Business Plan for an Online Store
March 19, 2019
Creating a company is not possible from one day to the next. Behind every successful business is a long planning phase that includes, in turn, a business plan. This serves as a support guide, summarizing all relevant information on the concept of business and business projects. The business plan must include specific data and important information, but also forecasts with a look to the future. It also includes estimates of development, opportunities and risks, as well as fundamental aspects such as financing and structures. Now, how is a business plan for eCommerce different from a traditional one? Are there specific guidelines for electronic commerce? Next, you will find all the necessary information for you to write the business plan of your online store.
Why is a business plan necessary?
For many, the business plan is an obligation (they do not understand the meaning). Especially the advanced entrepreneurs in the planning question their usefulness, and, in reality, every entrepreneur should synthesize at least once all the important data on planning, strategy and finance. However, it never hurts that every entrepreneur has all the important data on the planning, strategy and finances of his business at hand. In this way, it is possible to have a clear visual structure of the general idea of the project. Whether to calculate the budget or time or to search for partners and investors, a business plan is a very useful tool for any entrepreneur. In addition, this is usually a relevant factor for financial partners when making decisions.
Components of a business plan
For every entrepreneur, a business plan is a guide for the creation and management of your company, logically also for eCommerce. To begin with, it is useful to ask for advice directly from a bank or a tax advisor. Otherwise, if none of those involved in the creation of the company have experience in finance, economic planning and budgeting will be difficult. While a large part of the drafting of a finance plan falls entirely into the hands of the founder, capitalization and amortization are, on the other hand, aspects of great complexity that will most likely require professional help.
Generally, business plans are very similar in structure. It begins with a summary that covers the most relevant details and that aims to awaken interest and inform the reader about the most important aspects. Therefore, the basic data of the project must be included, as well as the legal conditions of the same. The data that must be included at the beginning are:
- Name and address of the company, as well as the person in charge
- Creation date
- Purpose or objectives of the company
- Legal form
- Structure of company property
Only then will it be possible to begin with the description of aspects of great importance such as:
Concept / executive summary
For both online commerce and traditional commerce, the business idea is an important component in any business plan . The biggest challenge is to go straight to the point by stating the objectives and goals of the company using just a couple of sentences. The language, with concise formulations, must be understandable and avoid unnecessary technical terms. Some entrepreneurs use the so-called elevator pitch or Elevator Pitch as a model to exemplify a discourse to promote or sell a project during the 60-second journey in an elevator. In that single minute you must find the time to synthesize the most important data about the goals of the company, its mission and its strategy to carry them out successfully.
The next step is the presentation of the founder or founding team. At this point you will list all your outstanding skills , including your professional background and experience in the industry. If the business plan is used for external matters such as financing or loans, this point should emphasize the most relevant Soft Skills, as well as the potential and experience of the founding team. On the other hand are the Hard Skills (technical or specific skills), and as regards eCommerce, the most relevant are:
- Technical skills that may be useful during the programming, development and installation of online store software or content management system.
- Marketing Skills that allow identifying, at least, one of the founders as experts in SEO, SEM or affiliate marketing. This point will always mean an advantage for the marketing strategies of any online store.
- Logistic skills on the part of the founder or one of the members of the founding team in ERP systems, as well as in the processing of shipments and returns.
Financial skills (accounting, financial management, billing, etc.), service skills and legal experience are also important.
Defining the audience is an essential part for the preparation of any business plan. Having a target group, as well as information about your interests and most relevant data, will be key to the implementation of, for example, strategies and marketing campaigns. Only when the exact size of the potential market is specified will it be possible to plan the business itself. Here it should be noted that the selection and supply of products from online commerce depends, almost exclusively, on its target audience.
Most of the time, the business idea has already outlined the characteristics of the users to whom the company’s products or services are directed, mainly to differentiate B2B and B2C strategies. The definition of the target audience must specify and deepen questions such as what is the benefit to the client, what are the characteristics of potential clients or whether there are previous studies, statistics or empirical values. This is, perhaps, the best way to determine a realistic target group.
Analysis of the industry and the competition
This section of the business plan contextualizes the company in the current market situation in its sector. Relevant are the data on the size of the market , the current structures and the influencing factors . Of course, the market data and information on the industry must be reliable. In this article you will find more detailed information on the analysis of the industry and the competition.
Although it is important to identify the situation of the industry, the analysis of competitors is a priority . For many entrepreneurs it is essential to know data such as, for example, the density of the competition of their products. In this way, when the risks and opportunities have been clearly identified, the weaknesses of the business will most likely be identified. A clear example would be to concentrate on a highly competitive market that is very sensitive to price. In such a case, an analysis of the industry and competitors would allow rethinking the business to obtain the greatest benefit and reduce the risks. Remember that entering a saturated market is only worth it with a very particular strategy or with an innovative idea.
Publicizing the online store and motivating visitors to buy are key aspects to achieve an e-commerce success. In the context of marketing we talk about ” generating conversions ” and it refers mainly to the correct choice of different opportunities and advertising channels. In that sense, the range of options is enormous. Deciding between a newsletter, SEM, SEO or posters to promote an online store will depend on different factors. In addition to the target audience, the individual skills of the people involved in the creation of the online store play an important role, especially because the planning and implementation of a marketing strategy goes hand in hand with budget planning.
The following aspects are also part of the marketing plan:
- Advertising opportunities
- Other services
In electronic commerce, UPS ( Unique Selling Proposition ) or differentiating arguments (eg, fast shipping, free returns) play a decisive role in the decision-making process of customers. Every entrepreneur should use offline and online marketing channels for customer acquisition and loyalty, as well as innovative distribution options, for example through Buzz Marketing . The monitoring of marketing activities, management tools and metrics is also part of a comprehensive business plan.
Organization / Structure of the company
This section of the business plan defines the general organization of the company , including the existing structure and management planning. This begins with the structure of the personnel , from the general direction to the individual employees. Although the competences and abilities of the founder have been previously mentioned, at this point they must be specified in detail, they are organized within the hierarchy of the company and are broken down into different leadership roles. The definition of the structure also includes salaries .
Marketing and distribution should also be considered as a structural aspect, especially for an online store, where sales, purchases and returns are a priority. Administrative issues such as accounting, taxes and legal issues should not be overlooked, as well as the technical aspects related to software for eCommerce and the design of the website.
Carrying out the financing plan to get the initial capital is, most likely, the most complex part of any business plan and its preparation will be much easier if you have the collaboration of a financial expert. For the creation of the financial plan of an online store, the calculations start from a purely commercial point of view. Of special importance are, for example:
- The sales performance (three to five years plan)
- The necessary initial capital
- The information about the liquidity of the company
The financing plan covers three important areas:
At this point, the financial means needed in each stage are defined, which include both the costs for the creation and start-up of the business, as well as operating expenses once it has been put into operation. The key questions are: what does the company need in its different phases (planning, initial phase and development)? In case you do not have sufficient own resources, you must also include the borrowed capital and the debt.
The plan to obtain financing is very useful when defining the proportions of own capital and debt. The calculations of the initial capital needs are the basis of the financing plan. Ideally, the initial capital should be in its own total. However, at the beginning, most online stores require a large investment (eg, to acquire or produce a large volume of products), which almost always results in the acquisition of a debt.
Profitability projections include development forecasts for the next three to five years. For both founders and investors, this section estimates the future and the chances of success of the company in a realistic way. Among other things, at this point the expected sales and estimated costs are estimated.
Analysis of risks and opportunities
Once all the aspects mentioned above have been identified, as well as the target market and the sector, it is necessary to carry out a critical analysis of the possible risks and opportunities . This must be a priority insofar as, for example, technical difficulties may arise that may lead to unexpected costs, thus realistically estimating possible risk scenarios. At this point you should consider the creation of different versions of the business plan aimed at different recipients, as p. For example, a business plan does not intend to sell the project to internal employees, its function among them will be to promote trust and positively impact the work environment.
Similarly, it is important to present potential risks in business plans for investors and sponsors. Thus, the business model seems credible, as it is evident that there are no “perfect projects”. Hiding information unnecessarily harms the project. Most investors are forewarned and usually perform a prior risk analysis. A good vulnerability analysis (from the point of view of the founder) is honest, without letting the project be conceived as something negative. A good solution is to add a prevention strategy or possible solution for each risk point and make sure that it is written as clearly as possible within the business plan. The typical components of risk analysis are the cost and the risk of growth, as well as the phases of illiquidity as a consequence of a decrease in sales volume.
A worthwhile effort
The creation of a business plan requires time and dedication. However, those who have developed it recommend it. By collecting the relevant information, a business plan is the perfect tool to identify vulnerabilities and risks. This can even save a company from failure. Basically, it is the final examination of the business idea in terms of its potential and its viability. In addition, it tests the entrepreneurial spirit of its founders and, finally, it is necessary when seeking sponsors or applying for grants.