Your small business is getting ready to expand—or sell new products—or a variety of changes. And you are looking for a consultant or a contractor to help you with this project. One of the first things you will need to do is to prepare a business requirements document.
Let's take an example: A company (we'll call them ZXYW LLC) has decided to outsource its accounting functions to a shared service center in the U.S. They are beginning a process of finding a location, setting up the services, hiring and managing the employees. It's a complicated undertaking and it will take many months to accomplish. They begin with a team that prepares a business requirements document.
Business Requirements Document
The purpose of a business requirements document is to give a complete picture of a project or new business plan, so everyone is clear on what must be done and when.
A business requirements document (BRD) can be considered in two phases. In the first phase of a project, it's a document that sets out all the requirements for the project, including costs, details on implementation, projected benefits, milestones, and timeline for implementation.
In the second phase, the BRD actually can become a contract between the two parties, formally setting out the requirements of the hiring company (ZXYW LLC in this case) and the contractor doing the work. You'll see more about the contract language below.
How a Business Requirements Document Is Different from a Business Plan
While both documents may contain the same type of sections (an executive summary, for example), the intent is different. A business plan is created to guide a new or existing business, but more often its purpose is to present to a lender for financing startup or expansion.
The business plan contains general information about the company and its plans and strategies for being able to generate revenue to pay back the loan. Financial statements are a key part of the business plan, while the financial documents in the BRD may be quite different, centered on a specific project.
How a Business Requirements Document Is Different From a Request for Proposal
The difference between the two documents is slight but important. Typically, a request for proposal (RFP) is created for the purpose of soliciting proposals from various vendors. In the example of ZYXW, an RFP is sent to potential companies who furnish outsourcing services, to solicit bids.
A BRD, on the other hand, is prepared for a specific vendor or joint venture partner who has already been selected by the hiring company. The BRD contains more details and more specifications and deadlines to be met along the way and at the end of the project.
When an RFP is created, it comes with a deadline and requirements for submitting bids. The bids are evaluated after the deadline.
What Should Be Included in a Business Requirements Document
In some ways, a business requirements document is similar to other types of business proposals. The BRD should include:
- A summary statement. This is sometimes called an executive summary, which outlines the project requirements in general. The summary statement is usually written after the BRD is complete.
- The objectives of the project. These objectives should be in SMART format; specific, measurable, attainable, realistic, and time-bound.
- The background and a needs statement or rationale for the project. This is an important part of the document, so don't leave it out. Explaining why the project is needed is a primary driver of the project, and its success will depend on how well it fills the need.
- The scope of the project. What's to be included and what is not to be included. In the ZXYW company example above, the company made it clear that the scope was not to include hiring top management—those individuals would be provided by the company.
- Financial statements. Financial statements are essential for an overall view of the effect of the project on the company's balance sheet and revenue over a specific period of time. Of course, how the company will fund the project is important to discuss here too.
- Functional requirements and features. This is the place to provide details, including diagrams, organization charts, and timelines.
- A SWOT analysis. A complete business requirements document should contain a SWOT analysis of the business and how the project fits into it. The analysis should internal Strengths and Weaknesses and external Opportunities and Threats. Having this analysis as part of your document increases your credibility with lenders by showing that you are aware of all of the implications of your proposal.
- Personnel needs. Who needs to be hired, and when. What categories of employees will be needed and how will they be paid. Who pays them and when. Since ZXYW is setting up a people-based facility, this is a key part of their BRD.
- Schedule, timeline, and deadlines. Phases of the project should be detailed in this section, to make sure all parties understand what is required and when. in the ZXYW project, the first phase was the selection of a site, including an exploration of several potential cities.
- Assumptions. This part of the document is often overlooked. Spelling out assumptions helps avoid problems later. For example, in the contract above, the company wanted to lease, not purchase, the office space.
- Cost and benefit. A cost-benefit analysis is a detailed list of all costs of the project and savings from the project should be included.
What Makes the Business Requirements Document a Contract
As noted above, in the initial phase the BRD is a proposal. You may have noticed that something was missing from the list of sections above—payment for services rendered. Without a statement of the payments to the contractor and the timing of those payments, there is no contract.
Before the two parties sign off on the document, standard contract language must be added, with the help of an attorney, including:
- Promises to pay and promises to provide services
- Restrictive covenants, preventing the contractor from taking the company's trade secrets or sharing them with others.
- What happens if one party doesn't fulfill its required obligations (that is, breaches the contract)
- Insurance and indemnification (hold harmless) clauses
- Litigation and arbitration provisions
- And, of course, signatures by appropriate company and contractor officials.