Choosing to start a business of your own, rather than working for someone else, is the first step on the road to becoming a successful entrepreneur. Simultaneously, this is also one of the hardest decisions anyone can make. After all, there is most likely no finer way to leave one’s professional comfort zone. From this point on – all of the decisions are your own. And while that does mean reaping all of the rewards when things go well – it also means being responsible for anything that should go wrong.
Regardless of the type of business idea, you plan to develop; one thing is certain – to make it a reality and success, there will need to be a lot of thorough and thoughtful business planning involved. At this point in your first stages of business development, you will encounter the term ‘business plan.’ Naturally, like most entrepreneurs, you may not be familiar with the intricacies of writing a business plan; nor its gravity for the success of your enterprise.
What is a business plan?
Before we go any further into a detailed business plan outline – just what is a business plan, specifically? To put it in the simplest possible terms – a business plan is a document, which details the purpose and objectives of your business enterprise, as well as the methods and strategies you’ll utilise to meet those objectives.
Why is it important?
The importance of a detailed and realistic business plan for entrepreneurship cannot be overstated. Such a plan will give you an unequivocal definition of your business idea and premise. Moreover, it will serve to highlight potential opportunities, and conversely, issues, both of which you may not be aware of before you start working on the plan. Also, it serves as a sort of road map, helping you come up with a clear set of goals for your business and something to measure your success against.
Having a written business plan is also extremely useful for several other reasons – it can help you secure external funding for your business, whether from a bank, venture capitalist or private angel investor; it can provide a potential business partner with detailed information about your venture; it can help you clarify what you are trying to achieve with your business and how you are going to achieve it; and it can help you set financial targets.
Now that you know the critical importance of a business plan, as with all complicated endeavours – the first question is simple. Where to begin? This guide will take through all the key facets of a business plan, starting with who it’s for.
Who is a business plan for?
A business plan is no different from any other piece of writing: for it to be good, the author must know their audience. While a business plan is certainly no piece of prose – it’s critical that your plan communicates the right information for the right reader (in some cases, this can mean developing multiple business plans).
As you will soon realise, the potential pool of readers for your business plan contains a wide variety of interesting parties – from venture capitalists and bankers to prospective employees. But, while this is quite a diverse audience, at the end of the day – it’s not an infinite one. Each type of reader will act with their special interests in mind; something essential to take into account as you tackle the task of writing your business plan. Knowing the viewpoint from which anyone reading the business plan comes from will be of enormous help while fine-tuning the plan for a particular audience.
Taking this into account, we’ll have a look at the typical audiences who are most likely to read your business plan and what is most important to them, this includes:
- Venture capitalists
- Angel investors
- Prospective business partners
- Strategic allies
Over the course of any given year, venture capitalists (professional investors) go over hundreds of business plans. Realistically speaking, a majority of plans will receive no more than a cursory glance from a VC before facing rejection; others might get a quick inspection. And even if your particular business plan ignites more interest, it may still only receive a couple of minutes of a VC’s attention.
This fact is crucial to bear in mind because it highlights a vital trait of any good business plan – it makes a great impression quickly. The emphasis here is on a succinct, cogent summary of your basic business premise. Also, if your core management team boasts any impressive credentials, don’t be afraid of highlighting those. However – make sure it’s still to the point and concise. When VCs and similar investors are concerned, time is of the essence (often your plan will need to be summarised in a pitch deck and the full plan available on request).
If you’re looking to take out a business loan to start your business you’re likely going to be speaking with a commercial bank. Bankers are usually much more formal when it comes to reviewing business plans. In other words, they won’t take much stock in impressive resumes and innovative concepts; they will be more focused on the financial merit of your business plan. For such readers, it’s advisable to pay most attention to presenting the financials including cash-flow statements and balance sheets. Take care to present them in great detail and provide notes on any hypothetically confusing information or anomalies (make sure your projections are realistic).
Most high street banks provide business advice on what a business plan should look like on their websites – so if you are applying to one of them for a loan, read their guidance first and make sure your business plan is written in a way which matches their outline.
There is a good chance that angel investors may not insist on you providing a fully formed business plan, but it’s often advantageous to have one with this type of investor (even given the low investment amount). Keep in mind that these are fewer formal investors than venture capitalists. So, provide them with a less formal business plan. Here, you do not want to try and impress them with bulk, but with brevity. Angel investors that are more accustomed to following their gut might not be thrilled with a lengthy read of your 100-page business plan.
If you were considering becoming a partner in someone’s business enterprise, what are some of the things you would want to know? You would probably be interested in your volume of responsibilities, the ownership percentage, and the authority of your position. Naturally, anyone else who is thinking of becoming your partner will think about the very same issues. So, any plan that you’re presenting to a possible business partner should contain a comprehensive look at the ownership structure, while also definitively spelling out the matters of accountability and control.
While there are fewer reasons for end-consumers and other customers to read your business plan, they may still do so. For example, they might be thinking about forming a long-term business relationship with you or make a similar big commitment. Naturally, they will be most concerned with how your business builds relations with other customers – and potentially also suppliers. With that in mind, you will want to provide greater depth in these sections.
Above all else, as a new company, key suppliers will want to be sure your business can pay your bills. Thus, you should include adequate financial reports and cash-flow forecasts. These will be critical if you need to negotiate a production or service contract vital to starting your business.
In this instance, quite logically – suppliers would love their customers ordering more over time. So, they will want to know details on your current financial situation and growth prospects. If you can show immense growth potential, you are more likely to negotiate a better set of terms with the suppliers.
It’s important to remember that strategic allies will approach you for a specific reason; complementary customer bases, distribution, technology, etc. So, while you prepare a plan to present to a possible ally, make sure to emphasise the appropriate aspect of your enterprise. Also, it would be quite smart to present your business plan in stages, when you’re showing it to a strategic partner and ally (showing where you are and where you could go).
Remember, a strategic ally can also become a potential competitor. So, you don’t want to provide them with sensitive details like marketing strategies or delicate financials until you’ve established trust. This sort of trust must not be built on a purely personal basis, but also protected based on a confidentiality agreement.
When managers inside your own company read the business plan, they will likely use it as a reminder of the company’s core objectives, or to monitor the performance of the company in specific market conditions. They will be most interested in the vision and mission statements, as well as the overview/analysis of economic factors and current industry conditions.
As explored in more detail later on, the internal business plan that managers use inside the company itself differs from the external business plan in both scope and content. While they can both make use of a shared information pool, using them interchangeably is not advisable, nor will it achieve any meaningful results. Investors are interested in seeing something different than new employees or hires when they look at the business plan of a company, and keeping that in mind is essential.
A business plan should be a basis document you can alter to suit the audience. While you may decide to alter your business plan depending on whom you’re presenting it to, make sure not to rewrite it, limiting the level of alteration to the different emphases you place on specific information.
Crucially, its advisable to never introduce different sets of numbers to lenders and potential partners, for example. Shining the spotlight on a particular part of your operation is one thing, and distorting the factual truth is another. Remember this – your business plan is the first presentation of your business that all interested parties will see, nothing will resonate stronger than that first impression!
How to structure a business plan
Now that you understand the different possible readers for your plan, it’s time to move onto the contents/structure of the plan itself. As you might imagine, every business has plenty of specifics that exclude the possibility of a universal business plan template that suits any enterprise without alterations.
However, that being said – the core structure of any business plan is relatively straightforward (well-known by both investors and lenders), while titles may vary, most business plans include an:
- Executive summary – providing a broad overview of your company and its objectives to the reader;
- Business background – Giving the reader basic information on all of the business to date, products the company in question has developed, business model and the relevant credentials of the staff so forth;
- Market breakdown – An analysis of the market that your business is in, or the market your business intends to enter, along with all of the barriers of entry and possible competitive advantages;
- Operations overview – A detailed description of the inner workings of your company on a tactical level, including relevant processes and finances;
- Marketing and commercial strategies – Showing the reader how your company intends to reach/has reached its target audience, along with the specific commercial strategies;
- Management structure – Detailing the key management team inside your company, as well as your approach to human resources and future recruiting/management;
- Financial and legal details – Providing all of the financial information about your company, along with the legal disclaimers, permits, and agreements that might be relevant to the reader (i.e. supplier contracts, previous investment contracts…).
The first part of your business plan should be the executive summary. This is a brief, concise introduction to/overview of your business. This introduction should contain a description of your business, your target market, the problem it solves, as well as a key financial highlight. Putting considerable effort into your executive summary is advisable, seeing as it will do the heaviest lifting in terms of grabbing your business plan readers’ attention and convincing them to read further.
This summary should clearly explain what your business does, and why the rest of the business plan is worth the reader’s time and attention. Simultaneously, it needs to cover the main points of your business idea/model.
Most people who read business plans don’t have much time to dedicate to every one of them. That is why you need to come up with an executive summary that will separate you from the rest of the pack from page one.
The first information your executive summary should include is very basic: like the name of your business, it’s contact information, and location. Once you establish that, you can get into more details.
The problem your business solves
It would be best if you wrote a brief description of the service or product your business offers and what problem it solves (as well as why the demand for it exists). Bear in mind no one expects your business to solve a huge social issue (unless it does!) but you do need to demonstrate you’re solving a problem and meeting a market need.
Your target market
In certain situations, the product/service itself will define your target market right away – like “London’s Finest Thai Food.” However, if that’s not the case, your executive summary should include a description of your company’s target market. In other words, your primary audience – the individuals or companies you believe will be willing to spend money on your service or product.
Naturally, people write a business plan for a wide variety of reasons, as we’ve already established. That’s why your executive summary should also have a passage that briefly explains why you’re writing the entire plan in the first place – like getting a business loan or securing investors.
When you’re writing the executive summary, remember that some people will only read this synopsis. That’s why you should include any defining or game-changing details here. Has your business been given a prestigious grant? Things like this are worth mentioning even in the executive summary.
This section of your business plan will allow readers to become better acquainted with your business. In a very succinct way, you want to communicate your businesses history and business model.
For this part, start by thinking about how you’d present your business to someone who has never heard of your company or yourself; they don’t know anything about your enterprise. So, what should be the main takeaway from your business plan? And what would you want them keeping in mind regarding your company? In this section, you should focus on the most significant highlights.
Considering that, you need to describe yourself as the owner and founder, as well as any other prominent members of your team. Apart from that, you also need to provide a brief description of your service and product. And it’s uniqueness in your niche. This section answers those basic “when, what, who, why, and where” questions. We recommend including these subsections in your business background chapter of the business plan:
- Company overview – where you’ll give a brief summation of the entire company
- Business model
- Company history – a rough backstory, describing the people involved with the founding and a timeline
- Ownership and legal structure – express in what way you’ve structured the company, as well as major shareholders or private owners.
- Facilities and locations – details regarding your workspace, or plans to acquire them.
- Mission statement – a short, concise statement on the basic principles and values of your company.
If your business plan were a formal event, this would be the meet and greet part. Or, in other words – the literary version of your shortest elevator pitch. Don’t make this part too long, seeing as you’re going to keep expanding on the fundamental premise in the subsequent sections of your business plan.
A business model is quite simply how your business works at a macro level, for example; the business model of an eCommerce fashion company might be, we source fashion items on trend from America and resell them through our eCommerce store in the United Kingdom.
Beyond the Marco in this sub section you should take a deep dive into how your business functions and plans to function as well as the key mechanisms your business model relies on.
This part is designed to depict the history of the founding of your company. Mention everyone who was involved in the process and the time frame in which the company was founded.
Depending on who you’re presenting your business plan to and what development stage the company is currently in, this section often varies. Naturally, if you’re writing an internal business plan for your management and staff, a history of the founding probably won’t be needed. Are you looking for funding? In that scenario, investors will want to familiarise themselves with the company’s backstory. This section is there to give them some real-world context for the entire business plan.
For an existing company that’s looking for funding, whether you’re talking about a new project or a significant expansion, the section depicting the company history will be vital. You want to ascertain your strong track record of profitable and successful projects, a series of sound business decisions, or the fact that you’ve managed to weather a bad period and come out stronger.
If you’ve streamlined certain business operations, improved specific services or facilities, or launched an exciting new project – this would be the place to talk about it. On the other hand, if we’re talking about a startup business plan – your company history is practically nonexistent. However, you can still use this section to provide a short description of how and why the founder(s) decided to embark on such a venture. If there is a film-worthy “light-bulb” moment, include it here.
Legal structure and ownership
Here you should define what the legal and ownership structure of your business is. Are you a Sole Trader, Limited Partnership or Limited Company? The ownership structure is a crucial piece of data that you need to include here. Who owns specific percentages of your company? Any investors and banks will require such information laid out.
Location and facilities
Make a list of all the resources you need to make your plan work, including premises, office space, equipment, raw materials and labour. You should describe where precisely you plan to conduct business. Will you need a building for a manufacturing plant? Or a storefront of some kind? Do you already possess the required space?
If the latter is the case, then you’ll need to explain the circumstances in which you use the space – in other words, whether you lease or own it. Also, if there is a lease on the property, you will want to describe its terms here. Make your long-term plans for any operational space quite clear, and describe what spatial needs you will need in the future.
While you’re crafting your mission statement, be as brief as humanly possible. If you can distil your primary idea into only a couple of sentences that perfectly convey your business vision – now is the time to do it. If you have a management team, this could be the result of a joint long-term vision, as well.
If you view your business plan as a blueprint for turning a business idea into a commercially viable enterprise, think of the market overview section as the evidence that supports your claim of having found an exploitable market niche. Do as much research as possible into every aspect of the business. The more precise you can be about the potential opportunity, the more credible your business plan will be.
Such a market analysis will become the backbone of your sales and marketing plan. The core components of this section should be:
Industry analysis is all about presenting relevant statistics regarding the size of your industry (like total UK sales for the previous fiscal year), as well as its growth outlook and history in the past couple of years. Is your industry growing, shrinking, or stagnating? And why?
Next up, talk about the major participants in the industry. Depending on your industry, these companies may not be your direct competitors, as they’re likely to be large international conglomerates. However, your ability to identify them is a testament to your knowledgeability about the sector in general, also show an understanding of why they are or aren’t making headway and market share/positioning of these competitors.
Finally, you should discuss and identify the most contemporary industry trends in your sector. If there are significant alterations in technology, the target market, or any related industries – you should provide insights. Sourcing all of this information will require carrying out detailed market research. To gather said research you can use publicly available information on your competitors, industry databases, publications, and trade association data to find the information you need (depending on your sector, government databases may hold the required information). For a business plan, you’ll find that it’s completely acceptable to use information that’s been published industry-wide.
Can you determine if there are enough customers in your given market who would be willing to spend money on the service or product you plan to offer? And what kind of price would you have to charge them to make a profit? You should answer such questions in this section while conducting a systematic analysis of the market your business wants to reach. You need to demonstrate a working knowledge of who your customers will be.
If you plan on being consumer-oriented, do you have any demographic data that would identify a cohort of your target buyers? Also, do you possess any relevant lifestyle information on the target buyers? If you plan on selling to various types of consumers, you will need to provide separate descriptions of the defining characteristics of all groups.
As we’ve mentioned above, the industry overview part of your business plan should contain a description of the most prominent players in your sector. Naturally, not all of them will be competitors; some may be geographically distant, while others may differ in terms of distribution, products/services or pricing systems.
That’s why your competitor analysis is a separate part, one that will focus on the companies that are your direct and indirect competitors; the specific brands that compete with one of your services or products, in a typical geographic locality. In many situations, these competitors may offer services or products that could seem interchangeable with your company’s offer from a consumer standpoint. However, that’s precisely why your competition analysis needs to also present your competitive advantages, such as more efficient distribution, better quality or any special features.
Examine their pricing, communicate with their customers if needed – and study their promotional materials, like brochures or ads. You need to know what part of their business they do well enough to warrant copying, and where they’re not escaping pitfalls you want to avoid. Some basic information that you should provide regarding your competition is:
- Competitor’s market share and size, relative to your own;
- Target buyers’ perceptions of competing services and products;
- The financial strength of the competition, having an impact on their ability to drive advertising with resources;
- The competition’s speed and ability to innovate with new services and products, relative to your own.
This section serves to provide business plan readers with a more in-depth look into your business model from an operational perspective (how you deliver a product or service to market). Within, you should disclose a detailed description of your operational processes. If you’re a product-oriented company, you will also want to describe your supply chain, and allude to past successful products to highlight your company’s experience.
It’s also important to show if you have any operational advantages compared to the competition, you can highlight them here, such as a cheaper production process.
Any investors would also likely want to know about your process management systems that you use to ensure minimal costs and maximum efficiency; if you apply any lean management principles in practice, make sure to illustrate that in this section. Also, if you’re seeking funding for any project, your investors will want to be aware of any systems or facilities that are in critical.
To put things back into perspective, the operational section of your business plan serves two primary purposes. One is demonstrating your in-depth understanding of the delivery and manufacturing processes for a specific service or product. And the other is showing everything you’ve done to organise your business and get it off the ground – along with an understanding of what more needs to be done. Think of this as a rough outline of the resource and capital requirements that your business faces in day-to-day operations.
Stage of development
The first section of your operations overview in the business plan should depict your stage of development. In other words, an in-depth explanation of what you’ve done up until now to establish and maintain the operational integrity of your business, followed by a description of what else has to be done.
Within this part of the business plan, you should include a detailed, step-by-step production workflow for a specific service or product. Try to identify any critical problems you predict possibly occurring. This will provide the informational bedrock of the later section in which you’ll describe the known risks associated with your business, as well as possible interferences. If your production process entails the handling of hazardous materials, though – this is something you want to mention even now.
You also need to demonstrate that your business is fully aware of the global, national, regional, and local standards relevant to (i.e. ISO 9000). That means detailing any industry association memberships/product certifications that you plan to attain, as well as those you already have. If you need to take any significant steps to ensure compliance with industry standards, provide details on how you will achieve that.
You should also provide a detailed insight into your suppliers, their terms, conditions, and prices. If any suppliers do not prove to be adequate, describe the alternative arrangements you’re prepared to make (contingency planning is a critical component of any business plan, often overlooked). Then describe the quality control process for your service or product. If you want your company to pursue any quality control certification, describe how you intend to accomplish that.
Here you want to demonstrate your deep understanding of the delivery and production process for services or products and what key factors affect said production.
Firstly, provide a general outline of your day-to-day operations; like working days and hours. If your business is a seasonal one, that’s crucial information to mention. Here, you should also detail your business premises, and include details of lease agreements if need be. If the buildings or land your business owns or leases are essential to the proposed business plan, you should demonstrate their worth.
The above is true for any equipment. Describe the cost and worth of any equipment you need, as well as asset financing arrangements if any. Provide a list of all of your business assets; including vehicles, furniture, inventory, buildings, and land. Their worth and legal descriptions should accompany each asset.
Your business might require special permits, such as zoning approvals; or other special requirements like power and water needs, drainage, ventilation, etc. Such details need to be a part of your operating plan. Additionally, if your service or product requires any materials, name them, and detail the terms you’ve managed to negotiate with relevant suppliers.
Speaking of production – if your company is product-oriented, you should disclose the time/cost you currently need to produce a single unit, as well as improvements you can make to this process and the factors that have a significant effect on it. Think of how you will deal with exceptional circumstances like rush orders, and detail how you intend to keep track of inventory.
If you have performed any feasibility studies, price testing, product testing, or prototype testing; disclose the details here. And most importantly, provide cost estimates for all of the above.
Marketing and commercial
The marketing/commercial part of your business plan is here to address how you intend to make people aware of and induce to purchase your service or product; in volumes that will render your enterprise commercially viable. This section will generally include and strategic and tactical plan on how to achieve the above, in practice this means:
- Marketing strategy – Which will provide a detailed description of how you differ from your competitors and what approach you’ll take to reach customers better than they do;
- Marketing and sales plans – That will specify the timing and nature of your advertising and promotional activities in support of particular sales targets.
In the marketing strategy part of your business plan, you should present your planned approach to marketing your services and products to your customers. This portion of the plan is here to provide a high-level view of the steps you’ll take to generate awareness of your brand and get your target audience to purchase your products or services. In other words, an interested party reading your marketing strategy should get a big-picture look at your marketing objectives and how your business will market itself to the end-user. The marketing strategy should assess both the risks and merits of your enterprise.
Here, you should address:
- Identification of the target audience – Defining precisely the kind of consumer that would find the most value in your products, and how you intend to target them individually with your marketing methods;
- The specific market segment in which you plan on competing – finding the best possible niche within your market, where the competition will be the least likely to drown you out with more resources or better services and products;
- Why your services and products are unique compared to similar competitors – explaining why your company can bring more value to the table compared to the competition
- Your pricing plan and philosophy – what kind of pricing packages you have decided on, and the business logic that stands behind your decision.
As you define the scope of your company’s overall marketing strategy, you should keep the 4Ps of marketing in mind – product, price, promotion, and place.
Marketing and sales plan
Your marketing plan takes your marketing strategy mentioned above and develops it on a tactical level. It details how you will, in practice, reach the target consumer base with your product or service. For example, here you would describe the specific kinds of advertising you plan on using, as well as the ad timing. You’re providing the ground-level steps required to bring your marketing strategy to fruition, and the timetable for such measures to be taken.
In a practical example, would you spend more time, energy, and resources on online advertisements or traditional marketing channels? Do some of the latter, like radio, still have a sizable reach for your target audience? And what specific media outlets would you use; when would the ads run, and how much would they cost? Also, importantly enough – how do you plan on assessing if you extracted enough worth from the advertisement investment?
While you need to answer these questions, bear in mind that the marketing and sales plan traditionally included a calendar that ties in your sales and marketing activities with a specific series of operational events. For example, you should detail your schedule for an ad campaign a month before launch day, if your business plan revolves around a new product.
Also, the sales channels you plan on using are quite important as well. While there are many different ways for a product or service to reach your customers in practice; you should provide details on the specific channels that you deem as most effective in this instance, and why.
Management / human resources
The focus in most sections of your business plan until now has been on the company as a whole. Conversely, this part of the plan focuses on putting a human face on the corporate structure of your business. If you are presenting your plan to potential employees or people you want to fill upper-level managerial positions – this is one of the most critical parts of the plan.
Firstly, you need to provide a very detailed description of the current high-level management team. Your readers should learn who the key players in your company are. And if there are individuals with significant experience, now is the time to highlight it as much as possible. Provide as much evidence of past success as you can muster, to give your business plan additional credibility.
But perhaps just as importantly – provide an accurate assessment of your company’s current team – with all of the strengths and weaknesses you know of. That will allow you to demonstrate further a high level of involvement with the human resources portion of your company, as well as enough control to manage the interaction of different individuals within the company.
Such a realistic assessment will also allow you to accurately determine what sort of team members you need to hire in the future and what skills you need them to possess. It is also something that should be clear from your business plan.
Start with your core team
Begin with your managerial portfolio, highlighting your personal experience and skills. Then, complement this with the qualities of other team members; outlining any specific deficiencies and strengths in your current lineup. And if you don’t have a full team in place as you start working on your business plan, don’t worry.
You can use this part to provide an outline of the current organisational structure, with job descriptions and plans on recruiting additional key team members. In this case, you should also describe their future responsibilities. And be careful as you define your employees’ responsibilities, as this could make or break your company’s growth in terms of human resources.
Human resources part of the plan
Start by providing a brief look at your HR strategy. Many investors may be wondering how you will handle your payroll, as well as the accompanying administrative costs. But apart from the brass tacks, in this day and age, they’ll also be interested in the kind of corporate culture you want to foster.
Naturally, you must provide more than the bird’s eye view. For example, you need to include details like the payscale for managerial positions, as well as other employees in your company. And if you want to stay competitive in the labour market, you will probably want to define the details on vacation time and business insurance right away.
Speaking of which, your health insurance policy is something most employees will be interested in, so state this in terms that are as clear as possible. Plus, with skyrocketing insurance prices, your investors may also want to know about the financial side of this benefit. The same goes for similar benefits: like your bonus structure, bereavement leave, small business pension schemes, life insurance, etc.
If you’re still early in the stages of getting your business up and running, defining such benefits and their expenses may seem overwhelming. However, if you’re faced with a competitive labour market, you will want to attract as many qualified professionals as you’re able to.
As we have gone over multiple times, one of the most important aspects of a business plan is understanding the audience it is intended for. And while that is true for all sections in your plan, this one will be most specifically focused on the target reader; seeing as it contains your specific proposal to them.
What you need and what you have
Naturally, you wouldn’t be pitching this business plan to investors if you didn’t want something from them in the first place. With that in mind, once you present what you propose to do; carefully explain what sort of investment you’re asking them for. Be sure to transparently and clearly outline the terms of the investment, as most investors are understandably careful with their funds.
Also, if you want to further sell them on your conviction in the success of your business idea; describe what you have invested in the project yourself. Even if you haven’t got any sizeable funds to invest in this yourself, just explaining the effort and time you’ve put in could be enough to sway many if you’re convincing enough.
At the end of the day, you also need to provide your potential investors with a defined exit strategy. If they know the details of how they can profit from your business idea, including at least a rough timetable; they’ll be far more likely to invest. So, if you plan on developing your business enough to be acquired by an industry giant or working towards an IPO some time down the line – make sure the investors know about it. That way, they’ll be able to form an estimate of when they stand to profit from your business and how much.
Financial information and forecasts
As you move into more details of your business plan, you should also provide your readers with a look at the state of your finances. However, depending on the audience in question, you should be careful not to reveal too much information without first establishing trust. When looking for investors, though, make sure to include a profit and loss statement, a balance sheet, a cash flow statement, expenses budget, and a sales forecast.
Speaking of forecasts – making any financial projections for a young company is always a double-edged sword. On the one hand, you need to do so to attract any serious investors. But on the other, such predictions are as much a form of art as they are a science. If you’re still in the process of raising seed money, predicting what your performance will be like a couple of years down the line is not easy. And yet, investors demand cold, hard numbers and facts. Make sure you have thoroughly researched the financial side of the business. Don’t underestimate the amount of money you will need.
As a startup, you likely won’t have any past results to present for review in your business plan. Thus, forecasting any sales is tricky business. However, if you’ve so far established that you have a proper understanding of current industry trends and the market as a whole; you’ll be able to make some informed and calculated predictions. Making assumptions based on reliable information on market conditions will make you more serious in the eyes of investors. It will show that you have done your homework instead of making uneducated presumptions.
Practically speaking, you should provide a forecast that is broken down monthly, with sales entries showing what units will be sold and at what price points, as well as how many you’re selling at the moment. After the second year in your business plan, it’s generally acceptable to put the forecast down to just quarterly sales.
When it comes to sales forecasts, you also need to showcase your expected expenses. After all, investors will want to know the cost of sold units and the overhead. Generally, it’s advisable to break the costs down into variable costs and fixed costs. These are pretty self-explanatory but bear in mind that some expenses will remain the same every month – like insurance, rent, etc. On the other hand, some types of expenses are harder to predict over the longer term, like seasonal sales help or advertising costs.
Cash flow statement
As is the case with the sales forecasts, cash flow statements won’t be very easy to procure for startups; you’re not dealing with historical data you can use as a possible reference. In short, this statement shows how much cash goes into your business each month and how much goes out. Making an intelligent cash flow estimate is possible using a combination of good sales forecasts and your expenses budget.
Depending on your type of business, revenue might trail sales quite often; for example, if you’re operating under client contracts, there may not pay for purchased items from you until the month after delivery. And some carry balances for several months after delivery. This sort of lag needs to be accounted for when you’re making revenue predictions.
Profit and loss statement
The P&L statement in your business plan should use the information from your cash flow statement, expenses budget, and sales projection – and then use them to make a projection of losses or profits in the three years that you include in the business plan. There should be figures available for every individual year, as well as a joint figure for the entire 3-year timeline.
Here, you should provide your readers with a detailed breakdown of every liability and asset. Many of these aren’t just monthly expenses and sales and go beyond that. For example, any unsold inventory, equipment, or property is an asset that carries a specific value. And the same is true when it comes to outstanding invoices that have not been paid but are owed to you.
While you may not have this money, those invoices are something that counts as an asset. Conversely, though, the money you owe on invoices to others that you have not paid should be listed as a liability on your balance sheet. Ultimately, your balance is just the difference between the sum value of everything your business has versus the value of its debts.
If it turns out that you’ve done a proper job in projecting expenses and sales, you should be ready to produce a rough estimate of when your business will break even. In other words, when your enterprise becomes profitable and earns more money than it spends.
For startup companies, this is generally not something that’s expected to happen right away. But investors will rarely want to put their money down solely on the merits of your idea alone. Instead, they will want to see a rough date at which they can count on seeing returns on their investment. Make sure that you can support such a prediction with previously-established numbers in your business plan.
Generally, it’s sound thinking to have a five-year plan handy. You shouldn’t always include it in your business plan, seeing as it’s much harder to predict than three-year business performance. However, many investors will want to see it, so it’s useful to have one just in case.
Also, offer only two scenarios for your business enterprise. Investors will be interested in the worst-case and the best-case scenario; don’t fill the business plan with a lot of middle-ground options, as this will muddy the waters and create confusion.
When it comes to risk analysis, it’s important to realise something – any innovative idea will be filled with enough risk factors to fill ten business plans. Avoiding the mentioning of risk is not the point, as any rational investor expects a plan that isn’t entirely risk-free. And VCs and angel investors are fully aware of the fact that startups are incredibly dicey propositions.
In reality, most projects don’t succeed for a set of reasons that could reasonably be predicted well enough in advance; not coming up with a proper risk analysis means not dealing with potential problems before they arise. But since entrepreneurs have an optimistic outlook by nature, many of them always brush off the possibilities of doom and gloom and assume they’ll deal with the issues if and when they come. In actuality, though, you can avoid most dire situations with proper upfront risk planning.
And having such a risk analysis in your plan will show all investors that you’ve gone through all the possible risks and that you’re capable of planning for the most probable ones. In turn, that means they can count on your plan surviving when it comes into contact with the unpredictable.
Naturally, you don’t need to address every kind of risk out there, as you work on the risk assessment part of your business plan. Generally, there are five significant categories of risk, and we’ll explain each one here.
Five risk categories
Firstly, there is the product risk – this is something that biotech companies struggle with the most on a regular basis. Perhaps obviously, this is the risk that the product you’re working on isn’t practically viable, and thus impossible to create. The above-mentioned biotech sector has this problem, as they’re never confident that they’ll be able to complete the drug they’re looking to produce.
Secondly, there’s market risk – the constant threat of the possibility of market conditions developing in a different direction than expected. In certain situations, markets may not evolve fast enough, and cash may run out as a company waits for its target customers to appear.
Then, there’s people risk – this is present in companies that largely depend on particular employees working on highly specific jobs. For example, if your company works on a revolutionary 3-D modelling technique, the risk of losing one of the few individuals in the world that are equipped to develop it is genuine.
Next up, there’s financial risk – something every company on Earth struggles with. And that’s the distinct possibility that a company may run out of funds, or that money will be mismanaged in a certain way. Finance companies have the most prominent financial risk; the threat of poorly judged lending policies and poor investments can completely sink them.
Lastly, we’ve got competitive risk – if you’re developing a product or service, there’s always the possibility that another competing service or product might win in the same market. Web-based companies are particularly prone to this, as they have no mechanism to lock customers in, and the initial capital investment in them is comparatively small.
What investors want to see
Investors don’t want to see a business plan with no risks – that seems like bad judgement. Instead, they’re looking for business plans that are by people who are prepared to respond to possible risks. That’s why you want to showcase your risk management and response policies to the best of your abilities. By showing your investors that you’ve thought about such things in advance, you can boost their confidence about your ideas succeeding even if something doesn’t go according to plan.
Legal and confidentiality
The development of a successful business goes beyond thinking about the commercial aspects of such an enterprise. Just as much, it relies on working within the confines of complete legality, per relevant regulatory frameworks. And while we’ve mentioned the needs for proving that you have attained the proper permits, for example; the legal section of your business plan must also have detailed explanations on any
And anything else necessary for the successful operation of your business from a legal perspective. Apart from this, we have also discussed how important it is not to disclose the full details of your business to everyone who would like to know about them – even to investors, without them first gaining your trust. But as we approach the legal section of the business plan, this is where that trust is formalized and established. In other words, – you need to include a confidentiality agreement in your business plan.
Basics of confidentiality agreements
So, what is a confidentiality agreement like in practice? In the simplest possible terms, this is a document that defines the obligations of the person you show your business plan to; or in order words, their legal inability to disclose the contents of the plan to third parties that are not included in the agreement.
These are also referred to as non-disclosure agreements or NDAs. They are designed to protect all parties in a business arrangement and are standard with all kinds of professional transactions; business plans included. These will be an essential part of your business for as long as it exists, so if you’re not familiar with them – now is the time.
How does it work?
If you were to get into the details, you’d realise that every confidentiality agreement stipulates that neither party (which includes you) won’t divulge any of the data contained or discussed in your business plan. Additionally, every NDA should also have a provision for damages; clearly stating what the party in breach of the agreement would be liable for under penalty of law. In almost every case, this is monetary damage.
Without having such an agreement in place, making a business plan is generally a waste of time. The only thing you are doing is the heavy lifting for people who will have the permission to use your plan however they see fit; though only to some extent, as they’d still have to deal with copyright law. But with a confidentiality clause in your business plan, any breach will leave you entitled to damages. Naturally, you would still have to use the proper legal channels to reach compensation, but that’s the case anyway. And without a confidentiality clause, no court would award you a single penny of damages.
When to use one?
Generally, any business plan would do well to have a confidentiality statement attached to it. While you may run a successful business in which many of its inner workings are quite public; you may still want to keep certain financial aspects of your company away from public eyes. And you’d be surprised where people have made use of companies without confidentiality agreements in their business plans; even employees of publicly traded banks have used this information to profit.
Indeed, loan officers routinely share ideas with people who are reckless enough not to protect their business plan with legal confidentiality. If you are not careful, you may find someone with more money, or more readily available investors opening a business identical to yours before you get a company up and running. We cannot overstate the importance of providing ample protection to your ideas before disclosing them to others.
Selling your Business
As you may have noticed, much of our business plan outline has been focused on the construction of a business plan to be used for funding pitches, attracting employees, or otherwise internal use. However, there is another instance of note where you would want to make a detailed business plan – and that is selling your company.
Generally, this might seem like something of an oxymoron. After all, the point of a business plan is to show the viability of your company; with a sale being the ultimate proof that that’s not the case. However, people sell companies for a variety of reasons, and the lack of commercial viability is just one of many. That’s why even such a situation demands the procurement of a proper business plan – one that will show your company in a realistic yet positive light.
Why you’re selling
If you’re selling your company, there’s one question that every buyer out there will ask you – and that’s why you’re doing it. After all, if there are some not readily apparent faults with a company, a buyer will want to know. But seeing as most serious business people will do their due diligence, hiding flaws in your business plan would erode trust without making a difference.
Thus, be transparent about what works in your business, and what doesn’t. You want to make sure that the potential buyer has a realistic lay of the land, so they’re able to make an accurate assessment of the company’s worth. Sure, you want to get as much money out of the deal as possible – but you still need to stay within the bounds of realism.
Explain the opportunity
For anyone to buy a company, they need two basic things – one is money, and the other is a visible opportunity. So, even though you no longer want to act in the capacity of the company’s owner, there are plenty of reasons why someone else might want to do it. Plus, your company doesn’t have to be falling for you to sell it; you may want to move to a different project without the constraints of ownership.
All of this needs to be made apparent to the potential buyer. You want them to see the value in this deal right away. With that in mind, make sure that you present the buyer with a clear road map of what a reasonable investment could change within your company, and get them a sizeable profit down the line.
Writing an internal business plan
While all of the reasons for writing a business plan that we’ve tackled so far have been external; such as landing investors or recruiting quality talent – there are plenty of reasons to make an internal business plan as well. Generally, such a plan is there to act as a roadmap for the company’s success; something to remind everyone of the joint vision they are working towards.
Why make an Internal business plan?
Generally, many large businesses utilise internal business plans to make sure that the overall company vision is not compromised and easily communicated to everyone. That sort of strategic direction is not easy to achieve solely by meetings and memos, especially if sprawling corporate structures are involved. Plus, the information laid out in such ways is always prone to change; which is why business plans are there to provide a more long-term, future-oriented set of values and motives.
Apart from that, as you will see in detail below; internal business plans are less focused on the financial aspect of running a business, at least when everything is functioning correctly in that regard. Instead, such plans are more often used to establish a set of metrics that the staff can use to see how hard they are working. Additionally, they are there to enable better performance management by upper management; ensuring that everyone realised what they need to do for their job performance not to suffer, and precisely what is expected of them in the workplace.
Overall, internal business plans allow for a higher degree of control and coordination among different levels of management and employees. Not only is communication vastly improved by the elimination of superfluous dilemmas; but the staff is also better able to voice their pleasure or concerns about where the company is going in the commercial and cultural sense. Such a plan is as much suited for staff empowerment as it is for better management.
If vision is about imagining and looking forward; your mission is very much about the present, and doing. In other words – you want to focus your mission statement on the practical, everyday actions that company employees can undertake to itch closer to the future forecast of the vision statement. So, make sure to lay out what kind of behaviours and actions must be done for your business to get where you want it to go.
For customer-oriented companies, the mission statement can also contain a succinct description of what the most average target consumer is for the company; something all employees will keep in mind. And then, tackle the public image of your company; what it is currently, what you want it to become, and what everyone needs to do to attain that image. That will bring a unique definition to your business in the eyes of the public, and give everyone a sense of clarity about what kind of collective they’re in.
If you want to bring even more clarity to your business, the only thing you can do is provide more specific desired outcomes for the future of your business. With that in mind, make sure to use your internal business plan to lay out a clear set of objectives for everyone who has access to it. Once you manage that, you will have a perfect guiding light to keep everyone involved headed in the proper direction.
Unlike the broader mission statement, your objectives should be less long-term and much more detail-oriented and specific. For example, you may want to choose a realistic revenue target and a reasonable date for hitting it. Then, think of what all of your employees need to do to manage this. And give them a set of objectives all of them are capable of understanding and working towards. Naturally, these must be in perfect alignment with your mission and vision, for the business plan to give a meaningful structure to your company culture.
Strategies are more general activities that your management must employ to reach the desired objectives. You want to make sure these are spelt out clearly, but they can be pretty broad in terms of scope. Remember – these will act as a bridge between your objectives and the practical actions that must be taken. If you’re looking for examples, think in terms of detailed quarterly or monthly reviews, and better measurements of certain metrics to reach specific objectives. For example, most of your employees may need to work on revamping the quality control process at all production stages.
Action plans are a part of the internal business plan; usually there to tie in a particular activity from a strategy with your set of objectives. Let’s clear this up a bit. Actions could mean the creation of a new product or a more modern marketing plan. It could also be the process of developing or investing in new systems. That is something you want to plan out annually and with strict deadlines.
Before you round out your internal business plan, there’s one crucial question you need to ask yourself. Namely, is your company capable of doing everything that this plan sets out to do? After all, with so many different management plans that are a part of this overall plan, it may all seem a bit overly ambitious. And while it sometimes just seems a bit confusing until everyone gets more comfortable with it; in many situations, an internal business plan may be too lofty to be realistic.
There’s no shame in making amendments to your internal business plan after it’s been circulated the company. After all, some things may prove to be not feasible after a couple of months. Or, an idea which seemed great to you, in the beginning, is now looking pretty outdated. On the other hand, you don’t want to throw things out of the plan whenever they prove difficult to do; that’s also a recipe for disaster. Finding that middle ground between following an intricate, but realistic plan, and changing one that’s just not viable – that is something only a truly great manager is capable of.
Business plan writing advice
As we reach the end of this in-depth guide to writing a business plan, we will take a look at how one should write such plans. While there is no universal format for business plans, as we’ve already shown; there are specific rules that anyone writing a business plan should stick to.
Use the correct business plan format
You should aim for 8-12 pages of clear, concise information, typed on one side only and well laid out, so it is easy to read. Keep it simple – put additional information such as market research data in an appendix. Quantify as much as you can – your business plan is likely to be read by people used to dealing with figures.
Being concise is extremely important, and there is no overstating that. And this is not always easy, seeing as even the smallest business has plenty of valuable information that it would need to present to potential investors, lenders, or employees. However, straddling that line between providing too much information and too few details is crucial. While you don’t want your business plan to appear not thought through enough; you also don’t want to drown the reader in irrelevant information.
Correct spelling, grammar and syntax
Besides that, it is also essential to take great care when it comes to spelling, grammar, and syntax while working on your business plan. Not showing enough attention to such details will leave any reader sceptical regarding your business prowess and attention to detail in the boardroom. And luckily enough, there are plenty of templates for business plans and accompanying presentations you can find online. All you need to do if you want to quicken the process is to find the one that suits your business best. And then fill it with your specific information.
Use a business plan template
Apart from these templates, there are also many types of business plan software you can find. This kind of software solution is designed to expedite the process of coming up with a business plan as much as possible, without compromising on quality. That said – many investors will appreciate the personal touch of doing all of the research and design in-house instead of resorting to ready-made solutions.
Write the plan yourself
While it is sensible to seek advice from external advisers, it is not a good idea to get them to write the plan for you. Investors and lenders need to have confidence that you personally understand your business plan and can talk about it in depth.
Keep it up to date
A business plan is not set in stone. It should be regarded as a work in progress that will change as new opportunities open up. Your business is unlikely to grow in precisely the way you expect so be prepared to update it and rework it as you go along. Remember your business plan is there to serve you, not the other way round.
Business planning is key to success
Many entrepreneurs don’t even consider just how big of a job writing a proper business plan is. However, they are also rarely aware of the fact that this document will usually be their most important contact with the outside world; at least while the company in question is still in its infancy. Beyond that business plans are a critical document key to driving a business forward, take a look at the case study below as an example and goodluck writing!
Business plan case study
Linda Marie Kerr opened her Funsters Fun Factory, an indoor adventure playground for children, in 2003 after dreaming about the idea for many years. She wrote a six-page business plan and used it to get a £70,000 loan from Natwest, which together with the £80,000 borrowed from her husband gave her the £150,000 she needed to start the business in Hendy, South Wales.
Writing the business plan was hard work, but worth it, she said. “I thought that writing it was going to be a long, arduous task – and it was. It took from March to September to get all the information. I found the projections really hard. It was hard to forecast for something I hadn’t even started; I didn’t want to be over-confident, but I didn’t want to undersell myself either. One week I thought, ‘This is ridiculous’, and screwed up the plan and threw it in the bin.”
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But Kerr persisted and eventually put together a business plan explaining what her venture was and her aims for it. “Now the plan has become my bible,” she said. “It has given me monthly targets that I would probably not have thought about.”