Business owners may describe their companies as large or small, but the United States Small Business Administration (SBA) has established size standards for small businesses in most industries in the economy. The most common size standards are based on the number of employees: up to 500 employees for most manufacturing and mining industries and 100 employees for all wholesale trade industries,
or volume of sales: $6 million for most retail and service industries, $28.5 million for most general & heavy construction industries, $12 million for all special trade contractors $0.75 million for most agricultural industries. Firms wanting to be designated small businesses for government program, such as contracting must meet the size standards.
Success of a small business, however, is not dependent on size, but is directly reliant on a well-developed business plan. A business plan is a communication tool. Over the life of a business it may be shared with many people to create support for the business. As a written document, a business plan defines the company’s direction, objectives, and short and long-term goals. Creating a business plan forces the owner(s) to think about competition, evaluate finances, and project future outcomes. It is the overview of the business and defines the market a company operates in and lists the products or services offered by the company.
A good business plan should be a work-in progress, reflecting changes in the business, the industry and the economy. Making objectives for the business clear and achievable should be the overall focus of the plan. Successful business plans will include something about each of the following essential elements: company description (history), executive summary, market analysis, organization & management structure, marketing and sales techniques, and current and past financial statements. An appendix section to the plan can provide readers with seldom needed facts that preserve the history of the organization.
The company description section of a business plan may be as detailed as desired by the owner and may include physical and emotional aspects of the business. The reader of this section should get a visual image of the company as the description answers questions such as: Who is involved in this business? What marketplace needs are satisfied by this business? Where does this business operate? When was it established? and Why is this business important to the economy? A list the primary factors that make the business successful should also be included.
An executive summary provides a concise overview of the entire company plan along with its mission statement. A mission statement briefly explains the purpose of a business. It could be two words, two sentences, a paragraph, or even a single image, but it should be as direct and focused as possible. Because this is a summary of the life of the business, the executive summary should include the date the business began, names of founders and the functions they performed, beginning number of employees and current number. Locations of business over the years and any information about branches or subsidiaries are also important. Descriptions of facilities, products manufactured and services rendered, banking relationships, company growth and current investors insure a well-developed business plan.
Beginning businesses won’t have much of information in some of the areas mentioned above. However, the focus can be on experiences and backgrounds leading to the decision to start the new enterprise. Include information about target markets and the problems that will be solved by the new company. Explain in the plan what is going to be done differently or better.
The market analysis section of a business plan should identify target markets and illustrate knowledge about the particular industry the business is in, presenting general highlights and conclusions of any marketing research data collected by key members of the company. Knowing the market better than competitors can insure profitable margins. To secure a stable position in a market, carry out as much market research as possible. Concentrate on areas such as the supply, demand, competition and the size of the market. Talk to potential customers, suppliers, competitors, distributors and ex-employees of competitors to gather valuable information for defining a suitable target market then narrow the market to a manageable size. Many businesses make the mistake of trying to be everything to everybody. In most cases, this philosophy leads to failure.
Defining marketing and sales strategies is a process of creating customers. A marketing strategy should be part of an ongoing self-evaluation process, and unique to the company, its products and employees. A complete marketing strategy includes a plan for growing the business. This growth strategy might include: an internal strategy such as how to increase human resources; an acquisition strategy such as buying another business; a franchise strategy for branching out; a horizontal strategy providing the same type of products to different users; and/or a vertical strategy to continue providing the same products but offering them at different levels of the distribution chain. Choices for distribution channels could include: original equipment manufacturers; an internal sales force; distributors; and/or retailers.
Marketing and sales strategies include communication plans for reaching customers through a combination of promotions; advertising, public relations, personal selling, and printed materials such as brochures, catalogues, flyers, etc. Once the marketing strategy is defined, a sales strategy will naturally fall into place. The overall sales strategy should describe the use of internal or independent representatives and how many salespeople will be recruited for the sales force. How will the sales force be trained? What will be the compensation for the sales force?
Building after-sales relationships is as important as developing an initial list of customers. The well-known business principle that one happy customer will tell five people about a good product or service, but a dissatisfied customer will tell ten people about bad service or products applies here. Carefully plan after-sales strategy and include things like customer satisfaction surveys, follow-up calls and guarantees.
The organization and management section of a business plan documents the company’s organizational structure and gives details about the ownership of the company; profiles of the management team; qualifications for board of directors members and explains who does what in the business. Job descriptions, salaries, wages employee benefits and guidelines for what each employee is responsible for should appear in this section. Give a detailed description of each division or department of the company and its function. An organizational chart along with a narrative description of what the chart means shows a well-thought-out business plan.
A well-thought-out plan is especially important when current and past financial data is requested by creditors, investors and government officials. The data should include the company’s income statements, balance sheets, and cash flow statements for each year of business. Creditors may also be interested in any collateral that could be used to ensure repayment for loans. At some point in the life of a business, owners may be required to supply prospective financial data.
Creditors want to see what can be expected of the company within the next five years. Each year’s documents should include forecasted income statements, balance sheets, cash flow statements, and capital expenditure budgets. For the first year, include monthly or quarterly projections. Stretch out to quarterly and/or yearly projections for the next five years. When asking for loans or grants make sure that projections match funding requests. Creditors look for inconsistencies. Assumptions for a projection should be summarized so the reader is not left guessing.
Finally, include a short analysis of the financial information. Include a ratio and trend analysis for all financial statements (both historical and prospective). Graphs of trend analysis (especially if they are positive) lend visual understanding that often is more effective than words. Justify every assumption in your business plan, but keep it succinct. A realistic business plan will have three to ten pages of text that draws out the important points of the business, plus a series of financial figures. Excessive detail should be confined to appendices.
Remember that a business plan is a work-in-progress. Whatever is written down is not set in stone. A business plan should have short and long-term objectives and goals that are possible and measurable. Most importantly, a well-developed business plan can show outsiders that the business, regardless of its size is focused on success.