The 9 Essential Elements of a Business Plan

Think of your business plan as a collection of 9 smaller plans. Write these smaller plans thoroughly and masterfully, and you'll be off to a roaring start.

Many people look at a business plan as having seven main sections, and that's true. However, it's more important to look at what elements make a plan successful. You see, when focusing on the various sections of the plan, it's easy to fall into the trap of treating business planning as a form-filling exercise. Instead, consider the key elements of a plan and ensure you've studied them fully before embarking on the actual business plan.

In this article, we focus closely on the key elements of a business plan. They are critical to the success (or failure) of your business.

With a solid understanding of each of the elements of a business plan, and having done a thorough analysis of your business beforehand, you're poised to put your business on track to success.

There are nine key elements of a business plan which contribute to your overall business success. They are your:

• Business concept
• Business values and ethics
• Market
• Industry's current and future trends
• Unique competitive strategy and focus
• Management requirements
• Labor/Human resources requirements
• Financial controls and measures
• Willingness/adaptability towards change

Let's examine each element carefully:

Business Concept

Many people mistakenly equate business concept with business idea. The two are not the same.

People come up with business ideas all the time. They're something you think about that you think would make a good business, product or service.

A business concept on the other hand, is a direct solution to an existing problem. It doesn't matter if it's a real problem or a perceived problem; as long as the problem exists in the mind of the consumer, there is a need for a solution. The foundation of any successful business must be in solving an existing problem, or in satisfying a need.

Problem, you say? Yes, problem. Let's look at some examples of solutions to problems.

Product/Service/Feature	Real of Perceived Problem	Solution
Supermarkets	People don't have the time to grow their own food or raise their own livestock, and they would rather buy all of their groceries in one location than to shop at several different locations.	Supermarkets offer people the opportunity to do all of their grocery shopping in a single location, and conveniently find a wide variety of goods organized in aisles or sections. They also give shoppers convenient access to imported goods which would otherwise be difficult for them to purchase and consume.
Telephone Call Display	People can't see or know who's calling them before they pick up the phone. This results in wasted time and annoyances as people answer  unwanted calls.	Telephone Call Display allows people to see the number or even the name of the caller, giving them the convenient option of whether or not to answer the phone.
Lawyers/ Law Firms	Most people and businesses do not fully and clearly understand the law, and they either don't have the time or the motivation to keep up with ever-changing laws and regulations.	Lawyers and Law Firms provide legal advice to individuals and businesses, showing people their options and rights within the law, and helping them obtain justice in the event their freedom or rights have been violated or neglected.

A business concept clearly identifies and solves an existing need or problem. It's the first of all elements of a business plan you should focus on. Questions to ask to develop and refine your business concept:

• What real or perceived problem exists among consumers or businesses?
• Are there any solutions available in the market?
• If yes, do they adequately solve the buyers' problems? If no, is the problem serious enough that people or businesses would be willing to pay for a solution?
• Is your proposed solution a new product, service or feature, or is it an improvement on other solutions that already exist?
• Does your proposed solution offer convenience, for example, purchase and distribution channels, delivery, speed, time, or price? Or does it offer the added convenience of being integrated with other relevant products or services, e.g., Telephone Call Display, as an added feature of your regular telephone service?

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Values and Ethics

How often have you come across a business which made you feel it was conducting business in an unethical way? I'd bet you've felt that way many, many times. Most of us vow never to shop there again, and to tell our friends about our negative experience. In some cases, you continue shopping at a business you've had bad experiences with, albeit grudgingly, because you can't find the same product or service elsewhere. But your loyalty is thinner than paper, and you're ready to take your business elsewhere just as soon as you can.

On the other hand, think of all the businesses you enjoy shopping with. They almost always have policies aimed at ensuring your satisfaction, and their policies extend beyond the manuals and wall posters. In fact, you have a good time shopping there because everyone, from the manager to the staff, and everything, just makes you feel good and appreciated.

So there isn't much to say about Business Values and Ethics beyond what most people already know. The only important thing to really emphasize here is that the values and integrity your business adopts are just as important as making money, so they should trickle down into all aspects of your business. They should be felt and should resonate with your customers, employees, suppliers, and the community.

If you ever face a situation in business which tests your integrity, you'll know exactly what to do because you've already taken the time and effort to identify your business values before starting your business. Let not the prospect of making more money in the short-term compromise your integrity which will carry you through long-term.

Identifying and committing to your values and ethics is one of the key elements of a business plan.

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The Market

Showing you have a clear understanding of your market is one of the most important elements of a business plan. It's not enough to expect that because you have a good product or service, that there's a market for it, or that people are ready to pay for it.

A lot of research goes into understanding your market. You need to know who they are, where they are, what they do, and what problems they may face that your product or service can fix.

You might find out that the market for your product is enormous, or you may find out that it's very small. Either way, you would have to find out how many people would be willing to purchase your product or service if it could solve a specific problem they have. And then you would need to find out what price your potential buyers are willing to pay - what is the monetary value they attach to it?

As a market research analyst in Asia, I can assure you that the most successful companies conduct research on an ongoing basis. They want to know all of the things I mentioned above.

Now, if you're starting a new business, you may not have the funds to hire a research firm or agency, but you can still do adequate research of your market.

If you're planning to open a hardware store in your neighborhood, you could first do some research about how many hardware stores are actually near or around your neighborhood. You could survey people in the neighborhood about their hardware needs and usage patterns. You could ask them where they shop for hardware goods now and why they shop there. You could even ask them if they would visit and buy from your hardware store instead if you opened one up in the neighborhood.

The point is, research doesn't have to be expensive, but it is one of the most necessary elements of a business plan, so it's important that you do it right. To gauge the market for your product or service, you really can do your own market research.

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Industry Trends

Every business is affected by industrial and economic trends. If the economy or your industry is in an upward trend, your business will be affected. If the trend is downward, your business will be affected!

One of the key elements of a business plan is to show how your business will be affected by economic and industry trends, both current and future. For example, your plan needs to show how your business will address a downtrend and how you expect to make money during a downtrend.

This is a key issue for both investors and lenders, whose decisions are clearly influenced by economic and industry trends. That's not to say you can't make money in a downtrend. In fact, after the so-called Dot Bomb following the Dot Com Boom of the 1990s, online business grew exponentially. It's far bigger now than it was then! Keep in mind though that hundreds of businesses went under after the market collapsed. Investors and banks are always wary about opening up their wallets during those times.

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Unique Competitive Strategy and Focus

A bookstore is a bookstore you say? A coffee shop is a coffee shop? What about fast-food burger chains? Are they all the same?

Of course not! Even if they carry the same or similar items, or even use the same supplier, there's going to be something unique about each business.

Likewise, your business must have a clear strategy which distinguishes itself from its competitors. It's this distinguishing strategy that defines your business in the eyes of the market. It's what your business will stay focused on and develop into an identity.

Notice how Nike, Adidas and Reebok all compete within the same market. Yet, each brand has a unique position and appeals to different people. While they'll compete hard for your business and loyalty, there's no denying that each has its own set of loyal customers. The same goes for Toyota, Honda and Nissan.

To identify and solidify your unique competitive strategy, you need to hone in on your potential target market and determine which segment of buyers your products or services relate to. They key then is to relate to this audience as its expert, resource, or problem solver, and create a loyal following.

As your competitive strategy is among the most important elements of a business plan, make sure you have carefully conceptualized it.

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Management Requirements

Of all the elements of a business plan, management of your business is the most important, for two reasons:

1. Your business can't grow effectively if it isn't managed effectively.

2. Investors and lenders are most interested in who is managing your business, because they rely on management experience and credentials to decide whether your business is a safe or risky investment choice.

The people who you select to manage your business will determine the credibility of the business. Even if you have a solid business concept and a thorough understanding of your market, if you lack the management expertise to realize it, the business stands a good chance of showing cracks as you build it.

Have the right management team, especially in the case of startup businesses, gives both you and your stakeholders a level of confidence that management's been there. It lets you and your investors and lenders know that your management team has the strength and experience to recognize issues that a novice may overlook, the ability to avoid costly mistakes, and know-how to develop the business at an appropriate pace.

Besides, if you expect to hire strong and loyal employees, expect that they too will be looking at who comprises your management team, and oftentimes make their decision to work for your business based on that one factor alone. And when it comes to retaining employees, nothing could be worse than a high turnover rate due to weak leadership.

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Labor Requirements

Imagine having all the "wrong" kind of employees. They're careless, uninterested, and lack the qualifications required to run your business effectively. Of course, no business owner wants to be in that situation.

So clearly to be the best in your industry, you'll seek out the best people you can to hire. The problem is that so will all of your competitors who also aim to be the best. Just as employment is competitive for people who want the best jobs, finding the best people is equally challenging for business, especially if your business requires specialized labor, or where supply of labor is thin.

In order to attract the best performers, you need to have a hiring strategy that appeals to their needs. You'll also need a compensation and reward structure that is enticing as well as motivating, and a work environment that fosters development and provides opportunities for growth. Add to that, you need to maintain a motivating and positive work atmosphere.

You can't keep hiring the best performers if they leave due to lack of motivation, recognition or dissatisfaction. Your strategy must incorporate both sound hiring practices and a rock-solid retention program, that keeps your employees from leaving your business and walking over to your competitor's.

Another important aspect of labor to consider is whether you can outsource work and how much of it. While businesses in your city or town offer outsourcing services, the advent of the Internet has brought the world's labor force to your doorstep.

You could, for example, outsource work to people in India on a freelance basis, increasing your capacity to produce while maintaining or reducing your labor costs. I know I run the risk of being hung for mentioning this, but any business person who refuses to recognize this fact of life and business is being ignorant.

This, among other critical elements of a business plan, needs to be well-conceived and planned.

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Financial Management

You and I have both seen many businesses go under. At times, you may even have been surprised by some of those foreclosures.

It's very possible for a business to be profitable and still face financial problems. And if your business is a startup, you need to fully anticipate your startup costs before you startup.

It's amazing how businesses with poor financial control sabotage their own success. For example, an entrepreneur who has studied the profitability of a business concept but has failed to plan cash flow management is most likely going to face extreme challenges keeping the business solvent.

As an entrepreneur or business manager, it's important that you carefully plan how you will manage your business finances, and measure your financial performance at least on a monthly basis.

Below are some questions leading to important factors to the financial success of your business:

• What are your true startup costs?
• What is your breakeven point - how many units of sales do you need to generate to cover your costs?
• Which part of your do you truly profit from?
• How will you increase your profits?
• What kind of liabilities should you take on and how will you repay them?
• How do you extend credit to customers, and for how long?
• What are your overhead, marketing and other costs?

Ultimately, the financial success of your business will rest on your ability to be and remain profitable, effectively manage cash flow, and maintain a positive cash balance at all times. Using the above questions will help you gain a clear picture of the financial requirements for your business, and how to maintain control over them.

If you are successful at attracting the attention of investors or lenders, it's most likely because you have carefully examined capable management and financial controls, which are both critical elements of a business plan.

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Change

It's been said so many times that the only constant thing in the world is change. Change is an ongoing, continuous process.

One of the elements of a business plan is showing how your business will plan for and adapt to change. Change occurs in a number of ways.

Since the baby-boom, the USA and other western countries have been experiencing an aging population and workforce. In order to deal with this, many countries have encouraged immigration. Thus, the demographics of countries like the USA and Canada, for example, have changed markedly. In the same way, you as a business planner must anticipate societal and demographical changes in order to keep your business relevant and competitive.

In current times, technology is arguably the most frequent changing aspect of any society. It's difficult to know exactly what's coming ahead of us in terms of technology. But you still need to have a plan for recognizing this change. Of course, if your product or service is tech-related, you have no choice but to look ahead or your business will be dead in the water! Even if your business is not of technological products or services, you need to evaluate how much of your business can actually occur online, such as sales and delivery.

Last but definitely not least, you must always be watching your competitors. As your existing competitors make changes, you need to know what they are. But you also need to know who your new competitors are, where they are, how easy or difficult it is for them to enter the market. And your competitors aren't just around the corner anymore - they're worldwide...thanks to the Internet!

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To sum up...

These nine crucial elements of a business plan are important to address before you write your plan, and definitely before you open the doors to your business.