How to write a Business Plan

how to write a business plan

The age old debate – to prepare a business plan or not.

I support the views expressed in the video how to start a business in 4 simple steps as a first step to trying to get your business off the ground and to the point of testing the product/service.  My statement is based on the following facts:

  • Too many persons find difficulty doing the plan and so just continuously delay the start up of the business or they get/pay someone to do the plan and so are unfamiliar with many of the issues they will have discovered they need to resolve if they were doing the plan themselves.  As you work on the plan, you work out the details of the business.
  • Often the plan is doomed to fail as it is sometimes completed without testing the business model/product/services with the potential customers.  It is this interaction that can lead to adjustments which can ensure business success.   Remember you are in business to satisfy customer needs/solve their problems and so you should get their feedback on your proposed solutions.
  • By doing this method you may be better able to screen out bad business ideas and save yourself a lot of heartbreak.
  • The approach can be used for home based companies and it will help you to be in a position to scale up your business based on more realistic data gotten as you interact with customers.  I caution you however that if you are using this method of business start up, do not leave your work.  First make sure you actually have a proper basis for depending on this business for your livelihood before you make this step i.e. develop your revenue streams.
  • Many of the complicated business plans are for the types of businesses that require investors. depending on your needs a simple business plan is all that is needed.

I do not agree however that the plan should not be done.  However if you are able to get the 4’s right you will be well on your way to being able to complete the plan.

What is a Business Plan?

Many small business persons only prepare a plan  or have it prepared when they are searching for funding.  This is because they do not see the value of a plan.

The business plan describes the plan for the business startup and management and it should be prepared by startups and even those with established businesses.

Entrepreneurs should not outsource the function of preparing a business plan. They should be encouraged to prepare their own business plan but they can get some assistance from a professional business consultant or business coach.

The plan should reflect your thinking of where you want to take the business and not be just a reproduction of prepared business plans of others that are often not tailored to your business.

Even before starting on the plan you should develop the mission of your business which should reflect the problem you are solving for customers and your solution.

The Benefits of a Business Plan

The preparation of the business plan has several benefits, among them, being:

  • A proper knowledge of the business plan is often critical for business persons to obtain funding. Loans officers will often ask questions about the business and information in the plan especially assumptions made and so the business person has to be able to defend what is written there.
  • It helps you to work out all key aspects of your proposed business.  As you develop the plan you are forced to think of all aspects of your business and to do the necessary research that will enable you to be in  a better position to manage the day to day operations
  • It allows you to properly communicate your business plans to bankers, investors, and other key stakeholders and is a basis of bolstering confidence in your business.
  • It helps you to resolve key issues about your business such as proposed location (place and how funded e.g. rent lease/buy), asset acquisition, alliances, marketing strategy, skills/competences needed, etc.
  • It helps you to determine your competitive and other strategy i.e. whether you will compete on the basis of cost, do niche marketing in which you identify a market niche e.g plus sizes in a particular geographical area or differentiated strategy in which you produce products which are different from those of the competition

See 15 Reasons You Need a Business Plan by Entrepreneur that provide more insight into the value of preparing a business plan.

Preparing a business plan does not have to be difficult.

The business plan does not have to be a complicated plan.  The Small Business Association of American has produced a video  on how to prepare a business plan.  You can follow this or the outline below.  You should also read my blog on Eight points on how to successfully start a business in a recession and the following one which is a “must read”. Soon I will be publishing a Step By Step guide to preparing a business plan which will help you to do it very quickly or as long as it takes for you to do the market research.

Starting a Business – from Business idea to Business Plan

The Outline of a Business plan

An outline of the business plan is as follows-

1. Executive Summary – This should provide the key facts of the business plan e.g. overview of the company, products, and services, target market, etc. It is often the only part that some persons read and so it should convey a clear understanding of the business. It is presented first but written last after all the important aspects of the plan are completed.

2. Business profile – This will give all the critical information about the company. It describes the type of business structure, its vision, mission, goals, formation, ownership, and in the case of existing companies, some information on recent business performance.

3. Description of products and services – This should give a description of your top products or services with information on them and some statement of how they differ from those of the competition and the benefits they offer to the consumer- the range of products, the packaging, etc. It can also give information on your strategy to ensure your products/services get to the target market – distribution strategy. This area may include photographs and testimonials.

4. Organization and management – this will describe/show organization structure – reporting relationships of proposed staff, workflows, Key personnel – skills (technical and other), competencies, qualifications of such personnel, supply relationships, proprietary rights – information that may be protected under law, roles and responsibilities, etc. Any special licenses or permits needed and obtained should also be listed. Remember to include an appendix with CVs of key staff members.

5. Market and marketing/sales strategy – This should describe the market for your products or services. The size of the market, your market niche and your projection of how much of the market either belongs to your company or you can capture.  Determine your value preposition- i.e. determine what is the main reason why customers should choose you above the competition.  Read 4 steps to building a compelling value proposition

Remember the 5p’s of marketing i.e product, price, place, promotion and people.  Include an assessment of the competition.  It is important to study your competition so that you can differentiate your product/services or their delivery in order to obtain a competitive edge.

Outline your sales strategy – how  you plan to sell your product, distribution strategy and communication strategy i.e. how you are going to reach your customers – promotions, advertising, public relations, etc..

6. Implementation /operations or production strategy-

Describe the technical details about your business operations. Machinery, equipment, etc. required. How it will operate, its processes, special skills required, key concerns, issues and how you intend to handle them.

7 Financial Plan –

This section should include the startup costs. See how to estimate start up costs for your new company.  This includes everything you need to start the business including at least two months  operating expenses as the business will not be able to meet such costs in the early months.   In preparing start up costs it is alright to put in equipment etc that you  bought for the business.   This can be valued and put as your contribution to the business as most financial institutions like to see a contribution to the business by the entrepreneur.  (Total cost – my contribution = funding required)

Prepare projected Profit and Loss and Cash Flow tables. Ensure that you list the assumptions that underlie your projections.

Useful sources include:

Five simple ways to create a balance sheet,

Template for preparing a simple profit and loss account

Sample cash flow statement

8 Funding Requirement

Include your current and any future funding you may require over the next three years. Have sufficient details of what you are using the funds for i.e. capital expenditure working capital, debt consolidation, etc.

Feedback required

Tell us about your business planning experience. Does what is written here work for you? What additions, subtractions did you have to make for it? When you met with your bank/financing institution/ financiers, what did they think of your plan? What if any were there concerns? How were the concerns addressed?