The Three-Part Business Plan

1. Overview of the Business Plan

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:

• Communication: Communicates to its investors what the business is going to do with the money that they've invested.
• Management: Helps set up monitoring and tracking of different goals and objectives that the business may have, and provides the key indicators if they're succeeding or failing.
• Planning: Provides timelines and milestones, and allows the business to compare the growth of different projects throughout their lifespan.

term to know

Business Plan

A document that outlines the plan for a business.

2. Three Main Parts of the Business Plan

A business plan has three main parts:

• Goals and Objectives
• Sales Forecast
• Financial Plan

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

Measurable

Achievable

Relevant

Timely

IN CONTEXT
Suppose you have a broad goal of wanting to grow your business. How can you turn this into a SMART goal?

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:

• Sales category
• Number of units
• Unit price of the product
• Total sales
• Monthly and annual totals

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.

IN CONTEXT
Small business investment companies were created by Congress in 1958. These are privately owned and managed, and they primarily serve as a source of venture capital for small business. In this manner, they can help fuel growth for the business. They are licensed by the Small Business Administration to provide long-term loans with maturities of at least five years. They do not provide short-term loans. These small business investment companies are a great resource for small businesses to fund their expansions and startups.