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Five Steps to an Effective Business Plan

by Vishal P. Rao

You have an idea for a business. You know what you want to sell, who you can sell it to, and how much you stand to earn from it. There's just one more thing you need: a business plan.

Many people dread the idea of preparing a business plan. They think of them as complicated, unnecessary documents that exist only to make it more difficult for them to get started as an entrepreneur. They are wrong.

Business plans are necessary because they help you “see” your business. Instead of just talking in abstract ways about your “customer base” and your “profit potential,” it lets you put those things in writing and in concrete terms. It forces you to think through every aspect of your business in advance so down the road you don't realize you've made a mistake that's cost you your business, your life's savings, and your job.

Besides all of that, they are also important tools for getting other people interested in your business. For one, if you've taken the time to create a business plan, others will realize that you are serious about this endeavor and that it isn't just some pie-in-the-sky dream. A business plan also shows people that you are a professional and that you understand what it takes to start and manage a business. This is all extremely important, particularly if you need any type of outside funding, such as loans or investors.

So while the bad news may be that you definitely do need a business plan, the good news is that they don't have to be complicated. The truth is that your plan only needs to cover seven main areas and none of these areas are going to require you to write a full-length novel. These five sections are the executive summary, the company overview, the business environment, the company description, and the action plan. All of those sections may sound complex, but most of them won't involve information that you don't already know.

Executive Summary

Even though this section will technically be first in your business plan, you should actually write it last because, just as its name implies, it summarizes the entire contents of your business plan. Because many readers never bother to get beyond the executive summary, you must make sure that it is comprehensive and well-written.

If that sounds difficult, it isn't. Just make sure to read through your entire business plan before you start writing the executive summary. Make a list of information that you think is the most important or that would really stand out to a reader, and be sure to include all of it in your summary.

Company Overview

This section explains the guiding force behind your business. It gives them a chance to see what you have in mind for the business and how you plan to get there. Generally, the overview does this by providing a mission statement, goals, and objectives for your business. 

In a nutshell, a mission statement provides the answers to all of these questions in less than 50 words: What am I selling? Who am I selling it to? Why am I selling it? It doesn't need to be just one sentence, but keep it as brief as possible.

Goals and objectives, the other components of the company overview, are often confused by first time business plan writers. Remember that goals are things your company wants to achieve while your objectives are how they plan to get there.

Business Environment

This section will probably require you to do some outside research because it involves information relating to your industry, your market, and your competition. You need to take an honest look at the field you are preparing to enter and pay close attention to its structure, its trends, and its barriers to new businesses. Become familiar with the major competitors in your industry and decide how you will differentiate yourself from them. Also, get to know your potential customers and what makes them tick. The more you know about them, the more likely you will be to turn them into buyers.

Company Description

At this point in your business plan, you need to go into detail about your business. You can't simply define your company in terms of what you sell, but also in terms of who you serve, what resources you will use, what types of employees you are looking for, what type of distribution method you'll utilize, and more. All of this factors combine to create your company.

In addition to this, you should also state your company's UPS (Unique Positioning Statement). This is a one sentence statement that explains what sets you apart from all of the competitors.

Action Plan

The last part of your business plan is this section which outlines the steps you need to take now in order to make your plan work. These should also reflect the goals and objectives that you've outlined in your company overview. 

Besides these primary pieces of a business plan, you may also need to include a financial section, particularly if you plan on using it to get outside funding for your business. This may take more thought and planning than the other sections because it will require you to make some assumptions about your business's revenue potential. The most important thing is to base any estimates on realistic expectations, not optimistic dreams.

You may want to visit the following Web sites for some samples to give you an idea of how things should be formatted and worded:

http://www.businessplans.org/businessplans.html
http://www.bplans.com/sp/

With some useful models and this helpful information, you'll be well on your way to completing your effective and professional business plan.

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Copyright © 2004 by Vishal P. Rao

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