Blog | Entrepreneurship, Personal Finance

4 Components of a Successful Business Plan

Business plan basics to get you started

Summary

• Creating a successful business plan is the key to creating a successful business

• Writing a business plan is necessary whether you need outside investors or not

• Including these key components will ensure your business plan is successful

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There’s a debate among experts about the necessity for a business plan. Some say that you only need a business plan if you are seeking some sort of loan or funding from investors. Some even say that taking the time required to create a business plan can stifle the startup process and cost precious opportunities for a small business.

Tax expert and Rich Dad advisor shares thinks a business plan is essential for success. “In my opinion,” he says, “writing a business plan is necessary whether you need outside investors or not. The process of writing a winning plan forces you to invest significant time and energy into thinking about your business and doing your homework.”

It’s important to note that plans are also written to help existing businesses grow; but that aspect of “strategic planning” is different from what we’ll be discussing today. Today, the focus is to provide a framework to convince an investor, and yourself, that your plan possesses the necessary ingredients to become one of the 5% of new businesses that succeed. Savvy investors and lenders know the odds and unless you educate yourself on the realities of winning plans, your plan will likely make its way to the bottom of the waste basket.

Advantages of creating a business plan

By taking the time to create a business plan, you are essentially creating the skeleton of how your business will operate,before you’ve gone into the trenches. Your business plan will assist you in your startup, your day-to-day operations, allocation of funds for the business, the details and parameters of your relationships with your business partner, and a clear picture of your organization so you can strategically determine what you’ll charge for your services.

Other benefits include:

• Creating an outline and a narrative for your business.

• Raising and answering questions that would otherwise remain uncovered.

• Consider legal and financial aspects

• Clearly communicate your business’ possibilities with potential investors, partners and even customers.

There are many resources dedicated to guiding new entrepreneurs through making the perfect business plan. But if you are a start-up or you’ve been in business for decades, below are the four most important components you should include for a successful business plan.

The Business

Also called Business Strategy or Business Description, this section might include such subsections as Business Opportunity, Organization and Operations, Legal Structure, Business Model, Operating Procedures, Operations Description, Management, Personnel, Strengths and Weaknesses, Core Competencies and Challenges, Business Accomplishments, Location, Product Offering, Product or Service, Records and Insurance.

In the Business section, make sure you “sell” the one reason your business will be able to generate excessive cash flow. Remember that you are selling by communicating your experience and education, not by promoting your company with empty words and promises.

The Marketing

Also called Market Strategy and including subsections such as Target Markets, Customers, Competition, Distribution, Relationships, Advertising, Pricing, Industry and Market Trends, Strategy and Market Strategy. The Marketing section is a thorough discussion of the industry and your business’ place in it. It covers all the forces that come to bear on your business. From the customers to the competition, advertising to pricing, industry trends to global economics, this section gives the reader a thorough understanding of how your business will deal with getting the product to potential buyers.

The Financials

Also called Financial Data or The Deal and includes subsections such as Uses of Funds, Income Statements, Cash Flow Statement, Balance Sheet, Cash Flow Forecast, Profit and Loss Forecast, Income Projection, Sales Revenue Forecast, Income Forecast, Capital Spending Plan, Assumptions, Budget and Break-Even Analysis. The Financial section is all about the numbers. The past, present and future are all represented.

The Supporting Materials

The material used will depend upon the type of business for which you are planning as well as the contents of the rest of your plan. Common supporting documents include resumes, letters of reference, credit reports, legal documents, agreements and contracts. This is information that needs no textual introduction or explanation or that is introduced or explained in the previous sections of the plan.

Ideally, by the time the plan is complete, you will have enough information to suit anyone’s guidelines. Compiling the initial information is the real work. Rearranging it into different formats should not be difficult. No matter what outline you choose, be sure to cover all your bases. It is tempting to skip management information if you are preparing the plan for loan purposes only or to skip financials if you are preparing a plan for your own management purposes.

Create a successful business plan

Successful business plans come from entrepreneurs willing to delay immediate gratification. They take risks and invest the time and energy necessary to gain relevant experience and education. They are not afraid of making mistakes or failing because mistakes and failure equal experience. They start small and build, recognizing experience leads to greater ability. After paying the price, true entrepreneurs gain the knowledge to build a winning plan and winning business.

To learn more tips for writing a winning business plan, check out Garrett’s book: Writing Winning Business Plans: How to Prepare a Business Plan that Investors will Want to Read—and Invest In .