A business plan is simply defined as a document that outlines the plan for a business. Simple enough, right?
The business plan is a very valuable tool for any business in three key areas:
A business plan has three main parts:
Now, it may include other information, such as the product description or product differentiation, to give the people you're communicating to--the investors--a better idea of what it is that you're doing, and these can be critically important.
2a. Goals and Objectives
Goals and objectives can differ greatly, depending on if it's a larger company or a smaller company. Goals are the long-term targets that a company wants to hit. Objectives are the shorter term targets. Most of the time, objectives will simply be ways or steps to achieve the goals that we want to accomplish.
Now, goals should be SMART:
Specific: Acquire three new clients
M: Measure how many clients that are acquired while maintaining client base
Achievable: Ask clients for referrals, launch social media campaign, or network with local businesses
Relevant: Grows business and increases revenue
Timely: Within two months
SMART Goal: I will acquire three new clients for my business within two months by asking for client referrals, launching a social media campaign, and networking with local businesses, which will allow me to grow my business and increase my revenue.
It's specific. It's measurable. It's achievable. It's relevant to your business, and it's timely.
2b. Sales Forecast
Sales forecasts are split up into:
This allows you to track your sales throughout the year. A sales forecast is also based on a lot of research. Businesses will look at the current market and try to understand the financial strengths and weaknesses of their own business and predict how their business is going to compete within the marketplace.
Let's take a look at a template for a sales forecast.
As you can see, it is split up among the different months, but it also covers the entire year to see how the business is performing overall throughout the year, and for each individual product or product category.
In addition to the monthly totals, it shows the end of year totals, to compare to prior years. You can use this information to make long-term forecasting for the years that follow.
Below you can see what a graph might look like, using the data from the sales forecast.
Starting in June of 2014, bikes (blue line) is at 20. It moves up and holds steady, then around October, it takes a dip back down to 20 or so. This could indicate a seasonal issue with the product. Various factors may be involved that will determine how to increase sales or output, and ultimately, growth.
For tires (red line), it's a slightly different story. You can see that it starts off at around 35 and moves steadily downward all the way to the end of the year. Now, the reason someone might chart this is because you may be discontinuing that product by the end of the year.
2c. Financial Plan
A financial plan is a summary of what investments are needed. It also takes a look at the break-even analysis. How much product do you have to sell at a particular price to break even to cover all of your costs? As you can imagine, this is critical for individual business.
It also contains revenue projections, which are based, at least in part, on sales projections or forecasts. Therefore, the better job you do forecasting your sales, the better you can accurately predict your revenue for the following months and years.
Venture capitalists will want to see this particular document. Venture capitalists are high-risk investors who provide funding for startups and small businesses, but they are not just going to hand businesses money without a sound financial plan and business plan.
They are absolutely critical to startups, as startups typically have low access to capital, yet they have high costs from the beginning. Therefore, they need a lot of money to get started and to keep going. Venture capitalists provide the capital needed for those startups to cover those high costs, because they are willing to make riskier investments than traditional lending institutions, like banks.
Source: ADAPTED FROM SOPHIA INSTRUCTOR JAMES HOWARD