Online retail isn’t solely the turf of Big Dogs like Amazon or Tesco—countless small-to-medium sized businesses as well as private individuals also earn their living by selling their goods online. But there’s more to setting up an online store than simply making sure you’re equipped with the latest hardware and software, or have found an excellent hosting provider. When faced with challenges like...
Building a business is not something that simply happens over night; behind the scenes, there’s always a considerable amount of planning required in advance. A business plan acts as a guide for this process as it gathers, organises and summarises all the key information about the business concept and future projects. When writing a business plan, you should be sure to include hard facts and important information, as well as financial projections and predictions of potential opportunities and obstacles down the road. Providing a vision for the development of the business is just as integral to the plan as information about finance and structure. But how do business plans for e-commerce differ? And are there specific guidelines for entrepreneurs? Read on to discover the most important elements to include in the business plan for your online store.
Why write a business plan?
Many see creating a business plan as a kind of compulsory exercise, often questioned by entrepreneurs who are already quite far through the planning stage. However, all business owners benefit from visualising the important factors for planning, strategy, and finances in the form of a detailed plan. When it comes down to it, it can be highly advantageous to have a comprehensive and structured business plan, in which a full collection of ideas and proposals are available at a glance. This proves valuable both in terms of budget planning and scheduling as well as searching for investors and business partners. For the latter, the business plan is often the deciding factor in the decision-making process.
How to write a business plan
A good business plan is a guideline for founding a company, and that goes for online companies too. While your online store is still on the starting blocks, it makes sense to use your house bank or get your personal accountant on board. This way, your flourishing business has a better chance of success; if your founding team lacks a competent and experienced professional from the financial sector, it’ll be difficult to accurately handle your finances. While the bulk of the planning still rests on the shoulders of the founders, accounting is a mammoth task that is practically impossible without professional support.
Business plans generally follow the same basic structure: usually opening with a summary, which briefly outlines the forthcoming points, the first paragraph should work to inform the reader of the most important aspects of the business in order to pique their interest. The key data surrounding the proposed projects are important of course, especially a project’s legal status. It’s important to outline the following information at the beginning of your business plan:
- name and address of the business and its founder(s)
- date of foundation
- subject of the business
- legal status
- company structure and tenure status
Only once these have been stated should the business plan address further aspects. Here are the most important features at a glance:
The business concept is the key to every business and the cornerstone of any business plan. The biggest challenge here is summarising your goals and intentions for your online store to a few key points. The language should be clear and concise with no unnecessary, technical terms. It’s a good idea to follow the elevator pitch model. This is the concept of pitching your business model to a group of bystanders during a 30-second elevator ride. In this short amount of time, you must be able to outline all the key information including your objectives, personal aims and business strategy.
A brief section about the founder or founding team usually follows the abstract. This generally includes a list of relevant skills, career history, and experience in the sector. Even if you use the business plan for external issues such as financial matters or promotional purposes, you should still record the founding team’s significant soft skills, as well as their capabilities and experience. Highly regarded abilities in the e-commerce realm include:
- technical skills, particularly those that are useful for programming, developing, and installing online shop software or content management systems
- marketing skills that prove at least one of the founders to be an expert in SEO, SEM, or affiliate marketing, as this is a big advantage in e-commerce marketing strategies
- logistical skills that confirm the founder(s) experience with commercial management systems and processing shipments and/or returns
Other relevant abilities include financial skills (bookkeeping, accounting, controlling), management experience (staff management, acquisition of goods), service skills, and legal experience.
Defining a target group is essential when writing a business plan. This target group is integral for later steps such as marketing strategies and publicity. Only by determining the target group in this early stage can the size of the market be ascertained, thus providing the basis for further calculations. In online trade, presentation is key to drawing in potential customers.
Most business owners can identify who might use their online shop in the conceptual phase. This usually requires an understanding of the differences between B2B and B2C marketing strategies. To define the store’s target market, you must go one step further and try to specify: what are the customer benefits? What are the characteristics of potential customers? Are there any corresponding figures or studies to back this up? These are the questions to answer when determining an accurate target group.
Analysing the market/competition
This part of the business plan should record the target sector’s current market situation. Here, it’s worth including valuable information such as market size, existing market structures, and influencing factors. It’s crucial that this data is measured accurately, so it’s useful to use trade association websites to gain a glimpse into the status of other online stores in your sector.
Businesses should also contrast the market situation with the prevailing competition. It is essential to gather information on facts such as the level of competition for your products; for many entrepreneurs, this can provide the keystone of their entire business model. Committing this to paper often reveals potential weaknesses. For example, if you are attempting to enter a competitive market with high price sensitivity, you should consider adjusting your shop’s concept or product line. It’s not worth trying to break into a saturated market unless you have an especially unique strategy or innovative idea.
Achieving success in e-commerce relies on gaining a good reputation and transforming your online store’s browsers into buyers. The latter is known as ‘generating conversions’ in marketing jargon. With the rise of e-commerce, business owners now benefit from the immense range of online and offline marketing strategies at their disposal; including newsletters, SEM, SEO, billboard advertising and flyers. The marketing techniques that best suit your online store depend on a variety of factors. This is where the founders’ skill sets play just as crucial a role as knowledge of the target market. On the whole, the marketing strategy stands in direct correlation with the budget plan.
The following aspects should be included in this part of the marketing plan:
- marketing solutions
- distribution policy
- any relevant services
In the world of e-commerce, USPs (i.e. quick delivery and free returns) can be the decisive factor in a customer’s decision to use your store over another. And when it comes to acquiring new customers and managing existing ones, traditional marketing techniques should be considered just as important as innovative distribution platforms. As well as an overview of market activity, the business plan should incorporate controlling tools and key figures to measure success.
This section of the business plan is about the general organisation of the business, and should go into detail about the relevant aspects of the existing structure and management system. The overview should start with an outline of the organisational structure, from the management level down to individual employees. The founders’ qualifications and skills come into play once more here, as you break down the company’s hierarchy and management roles. The staff structure should also include wages.
This part of the business plan should also contain development plans for the marketing and sales strategies. Sales are of particularly great significance for online shops, as this area includes procurement, product management, and returns. It’s also important to document administrative issues (i.e. book-balancing, taxes, legal matters) and technical elements (i.e. e-commerce software, page design).
Creating a plan for your finances is by far the most complex part of the business planning process; we recommended that you enlist the help of financial experts. Key aspects to consider are:
- projected sales performance (3 or 5 year plan)
- required venture capital
- information about the company’s liquidity
Don’t forget these three important areas:
Capital requirement plan
This is where you specify what financial resources you need at various stages. Not only does this involve the initial cost of starting up a company, but also the ongoing operating expenses. When considering your capital requirement plan, consider the following question: what resources does the company need, in both the start-up and growth phase? If you do not have sufficient personal resources, you should document any loans or external capital.
The finance plan determines the ratio of personal investment to external funds. The capital requirement calculation serves as the basis for this figure. Naturally, a high proportion of personal investment is desirable, however, when starting up a business—particularly an online store—gathering extra funds is compulsory. This can help to cover initial costs such as the acquisition of stock.
The turnover forecast should predict your company’s development in the next 3-5 years. Providing a realistic glimpse into the development of your company is just as important for investors as it is for you. Among other things, it is useful to compare your predicted revenue and costs.
Prospects and risk assessment
Having gathered all the information above, it’s time to delve into the obligatory analysis of prospects and risks. The business plan is fundamentally there to highlight the project’s strengths and opportunities, but a detailed analysis of possible risks and critical factors increases your credibility.
Here it’s a good idea to create different versions of the business plan for different recipients. This part should be an especially high priority for all internal contacts. For example, you can address technical difficulties, and the unexpected costs that come along with them, and predict the likelihood of such a risk. Never oversell the project and concept to employees. It’s crucial for the work environment to be built on a foundation of trust with an honest projection of the company’s development.
It’s important to outline these potential risks when presenting the business plan to investors and sponsors. This will enhance your credibility and paint you as a serious entrepreneur, as these donors know no business is without its risks. Attempting to hide any flaws or uncertainties will only come back to damage your store. In any case, donors often carry out their own risk assessments before investing. A good analysis of potential risks (from the perspective of the founders) shows honesty, without making the project look bad. To convince investors of your competence, for every risk you predict, you should also present an avoidance strategy or defence plan. Typically, risk analyses list potential financial and growth risks, as well as potential liquidity shortfalls, which could emerge from a deviation in sales.
Conclusion: it’s worth the effort
Creating a business plan takes a lot of time and work. However, anyone who has completed this task will tell you that it is certainly worth the effort. In gathering and organising this information, a full business concept is formed, which often helps entrepreneurs to identify their weak points and potential problems. In some instances, this can even prevent the collapse of a business. The business plan is fundamentally a final draft of the business concept to analyse its feasibility and potential. It also puts the founders’ entrepreneurial skills to the tests and is critical when applying for subsidies.