This is the second in a four-part series by Hal Shelton, SCORE small business mentor and author of The Secrets to Writing a Successful Business Plan. Last month, we looked at “Why You Need a Business Plan (and the Best Style for You).” This month, we reveal four must-have sections of every business plan.
When you apply for a job, you get one shot — one resume and cover letter — to present to a potential employer and hope, out of hundreds of applicants, they choose you to interview. A business plan is no different.
In this post, you will understand which sections of the business plan are considered the most critical and why, as well as learn what to include in these sections.
A full-length business plan could contain the following sections:
- Executive summary
- Company legal description
- Products and services
- Marketing plan
- Operations plan
- Organization and management
- Bios of key management
- Personnel plan
- Intellectual property and other key assets
- Financial plan
Which sections do you think are the most important for an existing small business plan in most situations?
If you answered it all depends, you are a smart entrepreneur. It all depends on what you are trying to accomplish and who is the audience.
That said, after having written and reviewed hundreds of business plans, I feel there are four key sections used in almost all situations, and these are augmented by additional sections depending on the circumstances. These four key sections are the executive summary, marketing plan, key management bios, and financial plan. Let’s talk about each in some detail.
1. Executive Summary
This is one of the shortest sections of a business plan, but the one you should spend the most time working on. Whether your business plan is 5 or 30 pages, an executive summary must recap all of the material in your plan in only two pages. The reason this section gets so much attention is that it might be the only section the reader looks at when making a decision to go forward or stop.
To paraphrase an old proverb, “you can tell the quality of a business plan from its executive summary.”
The executive summary is the ultimate elevator pitch where you introduce the idea, provide background, talk about approach and results, and convey confidence that you will be successful. When you get the reader excited about your business idea, they will be inclined to explore it further. The executive summary is much more than a summary; it is your call to action.
In one paragraph, the executive summary should include a description of your business and the customer problem being uniquely solved so the reader understands what you are trying to achieve. The marketing paragraphs should include information about the size of the market, sales forecast, demographics of your potential customers and competition, and your competitive advantages. In the operations/staffing/management paragraphs, demonstrate management’s leadership and industry experience, along with a few key details about the location, staffing, and operations.
The financial section of the executive summary should include the projected income and cash generated during the first three years, and if you are seeking funding, a clear statement of how much is needed to fund the project. And of this sum, show how much you will be investing versus the amount being sought from the funder.
Remember that while the executive summary appears first in the business plan, it should be written last since it is the summary. A business plan is developed from the bottom up, so you need to work out all the details before you can write the summary.
2. Marketing Plan
The number one issue for small businesses is finding customers. For many business owners, this is the most important section, and much time is devoted to developing it. For without demand, there are no sales.
A marketing plan has three principal sections: market analysis, competitive analysis, and specific marketing actions.
The purpose of the market analysis section is twofold. First is figuring out how big the market is: You need to know if there will be sufficient customers to buy your product or service so you can generate satisfactory revenue. The second is to describe your potential or ideal customer so you will know how to reach that market when conducting your outreach.
The point of the competitive analysis section is to make sure you understand what you are up against. This section should list about five competitors and their strengths and weaknesses, like operating hours, accessibility, pricing, return policy, marketing budget size, reputation, product delivery policy (is it provided free, at cost, or not at all), complementary products and services, current/outdated versions (which might also apply to current/outdated styles), and buying quantities (which may equate to lower or higher costs).
The specific marketing actions are developed in the Marketing Action Plan, which is used to implement your business idea. In other words, what are you going to do to drive traffic to your front door — both literally and figuratively? What five marketing steps you will be undertaking? For each of the five marketing steps, note the cost to implement (which, when totaled, becomes your marketing budget), if the items can be completed by you alone or whether you will need assistance, and the sales expectations (which when added together, become the sales forecast). The marketing budget and sales forecast will be used in the financial forecasts.
3. Key Management Bios
With a limited track record and usually few assets, the success of a small business is typically a bet on the owner. So this section must convince readers that the bet is a good one.
Include a one-page bio on each of the key people involved, which should be written in a style that demonstrates: “been there, done that, and have the T-shirt.” You want to demonstrate that you have the technical chops for the business as well as the leadership skills. Where there might be experience/skills gaps, mention how you plan to add others to the team to provide this expertise.
4. Financial Plan
One of the final elements in your business plan is the financial statements. While the financial plan is a very important section, it’s appropriate for it to come last, because if the executive summary is a discussion of all that is to follow, the financial section is a recap of all that precedes it.
The products and services, marketing, operations and personnel sections demonstrate that the business idea is feasible, but it’s the financial section that demonstrates it is viable.
For many, tackling this section last is fine because it’s the one plan element that most entrepreneurs dread. They frequently feel like they have hit a wall when it comes to writing this section, and they blame it for holding up their business plan. Typically this is because they don’t understand it, are afraid of it, or have made it unnecessarily difficult because they haven’t carefully completed the rest of the business plan. Don’t let this happen to you. Seek guidance from a SCORE mentor or other free services as mentioned here.
Financial statements are charts with lots of numbers and few words describing what they are all about. Therefore, it is advisable to have an introductory page in your financial plan explaining in plain English the key assumptions and how each one was determined. If you can convince the reader about the reasonableness of the assumptions, then the sale has already been made when they read the financial statements.
- The executive summary, marketing plan, key management bios, and financial plan business plan sections are critical and should be included in all business plans.
- Additional sections can be added to these four when targeting specific purposes and audiences.
- It’s imperative to get readers excited about your business idea from the outset in the executive summary, or they may not read any further.
- Sketch or outline what you will include in each business plan section, and then get the data and facts that support it.
Next month, we look at when is the best time to revamp your business plan.
Hal Shelton’s business planning skills were developed as a certified SCORE small business mentor, corporate executive, nonprofit board member, early-stage company investor, and author of The Secrets to Writing a Successful Business Plan: A Pro Shares a Step-by-step Guide to Creating a Plan That Gets Results. Suggestions for additional topics are welcome; email Constant Contact or Hal directly from his website: www.secretsofbusinessplans.com.