Organizing a new company is similar to organizing a trip. One or more family members usually take out a roadmap and figure out the best path to go to the destination before leaving on a family vacation. The map not only shows the final destination but also sites of interest and stops along the route. A schedule is created with the travel plans and planned stops, and the estimated cost of the trip is calculated. Additionally, backup plans are prepared in case inclement weather or vehicle issues make the vacation less successful than anticipated. The family members may clearly see what they can and cannot achieve in terms of time and financial limits when distances, times, and expenses are put out. The family can prepare to make the most of their holiday by following these measures.
A business plan is the road map for starting and growing a company successfully. Timelines for reaching short- and intermediate-term objectives, expected start-up expenditures, and these details are all included in a comprehensive business plan. It functions as an operating, marketing, and feasibility plan. In addition to being a tool for luring possible investors, a business plan may be effectively utilized to persuade lenders to grant startup funds. While it may not be pleasant to consider negative aspects of starting a new company, a solid business plan will also include backup strategies to deal with potential setbacks.
This fact sheet offers details on the components of a standard business plan, particularly for companies that sell food and agricultural products. Although it is obviously not the only format available, the business plan style used for this data sheet does provide a fairly typical overview for a company plan. A table of contents and cover/title page are essential components of any business plan. The following ought to be included as well:
- Executive Summary:
- Introduction
- Situational Analysis (Evaluation from the Inside and Outside)
- Proposal for Business
- Action Plan
- Financial Analysis
- Assessment and Quantification
- Contingency Plan
Executive Summary
The executive summary is an important—yet often ignored—part of a business plan. The executive summary, which includes predicted market shares and profits/losses over a three- to five-year period, is the “Reader’s Digest” version of the full business plan. Before meeting with an entrepreneur, a possible investor or lender could be too busy to read the complete business plan, thus the executive summary should sufficiently contain the key aspects of the plan in one or two pages.
Introduction
A proper business plan introduction should include information on current business activities as well as a brief history of the company’s (or the entrepreneur’s, if applicable) operations. Provide a brief history of the company’s founding, growth, and current initiatives without being too specific. Giving an account of the company’s operations also entails giving a description of its product (s). A prospective lender or investor can use this information to gauge the company’s growth potential and track record.
The mission and vision statements of the organization should also be included in the introduction. These declarations sum up a company’s corporate philosophy, including its future objectives and what it hopes to give its clients. Including mission and vision statements in a business plan gives the plan’s writer(s) and readers a written declaration of the company’s commitments to its owners, employees, and clients, much like when someone writes down their personal motto or goals and posts them on the fridge or a bathroom mirror.
A summary of the planned business venture and the actions already done to launch it should also be included in the introduction. The introduction should provide an explanation of the company’s motivations for entering the new enterprise, regardless of whether it involves the development of a brand-new product or the marketing of an already-existing product to a different target market.
Situational Analysis
A business plan’s Situational Analysis usually takes up the most space. The benefits a firm has for starting a new project, what needs to be produced or restructured to support a new venture, and considerations for variables outside the direct control of the organization are all outlined in a comprehensive situational analysis. Internal assessment and external assessment are the two general categories into which a situational analysis falls.
Internal Assessment
An internal evaluation examines the assets and liabilities of a business in relation to its capacity to launch a new project. Among the elements to take into account in an internal assessment are, but are not restricted to:
Structure of operations. Which type of business structure—corporation, limited partnership, sole proprietorship, etc.—is intended? What is the company’s managerial hierarchy? What will the company’s operational policies and procedures be? What will the company’s account and record-keeping policies be?
Technology. Does the company possess the necessary technology, or does it have access to it, to take on this project? Does the company own new technology, or do they have access to it, that gives them a competitive edge in producing goods or rendering services? Will the company employ this technology internally, or will it procure items from companies that own it through contractual agreements?
Availability of inputs. Apart from technology, does the company have sufficient access to high-quality utilities and raw materials (ingredients)? How are we going to get raw materials? Is there a sufficient quantity of skilled personnel nearby for the business to operate?
The resources at the entrepreneur’s disposal. The amount of resources that an entrepreneur can give on their own, such as capital, land, machinery, labor, expertise, and information, is something that should never be disregarded. “How much money can I afford to put into the business right now, still keep a roof over my family’s head, food on the table, and not be financially devastated in case the business’s failure?” is a question that every entrepreneur must ask themselves. Furthermore, what kind of payment will the owner receive for the time and resources that they invested?
Network and talents for marketing and distribution. The saying “If you build it, they will come” can work well in a film, but a company needs a strategy in place for getting its goods from the point of production to the consumer (or market) centers. The owner(s) of the company’s marketing strategies may have significant advantages (or disadvantages) for the enterprise. Is the management or owner of the company qualified to promote the product?
External Assessment
Even if a company and its owners can affect the majority of the previously listed elements, there are still some that the firm cannot control. The success of a firm may be significantly impacted by these exogenous or external influences. Among the important outside variables are:
Market and industry conditions. Does the state of the industry today and in the future (local, regional, national, and/or worldwide) suggest a “friendly” climate for starting a new company or breaking into a particular market? What impact are these circumstances having on labor availability and raw materials? What impact are they having on comparable product sales? Will tax changes have a significant impact on profitability and operating costs? How will the current state of interest rates impact a new venture’s ability to service its debt? Businesses generally or particular industries may be strongly impacted by these and other economic/market factors.
Analysis of laws and regulations. Is the company’s name registered or protected, as well as its products? Does the company issue a Universal Product Code (UPC) for each of its products, and will the labels of those products need to include nutritional information? Does the business follow federal, state, and municipal manufacturing and health regulations? Does the business possess the necessary permits for sales, production, and health care? What kind of agreements have been formed in writing with input providers, distributors/brokers (if needed), and co-packers (if applicable)?
Customer evaluation. Is it possible to create a profile that distinguishes between a product’s major and secondary client groups? How is the market for a product segmented? It is feasible to define customers based on criteria like as geography, gender, ethnicity, income level, age, education, or other factors that impact the demand for a certain product by conducting a small amount of library research. Targeting the client group or groups with the most market potential is attainable with the help of this information. Market potential may be determined by a number of factors, such as the growing size of a particular consumer group, that group’s propensity to buy comparable products, or perhaps the absence of competitors offering goods to satisfy that group’s demands.
Competitive analysis. Who will this new company’s goods and services compete with? Which will drive competition: pricing or quality standards/attributes? What benefits and drawbacks do rivals offer? Which marketing and commercial techniques do they use? What tools are at their disposal? What competitive advantage will the new business have?
An examination of opportunities. After examining an industry’s market, regulations, customers, and competitive landscape, what special opportunities do you see for this new venture? How do the anticipated benefits of opportunities compare to the risks of possible problems? Which opportunities, taking into account specific internal and external considerations, rate highest? Put differently, which business opportunities seem to offer a low-risk route to success?
Business Idea
The company’s goals and objectives for the next few years are essentially outlined in the business proposal section of the business plan. What are the objectives for sales? Will the company accomplish a target amount of yearly revenue, acquire a specific market share in the next five years, or enter a new market by a specific date? What are the goals regarding finances? Will the business sustain a set level of gross profits over a predetermined period of time, reach a given level of return on investment by the end of a given year, or maintain a respectable return on investment while paying off start-up debt early?
Action Plan
The definition of the four “P’s” of marketing—product, pricing, place, and promotion—occurs in this section of the business strategy. In what precise manner will the product be produced and packaged? Will pricing be determined by rivals’ prices, production and marketing costs plus a predetermined percentage profit, or by some other method? What store will sell the product? Which marketing strategies will be used to effectively market the product?
Financial Analysis
Probably the most challenging aspect of business planning is estimating the company’s financial health over a short period of time (usually three to five years). Pro forma, or predicted, financial statements include cash flow statements, income statements, and balance sheets. Their purpose is to provide an estimate of the business’s expected financial performance over a certain period of time. Accurate and comprehensive manufacturing cost data, a solid understanding of the start-up and ongoing license and regulatory compliance costs, marketing expenses, and a solid projection of anticipated sales volume are all necessary for creating such projections. A business’s solvency, profitability, and cash flow can all be estimated with the help of this data.
The balance sheet shows the assets and liabilities of the business at launch. The pro forma income statement includes an estimate of revenues and expenses for the next year. The pro forma balance sheet for the end of the year shows different values for the liabilities and assets due to the annual forecasted debt payments and asset depreciation from the income statement. Additionally, earnings are either kept as cash or are used to pay off debts in full. Pro forma balance sheets at year’s end will also be adjusted as a result of this.
Pro forma cash flow statements project the cash inflows and outflows for the entire year for each month of the next year. They specify when the company might have financial surpluses and when it might have cash shortages. The manager can make decisions on when to use excess cash to pay off debts, hold onto cash in anticipation of future cash shortages, and consider taking out short-term loans to cover cash shortages by analyzing the highs and lows of the venture’s financial position. The assets and liabilities of the company are then shown for the start of the following year, when the forecasting procedure is repeated, on the pro forma balance sheet that ends with the (year’s forecasted) ending.
Assessment and Measurement
Plans for tracking the company’s progress must be created once the planned business venture has been described, the operational environment has been evaluated, goals have been stated, the four “P’s” of marketing have been outlined, and the venture’s profitability has been determined. How will the accomplishment of objectives be evaluated? What standards will be applied to determine how successful the business is? What are the limits of these standards, i.e., what degree of adherence to ideal business circumstances will be deemed “acceptable”? The short- and intermediate-term company goals should be in line with these assessment and measurement items.
Contingency Plans
It can be required to make adjustments if the evaluation and measurement criteria show that the company’s marketing and financial objectives are not being accomplished. These could include changing production procedures to save expenses, promoting the company’s products differently through marketing, providing more training for the sales force, or adjusting the company’s debt servicing agreements to free up cash. The company’s aims and objectives, as well as the instruments used for measurement and assessment, may change as a result of these adjustments.
Closing the company is one backup plan that nobody wants to think about. Even though no business owner wants to think about failing, he must be aware of “sunk costs.” The term “sunk costs” describes the money invested in a project that is not recoupable, such as the building rent for current month or the potentially large cost of operating permits. While making operational decisions for a non-profitable venture, a prudent business owner never takes sunk costs into account. Closing a business may be the best and least expensive long-term option if all business evaluations show that failure is imminent and no other options are available.