How to write a business plan
Business planning and writing a business plan are two of those compulsory processes of starting a business that seems to be over-debated, over-analysed and over-complicated.
They're actually very simple. Creating a business plan should be a rewarding, not a daunting experience, clarifying and proving to you before anyone else, what your business is, what it will achieve and, crucially, mapping, in a clear, succinct document, how it will get there.
- There are no hard and fast rules on writing business plans or the business plan layout, but they should always include an executive summary, a short description of the business, market research, an account of your marketing and sales strategy, details of your management team and staffing, some information about how the business operates and last but not least, financial forecasts. We'll look at all of these in more detail later in this guide.
- If you're preparing a business plan for external consumption - say a bank or investor - you should think in terms of 20-40 pages of information. If the plan is for internal use - for instance, simply to provide a route map for you and your key managers - you don't have to go into as much detail and 5-10 pages are often fine.
- Your plan should be clear and concise, anchored in fact and evidence. Aim to have plenty of white space rather than endless dense text, and use tables, graphs and pictures of products. A good plan can be skim-read in about 15 minutes - use bullet points and clear headings to make sure this is possible. You can see some good samples here.
The executive summary
- Unsurprisingly, this is a synopsis of your entire business plan. Its role is to highlight the key points that you go into in greater depth later in the document
- It's sometimes the only section a potential backer will read - so it has to be enticing while also providing a good understanding of the business.
- Typically, the executive summary should cover a couple of sheets of A4 paper or 800 - 1200 words.
Description of the business
- This section should cover the basics of the business in terms of where it stands today, where you plan to take it and where it has come from.
- Include details of when you plan to start trading or (if already started) when trading began. You should also provide details of the company's history, the current legal structure (are you a sole trader, limited company or partnership?).
- Describe your product and your unique selling points. USPs. In other words why people will want to buy what you're selling.
- Outline how you plan to develop your product or grow the range you have to offer.
- Provide details of any patents, trade marks or design rights you own. If intellectual property - whether in the form of clever branding or unique technology is important to the success of the business, explain how this can be defended.
- Remember to avoid jargon. You may be an expert in your industry sector but the external audience for your business plan won't necessarily have the same degree of technical knowledge. What they want is a clear view of the business prospects.
Market research and sales strategy
- Provide details of your competitors - direct and indirect. Who are they? What is their market share? What niche will your product or service fill in the existing market?
- Equally important, you should be clear about your customers. If you're selling to individual consumers, you should provide details of the target group - in terms of age, gender, income, interests, etc. In the b2b market, you should detail the kind of company you are planning to reach. In both cases, the plan should explain why your target customers will buy from you.
- Provide some information about the size of the market and the market share you plan to achieve.
- Provide information on your marketing and sales strategy - the channels you plan to use, pricing and service offering.
Your management team and employees
- Investors and financial backers will want to know if you have the skills in place to deliver on your goals, so provide information, not just on your managers but all members of staff.
- Include external advisors such as lawyers and accountants as this will also provide assurance that you have the necessary skills in place.
- Set out how much time and money each person will contribute and what you plan to pay in terms of salaries. This will help both you and external parties assess whether you have the right cost base in terms of personnel.
- Include any plans for recruitment.
- Include details of your current or planned location, costs and why you chose it.
- Provide details of the facilities you require to produce your product or service. This should include both in-house facilities and any aspects of the business that have been outsourced.
- Management information and control systems are also an important element in the operational mix. You should explain what systems you plan to use - for instance, stock control, quality control - across the business. Provide details of any weaknesses and how they can be improved.
- In addition, you should also detail your IT requirements both now and in the future.
Your financial forecast
- This is a crucial section in that explains everything you've previously said about the business in key numbers. You'll need to include forecasts covering sales, profit and loss and cash flow.
- Typically, these forecasts will cover three to five years, covering where the business is now (and in the short term future) and where you see it going. How quickly will sales grow, when is the business expected to turn a profit? What is the cash flow outlook?
- You should include information on the capital you require, all sources of revenue, any securities (investment assets) that you hold and outstanding loans.
- Ensure the projections are realistic. If you have a trading record you have something to go on, but if the business is new then you will be reliant on educated guesswork based on your market research. Don't be over-optimistic.
- Always include details of the research you've carried out to arrive at your forecasts.
Should I write two business plans - one for internal use and one for external consumption?
You should certainly tailor the plan for the requirements of the target audience. However, the basic information that forms the basis of the document should be the same. Essentially, you should be describing the same business, albeit in more detail for an external audience.
My company is new with no trading history. How can I produce credible forecasts of sales?
It's really a question of market research. You need a clear idea of your target audience. One you know that you can work out how big the market is and how much your customers are spending on similar products at the moment. Factor in your own unique sales proposition and you can put a figure on likely sales. It is, however, just an estimate and most entrepreneurs tend to be over-optimistic.
Unique sales propositions (USP): These are the things that differentiate your products and services from those of your competitors - the selling points. They could be related to the product itself (price, quality, etc) or the service wrapped around it.
Direct and indirect competitors: Direct competitors are those that you go to head-to-head with on a day to day basis - usually companies working in the same sector and often in the same location. Indirect competitors may not be in the same sector but their activities can affect your business. For instance, if you run a DVD rental business, your direct competitors will be other stores, but the success of indirect rivals - such as the Sky movie channels will also have an impact on your operation.
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