Business Planning Terms
- The term mission statement refers to the section of the business plan that describes what the company seeks to accomplish. It is a statement of the most significant benefits the company intends to provide its customers, or even society as a whole. A mission statement for a health-care technology company might be to continually bring innovations to market that save lives while reducing health-care costs.
- The term that causes the most confusion for entrepreneurs is business model. If you describe how you intend to generate revenues, and what specific factors about your company will cause it to be profitable, then you have completed the business model section of your plan. It doesn't have to be any more complicated than that. Discuss the various revenue streams you will have. For a technology company, these could include selling equipment, earning fees for installing the equipment and collecting ongoing fees from service contracts. Profitability factors include having lower-than-average cost of production or being able to grow revenues without having to increase personnel.
- Two terms that specifically apply to the marketing section of the plan are strategies and action plans. Strategies describe in broad terms how you intend to secure additional customers, build market share and beat out your competition. A strategy could be to begin marketing your products in a new region of the country. Action plans show the steps required to enter this new region and who in the organization will be responsible for accomplishing each of the steps.
- The finance section includes a forecast profit-and-loss statement for the business. Investors are particularly interested in how long it will take for the company to become profitable. Until that time, the company will fund its operations with the capital provided by investors. They use the term burn rate to describe how quickly this capital will be spent. Investors also want to know what they are likely to earn on their invested funds. They use the term return on investment -- or ROI -- as a measure of what they are projected to earn expressed in percentage terms, such as 30 percent compounded annually. The term exit strategy is used to describe the most likely means for the investors to cash out of their shares in the company. Investors usually receive these returns when the company is sold to a larger company.
- All companies regularly deal with risk -- the chance that financial performance will not be as strong as was forecast. The term risk factors is applied to the section of the plan that lists the specific reasons that revenue or profitability shortfalls could occur. Unexpected hikes in fuel prices that raise operating costs, for example, could cause a profit shortfall. Companies often have plans in place to deal with potential risks. These are termed contingency plans.