The Seven Most Important Components of a Good Business Plan
Are you looking for a guideline to write a good business plan? Do you need some tips to nail the most complicated sections of this document? Then you have come to the right place, welcome! Below is a list of the most essential parts that a good business plan must contain, but feel free to adjust this model as you prefer and adapt our suggestions to your specific needs.
A mandatory first step is to provide some essential information about your startup in a schematic and minimalist way: your business name, logo, name of the founder(s), and of course your contact details (address, telephone number, e-mail etc.). Think of this section like you would of your business card: an elegant display of your business and the people behind it.
The executive summary is a detailed overview of the business plan with the aim of arousing interest in the startup by highlighting its main components. In some ways you can see this section as a movie teaser: the executive summary must show all the strengths of your commercial project, be easy to read and understand and, above all, be catchy enough to impress your audience.
Given its introductory function, the executive summary must feature at the beginning of the business plan. However, since this section contains a detailed description of what the rest of the document features, you have to write it last, when your actual business plan is completed.
Keep in mind that a good first impression makes all the difference. The executive summary will certainly be the first thing that your audience will read, so dedicate time and attention to writing this section in the best possible way you can.
In this section, you have to detail the main characteristics of your startup. What is its legal form? In which sector and industry does it operate? Has the company already achieved relevant results? Another important aspect to highlight is the startup’s mission. If you have trouble defining this, try to answer the following question: why did you found this startup?
Keep in mind that all successful businesses have one thing in common: they identified a problem that is affecting a large (or rich) number of persons – the potential customers – and found a way to solve it. So, you have to explain what the problem is that you have recognized and in which ways your product or service is going to solve it.
Finally, this is also the section of your business plan in which you will have to explain what the main goals of your company are, and specify how and when you will achieve them.
Market, customers, and competition analysis
You cannot write a good business plan without doing some preliminary research. Accordingly, your document must have one (or more) sections dedicated to show the results of your research. The aim of these analyses is to define the market related to your product/service and its main characteristics. To get an idea of what you will have to write, try to answer to following questions:
- How large is the market that you will potentially operate in? Is it local, national or international?
- Is this market growing?
- What are the latest trends within this market segment?
- Are you able to make long-term predictions on the basis of reliable data?
- Are there similar companies currently working in this sector?
- If so, are they successful and growing? What are their strengths? And what their weakness?
- Benchmark! Are there areas of the market that are not being tapped adequately?
Keep in mind that what you are going to write is the result of a research. It means that everything that you say or claim must be backed by verifiable data. Thus, make sure to cite your sources and use charts and tables to illustrate the information that matters.
Description of the product and/or service
Once you provided a comprehensive picture of the market and your main competitors, it is time to describe your product and/or service.
Be aware: do not confuse this section with the company overview (see point number 3). In the latter you have to explain the mission of your startup, the problem that you are going to solve, and how you will do this. Conversely, here you will have to show the very specific characteristics of the products and/or services that you are going to deliver and why they can make a difference for your potential customers.
To get an idea, here are some of the questions that you need to answer in this section:
- What differentiates your product and/or service from your competition?
- Is your product and/or service patented?
- What pricing policy are you planning to use? Fixed prices, bulk discounts, subscriptions, etc.
- What is the added value that you are offering?
- Have you identified a section of the market that is not adequately tapped by your competition yet?
- If so, how do you intend to use this to your advantage?
- How does your product and/or service work exactly?
Make sure that you provide details and that you clearly describe the how your solution is a viable product and/or service that adds value to customers and/or clients.
The financial plan
This section, dedicated to the financial analysis of your startup, is the most crucial part of your business plan. It is easy to understand why: you can have the brightest ideas in the world, but if you are not able to make it profitable and profile yourself as a financially sound person, nobody will invest in you or your business.
The financial plan is thus a kind of test to verify whether you are a reliable entrepreneur. In order to bring this across effectively, we recommend to organize this section in the following way:
How much does it cost to start your business? Did or will you bootstrap it? Did or will you get a subsidized loan to raise your initial capital?
The main question here is: is your business profitable (or when will it be)? Estimate your turnover and, then, subtract the company's maintenance costs (or “operational costs”). The resulting number is the actual profit of your startup.
Cash flow budget
The earnings and expenses related to your company can fluctuate considerably over a year. Calculate all the incomes and expenditures per period (e.g. per month or per quarter). This way, you will be able to identify what time of year your business is most profitable and, accordingly, when you will have a surplus, and when you are in need of extra funds.
Personal expense budget
The question in this case is: how much personal capital do you really have? To find the answer, you must calculate how much you usually spend in a year for you (and your potential partner or family). Think of your fixed expenses such as rent or mortgage payments and your operational costs (see “operating budget”), but don’t forget to take your taxes into consideration too. Once you get the amount of these costs, subtract these expenses from your annual income.
Information about the owner(s) and the team
You can use this part to briefly introduce a biography of the founders/CEO’s and the other team-members. If the executive summary is comparable to a movie teaser, this final section functions like a kind of end credits. Be schematic and, above all, to the point in this section. So, make short summaries of each person’s career and add professional photos to complete your personal portrayals.
In reality, your business plan will rarely be read from top to bottom with meticulous attention. Most readers will quickly browse the document, and focus on the executive summary and the financial plan. So, it is important to write these two sections with particular attention to detail. Finally, keep in mind that that you can always ask the help of specialists, especially when it comes to outlining your financial plan.