5 Initial Business Plan Draft

Title Page

• Includes nice, catchy, professional, appropriate graphics to make it appealing for targeted readers

Executive Summary

• Can be longer than normal executive summaries—up to three pages
• Written after remainder of plan is complete
• Includes information relevant to targeted readers as this is the place where they are most likely to form their first impressions of the business idea and decide whether they wish to read the rest of the plan

Table of Contents

List of Tables

• References every table, figure, and appendix within the text of the plan so the relevance of each of these elements is clear.

List of Figures

Introduction

• Indicates the purpose for the plan
• Appeals to targeted readers

Business Idea

• May include description of history behind the idea and the evolution of the business concept if relevant

Value Proposition

• Explains how your business idea solves a problem for your expected customers or otherwise should make them want to purchase your product or service instead of a competitor’s

Vision

• Outlines what you intend for the venture to be
• Inspires all members of the organization
• Helps stakeholders aspire to achieve greater things through the venture because of the general direction provided through the vision statement

After articulating a good vision, the business plan writer should consider what achieving the vision looks like. Many business plan writers write their vision and leave it at that. The problem with this approach is that they often then do not take the necessary steps to illustrate how the strategies they outline in their plan will move them toward achieving their vision. If they make this mistake, their strategies might indicate that they are fulfilling their current mission, but are not taking steps to move beyond that.

Vision statements should be clear with context throughout the business plan.  For example, if the goal is to be the premier business operating in that industry in Saskatchewan, does that mean you have one location and are considered the best at what you do it even though you only have a small corner of the market, or does it mean that you have many locations across the province and enjoy a large market share?

Vision statements should be clear with context throughout the business plan.

Mission

• Should be very brief—a few sentences or a short paragraph
• Indicates what your organization does and why it exists—may describe the business strategy and philosophy

Values

• Consists of five to ten short statements indicating the important values that will guide everything the business will do
• Outlines the personal commitments members of the organization must make, and what they should consider to be important
• Defines how people behave and interact with each other
• Should be reflected in all of the decisions outlined in the business plan, from hiring to promotions to location choices
• Helps the reader understand the type of culture and operating environment this business intends to develop

Major Goals

• Describes the major organizational goals
• Ensures each goal is
  • Specific, Measurable, Action oriented, Realistic, and Timely [SMART]
  • Realistic, Understandable, Measureable, Believable, and Achievable [RUMBA]
• Aligns with everything in plan
• Written, or re-written as the second last thing you do before finalizing your business plan by proofreading, polishing, and printing it (writing the Executive Summary is the final thing you should write)

SMART and RUMBA goals strengthen the business plan.

Operating Environment

Trend Analysis

• Usually includes an analysis of how the current and expected trends in the political, economic, social, technological, environmental, and legal (PESTEL) factors will impact the development of this business
  • However, consider whether this is the right place for this analysis: it may be better positioned, for example, in the Financial Plan section to provide context to the analysis of the critical success factors, or in the Marketing Plan to help the reader understand the basis for the sales projections.

Industry Analysis

• Includes an analysis of the industry in which this business will operate
• Typically applies the Five Forces Model^[1]
  • As above, consider whether this is the right place for this analysis: it may be better placed, for example, in the Marketing Plan to enhance the competitor analysis, or in the Financial plan to provide context to the industry standard ratios in the Investment Analysis section.

Of course, your trend analysis will also include a market-level analysis (using a set of questions, like those listed in Chapter 2) and a firm-level analysis (using tools like a SWOT Analysis / TOWS Matrix, various forms of financial analyses, a founder fit analysis, and so on), but those analyses are usually best placed in other sections of your plan to support the strategies and decisions you present there. The market-level analysis will inevitably fit in the Marketing Plan section, but the firm-level analysis might be spread across some or all of the Operating Plan, Human Resources Plan, Marketing Plan, and Financial Plan sections.

Operations Plan

• Answers the following key questions :
  • What constraints are you operating under that will restrict your capacity to produce and sell your product?
    • Given these constraints, what is your operating capacity (in terms of production, sales, etc.)?
  • What is the work flow plan for your operation?
  • What work will your company do and what work will you outsource?

Operations Timeline

• Answers the following questions:
  • When will you make the preparations, such as registering the business name and purchasing equipment, to start the venture?
  • When will you begin operations and make your first sales?
  • When will other milestone events occur such as moving operations to a larger facility, offering a new product line, hiring new key employees, and beginning to sell products internationally?
  • Sometimes it is useful to include a graphical timeline showing when these milestone events have occurred and are expected to occur.

Completing the operation plans further adds to the overall business plan.

Business Structure and other Set-up Elements

• Indicates the legal structure your venture will take:
  • Sole Proprietorship
  • Partnership
  • Limited Partnership
  • Corporation
  • Cooperative

Note: Your financial statements, risk management strategy, and other elements of your plan are affected by the type of legal structure you choose for your business. For example, all partnerships should have a clear agreement outlining the duties, expectations, and compensation of all partners as well as the process of dissolution.  Spreadsheet templates are formatted for corporations and will need to be formatted for other forms of businesses.

• Describes your decisions related to the following:
  • Naming
  • Zoning, equipment prices, suppliers, etc.
  • Location
  • Leasing terms, leasehold improvements, signage, pay deposits, etc.
  • Getting business license, permits, etc.
  • Setting up banking arrangements
  • Setting up legal and accounting systems (or professionals)
  • Ordering equipment, locks and keys, furniture, etc.
  • Recruiting employees, setting up the payroll system and benefit programs, etc.
  • Training employees
  • Testing the products/services that will be offered
  • Testing the systems for supply, sales, delivery, and other functions
  • Creating graphics, logos, promotional methods, etc.
  • Ordering business cards, letter head, etc.
  • Setting up supplier agreements and outlining why those sellers are preferred
  • Buying inventory, insurance, etc.
  • Revising business plan
  • And many more things, including, when possible, attracting purchased orders in advance of start-up through personal selling (by the owner, a paid sales force, independent representatives, or by selling through brokers wholesalers, catalogue houses, retailers), a promotional campaign, or other means

Note: As part of your business set-up, you need to determine what kinds of control systems you should have in place, establish necessary relationships with suppliers prior to your start-up, and generally deal with a list of issues like those mentioned above.

 Start-up

• Answers the following questions:
  • What is required to start-up your business including the purchases and activities that must occur before you make your first sale?
  • When identifying capital requirements for start-up, a distinction should be made between fixed capital requirements and working capital requirements.

Fixed Capital Requirements

• Answers the following question:
  • What fixed assets, including equipment and machinery, must be purchased so your venture can conduct its business?
• May include a start-up budget showing the machinery, equipment, furnishings, renovations, and other capital expenditures required prior to operations commencing
  • May also show the financing required, often in the form of longer-term loans

Working Capital Requirements

• Answers the following question:
  • What money is needed to operate the business (separately from the money needed to purchase fixed assets) including the money needed to purchase inventory and pay initial expenses?
• May include a start-up budget showing the cash required to purchase starting inventories, recruit employees, conduct market research, acquire licenses, hire lawyers, and other operating expenditures required prior to starting operations
  • May also show the financing required. Working capital is usually financed with operating loans, trade credit, credit card debt, or other forms of shorter-term loans

Risk Management Strategies

• Includes descriptions of the organization’s risk exposure
  • Enterprise – liability exposure for things like when someone accuses your employees or products you sell of injuring them
  • Financial – securing loans when needed and otherwise having the right amount of money when you need it
  • Operational – securing needed inventories, recruiting needed employees in tight labour markets, operating when customers you counted on not purchasing product as you had anticipated, managing theft, arson, and natural disasters like fires and floods, etc.
• Always includes descriptions of the planned strategies for managing each of the risks identified. Identifies potential risk exposures, their consequences, risk potential, and mitigation strategies (Figure 8).
  • Avoid – choose to avoid doing something, outsource, etc.
  • Reduce – through training, assuming specific operational strategies, etc.
  • Transfer – insure against, outsource, etc.
  • Assume – self-insure, accept, etc.

Completing a risk management plan further adds to the overall business plan.

Operating Processes

• Answers the following key questions:
  • What operating processes will you apply?
  • Depending upon the type of business, describes things like
    • Retail and wholesale operations
      • How will you ensure your cash is managed effectively?
      • How will you schedule your employees?
      • How will you manage your inventories?
      • If you will have a workforce, how will you manage them?
      • etc.
    • Service operation
      • How will you bill out your employee time?
      • How will you schedule work on your contracts?
      • etc.
    • Manufacturing operation
      • How you will manufacture your product (process flow, job shop, etc.?)
      • How will you maintain quality?
      • How will you institute and manage effective financial monitoring and control systems that provide needed information in a timely manner?
      • How will you manage expansion?
      • etc.

Facilities

• May include planned layouts for facilities
• Answers the following questions:
  • What are your facility plans?
  • Where will your facility be located?
    • Expressed as a set physical location
    • Expressed as a set of requirements and characteristics
  • How large will your facility be and why must it be this size?
  • How much will it cost to buy or lease your facility?
  • What utility, parking, and other costs must you pay for this facility?
  • What expansion plans must be factored into the facility requirements?
  • What transportation and storage issues must be addressed by facility decisions?
  • What zoning and other legal issues must you deal with?
  • What will be the layout for your facility and how will this best accommodate customer and employee requirements?

Organizational Structure

• May include information on Advisory Boards or Board of Directors from which the company will seek advice or guidance or direction
• May include an organizational chart
• Can be a nice lead-in to the Human Resources Plan

Human Resources Plan

• Key questions answered by human resources plans:
  • How do you describe your desired corporate culture?
  • What are the key positions within your organization?
  • How many employees will you have?
  • What characteristics define your desired employees?
  • What is your recruitment strategy? What processes will you apply to hire the employees you require?
  • What is your leadership strategy and why have you chosen this approach?
  • What performance appraisal and employee development methods will you use?
  • What is your organizational structure and why is this the best way for your company to be organized?
  • How will you pay each employee (wage, salary, commission, etc.)? How much will you pay each employee?
  • What are your payroll costs, including benefits?
  • What work will be outsourced and what work will be completed in-house?
  • Have you shown and described an organizational chart?

Recruitment and Retention Strategies

• Includes how many employees are required at what times
• Estimates time required to recruit needed employees
• Estimates all recruitment costs including:
  • Employment advertisements
  • Contracts with employment agency or search firms
  • Travel and accommodations for potential employees to come for interviews
  • Travel and accommodations for interviewers
  • Facility, food, lost time, and other interviewing costs
  • Relocation allowances for those hired including flights, moving companies, housing allowances, spousal employment assistance, etc.
• May include a schedule showing the costs of initial recruitment that then flows into your start-up expense schedules

Leadership and Management Strategies

• Outlines your leadership philosophy
• Explains why it is the most appropriate leadership approach for this venture

Training

• Answers the following key questions:
  • What training is required because of existing rules and regulations?
  • How will you ensure your employees are as capable as required?
  • In which of the following areas will you provide training for your employees?
    • Health and safety (legislation, WHMIS, first aid, defibulators, etc.)
    • Initial workplace orientation
    • Management
    • Financial systems
    • Sales
    • Contracts
    • Product features
    • Other

Performance Appraisals

• Identifies how you will manage your performance appraisal systems

Health and Safety

• Notes any legal requirements (and also legal requirements for other issues that may be included in other parts of the plan)
• Identifies accreditation you might pursue, such as ISO 9000, and if so, evaluates the costs, benefits, and time frame
• Outlines training for employees, such as WHMIS training or machinery handling training

Compensation

• Always justifies your planned employee compensation methods and amounts
• Always includes all components of the compensation (CPP, EI, holiday pay, etc.)
• Identifies how you will ensure both internal and external equity in your pay systems
• Describes any incentive-based pay or profit sharing systems planned
• May include a schedule that shows the financial implications of your compensation strategy and supports the cash flow and income statements shown later

Key Personnel

• May include brief biographies of the key organizational people

Completing the human resources plan further adds credibility to the overall business plan.

 Marketing Plan

• Identifies the primary and secondary research you have done
  • You must show evidence of having done proper research, both primary and secondary. If you make a statement of fact, you must back it up with properly referenced supporting evidence.  If you indicate a claim is based on your own assumptions, you must back this up with a description as to how you came to the conclusion.
• Shows an effective analysis of the economic environment relevant to your business
  • It is a given that you must provide some assessment of the economic situation as it relates to your business. For example, you might conclude that the current economic crisis will reduce the potential to export your product and it may make it more difficult to acquire credit with which to operate your business. Of course, conclusions such as these should be matched with your assessment as to how your business will make the necessary adjustments to ensure it will thrive despite these challenges, or how it will take advantage of any opportunities your assessment uncovers.
• Shows an effective assessment of the industry within which your venture will operate
  • You must provide an assessment of the industry coupled with descriptions of how your venture will prosper in those circumstances. A common approach used to assess the industry is to apply Porter’s Five Forces Model^[2].
    • If you apply the Five Forces Model, do so in the way in which it was meant to be used to avoid significantly reducing its usefulness while also harming the viability of your industry analysis. This model is meant to be used to consider the entire industry, not a subcomponent of it (and it usually cannot be used to analyze a single organization).
  • Your competitor analysis might fit within your assessment of the industry, or it might be best as a section within your marketing plan. Usually a fairly detailed description of your competitors is required, including an analysis of their strengths and weaknesses. In some cases, your business may have direct and indirect competitors to consider. Maintain credibility by demonstrating that you fully understand the competitive environment.
  • Assessments of the economic conditions and the state of the industry appear incomplete without accompanying appraisals outlining the strategies the organization can/should employ to take advantage of these economic and industry situations. So, depending upon how you have organized your work, it is usually important to couple your appraisal of the economic and industry conditions with accompanying strategies for your venture. This shows the reader that you not only understand the operating environment, but that you have figured out how best to operate your business within that situation.
• Outlines an effective analysis of your venture (see the Organizational Analysis section below)

Primary and secondary data further add to the strength of the business plan. Completing the marketing plan further adds to the overall business plan.

Market Analysis

• Usually contains customer profiles, constructed through primary and secondary research, for each market targeted
• Contains detailed information on the major product benefits you will deliver to the markets targeted
• Describes the methodology used and the relevant results from the primary market research completed
• If there was little primary research completed, justifies why it is acceptable to have done little of this kind of research and/or indicate what will be done and by when
• Includes a complete description of the secondary research conducted and the conclusions reached
• Describes the potential customers
  • Define your target market in terms of identifiable entities sharing common characteristics. For example, it is not meaningful to indicate you are targeting Canadian universities. It is, however, useful to define your target market as Canadian university students between the ages of 18 and 25, or as information technology managers at Canadian universities, or as student leaders at Canadian universities. Your targeted customer should generally be able to make or significantly influence the buying decision.
  • You must usually define your target market prior to describing your marketing mix, including your proposed product line. Sometimes the product descriptions in business plans seem to be at odds with the described target market characteristics. Ensure your defined target market aligns completely with your marketing mix (including product/service description, distribution channels, promotional methods, and pricing). For example, if the target market is defined as Canadian university students between the ages of 18 and 25, the product component of the marketing mix should clearly be something that appeals to this target market.
  • Carefully choose how you will target potential customers. Should you target them based on their demographic characteristics, psychographic characteristics, or geographic location?
• Identify how your targeted customers make their buying decisions
  • You will need to access research to answer this question. Based on what you discover, you will need to figure out the optimum mix of pricing, distribution, promotions, and product decisions to best appeal to how your targeted customers make their buying decisions.

Competition

• Fully describes the nature of your competitors
  • However, this information might fit instead under the market analysis section.
• Describes all your direct competitors
• Describes all your indirect competitors
• If you can, includes a competitor positioning map to show where your product will be positioned relative to competitors’ products
  • If you include a competitor positioning map, insure that the x-axis and y-axis are meaningful. Often, competitor maps include quality and price as axes. Unless you can clearly articulate the distinction between high quality and low quality, it may be more valuable to have more meaningful axes or describe your value proposition relative to your competitors in the absence of a positioning map.