Getting started: A guide to creating a manufacturing business plan
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Every day people are trying and failing at entrepreneurism.
The journey is a difficult one, and the chances of success are slim. Those that succeed sometimes have a brilliant idea, while others have a wealth of resources. The one commonality among all successful entrepreneurs is that they had a manufacturing business plan.
You need to know where you are going, how you will get there, and what you will do when you arrive. This is especially important for those in the manufacturing industry because of the significant amount of forethought required.
Even if you are leveraging digital solutions to minimize the amount of time, money, and effort required to bring your product to market, you will still need a plan. This is not an area where you can wing it and hope for the best.
Below, we will examine the basics of a manufacturing business plan, what is necessary to include, how to create one for your own company, and some common mistakes that you should avoid.
Table of contents:
What is a manufacturing business plan?
A manufacturing business plan is a formal document that outlines the goals and objectives of your business. It includes detailed information about your:
- Products or services
- Target market
- Marketing strategy
- Financial projections
- Operational details
The purpose of a business plan is to give you a roadmap to follow as you build and grow your business. It forces you to think through every aspect of your venture and identify potential problems or roadblocks before they happen.
Manufacturing business plans can also be used to attract investors or secure funding from lenders. If you are looking for outside financing, your business plan needs to be even more detailed and include information on your management team, financial history, and expected growth.
Ideally, you should update your business plan yearly to ensure that it remains relevant and accurate. As your business grows and changes, so too should your plan.
Why does a manufacturing company need a business plan?
No matter how simple or complex your ideas may be, you need a plan, or they will never become a reality. A business plan will clearly understand your costs, competition, and target market. It will also help you to set realistic goals and track your progress over time.
Let’s look at a manufacturing strategy example. You have a great idea that you think will revolutionize the automotive industry. Your new safety harness will be made from a lightweight, yet incredibly strong, material that cannot be cut or torn. You are confident that your product will be in high demand and generate a lot of revenue.
But before you walk into Ford or Toyota to try and get a purchase order, you need to have a plan. You must know:
- How much will it cost to produce your product
- How many units do you need to sell to break even
- Who is your target market is
- What is your competition selling
- How will you reach your target market
You also need to clearly understand the regulatory landscape and what it takes to bring a new product to market. All of this information (and more) should be included in your business plan.
This is not just a document that you create and forget about. It is a living, breathing tool that should be used to guide your actions as you build and grow your business.
What are the key components of a business plan?
Every manufacturing business plan will be different, but almost always, they will include the same five components:
- Executive summary
- Company description
- Products and services
- Market analysis
- Financial plan
Let’s take a closer look.
The executive summary is the first section of your business plan, but it is typically written last. This is because it should be a concise overview of everything that follows, and you can only do that once you have completed the rest of your plan.
Include the following in your executive summary:
- The problem that your product or service solves
- Your target market
- Your unique selling proposition (what makes you different from your competitors?)
- Your manufacturing business model (how will you make money?)
- Your sales and marketing strategy
- A brief overview of your financial projections
Someone should be able to quickly scan through your executive summary and have a pretty good understanding of what your business is and how it plans to be successful.
This is where you can get a bit more creative, explaining your company’s history, mission, and values. You will also include information on your team or management structure.
It can be simple but should inspire faith in your ability to execute your business plan.
Products and services
You will need to provide a detailed description of your product or service, as well as any unique features or benefits that it offers. You should also include information on your manufacturing process and quality control procedures.
If you have any patents or proprietary technology, they should be listed here as significant assets for your business.
For example, let’s say you are planning on creating a brand-new line of disposable coffee cups. The dimensions, materials, and other specifications would be listed here, along with any unique benefits (such as being made from recycled materials).
You might also include information on your manufacturing process, such as the fact that the cups will be produced in a certified clean room or that you will employ workers local to where the product is sold.
Chances are, you started down this path because you realized that there was a market opportunity for your product or service. In this section, you will need to provide detailed information on the opening, as well as the analysis that convinced you to pursue it.
This should include:
- Market size (current and projected)
- Key market segments
- Customer needs and wants
- Competitive landscape
This is where you will need to do your homework, as you will be justifying your business decision to enter this particular market. The more data and analysis you can provide, the better.
For our coffee cup example, the market analysis might include:
- Information on how many cups are used every day
- Projected growth
- Key segments (such as office workers or on-the-go consumers)
- Customer needs (such as convenience or sustainability)
It would also examine the competitive landscape, including both direct and indirect competitors.
You’re in this to make money, and so are your potential investors. In this section, you will need to provide detailed information on your manufacturing business model and how it will generate revenue. This should include:
- Initial investment
- Sales forecast
- Carrying costs
- Pricing strategy
- Expense budget
You will also need to provide information on your long-term financial goals, such as profitability or break-even point. Discuss production line details, inventory management strategies, and other factors impacting your bottom line.
How to write a business plan for a manufacturing company
The process of creating a business plan for a manufacturing company is similar to any other type of business. However, there are some key considerations to keep in mind.
First, you need to understand your industry and what it will take to be successful in it. This includes understanding the competitive landscape, the costs of goods sold, and the margins you can expect to achieve.
You also need to have a clear understanding of your target market and what needs or wants your product or service will address. This market analysis should include information on your target customer’s demographics, psychographics, and buying habits.
While there will be many things specific to your company, here are five questions to answer for each of the sections listed above.
- What is the problem that your company will solve?
- How will your company solve that problem?
- Who are your target customers?
- What are your key competitive advantages?
- What is your business model?
- What is the legal structure of your company?
- What are your company’s core values?
- What is your company’s history?
- Who are the key members of your management team?
- Where is your manufacturing facility located?
Products and services:
- What product or service does your company offer?
- How does your product or service solve the problem that your target market has?
- What are the key features and benefits of your product or service?
- How is your product or service unique from your competitors?
- What is the production process for your product or service?
- Who is your target market?
- What needs or wants does your target market have that your product or service will address?
- What is the size of your target market?
- How do you expect the needs of your target market to change in the future?
- Who are your key competitors, and how do they serve the needs of your target market?
- What are the start-up costs for your company?
- How will you finance your start-up costs?
- What are your monthly operating expenses?
- What is your sales forecast for the first year, and how does that compare to your industry’s average sales growth rate?
- What are your gross margin and profit targets?
Even if you do nothing but answer these questions, you’ll be well on your way to creating a thorough manufacturing business plan.
Common mistakes to avoid
However, new manufacturing entrepreneurs often fall into a handful of traps when creating their business plans.
- Not doing enough research – You can’t know everything about your industry, but you should do your best to understand as much as you can before writing your business plan. This means talking to experts, reading trade publications, and studying the competition
- Not being realistic – It’s important to be optimistic when starting a new business, but you also need to be realistic. This is especially true when it comes to financial projections. Don’t overestimate the amount of revenue you will generate or underestimate the costs of goods sold
- Not having a clear understanding of your target market – You need to know who you are selling to and what needs or wants your product or service will address. This market analysis should include information on your target customer’s demographics, psychographics, and buying habits
- Failing to understand your competition – You need to know who your competitors are, what they are offering, and how you can differentiate yourself. This information will be critical in developing your marketing strategy
- Not having a clear vision for the future – Your manufacturing business plan should include a section on your long-term goals and objectives. What does your company hope to achieve in the next five years? Ten years? Twenty years?
Creating a business plan for manufacturing can be simple. It can be quite simple if you break it down into smaller pieces.
Once you have it in place, staying on track can be quite a bit more difficult. By using ERP software like Katana, you can track all of your key metrics in real time, avoid any potential issues, and make course corrections as needed.
To start following your plan and creating a successful manufacturing company, try out Katana’s 14-day free trial today.