Business planning is a vital component of starting and growing a successful enterprise. Many different templates and variations of business plans exist, so you must choose the right one for your purpose and your enterprise.
Who is the intended audience?
Some business plans are designed for internal audiences (owners, employees, Boards of Directors or Advisors, and senior management) for an existing organization for the purposes of implementing a growth strategy and may be referred to as a strategic plan. It can also serve as a guide solely for the owner of a new business to help clarify their vision and goals.
A business plan could also be for external audiences (investors, clients, suppliers, new hires, bankers and other lenders such as government) for the purposes of attracting financing, talent or suppliers for a new or existing business. A document for this audience may initially take the form of a condensed version of the larger business plan, especially for attracting funding. This version is known as the business opportunity document or business funding proposal and is typically followed by the business plan itself. Obtaining financing is a significant issue for many businesses and this tool can be an enormous advantage when approaching investors or lenders.
What goes in the business plan?
The business plan is a comprehensive document that is created to describe the future of the venture, consisting of:
• executive summary
• company history and background
• clear description of the business concept and value proposition
• marketing analysis including competitive analysis and market development plan
• production and operations assessment and development plan
• financial assessment and projections
• management and human resources assessment and plan
• implementation plan
• identification of resources
• proposed deal structure for investors (if appropriate)
• survival strategy describing inherent risks and mitigation strategies
• growth strategy
• exit strategy
Some of these may be longer or shorter, or even optional, depending on the format and the intended audience.
The reader should be able to clearly understand what the value proposition is, why the business will succeed and how it is going to achieve this success. If the plan is being pitched to investors, the investor should understand as soon as possible what the proposed deal structure is and what the return will be. To do this you must support any claims and assumptions about what the business will do with realistic research. Unrealistic financial projections are a sure fire way to lose investors’ interest or for an owner to lose perspective.
How long should it be?
A typical business plan may consist of 20 pages although some business plans can be 100 pages or more, depending on the purpose of the plan, who the target is, and the nature of the business. For example, if the plan is going to be used to attract investors it may require more detail than if it was to be used internally to communicate a growth strategy, while if the business concept is relatively simple it may be conveyed more briefly than a more complicated enterprise.
Should I use a template? Or a consultant?
There are so many business plan templates to choose from that it’s tempting to simply cut and paste or hire outside consultants to write your business plan. However, it’s best for the owner(s) of an organization to write the plan, even if you decide to bring in outside help to review and refine it. Often entrepreneurs do not take the time, nor do they feel a business plan is necessary for their businesses to succeed. They often think that taking time to write a business plan is just impossible and would be a waste of time. But when they learn how the process could benefit their organization they are more likely to get started! Even if there is no immediate audience for the document itself, the planning process itself is invaluable.
A business plan is an easy way to communicate the business idea to the prospective audience, to assist in preventing problems, and to identify growth strategies, as well as a tool used in the search for funding. A business plan should be used as a tool for the entrepreneur to guide the business operations rather than a strict manual or blueprint to be adhered to and implemented exactly. The business plan can also be designed to help owners of businesses to clarify the strategy of a particular business and provide insight to manage risks.
Entrepreneurial training is becoming a significant component of many learning institutions in response to the escalating numbers of business start-ups worldwide. Business plan writing is being taught to would-be entrepreneurs more than ever before. New venture analysis is an integral part of the business plan creation process as is what to do with the opportunity once it is identified.
Although being a successful entrepreneur is attractive, over 70% of new businesses do not survive after year two. Having a business and knowing what to do with it are very separate issues and creating a well-executed business plan for the right reasons will enhance the odds that your venture will be one of the ones to succeed.
The executive summary is the introduction to a formal business plan. It summarizes the business proposition, key financial projections, where the business stands at present and elements that are critical for success. While you may be tempted to rush through this part before attacking the bulk of your business plan, remember this is the first thing a potential investor will read. If your executive summary doesn’t grab his or her attention, then he or she probably won’t bother reading the rest of your package.
Brevity is key. A good executive summary ranges from half a page to two pages; anything longer and you risk losing your reader’s attention or appearing unfocused. A safe bet is to keep it under one page.
Although it leads off the business plan, the executive summary should be written last. That way, you can cull information from the rest of the report, and make certain there are no inconsistencies.
The executive summary is also the best place to describe your mission statement. Develop a concise description, no more than a few sentences, that explains:
• Why your business exists
• What its goals are
• How you will achieve those goals
Next, develop the business description or concept. This is where you offer more detail about the type of business you want to open, who the customers will be and what the competitive advantage is. A competitive advantage explains why customers will chose your business over marketplace rivals. Your reasons may include:
• Filling a void in the marketplace
• Offering a better product than what currently exists
• Offering a comparable product, but at a better price than your rivals
From there, you’ll move onto a brief description of your financial outlook. This part of the executive summary should mention the expected costs of starting up, as well as your bottom-line financial projections for the short and long term.
The next issue to address is the status of your business. It may still be only in the idea stage. Perhaps you’ve already raised a little money. Or, it may be that you are fully operational and looking to expand. Investors will interpret your current business position as a signal as to how much capital is needed to advance your company, and whether or not this matches the type of opportunity they are looking for.
The final part of the executive summary will focus on critical factors that will determine your chance for success. These items will be specific to your business, but may include:
• Low staff turnover
• A technology patent
• A strategic partnership
• Externalities, such as the continuation of a marketplace or economic trend
Overall, the executive summary should offer a glimpse into what the business plan holds. Hit on all the important points; if you hold off on composing it until after you’ve written the rest of your business plan, it should practically write itself.
The Company History
The business plan background, which follows the executive summary, should detail your company’s history. This part will vary, depending on how developed your business is. The history of a startup is obviously different than for an existing company. This section should be about a page long, although it’s OK to stay under that limit if you’re starting a brand-new company.
Here are a few points that you should be sure to include in this section:
• The origin of the idea for the business
• Your progress to date
• Problems you’ve faced so far
• Short-term growth plans
For a new business you might want also to include some personal history and business background. Some points to make in this section:
• Your educational history
• Other companies you’ve worked for
• Previous businesses you’ve started
• Your technical skills
• Your areas of expertise in your industry segment
• Your areas of weakness or inexperience and how you plan to compensate for them
• Any relevant professional clubs or associations you belong to
Overall, this section of your business plan should give an interested investor a better idea of who you are and how this business idea came about. Again, keep it concise and avoid extraneous personal information.
It is crucial that your business plan states your business concept and value proposition. Since this part of the business plan follows the executive summary and company history, readers already should have a general idea of your company. The business concept, however, comprises your vision of the company, explaining the value your product or service will bring to the customer, why you are especially qualified to offer it, as well describing your offering’s uniqueness and growth potential.
This in turn enables you, as well as interested parties and potential investors to research and analyze the concept for feasibility, both from a market and financial perspective.
The Feasibility Test
Think of a feasibility test as a reality check for your big idea. According to Entrepreneurship For Dummies by Kathleen Allen, a feasibility test weighs the validity of your business concept by examining four points:
• The product your firm will offer
• The customer you will target
• Your value proposition
• How you will get the product to its intended users
By this stage you should have a firm grasp on what product or service you intend to offer, as well as who you believe will be your primary customer. The final item requires weighing various distribution channels, but, again, should be answerable with a little leg work.
The Value Proposition
In essence, your value proposition is what makes customers choose you, instead of the competition. It’s part marketing, part operations and part strategy.
On a subconscious level, customers will compare the value proposition of your company against those of your competitors when deciding where to take their business. With that in mind, a few things to remember when writing your value proposition:
• Keep it short and uncluttered. Your value proposition explains why customers should buy from you. If you can’t sum it up in 10 words or less, chances are you won’t be able to execute it, either.
• Be precise. Your customers have specific needs; your value proposition should offer targeted solutions
• This is about your customer, not you. Your value proposition should discuss only what matters to your customers and the value you can bring to them.
• Value comes in numerous forms. Money, time, convenience and superior service are a few of the ways you can help deliver value to your customers.
The last part of the business concept is how you will deliver your product to your customers. There are several factors to consider when plotting your distribution strategy:
• Will you set up a brick-and-mortar shop or office, sell online or both?
• What unique obstacles exist for your company in these two different channels?
• If your company sells a product, will you have the space to keep enough inventory on hand, or will customers have to agree to waiting periods?
• Can you strike exclusive deals with any particular distributor or retailer? Do your competitors have any such deals that hinder your operation?
Remember, vision is important if your business is going to grow. The more focused your business concept is, the greater the likelihood that you’ll attract investors and customers.
You may possess all the confidence in the world that yours is a perfect product with a clearly defined customer base. If that’s the case, you’ll need to figure out how you’re going to get your product into the hands of those customers. That’s where the marketing analysis section of your business plan comes into play.
Traditional marketing strategy consists of three components, known as the “three C’s”:
• Company: Know the strengths and weakness of your firm.
• Competition: Know the same about your competitors.
• Customer: Know who they are and what they want.
Analyze the Competition
Of the three C’s, the competitor analysis may give you the toughest time, especially if you are new to the marketplace. First, you should look at your direct competitors. Take, for example, a McDonald’s restaurant in a busy downtown area. Its direct competitors would be any nearby Burger King or Wendy’s restaurants. Its indirect competitors would be other restaurants in the same downtown area, even upscale ones. Customers eat lunch just once a day, and all these restaurants are fighting for this finite group of customers.
Examine any substitutes. Instead of going out for lunch, some people may opt to bring lunch from home, or skip lunch entirely. These are both factors McDonald’s would need to examine when analyzing a location’s competitive position.
Assess the Marketplace
Once you’ve identified your direct and indirect rivals, as well as substitute competitors, you’ll want to gauge your potential fit in the marketplace. Some issues to consider:
• Competitor strengths and weaknesses
• Whether new competitors are entering the marketplace, or existing ones are leaving
• The product or products that your competitors rely on for most of their revenue
• Ways to overcome the threat of substitute goods
Develop a Marketing Program
After you have addressed the three C’s, you can move on to developing a marketing program, which involves analyzing “the four P’s,” collectively known as the marketing mix:
• Product: What you are selling
• Price: How much you will charge
• Place: Where you will sell your product
• Promotion: Special incentives you will use to get people to try your product
Craft a Market Development Plan
You’re now ready for the final phase of your marketing analysis – crafting a market development plan. The information you provide here likely won’t come into play until you’ve established your company and have been running for a few years, but investors will find it helpful to see how you envision your company evolving. Your market development plan should address such questions as:
• Does recent data show the market for your product is growing?
• Do you have a plan to offer new products or line extensions in the first few years?
• Are there other ways to position your company more competitively in the marketplace?
• Does your marketing plan offer ways to grow overall demand within your industry sector?
These marketing and competitive analyses are vital parts of your business plan and will likely be the most extensive portion of it. Take the time to do thorough research on your competitors and how the market has behaved in recent years. A disorganized marketing strategy can ruin even the best of products, simply because your target customers will never hear of them.
A business plan should include an assessment of your production and operations strategy. Operations have a steep learning curve, but many successful companies, such as Wal-Mart, have grown by leveraging their operational infrastructure.
What Role Will Operations Play in Your Company?
This will depend on the nature of your business. If you’re selling a consumer good, it will be important to make sure you can get your products to your clients at the time you promise. A service company relies on an operational plan to make sure customers are seen in an efficient manner. When writing your business plan, focus on where production and operational efficiencies are needed to help the company succeed, including buying power and economies of scale.
Where Will You Get Your Sourcing Materials?
This mostly applies for startups selling goods, rather than services. In this section of the business plan, spell out what raw materials are needed to make your product and from where you plan to get them. Sourcing can offer a huge cost advantage (or disadvantage) in the production stage, so it is important to do research on this. The price on commoditized products such as wood and plastic will likely be similar regardless of where you get them, but there could be a lot of variability if you require specialized materials.
Can You Outsource Any of This?
Sometimes the best production strategy is to let someone else handle it. As a startup, you’re unlikely to have the capital to build your own factory to produce your product, so outsourcing to a manufacturing company is probably already in your plans. Look for a manufacturer, either domestic or foreign, who has experience producing goods similar to yours. Companies such as UPS, FedEx and DHL are no longer just package-shipping companies: They all offer supply-chain management services to help firms who want to offload that responsibility, and whose scale makes them more efficient.
Balance Opportunity Cost with Surplus Charges
An accurate projection of the demand for your product is key to a successful operational strategy. Remember to consider opportunity costs when placing an order. If you’re selling sweaters for $50, and you run out, every person who wanted a sweater and couldn’t get one represents a missed opportunity of $50 in revenue. Of course, if you order too many sweaters, you’ll be left with surplus inventory.
In your business plans, offer ideas of how you will unload any surplus. For example, selling slow-moving items to a liquidator can bring in some additional revenue, while donating surplus goods to a nonprofit can yield a nice tax deduction. Both methods reduce the cost associated with maintaining the inventory, such as warehousing and handling or disposing of the items yourself.
It’s not uncommon for entrepreneurs to get tripped up at this stage of planning. Many new business owners have minimal experience in operations and production. Whether you develop this strategy yourself or bring in a consultant to help, be sure your business plan clearly states the role operations will play in your company, who will be involved in establishing this infrastructure and what the potential costs are.
Creating financial projections for your startup is both an art and a science. Although investors want to see cold, hard numbers, it is tough to predict your financial performance three years down the road, especially if you are still raising seed money. Regardless, a short- and medium-term financial projection is a required part of your business plan if you want serious investors’ attention. Here are some tips for crafting solid financial projections.
Get Comfortable with Spreadsheets
Spreadsheet software is the starting point for all financial projections. Microsoft Excel is the most common, and chances are you already have it on your computer; there are also special software packages you can buy to help with financial projections. Spreadsheets offer flexibility, allowing you to quickly change assumptions or weigh alternate scenarios.About.com’s Guide to Spreadsheets can help you get started.
Go Beyond the Income Statement
The income statement is a standard measuring tool used to convey your projected revenues and expenses. A good financial projection also will include a projected balance sheet, which shows the breakdown of assets, liabilities and owner’s equity. In addition, it will include a cash flow projection, which reveals the actual movement of cash through your company in a given period.
Your financial projections should include estimates of how much money you plan to borrow and interest repayments on those loans. Additionally, be sure to follow the Generally Accepted Accounting Principles, or GAAP, which are set forth by the Financial Accounting Standards Board, the private-sector organization responsible for setting financial accounting and reporting standards in the U.S. If financial reporting is new territory for you, have an accountant review your projections.
Provide Short-Term and Medium-Term Projections
You should be able to offer investors:
• A short-term projection of the first year, broken down by month
• A three-year projection, broken down by year
• A five-year projection. Don’t include this one in the business plan, since the further into the future you project, the harder it is to predict; however, have it available in case an investor asks for it.
When projecting growth, consider the state of the market in which you are operating, as well as trends in raw material and labor costs, and whether you foresee needing additional funding in the future.
Account for Startup Fees
Fees related to licenses, permits and equipment should be included in the short-term projections. Also keep in mind the difference between fixed and variable costs; differentiate where appropriate. Variable costs usually will be included under the category of “cost of goods sold.”
Offer Two Scenarios ONLY
Investors will want to see a best-case and worst-case scenario, but don’t inundate your business plan with myriad “medium-case” scenarios. It will likely just cause confusion.
Make Your Assumptions Reasonable and Clear
As mentioned before, financial forecasting is as much art as it is science: You’ll have to assume certain things, such as your revenue growth, how your raw material and administrative costs will grow, and how effective you’ll be at collecting on accounts receivable. It’s best to be realistic in your projections as you try to recruit investors. If your industry is going through a contraction period and you’re projecting revenue growth of 20 percent a month, red flags will begin to pop up.
Management and Human Resource Plan
Your business plan should include a description of your organizational structure, including your management and human resources capabilities, philosophy and needs, the number of employees you intend to hire, how you will manage them and your estimated personnel costs. Begin this section by outlining your own managerial experience and skills as well as that of your team (if you already have one formed), the roles each member will play, and any particular areas of strength or deficiency in your lineup.
It’s fine if you don’t yet have a complete team in place when you write your plan. Simply use this section of your business plan to outline the organizational structure, complete with job descriptions, how you plan to recruit key team members, and what their respective responsibilities will be.
Even if you don’t plan to have an extensive management team, if you expect to hire non-managerial employees such as salespeople or clerical workers for your startup, you should consider recruiting a human resources manager, or at least use an HR consulting firm. Human resource management requires an immense amount of time and paperwork, and an experienced HR consultant should be able to quickly get your payroll and benefits running, giving you more time to concentrate on growing the business.
This person’s responsibilities will include:
• Handling FICA and unemployment taxes and paperwork
• Ensuring compliance with the Family and Medical Leave Act
• Staying on top of IRS filings
This portion of your business plan also may include a brief overview of your HR strategy. Investors may be curious about how your payroll will be handled and the associated costs of administering it, as well as the type of corporate culture you plan to create.
Items to include in this section:
• Pay scale: What are reasonable market salaries for managers and non-managers?
• Vacation time: This is not required by law, but most firms offer it to stay competitive and keep employees refreshed. Also, outline how vacation time will accrue as tenure grows, because this represents a labor cost.
• Insurance: Health insurance is a common staple benefit, although skyrocketing prices have forced many firms to cut back on this offering. If you can’t afford a health plan, look into just subsidizing one and having employees pay the rest, or see if a professional association can help you get a bulk rate.
• Additional benefits: Other things to consider include life insurance, a 401(k) and matching funds, bereavement leave, religious and floating holidays, and a potential bonus structure.
It may be overwhelming to contemplate these benefits and their costs in the early stages, but keep in mind that in a competitive labor market, your firm will need to offer something to entice qualified personnel and, more importantly, to keep them working for you.
Even the most well-thought-out business plan is just a stack of paper if it isn’t coupled with a plan for implementation. This is the portion of the business plan where you’ll clarify objectives, assign tasks with deadlines, and chart your progress in reaching goals and milestones. Here are some guidelines for successful business plan implementation:
Objectives: Your objectives should be crystal clear and specifically spelled out, since you’ll use them as a building block for the rest of the implementation plan. For example, let’s assume your startup is a small consulting firm. Your objective should be tough but reachable, and could read something like this:
• Secure office space and be open for business in three months.
• Sign three clients within first three months of operations.
• Sign 10 clients within first year.
Tasks: This part details what must be accomplished to achieve your objectives. Include a task manager for each step, so that roles are clearly defined and there is accountability. As you enumerate tasks and assignments, these descriptions should be plainly and generally stated; don’t get into a step-by-step, micromanaged explanation of how the tasks will be carried out. Emphasize the expected results associated with these tasks. Continuing with the above example, the tasks section might read like this:
• Secure office space – real estate agent
• Obtain licenses and permits – you
• Set up office phones and computers – office manager
• Begin recruiting clients – sales manager
• Create marketing collateral – marketing manager
• Solicit referrals from clients – relationship manager
This list is obviously very specific to this particular firm and is a brief illustration. You may wish to go into more details, assigning tasks to yourself such as obtaining financing, networking with prospective clients, etc.
Time allocation: Each task should be paired with an appropriate time frame for completion. You should be aggressive but reasonable with your time allocation in order to ensure not just completion but competent work. For assistance in framing this timescale, use a program such as Microsoft Project, or just create your own Gantt chart – a helpful tool that shows how long it will take to complete different tasks and in what order the tasks should be finished.
Progress: You or a member of your management team needs to be in charge of monitoring each task’s progress and the completion percentage of each objective. When delays occur, try to get to the root of the problem. Did the person responsible drop the ball? Did he or she have too many responsibilities to handle? Did a third party, such as a supplier or the bank, fail to hold up its end of a deal? Adjust your Gantt chart appropriately to account for the delay, and make a note of the previous deadline and the reason it was missed.
While the above steps may seem like overkill, the early days of a startup are critically important; it’s a time when good management patterns are set and also probably a lean era when revenue has yet to start rolling in. The more efficiently you start implementing your business plan, the more likely it is that you will survive this early period
Identifying business resources you will bring to the venture and those you’ll need to acquire in order to start operating, such as staff, equipment and the cash to finance these necessities is another key element of the business plan.
Among other things, you’ll need to describe the source and amount of your initial equity capital, as well as account for the equipment necessary to produce your products or services. Perhaps you already have some office furniture or computers; you may have secured financing from a bank or investors, or will invest your personal savings in the business. Do you have existing staff, and will you need to hire others?
Your plans for obtaining needed personnel, equipment and cash to meet your capital expenses will be detailed throughout your plan. How about mentors and key advisers? These are non-tangible resources whose value to your business can be immense. In describing each of the resources that you have and need, couch each in terms of the value it will bring to your fledgling business, both in the near term and down the road.
This is a good time to evaluate your technical resources and requirements. Some businesses rely more heavily on technology than others, and such companies will need a strong IT network to get started. If that’s the case, you may be intimidated by the up-front cost, but keep in mind that your product will only be as good as the technology behind it, and if you buy low-grade gear, you’ll probably have to replace it in a few years
If you plan to make the rounds of venture capital firms or approach potential angel investors, you need to keep the lender’s interests firmly in mind. Simply put, these institutions or individuals want to protect their investment and generate a high return. With that in mind, here are some things to remember when structuring an investment deal:
Corporate structure: The legal structure you choose for your business will dictate your tax obligations and legal liability, as well as how you handle outside investment. Remember, if you plan to sell shares to more than 100 investors, you must set up as a C-Corp.
Preferred shares: Investment firms may insist on purchasing a special class of preferred stock with their shares. Generally, these shares are more expensive, but it gives them priority over regular shareholders. The firm may also want preferred shares to be convertible, meaning they can be converted to regular stock at any time.
Returns: Anyone putting capital into your business is going to want a dramatic return on their investment, so explain how they’ll get it. These investors want to know about an exit strategy — by sale, IPO or buyback — giving them a way to cash in on their investment. Be specific about the exit options; one way is to name possible buyers of your business. If this exit is a long way off, however, set up a dividends distribution schedule.
Non-monetary incentives: Will the investor be able to handpick a member of the company’s board? A VC firm or angel may want to reserve the right to purchase more equity at a later date or have a clause that automatically sells them more stock once certain revenue benchmarks are reached.
Restrictions: This protects you, the entrepreneur, from investors prematurely dumping their shares. Most investment agreements have rules stating when shares can be sold and in what quantities.
Protect your equity with non-compete clauses: All top managers should sign non-compete clauses to make sure they don’t leave your firm to immediately work for your top competitor. Investors will want to see these to make sure your company’s intellectual property is well protected. They may also insist on a clause that keeps you tied to the company.
State laws: Are there any state regulations that make your investment particularly attractive or unattractive? States have different rules regarding equity ownership, and some states don’t assess an income tax.
Future offerings: How will additional equity offerings be handled? Investors want to make sure their shares don’t get diluted as the company grows and may insist on having right of first refusal.
A strong business is one that can ride out the tough times. Your business plan should be able to account for a soft economy or an industry slump and should have the built-in flexibility you’ll need in order to react quickly and nimbly in the face of change.
Take these business survival measures to insulate your company in the event of an unexpected downturn.
Maximize Your Cash Holdings
Remember that cash is king, and with it you can pay your suppliers and the bank. A quick way to boost your cash reserves is to sell off surplus inventory and then cut back your inventory orders until the situation improves. You can also push to improve your accounts receivables collection.
Your infrastructure may allow you to quickly start selling alternative products that are unaffected by adverse market conditions. For example, during Prohibition, Anheuser-Busch Inc. sold malt syrup and a non-alcoholic beverage. When the ban on alcohol was lifted in 1933, the company had the resources in play to begin producing beer again.
If you can afford to do so, a slowdown can be the perfect time to introduce a new product or strike a strategic partnership. Surprise your competition while they’re busy worrying about their own future.
Use Freelancers and Part-Timers
They can help build business at a lower cost because, unlike full-time workers, you typically don’t have to provide benefits like health care and you can pay them at a lower rate than full-time employees.
Focus on Service
Good customer service will always help to differentiate you from your bigger competitors. In an economic slowdown, your clients may be looking to cut costs, too. If you boost your customer service efforts toward existing clients, it’s more likely they’ll stay you with during the slowdown — and they may even expand their business with you once things pick up again.
Look for Substitute Materials
If your business is heavily dependent on raw materials, look for less expensive, substitute goods. The savings will go straight to your bottom line.
Revise Your Revenue Projections
Use the new projections to try and renegotiate the terms of your trade credit and bank debt.
Involve Your Employees
You may be surprised that your employees are willing to help come up with ways to cut costs. But smart workers realize their job status is tied to the overall health of the business.
Don’t Abandon Development
The costliest mistake you can make during a rough period is to focus entirely on cutting costs to survive and abandon product development. New products can help differentiate you in a tough market. Also, when the market improves, you don’t want to be caught with an empty development pipeline.
Potential investors who read your business plan will want to know how you plan to grow your business once it is off the ground. This entails more than just demonstrating how your revenue will grow. The growth strategy section of your business plan is about proving to others that you have a plan for bringing your product to new customers and new markets, and perhaps even introducing new products.
The obvious objective in outlining your growth strategy is to show how these moves will increase sales. This can happen in a number of ways:
Multiple locations: If your business requires a retail presence, outline where you might seek to open additional shops and what your geographic strategy will be. Don’t assume you can go national just because your product is regionally successful.
New client bases: Once you’ve reached your original core customers, who else might be interested in your products? If you’re a business-to-consumer company, think about offering business-to-business services, and vice-versa. Office supply stores, for example, have been very successful at catering to the needs of individuals as well as small-business owners.
New products: New products are an obvious way to grow sales, but their issuance often is poorly executed. Discuss your plan for introducing new products or services in the short, medium and long term. These can be variations of your core product or completely new offerings that expand your overall base.
Franchising: Restaurants often turn to franchising, and it is a feasible option for many other industries as well. Franchising works best when your product is consistent and customers have certain expectations about your brand.
Online strategy: How will you use the Internet to grow your sales? Will you sell your product on your own corporate Web site, partner with an existing Internet retailer or maybe advertise online to build local brand awareness? Using the Web is not mandatory for selling your product, but your growth strategy should include an online element.
Marketing: Look back at the marketing section of your business plan. If you’ve already addressed facets of your business growth strategy in that section, you can use it to detail your expansion, and then refer to your marketing section as an implementation tool.
Decreasing costs: Growth has bottom-line advantages, too. The more business you do, the more you can take advantage of learning curves and economies of scale. Learning curves allow you to become more efficient as you gain experience. Economies of scale refer to a reduction in average cost over time because of factors such as buying power and managerial specialization.
Acquisitions: A final option to address is growth through acquisition. This would come into play after your startup is more established and ready to expand into other markets. At this stage, you may want to address which companies, or types of companies, would make ideal acquisition targets. Look for companies that are a good fit for your product and distribution methods, but that also present new opportunities for growth. Any duplication from an acquisition should be balanced out with growth areas.
The final portion of your business plan outlines your exit strategy. It may seem odd to develop a strategy this soon to leave your business, but potential investors will want to know your long-term plans. Your exit plans need to be clear in your own mind because they will dictate how you operate the company. For example, if you plan to get listed on the stock market, you’ll want to follow certain accounting regulations from day one. If you plan to pass the business to your children, you’ll need to start training them at a certain point.
Here’s a look at some of the available strategies for entrepreneurs:
Exit Strategies for Long-Term Involvement
• Let it run dry: This can work especially well in small businesses like sole proprietorships. In the years before you plan to exit, increase your personal salary and pay yourself bonuses. Make sure you are on track to settle any remaining debt, and then you can simply close the doors and liquidate any remaining assets. With the larger income, naturally, comes a larger tax liability.
• Sell your shares: This works particularly well in partnerships such as law and medical practices. When you are ready to retire, you can sell your equity to the existing partners, or to a new employee who is eligible for partnership. You leave the firm cleanly, plus you gain the earnings from the sale.
• Liquidate: Sell everything at market value and use the revenue to pay off any remaining debt. This is a simple approach, but also likely to reap the least revenue. Since you are simply matching your assets with buyers, you probably will be eager to sell and therefore at a disadvantage when negotiating.
Exit Strategies for Short-Term Involvement
• Go public: The dot-com boom and bust reminded everyone of the potential hazards of the stock market. While you may be sitting on the next Google, IPOs take much time to prepare and can cost anywhere from several hundred thousand to several million dollars, depending on the exchange and the size of the offering. However, the costs can often be covered by intermediate funding rounds.
• Merge: Sometimes, two businesses can create more value as one company. If you believe such an opportunity exists for your firm, then a merger may be your ticket to exit. If you’re looking to leave entirely, then the merger would likely call for the head of the other involved company to stay on. If you don’t want to relinquish all involvement, consider staying on in an advisory role.
• Be acquired: Other companies might want to acquire your business and keep its value for themselves. Make sure the offered sale price meshes with your business valuation. You may even seek to cultivate potential acquirers by courting companies you think would benefit from such a deal. If you choose your acquirer wisely, the value of your business can far exceed what you might otherwise earn in a sale.
• Sell: Selling outright can also allow for an easy exit. If you wish, you can take the money from the sale and sever yourself from the company. You may also negotiate for equity in the buying company, allowing you to earn dividends afterwards — it clearly is in your interest to ensure your firm is a good fit for the buyer and therefore more likely to prosper.