Chapter 5. Important Elements of a Business Plan

In the previous chapter, we discussed the need to plan your business before you even consider what type of Yahoo! store you want to establish. And the best way to plan your business is to create a business plan. Now, if you are starting a Yahoo! store as a hobby or to prove out a business idea, you probably don’t need to put together a detailed business plan, but you should at least document the minimum elements necessary to make your business endeavor a success. Who knows, there are more than enough examples of a hobby or wild idea turning into a multimillion dollar business down the line.

Now if you’re a one– or two–person home business or a small neighborhood business with one or two employees, you don’t have to write a full–blown 20–40 page business plan complete with financials. But there are important elements of any business plan that you should consider and create. A good resource for business plan writing that covers more material than this chapter allows is Write a Business Plan In No Time. Also, you can find more valuable information on business plans on the Yahoo! Small Business site at smallbusiness.yahoo.com/resources/ under “Business Plans.”

At a minimum, your plan must clearly communicate who you are, what you do, what your product or service is, what consumer or business need it solves, how you plan to implement your business, what markets you will service, and how much money or how many resources you will need to execute your plan.

So let’s get started.

Answering the Essential Questions

Like in life, we all ask essential questions. A business plan is no different. They are

• Who: “Who” is your business?

• What: What does it sell?

• Why: Why is it a business? What need does it solve?

• When: What is the implementation plan?

• Where: Where is your business and what markets/customers will it service?

• How: How will you market your business?

• How Much: How much money will you need to get your business started and running?

Who: Who Is Your Business?

You have to be clear on who you are in your business plan. Why? Well, for example, if you’re going to seek funding for your business idea, investors and bankers will surely want to know who they are dealing with. They will want to know about your experience, your skills, and your role in the business you chose. In addition, they will want to know who will supply the business experience and expertise you may lack and your plans on how to acquire that extra talent.

You should also know something about yourself. Do you feel that you have what it takes to start and run a new business? Are you willing and able to put in the long hours and hard work a new enterprise entails? Are you financially able to survive through the tough start up months? And most important of all, do you have the traits of an entrepreneur?

Finally, who is your business? What will your legal structure be? Is it a sole proprietorship? A partnership? A corporation?

What: What Does It Sell?

The purpose of a business is to sell something. It may be a product or a service, or it may sell information. In any case, your business plan must be able to explain in detail what kind of product or service you plan to sell. What is it? What makes it unique? How does it compare with your competition? Do they dominate your market niche? If so, can a newcomer break into the market? How do you plan to compete? Do you have a competitive advantage? What is it? Is your product as good as your competition? Better? Why? What is your USP?

You must also look ahead. Once you’re established in the marketplace, can a new company easily undercut your prices or your earnings with a newer product or service? Do you have a barrier to competition? If so, what is it?

Why: Why Is It a Business? What Need Does It Solve?

We’ve all heard the joke about the dumb salesman trying to sell refrigerators to Eskimos. As it turns out, it’s not dumb at all. Refrigerators serve a real purpose in frigidly cold weather. They keep the food from freezing solid. This is an example of finding a need and meeting it. What you sell must do the same thing.

You have to clearly explain how your product meets a consumer need. To do that, you have to identify your target customers (demographics), and explain how your product or service will meet their needs. Who are you targeting? Consumers? Retailers? Wholesalers? The government? Is your product practical? Will it fill a need? What need?

You also need to identify where or how you will be acquiring your products. Who are your suppliers? And who are your backup suppliers if your primary ones fail to deliver? If you’re manufacturing your own product, who is supplying your parts?

And finally, where will your business be located? What physical space will be necessary? Office space? Retail space? Warehouse space? A combination of some sort? Are you starting a home–based business? If so, do you have space in your home? Where will you locate it? What about your community’s CC&Rs (conveniences, conditions, and restrictions)? Their conditions and restrictions on what you can use your home for? Will they allow for a home business such as yours?

When: What Is the Implementation Plan?

A business plan will do you little good if you don’t have a strategy to implement it. Things to consider in your plan are how many months of zero revenue will be needed to start up your business? Do you have a phased plan for development complete with what you wish to accomplish, by when, including what must take place before each phase happens? What are your major decision points? What milestones do you want to hit and by when? What actions are needed to meet those milestones?

In summary, an implementation plan lays out your company’s objectives, the tasks or actions necessary to reach those objectives, a timescale of events or actions, and a way to monitor your progress.

Where: Where Is Your Business and What Markets/Customers Will It Service?

Whether there is a market for your product or service is just as important as the product or service itself. The business landscape is littered with companies who thought they had a great product or service idea, brought it to market, and discovered few people or no one was interested in buying it. Market research will tell you whether or not there is a market for your product or service.

Who will buy your product? What are their demographics? Do they shop online? What online areas do they frequent? Back up your findings with real data from private, public, or government sources such as census information, databases, and industry information. What is the potential size of your market? How big a piece of the market can you garnish for your business? How do you feel you can serve this market? Why?

If you’ve done your research well, you will have a very good idea of the size of your market, the makeup of its consumers, and the important information you will need to create your marketing plan.

How: How Will You Market Your Business and Your Product or Service?

Marketing your company and what it sells is the cornerstone of a successful marketing plan. All is for naught if you can’t actually sell the product or service your company offers. To do that you will need to create a demand for what you sell. Demand is created through advertising, publicity, and promotional programs.

What are your plans for marketing your business? Are they realistic and based upon your proposed marketing budget in your financials? What is your overall marketing strategy? How will your choice of marketing vehicles help you reach your target market? What advertising media will you use? TV? Radio? The Internet? Some combination of them? Will you use direct mails or telemarketing to reach potential customers? How will you use public relations in your marketing mix? Will trade shows, seminars, and workshops also be included in your marketing plan? How will you use them? Where and when?

How your business plan answers these questions is critical to the success of your company.

How Much: How Much Money Will You Need to Get Your Business Started and Running?

Money and resources are the lifeblood of any business. So, you’ll need to know how much you need to breathe life into yours.

What is your source of funds and/or resources? Will you need financing? What kind? SBA loan (Small Business Association)? Equity? Debt? A combination of both? How much will your business need to reach break even? How much will you need to meet your sales and revenue projections? If it’s a start up, how will you compensate yourself? What are the personal resources that you’ll contribute to the business? If you’re seeking a loan from a bank, your friendly banker will want to know what kind of financial risk you’re personally taking.

What about human resources? Who will you need to hire and how much will they cost? What technical resources will you need? Where will you buy them? How much will they cost? Will you need some special business insurance? What is it? What will it cost?

A lot of questions? Yes. But every one is important and should be answered whether you are a home or small business. And you answer these questions in the elements of your business plan.

Business Plan Elements

“Parts is parts” the saying goes. Not so when writing a business plan. The structure of a business plan is not random. It has a logical progression of thought. The marketing plan comes after the information on your product or service but before your implementation and financial information. As for the other parts, the order they appear in your plan depends upon the best way you feel you can communicate and sell your business concept.

Certain parts of a standard business plan may not apply to your business. For instance, if you’re going to sell directly to the public as a retailer then your plan will need to detail where and how you will purchase your products, but your distribution or sales strategy will be pretty basic. On the other hand, if you’re manufacturing a product to sell then your plan will focus more on its distribution strategy. All plans should answer two basic questions:

• Is this a product or service that people will buy?

• Are you the right person to make your idea a success?

So let’s look at the basic elements that make up a business plan. They are

• Executive Summary

• Company Mission and Objectives

• Overview of Your Company

• Description of Your Product or Service

• Marketplace

• Marketing Strategy

• Competition

• Implementation Plan

• Capital Requirements

The Executive Summary is probably the most important section of your plan. Why? Because it’s the first thing that is read but the last thing you write. That’s because it is a short summary of all the most important parts of your business plan, meant to sell your idea to the reader. If you can grab their interest then they will be more likely to read the details of your plan.

Since it is a summary, you have to wait until you’ve written all the parts of your business plan before you write the Executive Summary.

But remember, an Executive Summary is just that—a summary, not a foreword. In effect, it’s your entire plan in a nutshell, your elevator pitch.

The sections of your plan that deal with your company itself are the Company Mission and Objectives and Company Overview sections.

The Company Mission and Objective section details your company mission and vision statements. It describes what your business will do and why. It also lays out a vision of your company and where it wants to be in the future. The Company Overview provides a description of your company—start up, existing company, legal form, and so on—and its goals and objectives.

The focus of what you intend to sell and how you will sell it is in the Product or Service Description section of your plan. Here you will not only describe what you intend to sell but also what human needs it fulfills. In other words, this section will describe your product and service in detail, and explain your unique selling position (USP).

Hand in hand with your product or service description is an analysis of the Marketplace you will sell within and the Marketing Strategy you will use to market your product or service.

Finally, the section of Distribution Channels will explain the distribution or sales channels you will use to sell your product through. In our case, the Internet through a Yahoo! store.

A business plan is not only a selling document but a planning one too. Plan your work and work your plan. It represents a roadmap that your company plans to follow to implement your business idea and forces you to look closely enough at all of the details to really understand your own business and how it will unfold. That’s the purpose of the Implementation Plan. This plan describes step by step how you plan to carry out your business plan.

The last section of your business plan would deal with money and resources. It will list the Capital Requirements you will need to launch and operate your company to break even. And speaking of capital requirements, you should spend some time evaluating your funding needs and where the funds you need to launch your new business venture online will come from.

A good place to create a short but effective business plan for your part–time home business is at the website of the Wall Street Journal. It offers a free mini–plan wizard at wsj.miniplan.com.

Once you have your business plan written, it’s time set up the necessary accounts for your business. In the next chapter we will cover how to find and choose an ISP (Internet service provider), how to set a shipping center and accounts, and how to set up a credit card merchant account.