Business Plan

What are the 5 Core Components of a Business Plan?

Despite having a great idea, most businesses cannot achieve the desired results from their activities. Some startups also fail, while others cannot perform successfully compared to other businesses in the market. The main reason for this is a lack of clarity and a defined business plan that effectively conveys the objective and goals of the business. Further, even if a business has a business plan, they often miss out on the critical information they need to incorporate in the same. This article discusses the core components of a business plan that every business must include:

What is a Business Plan? 

A business plan is a document that describes the core objectives and the measures undertaken by the company to achieve those goals and objectives. It is a detailed document covering different aspects of a business, from its management to its financial projections. A business plan is prepared either to obtain funding from the investors, a business license from any authority or to serve as a guide for the business’s future operations.

What is the Need for a Business Plan?

A business plan is needed because of the following reasons: 

• To understand the competition in the market
• To document the marketing plan 
• To lay down the customer base of the business
• To devise a plan of action in case of contingencies
• To determine the staffing needs of the business 
• To define the business goals for stakeholders^[1]
• To assess the feasibility of the venture
• To analyse the risks involved and lay down the mitigation strategy
• To lay down the financial model for the business

Further, it is imperative for the business to understand the core components of a business plan along with the need for the business plan. 

What are the Primary Components of a Business Plan?

Every business must include certain vital elements to cover all its business verticals and operational aspects. Some of the most important components of a business plan are: 

Executive Summary 

An executive summary is the first section of a business plan that provides a brief overview of the company. An executive summary describes the company’s affairs, objectives, mission, vision and values. It also lays down the details of how the business is unique and distinct from its existing competitors.

Details of Management and Key Personnel

One of the crucial components of a business plan includes the details of the management and key personnel of the company. This section defines the profiles of the company’s management and other key personnel. The relevance behind including this information is to explain to the stakeholders the company’s managerial team’s expertise so they can meet the business goals and benefit the clients. Highlighting the experience of the management also lowers threats perceived by the stakeholders and gives more confidence to them about the skills and knowledge of the company’s team. 

Business Model and Strategies

This segment lays down the description of the proposed products or services, the USP of the business, revenue model, business framework, etc. The description of the business product includes information about the manufacturing process, raw materials used in the manufacturing, inventory management and other relevant operational details.

If the business renders any services, the business plan must describe the service along with its value proposition to the customers and other details such as strategic relationships, vendor management, client acquisition plan, etc. 

Technology, Marketing and Customer Management 

Other essential components of a business plan include market analysis, marketing strategies, technologies implemented, digital presence (if any), and the business’s customer relationship management plan. It is also advisable to provide the matrix for resolving customer complaints and the timeline. 

Financial Projections

This is where the business needs to provide the financial forecast regarding its capital infusion, future payroll plan, expenses and projected revenue. The financial model also includes the profit and loss statements, cash flow statements and balance sheet for the next 3-5 years.

Benefits of a Comprehensive Business Plan

A well-drafted document that includes all these components of a business plan can help a business in the following ways:

Provide More Operational Clarity 

A comprehensive business plan provides more clarity regarding the key aspects of the business, such as working capital investment, marketing plan, operational strategy, etc. It also helps identify and define the priorities and milestones that need attention and helps better decision-making.

Create a Business Roadmap

 A business plan helps to identify the target customer base, market analysis and strategies for promoting the product /services of the business in the market. Therefore, it serves as a roadmap for the team to align their goals per the set targets and the company’s mission.

Provide Operational Benchmarks

A business plan also serves as an instrument to track the progress of the business by laying down its plans and projections. It serves as a reference tool to keep the business on the right track by defining the sales targets and operational milestones. It can also help identify where the business diverts from its operational objectives and financial goals.

To Submit to Licensing Authorities

There are numerous business sectors where a business plan is a key requirement for obtaining a business registration or license. For instance, a business plan is a mandatory requirement for obtaining NBFC registration, Insurance Broker License, Account Aggregator License, etc. Including all the critical components of a business plan mentioned above can help the business to secure its registration easily with authorities such as the RBI, IRDA, etc.

To Attract Qualified Personnel 

It is highly vital for any business to have qualified and experienced personnel in its team. However, top-tier managers or executives often look for a business before joining an organisation. A well-written business plan can provide details about the vision, objectives and goals, how the employees can contribute to the business, and the benefits they can expect from the business.

Conclusion

A business plan plays multifaceted functions in a business. Therefore, it is important to have a well-written document that includes all the necessary information covering the different aspects of a business. Including the core components of a business plan becomes especially important when it is a mandatory requirement to obtain a business license or approval from a government authority. Not only can such a business plan help the business in successfully convincing the authority about its capability of setting up a profitable business, but it also provides an internal manual for its team to function efficiently.

Read our Article: Why a Business Plan is Considered as a First Step of Business?