How to Write an Organization and Management Section for Your Business Plan

The organization and management section of your business plan isn’t just window dressing for your plan’s audience. This section is also the map for your entire organization no matter how big or small you want it to be. In short, this section becomes the foundation for running your business now and in the future.

No pressure.

But that doesn’t mean it has to be perfect, only written. Unfortunately, somewhere around only 30 – 40% of businesses have a written business plan. According to BusinessDIT.com, entrepreneurs who finish their business plan are 260% more likely to launch and twice as likely to succeed.

So make sure you write one, even if you’re just writing the plan to clarify your thinking (and I think every entrepreneur should write a plan for this reason).

The organization and planning section can be one of the more intimidating sections to write. It doesn’t have to be.

Here are the things to include in this section:

• How you will legally structure your business
• How to factor for partnerships
• When you will hire and for what roles (or clarifying existing roles)
• And finally, a look at self-management if you choose to remain a solopreneur

How to Structure Your Business

Structuring your business is one of the most critical decisions you make. Choose wrong, and besides lost filing fees and expenses tied to restructuring, your risk exposure and unfavorable tax benefits could have immense costs associated with them.

So… how should you structure your business? Should you be a sole proprietor, LLC, LP, LLP, S Corp, C Corp, etc?

Here’s what I tell every entrepreneur who approaches me with that question: ask your attorney AND your accountant.

I’m pretty smart, but I’m not qualified to give professional advice, nor should anything I say, write herein, either expressed or implied, be construed as such. Consult with a qualified professional whenever possible (consider this your legalese disclaimer).

The default structure many entrepreneurs opt for is sole proprietorship. It’s the easiest, cheapest, and simplest structure to enter. Besides possible licensing, zoning, and certification requirements required by your local government, you can launch a sole proprietorship today as First-and-Last-Name Enterprises.

This structure is common for consultants and professional service entrepreneurs. In fact, the SBA finds that sole proprietorship makes up 87% of small businesses in America. But despite how popular this structure is, there are significant downsides.

The pros of sole proprietorship:

• Low initial setup cost
• No annual reports to file
• No corporate tax
• No restrictions because of business structure

The cons of sole proprietorship:

• Unlimited liability — your personal finances and properties are connected to the business
• Can’t sell the business entity
• Difficult to raise funding
• Not able to assume business debt

I think the cons significantly outweigh any potential benefits. And if you plan to take on partners or share equity with early hires, or raise capital at any point, you most definitely cannot assume this structure.

Here’s a list of common legal business structures within the United States which you can discuss with your attorney and tax accountant:

• Partnership: A partnership of two or more individuals where the primary partner has unlimited liability for debts or limited liability depending on which partnership structure is selected
• Limited Liability Company (LLC): Varying from state to state, an LLC is a structure where the personal responsibilities of the owners is limited and tax returns are filed individually by the owners
• C Corporation (C Corp): Defined by the U.S. Tax Code, a C Corp is a structure that is taxed on its own — the owners and shareholders are taxed separately
• S Corporation (S Corp): Also defined by the tax code, the S Corp is more advantageous for smaller companies with fewer than 100 shareholders because it allows its taxable income and losses to be passed through to the shareholders

It’s a lot to consider.

Which is why I will offer one more warning before you jump in, do a little research, and choose a structure: you can’t foresee every outcome.

I do not advise you to head online and pick the first “fast and cheap” legal form you find to create your business’s structure. Consult with an attorney whose experience and foresight can help protect you from a multitude of future scenarios, some of which you’ve never thought of. A few hundred dollars invested now can save tens of thousands of dollars in compounded errors, which if you ask me is a great ROI.

How You Will Operate With Partners

Another important decision is whether you will have business partners. While you may not have partners now, you might want partners in the future to help with growth, scaling, additional skill sets and expertise, and to add cash into the business.

As with structuring your business, you will also want to consult with your lawyer here to help you craft a partnership agreement. The attorney will help you identify, discuss, and come to an agreement about how you want to manage the business with your partners.

If you choose to take on partners, the organization and management section of your business plan should define roles, equity, and responsibilities among the partners, answering questions like these:

• How is the equity split and who holds the majority share?
• What positions or titles will the founding partners have and who reports to whom?
• What will the founders’ salaries be?
• What financial contributions and commitments are the shareholders making?
• How will you decide what equipment or software to buy and where you’re going to invest resources and how much input will limited partners have in these decisions?
• Regarding investing partners, what is the agreed-upon return on their investment and how soon can they expect that return?
• If there’s a silent partner (contributing financially, with limited operational or consulting functions), what will and won’t they do?
• If they are a general partner (actively involved in operations), what areas of the business will fall under their purview?

And, yes, founders wear a lot of proverbial hats, so distinguish between their primary responsibilities and secondary and tertiary duties.

This may seem tedious, but it’s important to make expectations clear. In the early stages of every business, everybody’s excited about the opportunity; everybody is putting in time and effort, and expectations need to be identified and agreed upon, because later as the excitement wanes conflict can ensue. No matter how well you and your partners get along in the beginning, this honeymoon phase will end, and you’ll want to be on the same page regarding the best and worst of times.

Clear and present expectations eliminate unnecessary future friction.

How You Will Hire and Manage People as the Business Grows

We’ve looked at the organization side so far, the structure and founders, but how will you manage the company? Even if your first projected hire is months or years into the future, deciding in advance how you want to manage your staff as it assembles will help ease any growing pains.

Most likely, you’ve been in the workforce and have had both good and bad managers — companies you (hopefully) enjoyed working for, and maybe others that made you race for the exit. These experiences can help inform how you want your culture to feel and how your style of management might look.

In the 1950s, management professor Douglas McGregor proposed the Theory X and Theory Y styles of management. They provide a spectrum to help decide how you want to manage your workforce.

On one end of the spectrum, Theory X proposes all employees are inherently lazy and unmotivated and need various forms of coercion to make them productive. It depends on strong rules with punitive consequences for violating them and sometimes outright threats and intimidation to keep employees engaged.

Theory Y lies on the other end of the spectrum. This theory operates from the belief that employees are naturally motivated and eager to perform and simply need guidance and vision with minor oversight or management.

If you’re thinking of implementing either extreme, you should know that even McGregor believed the best approach lay somewhere in the middle region.

Like most founders, you most likely desire a high-performing team with minimal personnel issues. There are comprehensive books, online content, and consultants dealing with this fascinating area of management science.

For your purposes, as you craft the Organization and Management section of your business plan, I invite you to think intentionally about how you want to hire, work with, and sometimes fire people. Examine how you see these roles and their associated responsibilities and expectations emerging as your company grows.

Solopreneurs and Self-Management

When talking to fledgling entrepreneurs, they sometimes ask me if they should hire a team or remain a one-person shop. If you’re grappling with the same questions, the honest answer is… it’s up to you. There’s nothing wrong with either approach, and with 82% of small businesses operating with zero employees, remaining a solopreneur puts you in a popular crowd. Whichever avenue you choose to pursue, include it in your plan.

If you choose to be a solopreneur, there are special considerations you will want to plan for. In the beginning, especially if cash is tight, you’re doing A-to-Z and everything in between. At some point in the future, if everything goes well, cash won’t be tight, and you have a decision to make: will you bring on assistants, virtual assistants, or contracted people to help you run your business?

Consider, for the sake of planning, these scenarios:

• Bringing on a contracted professional to perform tasks you don’t enjoy
• Taking on a partner or consultant who possesses a skill set you don’t have
• Contracting or partnering with a junior professional to handle extra work when there’s a rush
• Working with an assistant/virtual assistant (VA) to free up your time for more lucrative tasks
• Or hiring only seasonal/part-time help if your business experiences predictable fluctuations

In the plan, decide at which point in your business you desire to free up your time. The point could be arriving at a milestone like when you retain a certain number of clients or revenue amount. Then evaluate and include the typical costs involved with bringing on a contractor. Estimate the savings and opportunities leveraging your time will create. Freeing up 3 to 5 hours a week could mean more time to work with a major client or more time for family.

Last, consider and record how you will budget your time. I’ve worn many hats in the early days of my businesses. I know what it’s like. What I have found helpful is to split duties throughout the week, allocating blocks of time to complete certain responsibilities or designating certain days for focused activities. And while you will mostly work in the business, schedule weekly or monthly blocks when you will work on the business to plan, strategize, review, and revise.

Also, plan for time to network and connect with mentors in your network, seeking to meet consistently for input and advice on your work and plans.

And just as you would do if planning to work with partners and eventual hires, I think it’s a good idea to capture some early expectations for yourself. The clarity and insights you glean from doing this work may be incredibly worthwhile.

Key Takeaways

The organization and management section can seem a bit intimidating, especially if you’re coming from a company where everything was predefined when you started the job. If you aren’t looking for funding at the start of your business, it can seem unnecessary to write a plan. But as you can see, planning is imperative to clarify your thoughts, further vet your ideas, and expose unnoticed vulnerabilities and deficiencies.

To recap, the Organization and Management section is where you capture how you will:

• Structure your business (with an attorney and accountant’s input, of course)
• Operate and perform with partners including the equity split, responsibilities, roles, expectations, and decision making
• Hire and manage people as you grow, deciding what your culture and management style will be, what roles will be created, and at what milestones you will make those hires
• Manage as a solopreneur if you choose, determining at what point you may augment your time and skill sets with assistants and contractors if at all

As Winston Churchill said, “Plans are of little importance, but planning is essential.” You can’t foresee every circumstance that will arise as you’re running your business, but with a solid plan, you’ll be able to take on challenges and opportunities more effectively.