Starting a business can be so exhilarating, and with a little planning it’s possible to manage expectations and take action with a sense of purpose toward building your business.
Beyond giving it your all, it’s important to direct your energy to the right tasks, especially at first. A business plan should be the first step in your entrepreneurial journey as it will play a crucial part in organising ideas that have been floating around your head since they first came to you. It will also provide you with a concrete plan to show investors if your business requires funding.
What is a business plan?
A business plan is a document that outlines your business goals and how you plan to achieve them, usually over the next three to five years. It also details expected profits and possible speed bumps along the way.
It’s a tool used for understanding your business’ structure and writing one will enable you to look at the big picture. The plan should include your value proposition, marketing, operations, financial and employee plans.
What to do before you write the business plan
Before you begin writing the business plan, you need to plan the business plan. Business plans can be complicated so you must plan thoroughly and hold yourself accountable to the goals that you set for yourself, especially if investors are involved.
If you’re struggling to come up with a list of goals, here are some questions you can ask yourself to get the ball rolling.
- How determined am I to see this venture succeed?
- Am I willing to invest my own money into the business and work long hours for possibly no pay for years?
- What will happen if this venture fails?
- If it does succeed, how many people do I want to employ?
- What will the business’s annual projected revenue be in a year? In five years?
- Will the business focus on a niche market, or will it offer a broad range of goods and services?
- Will the business stay local or become international?
- If I’m going to be a hands-on manager, will I delegate most tasks?
- If I do decide to delegate, what tasks will my employees help out with?
- Should I work with partners or investors who demand to be actively involved?
- Will the business remain privately owned, or will it eventually be acquired or go public?
Financial goals
Consider your financial goals. Your business may not need a massive financial commitment right away, but if it starts growing fast, you may need to seek financial help from the bank to keep up with the demand.
How much capital do you need to start your business?
If your business urgently requires a cash injection, consider what you might need to do in order to receive the money from investors. Also, make sure that you are 100% comfortable with their terms before agreeing to anything.
Below are eight questions that you can use as a guideline to determine how much money your business will need:
1. What initial investment does the business need?
2. How much control of the business are you willing to relinquish to investors?
3. When do you estimate the business will start to turn a profit?
4. How soon can investors expect a return on investment?
5. What will the business’ projected profits be over the next five years?
6. Can you devote yourself, full-time to growing your business?
7. How much do you expect to pay yourself monthly?
8. What are the chances that the business will go under? Is there a contingency plan in place if it does?
When writing your business plan, consider who will be reading it and how you plan to use it. Will it be used for raising money or attracting employees? Will it be shown to suppliers?
You also need to determine if the business is viable and find out if you have the time and resources it takes to see your business plan through? If not, it’s best to know early on, before you dive in headfirst.
How to write a business plan
A typical business plan consists of about 15 to 20 pages but can be longer or shorter, depending on the complexity of the business and the needs of your venture. The structure should include nine key components:
1. Title page and contents
Make sure it’s neat and presented with a cover page that states the business name and other relevant information such as work address, phone number, email address, website and date.
Choose a font that is easy to read and include the business’s logo, a table of contents and an executive summary.
2. Executive summary
The executive summary should tell the reader in as few words as possible what your business requires and why. Below are questions that you can use to create your executive summary.
- What problem does your business aim to solve?
- How much financing does the business require?
- What will the return be to the investor and how soon can they expect it?
- What is the perceived level of risk?
- Where does your idea fit into the marketplace?
- What are your product and competitive strategies?
- What is your marketing plan?
- What is your exit strategy?
An executive summary should be about half a page to a full page. Anything longer and you will risk losing your reader’s attention. Answer each of the questions above in two or three sentences, max.
3. Business description
Your business description can be anywhere from a few paragraphs to a few pages, but it’s recommended that you keep it short. Your business description should begin with a short explanation of your industry, what it looks like presently and any future possibilities.
It’s encouraged to make use of data sources to demonstrate what the markets in the industry offer and any developments that will affect the business in the future. Using data sources adds credibility and will reassure anyone who reads the business description (especially investors) that they can trust the information in your business plan.
When writing your business description, begin with the structure of your business and how it works. You can use the following questions to guide you:
- Is your business service-based, retail oriented or wholesale?
- Is the business new or established?
- Is your business a sole proprietorship, partnership or corporation?
- Who are your ideal customers?
- What are the distribution channels?
- How will you facilitate sales?
Next, detail your offerings. Are you selling a physical product, SaaS or a service? How is it different from your competitors? These questions explain what is known as a Unique Selling Proposition or USP, and it’s important that you find yours.
Be specific about your competitive advantage and state why your business will be profitable. If you plan to use your business plan for fundraising, use the business description section to explain why new investments will help make the business even more profitable, but keep it brief.
You can also list other key people within the business, your base of operations and reasons why you started the business.
4. Marketing strategies
Start by defining your market size, structure and sales potential. Also, take a look at future projected market growth as well as current demographics and trends.
Next, outline how often you expect your product or service to be purchased by your target market and include the number of expected annual sales as well. State how much of the market share you can expect to win over. Be realistic and keep in mind that even a small number like 20% is a significant share.
Then, explain your business’s plan for positioning. This will relate to the specific niche your product or service fits into. Mention your target market, how you plan to reach them and what they will be buying from you. Don’t forget to state your competitors and your USP. The positioning statement should be short and to the point just like the other sections.
Next, decide on how to price your products or services. Pricing will determine essential aspects of your business, like profit and the number of sales. It will also influence your marketing and target audience. Settling on a price for your product or service is one of the most important decisions you will need to make.
There are two ways to determine the price. The first way involves adding up the costs of offering your product or service and then adding in a profit margin to find your number. The second way looks at competitive pricing and involves research into how your competitors price their products or services now and in the future. The second pricing model, however, could end up setting a ceiling on the amount of money you charge, which could force you to adjust your costs to suit the market.
Decide on your distribution process. State how you plan to get your product to customers. Will you copy what’s already working for your competitors or will you do something different to give you an advantage?
Finally, talk about your promotion strategy. How will you promote your offerings to potential customers? This part should include not only marketing and advertising but the packaging, sales promotion and perhaps even public relations.
5. Competitive analysis
This section explains the differences between you and your competitors and should include an honest evaluation of your competitors’ strengths and weaknesses.
Provide a clear analysis of your advantages and barriers that exist to keep your business ahead of the curve. Include noticeable weaknesses within the marketplace and state how you plan to exploit them. Consider your competitors both in the long and the short term.
6. Development and design plan
Add this section to your business plan if you plan on selling a product. Readers should be able to understand the background of the product, the production, marketing and how the business developed over time. Also, include a developmental budget.
To help you with the design and development plan, consider these three aspects:
1. Product development
2. Market development
3. Organisational development
Your development goals should follow your evaluation of the market and your competition. They should also be feasible and quantifiable and should be paired with timelines that allow your readers to understand your vision.
Additionally, they should address both technical and marketing aspects and explain the procedures you plan on using to reach your goals. For instance, how will you allocate your resources and who will be in charge of accomplishing each goal?
State the various checkpoints that the product will need to pass through in order to reach the customer and establish timeframes for each step of the process.
Next, think about the costs of developing your product and break them down into the following:
- Material
- Labor
- Overhead
- General and administrative costs
- Marketing and sales
- The hiring of lawyers or accountants
- Miscellaneous costs
- Equipment
List the people you either currently have or plan to hire for the above development. Doing this will help you formalise your team’s positions so that everyone knows their roles and responsibilities.
You should end off this section by mentioning the risks and how you plan to address them as well as any technical difficulties and financial limitations.
It’s important to be honest about your problems and solutions so that you don’t end up with a distorted business plan.
7. Operations and management plan
There are two areas that need to be covered within your operations and management plan, the organisational structure and the capital needed for the operation. The organisational structure will inform your operating expenses and provide essential information for the next section of the business plan, financial statements.
Investors will pay close attention to the business financial statements, so it is important to have a realistic framework. Divide your organisational structure into these four segments:
1. Marketing, sales, customer relations and service
2. Production and quality assurance
3. Research and development
4. Admin
Next, consider your overhead expenses. Divide them into fixed and variable expenses. Fixed expenses are constant and variable expenses will change according to the volume of business.
Examples of overhead expenses include:
- Travel
- Maintenance and repair
- Equipment leases
- Rent
- Advertising and promotion
- Supplies
- Utilities
- Packaging and shipping
- Payroll taxes and benefits
- Uncollectible receivables
- Professional services
- Insurance
- Loan payments
- Depreciation
8. Financial factors
The final and most important piece of the business plan will cover the financial factors. The balance sheet, income and cash flow statement are three statements that will form the basis of your business plan.
The balance sheet is a financial statement that lists the assets, liabilities and equity of your business at a specific point in time and is used to calculate the net worth of your business.
Do your best to project your expected assets and liabilities over time if you have not yet started the business and have nothing to go on. Investors also appreciate it when you include a personal financial statement. Don’t forget to also include a short analysis that highlights the main points.
The income statement states how the business will make money and looks at revenue, expenses, capital and cost of goods. It combines those numbers with sales made and expenses incurred. When investors go through your income statement, they should be able to see how much money your business makes or loses by subtracting your expenses from your revenue, showing either a loss or a profit.
The cash flow statement shows how much money is flowing through your business and will show either a profit or loss at the end of each month. If your business plan shows that you’re consistently operating at a loss that increases as time goes on, this can be a major red flag for both you and potential investors.
9. Supporting documents
If you have other important documents that investors need to see, add them to this section. These could be contracts, letters of reference, a copy of your lease or legal documents.
If this has inspired you to start a business, and you require help with marketing get in touch with us! We’d love to help you succeed!
