How to write a business plan
by Noah Parsons, https://articles.bplans.com/how-to-write-a-business-plan/
Three rules for writing a business plan:
- Keep it short - No one likes to read 100 pages!
- Know and adapt to your audience. No mumble jumbos!
- Don’t be intimidated, most people are like you and we all learn.
Business plans should be a tool that evolves and develops as you continue to use and refine time after time. A long one would be relegated to the back of your drawer.
Six things to include in a Business Plan
Remember the business plan is a tool to help you build a better business. It is not your school homework!
Good business plans are living documents, you can update as you learn more about who buys your products, sales and marketing tactics. What works and what doesn’t work.
1. Executive Summary
The overview of your business and plans, ideally one to two pages. Some people write this part last of all as you get the idea.
This part will support you with thinking about what you are actually selling and how you are solving a need for your market, who is your target market? Who is your competition?
This section explores how you are going to take your opportunity and turn it into a business. This will involve your marketing and sales plan, operations and how you can and will measure success.
4. Team and company
When you attract investors to your business, you need to describe your team and who you would hire. An overview of the legal structure, location and any history if you’ve already established a business.
5. Financial Plan
You need a financial plan for a business plan, this is where the financial forecast is placed. We can discuss this with the budgeting on Thursday.
If your business plan needs more space for designs or other information, this is where you can keep all of them.
The executive summary introduces your company, explains what you do, and lays out what you’re looking for from your readers.
While it’s the first thing that people will read, I generally advise that you write it last. Why? Because once you know the details of your business inside and out, you will be better prepared to write your executive summary.
Ideally, the executive summary can act as a stand-alone document that covers the highlights of your detailed plan. In fact, it’s very common for investors to ask for only the executive summary when they are evaluating your business. If they like what they see in the executive summary, they’ll often follow up with a request for a complete plan, a pitch presentation, and other data about your business.
Because your executive summary is such a critical component of your business plan, you’ll want to make sure that it’s as clear and concise as possible. Cover the key highlights of your business, but don’t into too much detail.
The critical components of a winning executive summary:
Write up a one-sentence overview of your business that sums up the essence of what you are doing. This can be a tagline, but is often more effective if the sentence describes what your company actually does. This is also known as your value proposition.
Summarise in one or two sentences the problem you are solving in the market. Every business is solving a problem for its customers and filling a need in the market.
This is your product or service. How are you addressing the problem you have identified in the market?
- Target market
Who is your ideal customer? How many of them are there? It’s important here to be specific.
If you’re a shoe company, you aren’t targeting “everyone” just because everyone has feet. You’re most likely targeting a specific market segment such as “style-conscious men” or “runners.” This will make it much easier for you to target your marketing and sales efforts and attract the kinds of customers that are most likely to buy from you.
How is your target market solving their problem today? Are there alternatives or substitutes in the market?
Every business has some form of competition and it’s critical to provide an overview in your executive summary.
Provide a brief overview of your team and a short explanation of why you and your team are the right people to take your idea to market.
Investors put an enormous amount of weight on the team—even more than on the idea—because even a great idea needs great execution in order to become a reality.
- Financial summary
Highlight the key aspects of your financial plan, ideally with a chart that shows your planned sales, expenses, and profitability.
- Funding requirements
If you are raising money to start or grow your business, you must include the details of what you need in the executive summary. Just include a short statement indicating how much money you need to raise to get your business off the ground.
- Milestones and traction
The last key element of an executive summary that investors will want to see is the progress that you’ve made so far and future milestones that you intend to hit. If you can show that your potential customers are already interested in - or perhaps already buying - your product or service, this is great to highlight.
The opportunity section of your business plan is where the real meat of your plan lives.
This is where you will describe in detail the problem that you’re solving, your solution, who you plan to sell to, and how your product or service fits into the existing competitive landscape.
You’ll also use this section of your business plan to demonstrate what sets your solution apart from others, and how you plan to expand your offerings in the future.
Readers of your business plan will already know a little bit about your business because they read your executive summary.
But, this chapter is still hugely important because it’s where you expand on your initial overview, providing more details and answering additional questions that you won’t cover in the executive summary.
The problem and solution
Start this chapter by describing the problem that you are solving for your customers. What is the primary pain point for them? How are they solving their problems today? Maybe the existing solutions to your customer’s problem are very expensive, or perhaps they are cumbersome.
Defining the problem you are solving for your customers is far and away the most critical element of your business plan and crucial for your business success. If you can’t pinpoint a problem that your potential customers have, then you might not have a viable business concept.
To ensure that you are solving a real problem for your potential customers, a great step in the business planning process is to get away from your computer and actually go out and talk to potential customers. Validate that they have the problem you assume they have, and then take the next step and pitch your potential solution to their problem. Is your solution a good fit for them?
For some products and services, you might want to describe use cases. These use cases give examples of how a customer will interact with your solution and how it makes the customer’s life better.
Now that you have detailed your problem and solution in your business plan, it’s time to turn your focus toward your target market: Who are you selling to?
Depending on the type of business you are starting and the type of plan you are writing, you may not need to go into too much detail here. But, no matter what, you do need to know who your customer is and have a rough estimate of how many of them there are. If there aren’t enough customers for your product or service, that could be a warning sign.
Don’t fall into the trap, though, of defining the market as “everyone.” The classic example is a shoe company. While it would be tempting for a shoe company to say that their target market is everyone who has feet, realistically they need to target a specific segment of the market in order to be successful. Perhaps they need to target athletes or business people who need formal shoes for work, or perhaps they are targeting children and their families.
The final section of your target market chapter should discuss key customers.
Immediately following your target market description, you should describe your competition. Who else is providing solutions to try and solve your customers’ pain points? What are your competitive advantages over the competition?
Most business plans use a “competitor matrix” to list out competitors and then show how they compare to your business’s solution. You can build a simple competitor matrix by listing your competitors down the left side of a grid and then adding columns for each feature. Then mark to indicate if competitors have a particular feature or not.
The most important thing to illustrate in this section of your business plan is how your solution is different or better than other offerings that a potential customer might consider. Investors will want to know what advantages you have over the competition and how you plan on differentiating yourself.
One of the biggest mistakes entrepreneurs make in their business plans is stating that they don’t have any competition.
Competitors may not always come in the form of “direct competition,” which is when you have a competitor offering a similar solution to your offering. Often times, you may be dealing with “indirect competition,” which is when consumers solve their problem with an entirely different kind of solution.
Future products and services
All entrepreneurs have a vision of where they want to take the business in the future if they are successful.
While it’s tempting to spend a lot of time exploring future opportunities for new products and services, you shouldn’t expand too much on these ideas in your business plan. It’s certainly useful to include a paragraph or two about potential future plans, to show investors where you are headed in the long term, but you don’t want your plan to be dominated by long-range plans that may or may not come to fruition.
Now that you’ve described your opportunity, you’re going to move on and describe how you’re actually going to make your business work. You’ll cover your marketing and sales plans, operations, how you’ll measure success, and the key milestones that you expect to achieve.
Marketing and sales
The marketing and sales plan section of your business plan details how you plan to reach your target market segments, how you plan on selling to those target markets, what your pricing plan is, and what types of activities and partnerships you need to make your business a success.
Before you even think about writing your marketing plan, you must have your target market well-defined and have your buyer persona(s) fleshed out. Without truly understanding who you are marketing to, a marketing plan will have little value.
The first part of your marketing plan will cover how you are positioning your company and your product or service offering. Positioning is how you will try and present your company to your customers. Are you the low-price offering or are you the premium, luxury brand in your market? Do you offer something that your competitors don’t offer?
Before you start working on your positioning statement, you should take a little time to evaluate the current market and answer the following questions:
- What features or benefits do you offer that your competitors don’t?
- What are your customers’ primary needs and wants?
- How are your competitors positioning themselves?
- How do you plan on differentiating from the competition? In other words, why should a customer choose you instead of someone else?
- Where do you see your company in the landscape of other solutions?
Once you’ve answered these questions, you can then work on your positioning strategy and define it in your business plan.
Don’t worry about making your positioning statement very long or in-depth. You just need to explain where your company sits within the competitive landscape and what your core value proposition is that differentiates your company from the alternatives that a customer might consider.
You can use this simple formula to develop a positioning statement:
For [target market description] who [target market need], [this product] [how it meets the need]. Unlike [key competition], it [most important distinguishing feature].
Once you know what your overall positioning strategy is, you can move on to the price.
Your positioning strategy will often be a major driver of how you price your offerings. Price sends a very strong message to consumers and can be an important tool to communicate your positioning to consumers.
Deciding on your price can feel more like an art than a science, but there are some basic rules that you should follow:
- Covering your costs. There are certainly exceptions to this, but for the most part, you should be charging your customers more than it costs you to deliver your product or service.
- Primary and secondary profit centre pricing. Your initial price may not be your primary profit centre. For example, you may sell your product at, or even below, your cost, but require a much more profitable maintenance or support contract to go along with the purchase.
- Matching the market rate. Your prices need to match up with consumer demand and expectations. Price too high and you may have no customers. Price too low and people may undervalue your offering.
Three approaches to pricing strategy:
- Cost-plus pricing. You can establish your pricing based on several factors. You can look at your costs and then mark up your offering from there. This is usually called “cost-plus pricing” and can be effective for manufacturers where covering initial costs is critical.
- Market-based pricing. Another method is to look at the current landscape of competitors and then price based on what the market is expecting. You could price at the high-end or low-end of the market to establish your positioning.
- Value pricing. Yet another method is to look at a “value pricing” model where you determine the price based on how much value you are providing to your customer.
For example, if you are marketing lawn care to busy professionals, you may be saving your customers 1 hour/week. If that hour of their time is valued at £50/hour, your service could charge £30/hour.
With pricing and positioning taken care of, it’s time to look at your promotion strategy. A promotion plan details how you plan on communicating with your prospects and customers. Remember, it’s important that you’ll want to measure how much your promotions cost and how many sales they deliver. Promotional programs that aren’t profitable are hard to maintain in the long term.
Here are a few areas that you might consider as part of your promotional plan:
If you are selling a product, packaging of that product is critical. Be sure the packaging section of your plan answers the following questions:
- Does your packaging match your positioning strategy?
- How does your packaging communicate your key value proposition?
- How does your packaging compare to your competition?
Your business plan should include an overview of the kinds of advertising you plan to spend money on. Will you be advertising online? Or perhaps in traditional media? A key component to your advertising plan is your plan for measuring the success of your advertising.
Getting the media to cover you can be a great way to reach your customers. Getting a prominent review of your product or service can give you the exposure you need to grow your business. If public relations if part of your promotional strategy, detail your plans here.
A popular strategy for promotion is engaging in what is called content marketing.
It’s when you publish useful information, tips, and advice—usually made available for free—so that your target market can get to know your company through the expertise that you deliver. Content marketing is about teaching and educating your prospects on topics that they are interested in, not just on the features and benefits that you offer.
These days, having a social media presence is essentially a requirement for the vast majority of businesses. You do not need all the social media channels but you do need to be on the ones that your customers are on. More and more, prospects are using social media to learn about companies and to find out how responsive they are.
The operations section is how your business works. It’s the logistics, technology, and other nuts and bolts. Depending on the type of business you are starting, you may or may not need the following sections. Only include what you need and remove everything else.
Sourcing and fulfilment
If your company is buying the products it is selling from other vendors, it’s important to include details on where your products are coming from, how they get delivered to you, and ultimately how you deliver the products to the customer.
If you are sourcing products from manufacturers overseas, investors are going to want to know about your progress working with these suppliers. If your business is going to be delivering products to your customers, you should describe your plans for shipping your products.
For product companies, a distribution plan is an important part of the complete business plan. For the most part, service companies can skip this piece and move on.
Distribution is how you will get your product into the hands of your customers. Every industry has different distribution channels and the best way to create your distribution plan is to interview others in your industry to figure out what their distribution model is.
Here are a few common distribution models that you may consider for your business:
Selling directly to consumers is by far the most simple and most profitable option.
You could consider passing the savings of selling directly on to your customers or you could simply increase your profit margins. You will still need to cover the logistics of how you will get your products to your customers from your warehouse, but a direct distribution model is usually fairly simple.
Most large retailers don’t like the hassle of dealing with thousands of individual suppliers.
Instead, they prefer to buy through large distribution companies that aggregate products from lots of suppliers and then make that inventory available to retailers to purchase. Of course, these distributors take a percentage of the sales that pass through their warehouses.
These are typically salespeople who work for a “repping” agency. They often have relationships with retailers and distributors and work to sell your products into the appropriate channel. They typically work on commission and it’s not uncommon for a rep to be necessary for getting a new company access to a distributor or retailer.
This stands for “original equipment manufacturer.” If your product is sold to another company that then incorporates your product into their finished product, then you are using an OEM channel.
A good example of this is car parts suppliers. While large auto manufacturers do build large components of their cars, they also purchase common parts from third-party vendors and incorporate those parts into the finished vehicle.
Milestones and metrics
A plan is only a document on paper without an implementation plan, complete with a schedule, defined roles, and key responsibilities.
Start with a quick review of your milestones. Milestones are planned major goals. For example, if you are producing a medical device, you will have milestones associated with clinical testing and government approval processes.
While milestones look forward, you will also want to take a look back at major accomplishments that you have already had. Investors like to call this “traction.” What this means is that your company has shown some evidence of early success. Traction could be some initial sales, a successful pilot program, or a significant partnership. Sharing this proof that your company is more than just an idea—that it has actual evidence that it is going to be a success—can be important to landing the money you need to grow your business.
In addition to milestones and traction, your business plan should detail the key metrics that you will be watching as your business gets off the ground. Metrics are the numbers that you watch on a regular basis to judge the health of your business. They are the drivers of growth for your business model and your financial plan.
For example, a restaurant may pay special attention to the number of table turns they have on an average night and the ratio of drink sales to food sales. An online software company might look at churn rates (the percentage of customers that cancel) and new signups.
Key assumptions and risks
Finally, your business plan should detail the key assumptions you have made that are important for your businesses success.
Another way to think about key assumptions is to think about risk. What risks are you taking with your business? For example, if you don’t have a proven demand for a new product, you are making an assumption that people will want what you are building. If you are relying on online advertising as a major promotional channel, you are making assumptions about the costs of that advertising and the percentage of viewers that will actually make a purchase.
Knowing what your assumptions are as you start a business can make the difference between business success and business failure.
Team and company
The structure of your company and who the key team members are. These details are especially important to investors as they’ll want to know who’s behind the company and if they can convert a good idea into a great business.
Investors don’t invest in ideas, they invest in people. Some investors even go as far as to say that they would rather invest in a mediocre idea with a great team behind it than a great idea with a mediocre team.
What this really means is that running a successful business all comes down to execution. Can you actually accomplish what you have planned? Do you have the right team in place to turn a good idea into a great business that will have customers banging down your doors?
The management team chapter of your business plan is where you make your best case that you have the right team in place to execute on your idea. The management team chapter also shows that you have thought about the important roles and responsibilities your business needs in order to grow and be successful.
A typical management team chapter includes a brief biography of each team member with their relevant experience and education highlighted. It’s important here to make the case for why the team is the right team to turn an idea into a reality. Do they have the right industry experience and background?
Your management team doesn’t necessarily need to be complete in order to have a complete business plan. If you know that you have management team gaps, that’s OK. In fact, investors see the fact that you know you are missing certain key people as a sign of maturity and knowledge about what your business needs to succeed. If you do have gaps in your team, simply identify them and indicate that you are looking for the right people to fill certain roles.
The company overview will most likely be the shortest section of your business plan.
For a plan that you will share with people outside of your company, this section should include:
- Mission statement
- Intellectual property
- Legal structure and ownership
- The business location
- A brief history of the company if it’s an existing company
Don’t fall into the trap of spending a day or more on your mission statement.
Your company mission should be short—one or two sentences at most—and it should encompass, at a very high level, what you are trying to do.
At Drip Media, our mission statement is “When quality matters”. It’s a simple statement and encompasses everything we do in all our services.
This mostly applies to technology and scientific ventures, so just skip this if you don’t need to discuss your patents and other intellectual property.
Legal structure and ownership
Your company overview should also include a summary of your company’s current business structure. Are you limited company, a partnership company or a sole proprietor?
Be sure to define provide a review of how the business is owned as well. Does each business partner own an equal portion of the business? How is ownership divided? Potential lenders and investors will want to know the structure of the business before they will consider an investment.
If you are writing a business plan for an existing company, it’s appropriate to include a brief history of the company and highlight major historical achievements. Again, keep this section short—no more than a few paragraphs at most.
This section is especially useful to give context to the rest of your plan, and can also be very useful for internal plans. The company history section can provide new employees with background on the company so that they have a better context for the work that they are doing and where the company has come from over the years.
Finally, the company overview section of your business plan should describe your current location and any facilities that the company owns.
For businesses that serve consumers from a shop, this information is critical. Also, for businesses that require large facilities for manufacturing, warehousing, and so on, this information is an important part of your plan.
This is often what entrepreneurs find most daunting, but it doesn’t have to be as intimidating as it seems. Business financials for most startups are less complicated than you think, and a business degree is certainly not required to build a solid financial forecast.
A typical financial plan will have monthly projections for the first 12 months and then annual projections for the remaining three to five years. Three-year projections are typically adequate, but some investors will request a five-year forecast.
Following are details of the financial statements that you should include in your business plan, and a brief overview of what should be in each section.
Your sales forecast is just that—your projections of how much you are going to sell over the next few years.
A sales forecast is typically broken down into several rows, with a row for each core product or service that you are offering.
For example, if you are a restaurant, you might break down your forecast into these groups: lunch, dinner, and drinks. If you are a product company, you could break down your forecast by target market segments or into major product categories.
For restaurants, it would be the cost of ingredients. For a product company, it would the cost of raw materials.
Your personnel plan details how much you plan on paying your employees. For a small company, you might list every position on the personnel plan and how much will be paid each month for each position.
The personnel plan will also include what is typically called “employee burden,” which is the cost of an employee beyond salary. This includes payroll taxes, insurance, and other necessary costs that you will incur every month for having an employee on your payroll.
An exit strategy is your plan for eventually selling your business, either to another company. If you have investors, they will want to know your thoughts on this. After all, your investors will want to get a return on their investment, and the only way they will get this is if the company is sold to someone else.
Again, you don’t need to go into excruciating detail here, but you should identify some companies that might be interested in buying you if you are successful.
A useful place to stick any charts, tables, definitions, legal notes, or other critical information that either felt too long or too out-of-place to include elsewhere in your business plan.
If you have a patent or a patent pending, or illustrations of your product, this is where you’d want to include the details.