Describe Your Business
This is a good time to explain your company and some of its underlying strategy, such as competitive edge and value proposition, as well as establishing base-line numbers for your plan.I find switching modes like this, from numbers to text and back, helps keep the process fresh as you develop your plan. This chapter will cover a table or two, either past performance or start-up costs, depending on your specific plan.
If you are starting a business, please go now to Starting a Business dedicated to issues in starting a business. I don’t want to interrupt the flow of the plan with that discussion at this point, particularly for those who are working on an ongoing business. However, if you are starting a business, and haven’t read please read that chapter now and then return here.
Company Information
As discussed earlier Pick Your Plan, my recommended business plan outline includes a chapter topic on your company, right after the Executive Summary. I pointed out then that you may not need to include this chapter if you are writing an internal plan. However, any outsiders reading your plan will want to know about your company before they read about products, markets, the rest of the story.
Summary Paragraph
Summary Paragraph Summary Paragraph Summary Paragraph Summary Paragraph Start the chapter with a good summary paragraph that you can use as part of a summary memo or a loan application support document. Include the essential details, such as the name of the company, its legal establishment, how long it’s been in existence, and what it sells to what markets.
Legal Entity / Ownership
In this paragraph, describe the ownership and legal establishment of the company. This is mainly specifying whether your company is a corporation, partnership, sole proprietorship, or some other kind of legal entity, such as a limited liability partnership. You should also explain who owns the company, and, if there is more than one owner, in what proportion.
If your business is a corporation, specify whether it is a C (the more standard type) or an S (more suitable for small businesses without many different owners) corporation. Also, of course, specify whether it is privately owned or publicly traded.
Many smaller businesses, especially service businesses, are sole proprietor businesses. Some are legal partnerships. The protection of incorporating is important, but sometimes the extra legal costs and hassles of turning in corporate tax forms with double-entry bookkeeping are not worth it. Professional service businesses, such as accounting or legal or consulting firms, may be partnerships, although that mode of establishment is less common these days. If you’re in doubt about how to establish a start-up company, consult a business attorney.
Locations and Facilities
Locations and Facilities Briefly describe offices and locations of your company, the nature and function of each, square footage, lease arrangements, etc.
If you are a service business, you probably don’t have manufacturing plants anywhere, but you might have Internet services, office facilities, and telephone systems that are relevant to providing service. It is conceivable that your Internet connection, as one hypothetical case, might be critical to your business.
If you’re a retail store, then your location is probably a critical factor, so explain the location, traffic patterns, parking facilities, and possibly customer demographics as they relate to the specific location (your Market Analysis goes elsewhere, but if your shopping center location draws a particular kind of customer, note that here).
If you are manufacturing, then you may have different facilities for production, assembly, and various offices. You may have manufacturing and assembly equipment, packing equipment, docks, and other facilities.
Depending on the nature of your plan, its function and purpose, you may want to include more detail about facilities as appendices attached to your plan.
For example, if your business plan is intended to help sell your company to new owners, and you feel that part of the value is the facilities and locations, then you should include all the detail you can. If you are describing a manufacturing business to bankers or investors, or anybody else trying to value your business, make sure you provide a complete list and all necessary detail about capital equipment, land, and building facilities. This kind of information can make a major difference to the value of your business. On the other hand, if your business plan is for internal use in a small company with a single office, then this topic might be irrelevant.
Think Strategically
One of the most valuable benefits of developing a business plan is thinking in depth about your company. You started that as part of The MiniPlan, as you entered drafts of your objectives, mission statement, and keys to success. A standard plan also includes sections in the strategy chapter that provide deep background for strategy. This is a good point for developing those texts.
Value Proposition
Value Proposition Value Proposition Value Proposition Value Proposition Value-based marketing is a useful conceptual framework. The value proposition is benefit offered less price charged, in relative terms. For example, the auto manufacturer, Volvo, has for years offered a value proposition based on the value of safety, at a price premium. A more detailed discussion of this framework can be found in Strategy Is Focus.
Competitive Edge
Competitive Edge Competitive Edge Competitive Edge Competitive Edge So what is your competitive edge? How is your company different from all others? In what way does it stand out? Is there a sustainable value there, something that you can maintain and develop over time? The classic competitive edges are based on proprietary technology protected by patents. Sometimes market share and brand acceptance are just as important, and know-how doesn’t have to be protected by patent to be a competitive edge.
For example, Apple Computer for years used its proprietary operating system as a competitive edge, while Microsoft used its market share and market dominance to overcome Apple’s earlier advantage. Several manufacturers used proprietary compression to enhance video and photographic software, looking for a competitive edge.
The competitive edge might be different for any given company, even between one company and another in the same industry. You don’t have to have a competitive edge to run a successful business—hard work, integrity, and customer satisfaction can substitute for it, to name just a few examples—but an edge will certainly give you a head start if you need to bring in new investment. Maybe it’s just your customer base, as in the case with Hewlett-Packard’s relationship with engineers and technicians, or it’s image and awareness, such as with Compaq. Maybe it is the quality control and consistency of IBM.
The most understandable of the competitive edges are those based on proprietary technology. A patent, an algorithm, even deeply entrenched know-how, can be solid competitive edges. In services, however, the edge can be as simple as having the phone number 1 (800) SOFTWARE, which is an actual case. A successful company was built around that phone number.
Baseline Numbers
While we’re focusing on the company description, let’s establish the starting numbers that form the basis of your cash flow and balance sheet in ongoing companies, your starting balance for the future is the last balance from the past.
Past Performance for Past Performance for Ongoing Companies
Past performance explained here is for ongoing companies. If you are a start-up business, skip to the section called Start-up Costs for Start-up Companies.
Important past performance items can be typed into the past performance worksheet. They are used for comparing past performance to projected future, and to establish your starting balances.
Ongoing companies need to include a summary of company history, as a topic in your text. If you are an ongoing company, then you’ll need to present financial results of the recent past, and this text section is where you explain them.
Explain why your sales and profits have changed. If you’ve had important events like particularly bad years or good years, or new services, new locations, new partners, etc., then include that background here. Cover the founding of the company, important events, and important changes.
Your first consideration is the needs of your reader. This isn’t a history assignment. Give the reader of the business plan the background information he or she needs to understand your business.
For your financial analysis as an ongoing company, you will want to make sure you have some very important highlights of your company’s past financial performance, as shown in the previous table.
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