Key Components of a Business Plan [Updated 2018]

It is difficult to prescribe an exact template or framework for a business plan as so much depends on the purpose and audience for which it was prepared. For example, a business plan prepared for when seeking start-up funding from a venture capitalist would be quite different from a business plan used for management and control within an established organisation. However, it is possible to describe the basic components of a business plan.

The main categories of these would include:

1. The organisation's vision, mission and values
2. Analysis
3. Plan
4. Key Risks
5. Organisation and Resources

Each of these is considered below.

The organisation's vision, mission and values

These define the basic purpose and parameters of existence for the organisation.

Often a statement of vision OR mission is sufficient (as opposed to having both). My sense is that over the last decade the emphasis has shifted slightly from vision statements towards mission statement as organisations recognise the increasing importance of purpose.

Where the organisation is not a completely stand-alone entity, the vision, mission and values should reflect the context of the parent structure. The more stand-alone the organisation is, the more important it is that the vision and mission reflect a uniquely differentiated competitive position.

See also: Strategic Vision: Three tests.

Analysis

The analysis should cover both the external competitive environment, as well as internal factors.

Factors to consider in the external competitive environment include the current situation, recent changes and anticipated changes with regard to

1. The relative negotiating power and interests of external entities such as customers, suppliers, regulators, government and lobbying groups.
2. The level and nature of competitiveness within the industry, for example
1. the number of competitors and/or level industry fragmentation, and
2. the bases of competition, for example, price, innovation, customer segmentation, distribution relationships, etc.
3. The threat of product or service substitution or becoming obsolete.
4. The threat of new entrants into the market, which would probably include an analysis of the barriers to entry.

Scenario planning is a useful technique for external analysis where there is a lot of structural uncertainty in the competitive environment.

Internal factors would include, strengths, weaknesses and flexibility with regard to:

1. Systems, including computer and manual systems, process, procedures and policies,
2. Staff, skills, knowledge / intellectual property and organizational capabilities, and
3. Culture, organizational style and structure.

The external and internal analyses are often combined and summarized in a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis.

You might also include an Options Analysis, where a number of options were considered before deciding on a way forward (and/or where it is important to argue and/or justify the option(s) carried forward into the plan). Typically you would evaluate each option in terms of:

1. Robustness in the face of the external analysis (including multiple scenarios, if you have done scenario planning),
2. The organisation's ability to deliver it, given its strengths and weaknesses,
3. Fit to the vision, mission and values of the organisation or its parent context, and
4. The financial value of the option (as per a Discounted Cash Flow or similar analysis)

Fortunately, you don't have to start with a blank sheet of paper when doing your analysis as there are numerous frameworks and tools that have emerged to help with this. You can see the key ones at 9 essential tools for strategy analysis.

Plan

Based on the analysis, the plan itself is then articulated in terms of:

1. Key Performance Indicators (KPIs) with targets, and Critical Success Factors (CSFs). In simple terms. KPIs are the measurable outcomes that are to be achieved as part of the strategy. These could include key financial indicators, as well as measures of customer outcomes, product, service or process performance, or internal capabilities. CSFs, on the other hand, include less quantitative outcomes that must be achieved.
   
   I find it useful to specify KPIs as S.M.A.R.T. objectives, and it can be useful to further divide these into 4 perspectives:
   
   1. Financial objectives such as shareholder returns, (working) capital efficiencies, margins, funding, etc.
   2. Market share and/or customer experience objectives,
   3. Process performance and efficiency objectives, and
   4. Organisational capability, staff, skills, systems and cultural objectives.
   
   These objectives should reflect the specifics of the strategy, rather than generic industry benchmarks.
   
   See also: Getting the most out of KPIs.
   
   
2. Initiatives or tasks: what will be done and by when, including what the output or deliverable of the task will be, and, depending on the plan's audience and purpose, who will do it, in order to achieve the KPI targets and CSFs. A stylized or simplified Gantt chart is often a useful way of communicating this.
   
   
3. Financial: A budget or forecast showing how the plan plays out. I find it most useful to consider this as a forecast of the cash flow, income statement and balance sheet for the organization, including relevant key non-financial indicators such as head-count.
   
   Typically one might do this on a monthly basis for the first 12 months, and then on an annual basis for the subsequent 4 years. The financial plan should include the costs and benefits of the initiatives and tasks listed in the section before.
   
   The structure of this should reflect the underlying economics of the business model so that meaningful sensitivity tests can be run. The inputs to the sensitivity tests should be consistent with the uncertainties identified in the Analysis or in the Key Risks, and the outputs should be consistent with the stated objectives.

Key Risks

Ideally, the Key Risks should follow naturally from the Analysis. More importantly, in this section you would highlight the plans and governance you will put in place to manage and mitigate these risks.

Organisation and Resources

An organigram or biographies of key players is often useful. This might include significant external players or other divisions within a group.

photo credit: verchmarco Eine Liste mit Zielen für das neue Jahr 2019 auf einem Notizbuch mit Kugelschreiber via photopin (license)