study

The next step in the feasibility analysis is to conduct a risk analysis to determine the amount of risk the project poses. To do this, divide the business plan into smaller and more manageable sections. Allocate some time to go through each section and perform a risk analysis. First, you’ll need to determine the risk that the project faces by identifying the top threats. In many cases, the top threats will include cash flow concerns and threats of losing investment funds. You should also list all of how the project can be improved upon. The goal of this step is to gain more control over the project by addressing all of the top threats.

Tenth Step: Budgeting & Financial Assessment

Budgeting is an important part of the feasibility analysis. A company is only as good as its budget. The success of an organization depends on how well it manages its funds and resources. The financial assessment is another important part of the feasibility study. It helps to determine whether an organization can afford a new project or not. It also helps to predict future cash flow for the organization based on past financial information, which helps it decide if it can undertake new projects now or in the future.

As per this section, financial assessment and budgeting are integral parts of any feasibility analysis. They are needed to ensure that the company has done its due diligence before deciding on any investment opportunities or changes in management strategy.

Eleventh Step: Implementation Roadmap

The main purpose of the implementation roadmap is to put the actual project into motion. It’s all about executing the project that you have planned.

In conclusion, conducting a feasibility analysis can help you determine your chances of success. A well-done feasibility study will not only look at the market potential, but will also help you understand the people, processes, policies, costs, competition, and even the culture of the industry you are considering entering. The key to success with any business venture is to take the time to do your research. Hiring professional feasibility study services will help you with your feasibility analysis and make sure you don’t miss vital information. They can save you time and money in the long run.

References: – Feasibility Study – Investopedia – Business Planning for Startups & Entrepreneurs