5 Reasons For an Ecommerce Business Plan

Does an ecommerce company need a business plan?

Yes, any company can benefit from developing a business plan. When many businesses prepare a plan solely to secure outside funding, a business plan can also help you focus on what you want your organization to be in the future and provide a map of how to get there. In an industry that changes as quickly as ecommerce, a business strategy can help a business respond and adapt to changing market conditions.

5 Reasons to Prepare a Business Plan

  • To secure financing. Whether you are looking for a loan or an equity investment, the company which will offer the money has to be assured that you know what you are doing and have a path to gain. Creating a business plan also makes it possible to ascertain how much cash you actually need. Unanticipated costs can sink a business so that it’s important to ask sufficient funds to accommodate contingencies.

    Most funding sources won’t consider a request without a formal business plan which explains the future potential of the business. Even friends or relatives might want to know that you have seriously thought about the business before they give you money.

  • To prevent costly mistakes. Is your business idea feasible? Will people buy your product or service? A good business plan requires you to perform some initial market research to determine if there’s in fact a market. You’ll have to learn if your revenue model is sound and how long it will take for your organization to become profitable. Another step would be to perform a SWOT analysis — strengths, weaknesses, opportunities, threats — to observe the whole industry picture. I addressed this last month, in “SWOT Analysis for Ecommerce Companies.”
  • To establish priorities. A well-written business plan can provide day-to-day operational guidance. It’s easy to become distracted with regular information or emergencies when you have a new company.
  • To set up company milestones. The plan should clearly describe the long term accomplishments which will be important to the success of your organization.
  • To make alignment among business owners. You may have partners in your organization. Creating a business plan with input from many partners after the business is just starting ensures that everyone has the exact same vision about the endeavor. Disagreements among partners are major contributors to business failure.

Elements of a Great Business Plan

A thorough business plan entails the following.

  • Summary of economy. An investigation of your competitors and what you may have to do better for customers.
  • Target market. Defines who the target market is, how big it is.
  • Clients. Demonstrates an understanding of consumer purchase behavior — why they buy, price sensitivity, product preferences.
  • Advertising. A description of how you will advertise your organization,
  • Earnings. Expected earnings and operating expenses for the first 3 years.

Funding

If you are introducing your plan to obtain funding, include the following financial documents.

  • Summary of financing requirement. A summary indicating why you are applying for a loan and how much you need.
  • Use of funds statement. Describes how you want to use the funds. Back up your statement with supporting information.
  • Budget. This shows cash inflow and outflow over a period of time. Cash flow statements show both how much and when cash must flow in and out of your business.
  • Three-year Revenue Factor. How can you learn how to estimate future earnings? Use the pro forma cash flow statement for the first year’s figures and project the next according to economic and business trends.
  • Breakeven analysis. The break-even point is when a company’s expenses exactly match the sales or service volume. It may be expressed in total dollars or revenue exactly offset by total expenses.

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Business Strategies for Established Businesses

If your business is a continuing concern, is there an upside to preparing a business plan? If you are in need of additional funds, then you will certainly require one. In this case you will also have to provide performance metrics for your company’s past performance. This includes the following.

  • Balance sheet. This shows the condition of the business as of a fixed date. It’s a picture of your firm’s financial condition at a particular moment and will show you whether your financial position is strong or weak. It is normally done at the end of an accounting period, and contains assets, liabilities and net worth.
  • Profit and loss statement. This document gives a picture of your business financial activity over a period of time.
  • Financial summary. This covers financial information regarding your company from its establishment to the present.

If your organization is secure and does not require external financing you still may consider doing at least a review of your marketing approach, your priorities, and a SWOT analysis. Your competitors will always be trying to outperform you and there is absolutely not any room for complacency in ecommerce.

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