How to Write a Business Plan
Your business plan is essential for your business - it's your blueprint for the future. It sets the direction for your business and keeps you on track. It's also a requirement if you are seeking finance.
The first step before writing a business plan is to conduct research into the feasibility of your business idea. Once you have done that you are ready to write a business plan.
Business Plan Guide
A commonly accepted business plan format is:
- Executive Summary
- Market Analysis
- Competitive Analysis
- Marketing/Sales Plan
- Operations Plan
- Management Plan
- Financial Plan
The executive summary is a one page overview that is written after the plan is finalised. It should:
- Provide a clear, concise and compelling summary of your business case
- Outline your unique advantages and plan for achieving success
- Show why your business concept will work including its competitive advantages
The introduction explains the purpose and objectives of going into business and is meant to give a general overview of the plan and excite the reader to get them interested and to keep them reading.
This section looks at the industry you are entering and how you fit in. The market analysis should define the market in terms of size, structure, growth prospects, trends and sales potential.
The market analysis will enable you to establish pricing, distribution and promotional strategies that will allow you to become profitable in a competitive environment.
The purpose of the competitive analysis is to determine the strengths and weaknesses of the competitors within your market, any weaknesses that can be exploited, barriers that can be developed to prevent competitors from entering your market, and strategies that will give you a distinct advantage.
A marketing/sales plan starts with a positioning statement. It should point out exactly how you want your product perceived by both customers and the competition. The components include:
- Pricing - how you price your product is important because it will have a direct effect on the success of your business
- Distribution - distribution includes the entire process of moving the product from the factory to the end user. The type of distribution network you choose will depend upon the industry and the size of the market
- Promotion plan – this is the communication used to sell your product or service and includes public relations, advertising, packaging, sales promotions and personal sales
- Sales potential – this is a quantitative outlook concerning the potential of the business
The operations plan contains a description of the business's physical location, facilities and equipment, kinds of employees needed, inventory requirements and suppliers.
The plan deals specifically with the internal operations and equipment necessary to produce your product or service. The following are areas that will need to be addressed in this section: location, equipment, labour, manufacturing and service process.
The management plan should contain an outline of the business's legal structure and management resources and HR needs.
Your management section should clearly demonstrate who each person is, why he or she is on your team, and what each person will do.
Try and limit your management team to 3 to 5 people – and to those individuals involved in the day to day operations that have the greatest impact on the future success of your business. Everyone else is considered either an employee or advisor.
Your financial plan will be highly scrutinised by your business plan reader. All the ideas, concepts and strategies discussed throughout your entire business plan form the basis for, and should flow into, your financial statements and projections in some way. When it gets down to it, your reader wants to know if and when you will make money and become profitable.
Financial statements and projections should include as a minimum: income statements, cash flows and balance sheets.
In most cases, lending sources expect financial projections for a three to five year period, and historical statements for the past three years, or since the business began if less than three years.
Financial assumptions are critical to properly convey the 'reason behind the numbers' for outsiders reviewing financial projections. It is also helpful to include a break-even analysis to show the point at which you start to become profitable.
There should also be a section to show the sources you expect to get capital from and specifically what you plan to spend it on. It should include the amount of capital needed, investment structures and the estimated return to the investor.
It is critically important to tell your investor how they will recoup their money, when they can cash out, and what they will receive as a return.
The major sections of your business plan should only contain summarised findings and highlights for your business.
Include detailed research, sources, and other related information about your business and your business plan in the appendix.