A Simple Guide To Writing A Business Plan Before you type 'how to write a business plan' into your Google search bar, take a look at the only business plan format you'll need to start your business.
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A business plan isn't just a document that you use to secure venture capital or start-up funding from the bank. When you learn how to draw up a business plan you create a roadmap for where your business is going.
What is a business plan?
A business plan explains your business's products or services, revenue generation, management and workforce structure, your financial and operational details, and your knowledge of your industry, among other information.
Since the introduction of the lean start-up, the variations in how to write a business plan have increased.
When it comes to a business plan format, ten basic elements must be include when you draft a business plan, according to master of strategy and 40 Most Outstanding Business School Professors Under 40 honouree, Greg Fisher.
The key components you need to include when you draw up a business plan are:
- An executive summary
- A general company description
- Industry insight
- Your business strategy
- Your team
- A marketing plan
- An operational plan
- A financial plan
- An appendix
- A table of contents
What should I include in my business plan?
Now that you have established the format of your business plan, it's time for thorough research into your market and industry. Don't skip this step, even if you have experience in the field in which you're starting your business.
Related: A Free Business Plan Example to Launch Your South African Business
This research will help you understand the trends affecting your industry and can be obtained from the Internet, experts in your field, vendors and even by studying your competitors.
You may not be good with numbers, so perhaps you should get an accountant in to explain the financial sections of your business plan, but you should write the entire document on your own.
Look at some business plan examples and familiarise yourself with possible challenges and solutions – this information will come in handy when seeking investment.
Here are the critical aspects on how to write a business plan step-by-step:
1. The Executive Summary
A maximum two pages, the executive summary of a business plan is a key component when crafting the business plan format. This page of your business plan will determine whether the reader turns the page and continues to show interest in your business proposal.
Your executive summary should contain a description of your business, products, target market and what gives it a competitive edge. Also include a summary of your financial features like sales, profits, cash flows and return on investment in the business plan format. Additional financial information required covers your start-up and long-term capital needs.
Related: How To Start A Business With No Money
Next, outline your business's legal form of operation, date of establishment, its founders and owners, and your core staff.
It's important when writing a business plan to write the executive summary section last, as you'll have a better idea of how to summarise the crucial aspects of your business plan right at the end.
2. A General Company Description
The next one to two pages give the reader of your business plan an idea of what your business is all about.
Your general company description should be an introduction including the name of your company, ownership, assets, mission statement, its goals, industry insights and your business's key strengths.
This section of the business plan format should be an overview of your business, focusing more on the industry in which your business operates. How big is the industry? Why is the industry you're in so popular?
Your company description also covers your business's revenue-generating avenues and how funding can help with business profitability.
Try your best to keep your business description as general as possible, to avoid going over two pages. A good formula to use when drawing up your business plan is to describe your industry, product/service and your business in one paragraph each.
3. Industry Insight
Remember those trends you researched earlier? It's time to highlight them and explain how they influence your industry's growth. Use this section of the business plan to illustrate that good opportunity exists within your chosen industry include reliable and recent stats and case studies to boost your business case.
This information will also help you when pricing, planning, distributing and creating marketing and publicity strategies. This section of the business plan also maps out your industry's growth prospects and sales potential.
The Gap in the Market
Your reason for starting a business was most probably fuelled by a desire to fill a gap in the market. This subsection of the standard business plan format answers market-related questions. Where is the gap? How was it discovered? How did the gap come about? How can it be filled?
The Industry and Your Market
There are five important questions you need to answer when describing the industry your business will be operating in.
Related: The Future of the Business Plan
- What are the barriers to entry for this field and how do you plan on overcoming them for your business to be successful? These challenges include legal, financial, structural and operational aspects of running your type of business.
- Do you really know your customers? How much are they willing to pay for your product or service? Are you offering them enough options? The answers to these questions will help steer the direction of this aspect of your business plan
- Choosing suppliers depends on several factors, including price, service, distance and availability. Identify vendors in your industry and use this information to determine where your business stands in the industry.
- How strong is your competition in the industry? Whether direct or indirect, your business rivals will impact on how you run your business. Identify how your offering compares to your competitions', if they have alternatives available to your product or service and how important these competitors are to the success of your business.
- What advancements or changes are impacting your industry today and potentially in the future?
When it comes to your target market, your business plan should include the market size, it's rate of growth, your predicted market share, and consumer trends that could affect product development.
4. Your Strategy
You've identified your market, competition and how your business will overcome industry challenges. Now you need to use this section of your business plan to cover how your business plan will be affected by your target market's changing needs and what your primary competitors are doing.
A big part of the strategy section of your business plan will be impacted by how your competition is positioned in the market and how your product or service compares to theirs in terms of meeting your customers' needs.
After establishing this information, it's time to develop a positioning strategy, starting with a statement explaining the basic elements of around how you want your business and offering to be perceived by the market.
Next, outline the focus of your business, in terms of the scope of the market you're aiming to sell to. This section of the business plan is also ideal to include methods you plan on using to stand out from the competition and be unique in the market. This includes added value you'll be offering to customers that they won't get elsewhere.
5. Your Team
This section of your business plan should be about two pages long. If you have less people involved in your business, it can be shorter, but remember to include the founders, the managers, their special skills and qualifications and a chart detailing the organisational structure and each main function.
Key personnel will need job descriptions outlined in the business plan as well.
These two pages of your business proposal also include the management team's individual responsibilities, the requirements for each business division and how much it will cost to sustain the workforce.
Related: 7 Steps to a Perfectly Written Business Plan
Remember to include any owners and shareholders, your board of directors, consultants and special advisors, and key team members and department heads, advises Alejandro Cremades, author of The Art of Startup Fundraising.
Looking ahead, make provision for the possibility of employing support staff and where they may be needed in the business, for it to grow productively and efficiently.
6. Your Marketing Plan
Following intensive market research, the finding should be illustrated in your two-to-three-page marketing plan. This section of your business plan covers the value of your offering to customers, details on who your customers are and how you intend on selling to them, pricing and distribution, as well as your planned PR and advertising efforts.
According to Cremades, your marketing plan section of the business plan should include the following information:
- Competition and market research
- SWOT analysis (Strengths, Weaknesses, Opportunities and Threats)
- Target market research (total market size and total addressable market or TAM)
- Brand and product positioning
- Elevator pitches and taglines
- Target customer personas and profiles
- Results of any testing conducted so far
- Marketing channels to be used
- Marketing budget
- Estimates of cost per action (CPAs)
Your product's pricing will play a role in the success of your business. You need to ensure that your prices cover costs and find ways of lowering your costs. Your prices should also reflect the dynamics of cost, demand, changes in the market and response to your competition.
When deciding on the distribution process of your product or service, analyse your competitors to determine the channels they are using and decide if you want to use the same or an alternative that could provide you with an advantage.
The channel you use will depend on the industry and size of the market, but some of the options available to you include direct sales, OEM (original equipment manufacturer) sales, manufacturer's representatives, wholesale distributors, brokers, retail distributors and direct mail.
Your promotion strategy should be specific; including the advertising budget, creative messages for your advertisements and at least the first quarter's media schedule.
Related: Use These 5 Steps to Create a Marketing Plan
You can also include a description of the packaging strategy and possibly even mock-ups of labels, trademarks or service marks. You need to come up with a publicity strategy that includes a list of media you want to approach and a schedule of planned events.
7. Operational Plan
Detail your facilities, space, technology, equipment and capital needs in this two-page section of your business plan. Your operations plan should also explain the day-to-day running of your business, and everyone and everything involved in making it profitable.
This includes the people, processes and surrounding environment, says Fisher.
While the operational needs of a business depend on the nature of your offering, the basic components to be covered in this section in a standard business plan are, an explanation of the operating cycle including how your business intends on delivering on its product or service.
It's also helpful to include information about the source of the resources and skills you'll need – will you be outsourcing, and if so, how do you plan on managing these external stakeholders?
Although you'll be covering this extensively in the financial plan section of your business plan, you may need to include your business's cash receipts and cash payment cycle, in addition to an operating expense table, the capital requirements table and the cost of goods table, advises Fisher.
"You should also highlight any potential benefits or pitfalls to the community such as new job creation, economic growth and possible effects on the environment from manufacturing and how they will be handled to conform with regulations," he adds.
8. A Financial Plan
The bulk of a standard business plan format covers the financial plan. These three to five pages are basically an approximate prediction of where you see your business's finances in the future.
"It's an honest snapshot of where you are and where you reasonably hope to go, providing you secure the funding you need," says Cremades. "Start-up costs should be thorough, have some additional cushion built in, and focus on development of physical product or intellectual property and growth. Not what you want to pay yourself as a salary."
Related: Well-defined Financial Plan is Essential for a Secured Future
Fisher advises that you don't include too much financial detail in the body of the business plan. "If you have detailed projections and supporting calculations, place them in the appendix," he suggests.
This section is the lengthiest in the whole business plan, because it includes expenses for launching the business and where you'll source this capital; three-year balance sheet projections; your calculated breakeven point; 12-month profit and loss, and cash projections.
Pay careful attention to this section of your business plan, because if you omit anything, it could cost you important investment opportunities. "Investors will determine the odds for continued survival based on the information provided in this section," says Fisher.
The financial plan section in your business plan should include three key financial statements, namely:
Income statement
This monthly report simply explains your business's predicted ability to generate revenue. "It's a score card on the financial performance of your business reflecting when sales are made and when expenses are incurred," says Fisher. "After the income statement, include a short note analysing the statement, emphasising key points."
Cash flow statement
This section of your business plan will outline the amount of cash required to run your business, when you'll need it and where it will be sourced from. These calculations will help you and the reader of your business plan understand how much is going in and coming out of your business and determine the business's annual or monthly profit or loss.
The balance sheet
This annual statement summarises all the above information into the sub-sections; assets, liabilities and equity. You may also need to include your personal balance sheet, should investors ask for it while looking over your business plan.
9. An Appendix
Information like copies of leases or contracts, founders' CVs, business registration documents and brochures are included in this section of your business plan. It's important to put these at the back so the reader can refer to them when they need to, instead of including the information in the relevant section, because you're trying to keep the content of your business plan clean and brief.
Related: How to Create Your First Successful Business Plan
Other documents you may include as appendices include:
- Licences
- Industry studies
- Trademarks patent registrations
- Blueprints and plans
- Copy of insurance policies
- Maps and photos of location
- Detailed lists of equipment needed for operation
- Letters of support from future customers
- Market research studies
- List of assets available as collateral for a loan
- Detailed financial calculations and projections.
Remember to refer the reader to your appendix in the sections where you mention figures, examples or other proof.
10. Table of Contents
Although this section of your business plan is at the very beginning of your document, you should write it last to ensure your information is in the right place and that your page numbers lead your reader to the correct section.
The final step is ensuring that your projections are as close to accurate as possible and that you focus on the small things, like spelling, grammar and formatting the document.
Although your current business plan format may evolve as your business does, getting your first attempt right will guide you to better understand how your business runs and investors will see where your business is going.
Related: Elements of a Business Plan
