Business plans are daunting documents most companies write once and forget about. However, there are several important components to a business plan you should update on a yearly basis. Not sure how to do it? Read on to ensure you get it right.
Updating several key components of an annual business plan will lead to continued growth and profitability for your company. Businesses evolve over time, which means your business plan needs to evolve too. According to the U.S. Small Business Administration (SBA), there are several important parts to a business plan, including an Executive Summary, Market Analysis, Company Description, Organization & Management Plan, Sales and Marketing Strategy, Service or Product Line, and Financial Plan. Understanding how to continually update each of these key sections each and every year will help lead your company to continued success.
The executive summary of your business plan provides an overview of the rest of your plan. It also contains your company goals and objectives, which are likely to change each year. Updating your plan each year reflects your goals for the upcoming fiscal year. Describe how those goals changed from the previous year and explain why they changed. Even though the executive summary is the first section of your plan, write it last when you update your business plan to reflect all the changes you make to other sections.
The market analysis section is another must have part of your business plan. This section of your plan is where you describe your industry, competitors and target market. You will likely notice differences in growth rates, trends and industry characteristics from year to year, and you should edit the contents of your business plan to reflect these differences. For example, if you run a farming business, describe growth trends in the organic farming sector. Another major change to your plan is the competitive profile of your market. Note any new competitors to your business, any competitors that went out of business and the differences in competitive market share from the prior year.
According to the Small Business Administration, in the company description section of your business plan, communicate the nature of your business and list key success factors for your business. When updating your plan each year, edit this section to reflect the changes to your key success factors. For example, your company may have listed "location" as a key success factor the previous year. If your company moved its headquarters to another location, identify other key success factors you will focus on in the coming year, such as customer service, price or personnel.
Organization and Management Plan
The next element is the organization and management plan section. This section may change on an annual basis and you should reflect these changes. If your company's organizational structure, executive and management teams or board of directors has changed, include these updates. Pay close attention to your profile and background for any important additions to your team, such as senior managers, vice presidents and directors.
Sales and Marketing Strategy
Your sales and marketing strategy will also likely change each year. These are essential parts your plan and here, and you must update them annually, including your market penetration strategy, growth strategy, distribution channel strategy, communication strategy, sales force strategy and sales activities. For example, if you decide to utilize independent sales representatives, communicate your new recruitment, training and compensation strategy in the plan for the upcoming fiscal year.
Service or Product Line
The service or product line should outline your product or service offerings. So what do you need to think about when updating this section? First, describe how your competitive advantages changed from the previous year. "Competitive advantages" refers to specific factors that set your company apart from your competitors. For example, if you sell a weight loss supplement, your product may contain a key ingredient other products don't have. Second, outline your research and development (R & D) activities for the upcoming year.
The financial plan is the final key component of an annual business plan and is often the section that changes the most from year to year. This section includes historical financial data and prospective financial data such as income statements, balance sheets and cash flow statements. Include each of these pieces of financial information from the prior year and how they matched up with your projections. Then, include your prospective income statements, balance sheets and cash flow statements for the next year, three years and five years.
Tips for Success
Every business is different and your plan should show reveal a certain identity, claims for success and should include a SWOT analysis (strengths, weaknesses, opportunities and threats.)
For those seeking capital loans, especially from the SBA, Bright Hub can help with that too. Read our series on tips for getting an SBA loan and learn exactly what lenders and the SBA are looking for before you update, revise or modify your business plan.