Writing a business plan outlines what it is exactly that your business does and what you are trying to achieve. A business plan explains what the market opportunity is, what makes your business unique and how you plan on making it a success.
In retro respect, writing a business plan helps you:
- Double checks that your ideas make sense,
- Helps plan your sales, marketing and business operations,
- Identifies problems and how to overcome them,
- Allows you to set out your objectives and the financial return your expecting,
- Influences other people to back your business concept.
The nine steps that I will go through that are essential to writing a business plan are:
- Why Write A Business Plan?
- How To Write Your Business Plan.
- Business and Products.
- Market and Competition.
- Marketing and Sales.
- Management and Personnel.
- Financial Performance.
- SWOT Analysis.
- Why Write A Business Plan?
Physically writing a business plan down helps you think about what you are doing.
Writing a business plan sets out your strategy and action plan for the next one to three years, or even sometimes longer. While writing your plan, you focus on setting concrete objectives and put together a plan on how you will combat these plans to become achievable. Writing a clear business plan helps you focus and develop your ideas, identify your priorities and allow you to drop any non-priority activities, saving you valuable time. When you have your business plan on paper, or in a word document, it is easier for you to analyze any gaps where you might need to put more effort in. And once written the plan is a benchmark for the performance of your business. Also by involving your employees in the completion of your business plan, can vastly help you achieve goals and build up a successful, committed team. Which is vital for a successful business.
Keep in mind, that you may need a plan to explain your business to other people. It’s essential if you are thinking about raising finance from a bank or outside investors. Having a great plan can aid you in attracting new senior management, or business partners such as distributors and agents. You should never use the same plan twice with two completely different investors. Your business plan should be tailored to the target audience. For example, you may want the plan to sell the business to your bank manager or investors. A good way to get an idea on what to add in your plan is to ask the intended recipient if there are any specific issues they want the plan to address or a template you should follow.
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2. How To Write Your Business Plan
One vital detail your plan should be based on is detailed information where possible. But do not include all the details in the plan, leave the detail for operational or marketing plans.
Like a C.V, keep the plan short and sweet. Put your focus towards what the reader needs to know, and cut out all the BS. Double-checking your plan to make sure there are no spelling mistakes is just common sense, so get in the habit of proofreading. It’s known that most detailed business plans are often quickly put aside because they are difficult to use on an ongoing basis.
When writing your business plan, include any detailed information you need in an appendix. For instance, you might want to add detailed financial forecasts and assumptions, and market research data that backs up what you say. It’s a good idea to include some of the C.Vs of key personnel, especially if you are seeking outside funding from investors. Another piece of information to add to your business plan is product literature or technical specifications.
Do base your business plan on reality, or it may be counterproductive. Having over-optimistic forecasts can lead to increased overheads followed by a cash flow crisis and drastic cost-cutting. Always be realistic in your figures, even if you are selling the business to a third party. As seen numerous times in ‘Dragons Den’, financiers, business partners and employees will see straight through over-optimistic numbers and plans that ignore weaknesses or threats. Your overall management credibility can be massively damaged.
Never get an amateur to do a professionals job. The same applies to writing a business plan, always make it look professional. Add a front cover to the plan, while also adding a contents page with page and section numbering. Start the plan with an executive summary, stating the key points, and starting with the purpose of the business plan. And where necessary in the plan, use charts to get the point across and where they will be more effective to your audience.
Even if the plan is for internal purposes, get into the habit of planning it as if it was aimed at an outsider. Include the company or products literature as an appendix, and give details about the history and current status of the business.
Don’t forget to review your business plan. Proofreading through the plan from your target audiences point of view. For instance, try to imagine what impression the plan will have on your audience when they are reading it. Double-check the plan is realistic, making sure it includes the evidence to back up what you say, or that if needed you can provide the evidence upon request. Definitely make sure you assess the risks, and what might go wrong, (i.e. if your main supplier closes down or you lose a key customer), and have the answer to what you would do if it happened. Do your best to concentrate on the executive summary, most people make provisional judgements based on this. Only then do they read the rest of the plan to confirm their decision. An ideal tip is to show the plan to your friends, expert advisors, or your team for comments. This is great to find out parts that they did not understand or find unconvincing.
3. Your Business and Products
Explain the history of the business, when did it start trading? what progress has it made to date? Discuss if the business is a new startup, and what your personal industry background and progress towards launching the business has been made? If it isn’t a start-up company, mention who owned the business originally? and what is the current ownership structure?
Describe in a clear manner what your product or service is, avoiding any technical jargon. Discuss what in general, makes your product or service different from the competition? Other areas to cover are what benefits does it offer? What are the disadvantages and how will you address these? Plus, what changes and improvements are you planning for the future?
Try and do your best to explain key features of the industry, for example, any special regulations, whether the industry is dominated by a few large companies or any major changes in technology.
4. Your Market and Competition
Describing the market in which you sell, is a vital process in your business plan. Firstly highlight the segments of the market in which you compete. What are the key characteristics of customers in each segment and what influences their purchasing decisions? Discuss how large each market segment is? and what is your market share? Mention what are the important trends, such as market growth or changing tastes? and explain the reasons behind these trends. Then talk about the outlook for each important market segment.
Describe the nature and distribution of existing customers, for instance, do they fit in the profile of the chosen market segment? If not, why not? Maybe incorporate, if there is a heavy concentration of sales around one or two large customers? For new startups, mention if you have any confirmed orders and who are your best prospects.
Remember to outline the main competition, like, what are the competing products or services? Who supplies them? What are their advantages and disadvantages compared to you? Like, price, quality, distribution etc. Let them know why you believe customers will buy your product or services instead, and how will your competitors react to losing business and how will you respond? One rule: never openly criticise or underestimate competitors.
5. Your Marketing and Sales Strategy
You’ll need to clarify where you feel your product or service positions in the market. Is it going to be high quality and high price? Will it be marked as a specialist product due to a particular feature? What will the unique benefits you offer to customers be? And which of these benefits are you going to concentrate on?
When it comes to pricing policy, explain how price sensitive your customers are. Look at each product or market segment in turn, identifying where you make your profits and where it may be possible to increase margins or sales. Remember to set your pricing accordingly.
How will you promote your product or service? Within each market segment, you usually have one or two promotional methods that work the best. For example, direct marketing, advertising or PR. If for some reason, you are considering using a new marketing method, start on a small scale. Think about it, a failed investment in marketing can be very costly.
What will the sales channels be, that you use to reach your target customers? For instance, will you be selling directly to the customer, or through a retailer or agent? Will you be selling online? Start by comparing your current channels with the alternatives, noting the distribution channels used by your competitors. Then start to look at the positive and negative trends in your chosen distribution channels.
So, how do you do your selling? Ways to start could be by, looking at the cost-efficiency of each of your sales methods, like, telesales, a direct sales force, through an agent or over the internet. Make sure to include all the hidden costs, such as management time. Another note… explain how long it takes to actually make a sale, and how you get paid for them. Add what the average sales value is and how likely customers are to give repeat orders.
6. Management and Personnel Structure
Setting out the structure and key skills of the management team and the staff needs to also be covered and how you clarify on how you will cover the key areas of production, sales, marketing, finance and administration. Try and address any areas of deficiency, and what your plans are to cover the weaknesses. Another nice touch is to explain your recruitment and training plans, including timescales and costs.
Get in the frame of mind on analysing the workforce in terms of total numbers and by the department. Start to compare the efficiency ratios with competitors, or with similar industries. Insightful figures to express might be sales, average salaries, employee retention rates and measures of productivity.
I can’t stress enough on how important it is to be realistic about the commitment and motivation of the workforce. Flaunt how committed you and other members of the management team are, for example, expressing how much confidence you have behind the business and because of that how much you have invested into it. Explain how you would behave in the event of losing a key worker. You could write out any plans to improve or maintain motivation within the business and note any unusual upward pressure on pay levels.
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7. Your Business Operations
How do your business operations work? Go over the capacity and efficiency of your operations, and the planned improvements. What premises does the business have? With your current business situation, does it meet your current and future needs? Or what are your long term commitments to the property? Are there any advantages or disadvantages of the present location your occupying? And should the business consider expanding now? Or move?
Another thing to write down, is what production facilities do you have and how is production organised? For example, how modern is the equipment you have? What is the capacity of the current facilities compared with existing and forecast demands? Also, including who your key suppliers are and how you select and manage them?
What type of management information system is in place for your business? Do you have management accounts, sales, stock control and quality control set up? Are they reliable? Can they deal with any proposed expansion? Any financier will be very concerned if management information systems are not up to standards, in other words, inadequate. Management of a business is always limited by the quality of the information available.
Are your IT systems reliable? IT is the main strength of your business, and if your IT system is poor this can be a real weakness to your business. The development of the IT department to help your business in any way is a very important factor.
And what quality or regulatory standards does the business conform to? For example, ISO 9000 or CE approval.
8. Financial Forecasts
A vital piece of information that financiers or investors want to know. Your financial forecasts translate what you have said about your business into numbers.
For this, you want to set out historical financial information for the past three to five years if available. Breakdown total sales figures into component parts, for example, sales of different types of products or to different groups of customers. Show the gross margin for the components of each sale, and list what costs are included as direct costs for each component. Describe the movement in the key working capital items of stock, trade debtors and creditors. Use ratios such as stock turnover (in months), debtors period (in days), and creditors period (in days). Single out and highlight any major capital expenditures made, and provide an up to date balance sheet, and a profit and loss account. Also, explain the reasons for movements in profitably, working capital and cash flow, comparing them with industry norms.
Provide a forecast for the next three to five years. The sophistication of your forecasts should reflect the sophistication of your business. For instance, a small business might only need sales, profit and cash flow budgets. A larger business will require the need for a balance sheet forecast as well. Definitely use the same format as the historical information, to make it clear and easier to compare. State the assumptions behind the forecasts very clearly, and these should fit in with what you say in the rest of the plan. For instance, if your plan says the market is becoming more competitive, then profit margins should probably be falling. I can’t stress enough about being realistic about forecasts, especially in new markets. For example, how much resource can you devote to selling, what success rate can you expect and how long will it take to convince new customers? Look and digest the overall trends of historical and forecast numbers. Are they believable? Do the forecasts allow for the possibility of problems and delays in payments that could affect cash flow? Don’t forget to consider ‘What if’ scenarios’. For instance, consider what will happen to your cash flow if sales are 20% lower than you forecasted, or even 15% higher.
Detailed financial forecasts should be in an appendix at the end. Include a detailed list of assumptions, like the profit margin on each product, how long it takes to collect payment from debtors, what credit suppliers will offer you, and what financing you are expecting and the interest rate you will pay.
Use the cash flow forecast to predict any financial requirements. Would be a good idea to add an extra contingency element onto the funding requirement shown in the forecast, perhaps 10 – 20%. Think about what your mid-month peaks might be as well. Identify what types of financing you would like, for example, long term loans or an increased overdraft facility. Also, include the interest or dividend costs of any new finance, and carry out sensitivity tests on the cash required by changing key items, such as sales or margin, and note the outcomes. Don’t forget to explain why the financing is required and what it will be used for.
Don’t be afraid to get help if needed. Small business advisers at banks and business support organisations may help you put together financial forecasts free of charge, so if your struggling, use them.
9. SWOT Analysis
Having a SWOT analysis helps show that you really understand your business and the key external factors that you need to deal with. Best way to set out your SWOT analysis is to dedicate a one-page analysis of your business strengths, weaknesses, opportunities and threats. Your strengths might include your brand name, quality of the product, or management experience. Weaknesses could include a lack of finance or reliance on just a few customers. Your opportunities might be the increasing demand or a competitor going out of business. And threats might be a downturn in the economy or a new competitor.
Honesty comes into it again when talking about your business weaknesses and the threats you face. Explain the mitigating circumstances and the defensive actions you are going to take.
Tips on driving your business forward
Identify what makes you better than the competition. Also, think about what the key ingredients of your future success will be and how you will strengthen your position in the market.
Establish what your overall business aims are, for example, where do you really intend to be in three to five years time?
Accumulate and decide on key objectives that will make a significant difference to your business. Other businesses usually think in terms of Income – more sales, better margins, customers – new customers, higher levels of customer satisfaction, products – improving existing products, launching new ones, and human resources – recruiting new employees, developing new skills.
Set clear targets, you should really know exactly what you want to achieve, and by when. Also, work out how you will reach these targets, by looking at each aspect of your business in turn and create a step by step action plan for it.
I hope these 9 tips guide you in writing a business plan. good luck.