What Is a Business Plan?
It has been said that a goal without a plan is just a wish. A plan provides order, direction and dictates your course of action. This is what a business plan is. It is a written guide that outlines the steps from the start, growth and maintenance of your business.
Why Do You Need a Business Plan?
The main purpose of the plan is to establish the blueprint for your future business. It includes the goals that are to be achieved and provides the strategy that will be taken to achieve each goal. You are also able to breakdown the estimates on the startup costs for the business and how much will need to be invested in the startup. Lastly, the plan should be able to persuade investors and lenders to fund your business.
What Is In a Business Plan?
In looking at what a business plan entails, I found that there were different elements that make up the plan but the main ones that were constantly highlighted are:
Executive Summary
This section appears first in your plan and is the most critical. It essentially highlights what the business plan will cover. As it will be the first section that your audience will read, use the chance to tell your story here in a compelling way. Speak to your reader in a way that they will want to continue reading your plan.
Business Description
This is also known as the company description and gives some insight on the company or business. It includes the structure and team, the status, what you offer and what you hope to accomplish.
Products and Services
This portion is used to focus and expound on the products and services that should have already been previously mentioned in the executive summary. Explain with great detail aspects such as what they are and the need to create them, the manufacturing plan for the products, how much money it will cost to make them, how they will do on the market and in turn how much money the products are expected to bring in to the business.
Market and Competitive Analysis
This clearly outlines an assessment of your current and potential competition and why you have a competitive advantage over them.
Market and Sales Plan
This component covers how you intend to get your products and services to your target audience. It will include areas such as the pricing plan, how you plan to promote them, how much it will cost and how your products are expected to compete in the market.
Sales Strategies and Implementation
This provides a breakdown of how you will sell your products and services, the tools needed to carry it out or promote sales and how much it will cost to do so.
Management and Organization
In this section, you outline the organizational structure, who makes up your team and what the roles and responsibilities are.
Financial Plan and Projections
The final piece of the business plan is all about the numbers. This should cover the budget, business expenses, financial statements and a timeline of the financial goals and expectations. Most importantly, here is where you make your case to get funding from investors and lenders.
After discovering all the elements above, my next question was, do I need all these sections to make up the business plan?
After reviewing various business plans, I found that depending on the purpose of the plan, the venture and the goal that was to be achieved, there were always four key sections that could be found in all plans. These important sections are supported by the other sections that were mentioned above. We will outline these must-have sections below and explore them a little more.
1. Executive Summary
The executive summary lets the reader understand what the business plan is all about. It is the first and most integral section that recaps the entire business plan. It will then cover and highlight key information presented in all the other sections of the proposal but it is also not a copy and paste of the larger document. It is normally one to four pages long as readers want to get through the details of your business as quickly as possible. As a rule of thumb, executive summaries are 10% of the entire document or less. It gives an overview of the business and may include the mission and vision statements, an outline of your plans and goals, what the company or organization is about, the strategy and funding needs.
The executive summary makes it quick and easy for your potential client to gain an insight into what you are offering them and why it will benefit them to do business with you. Therefore, this section is where you tell your story, pitch your ideas and appeal to the reader so that they will want to continue reading further into your plan. It is best to write the executive summary as the last piece as you would have then had a comprehensive understanding of your plan as a whole and can now provide a shortened version of it.
Tips for writing an Executive Summary
You have been introduced to what the executive summary is and what it should require. Here are a few tips that can also guide you with the writing process.
Keep it short
The summary in its name should be a guide. You want to express the ideas highlighting the most critical ones in a short, concise and clear form.
Be mindful of tone
Remember you are presenting a proposal and wanting to keep your reader’s attention. You will then need to understand who you are preparing to present to. Your choice of words is a key component in how you express your ideas. Using jargons can come off as unprofessional as you want them to also be able to understand what you are talking about. Jargons and slangs lead to confusion and we want to present with clarity.
Additionally, avoid using too many technical terms as we cannot guarantee that your readers will understand them. Instead stick to simple and plain language that can be easily understood.
Finally, avoid cliches when writing this piece. Cliches are cringe worthy. Phrases such as “the best store in town” or “the next big thing”. You are not able to compare until you actually have the business in operation. These words not only fail to sell your story but often end up having the exact opposite effect.
Research your client
We are trying to persuade our readers so we want to keep more of the spotlight on them than anything else. Do some research on them to ensure the information presented is accurate but try to include them when you can.
Do not overdo it
Yes, you want to talk about your clients as much as you can but you do not want to overstate too much. This can come off as overreaching and dissuade them from pursuing business with you.
Be confident
If you are not confident, then your readers can sense it too and will only be disinterested with the presentation. Show your passion by telling why this business is worth their time. Be realistic with your content so research is important as you do not want to include claims that you cannot support as this can interfere with the overall feel of what you are trying to achieve.
Review and proofread
This goes for all sections of the business plan. Read through your work to ensure there are no grammatical or punctuation errors. The great thing about the internet age is you can use apps like Grammarly to assist in detecting errors. You can also have someone else review the document for you. Sometimes having a fresh set of eyes will help to make sure the flow and tone is on track.
Still unsure? Take a look at the example below of an executive summary.
2. Business Description
People need to know what your business is all about and what it has to offer in order to peak their interest. Therefore, this section is also a vital part of the business document that has to be written with passion and persuasion.
The business description gives an in-depth look at different aspects of the business. Start with an introduction by giving the company name, what the business does and your role in it, its location, and how long the business has been operating.
Other common elements to include are:
- Company History: A background into why and how the business started
- Ownership and structure: Is it an LLC, sole proprietorship, corporation or partnership?
- Mission Statement: Sums up the purpose of the business
- Brief overview of the products and services
- The kind of customers you serve (target market): Are you catering to teenagers? Young business professionals? Children?
- Company’s philosophy and values: What you stand for as a company that people can identify with (this can be apart of the mission statement)
- Future goals and objectives: What you expect to achieve in a specified timeframe
- Vision Statement: What you would like your business to look like in the future
Tips for Writing the Business Description
Break it down
You may have so much that you want to say about your business that you are not sure where to begin. Nevertheless, you have gotten an outline of what the business description should include. Instead of trying to tackle it all at once, break down each section and note them, then bring it all together to make up a cohesive piece. This makes the writing more approachable and less overwhelming. Patriot takes you through their 5 W’s that you can also use a guide.
Show your passion
This part of the business plan allows you to really boast about what makes your business special. People are drawn to passionate and excited business owners so highlight your inspiration for starting the business and the uniqueness that it will bring to the market. Get your reader excited too about what you have to offer and the vision you have to take it further.
Don’t forget the facts
Even though this is the opportunity for you to set the stage and put the spotlight on your business, you don’t want to eliminate the facts such as the name, location, the structure and more. You also don’t have to be too specific as you will be able to expound more in other sections of the business plan. You can use these as your introduction and then get into creating that appeal.
Review and proofread
Our passion can allow us to get carried away and include unnecessary information. Therefore, we still want to review our draft after completing it to ensure it is thorough yet succinct.
Need some inspiration? Take a look at this example below:
3. Market Plan
This section speaks to how you will get people to buy your products and services while standing out from your competition. So everything to do with marketing – the market analysis, competitive analysis and the market strategy would eventually all tie in to the market plan.
You would first need to look at your market and prove that there is a need for your products or services (market analysis) and that you have a competitive advantage to attract customers and beat the competition (competitive analysis). After evaluating the market, you can then detail how you will promote your product or service in the market (market and sales plan) and your approach to selling them (sales strategy and implementation).
Market and Competitive Analysis
You want to demonstrate that you have done research and gained knowledge on the market and now understand your position in it. Some topics to consider in this section are:
The Niche or Industry
- The market size: Include its growth rate and impact
- Trends in the industry and market
- Challenges in the industry and market
Target Market
- Who is your target market?
- The demography of the target market
- The characteristics, preferences and habits of your target audience
- The geographical location of your target market
- The needs of your customers in the market and how they are not being met (instead how will you?)
The Competition
- Identifying your main competitors
- Strengths and weaknesses of your main competitors
- Opportunities and threats of your competitors
- Their response to your entry to the market
Market and Sales Plan
The market plan should cover the four P’s; product, price, place, promotion. In looking at this topic, you also want to keep the idea of what you want your brand to be. Your brand is the look and feel of the business that will create an experience that resonates with customers.
Product
In this section aim to focus on what the product or service is, its uniqueness and the benefits it will bring. Some things to consider are:
- Description of the products or services being offered include packaging, appearance, quality, features and function
- How they vary from the other products or services that may already exist
- The benefits and advantages that it will provide to your potential customers
Price
The research and work you did in the market analysis should be able to assist you with competitively pricing your product while still being able to maximize on profit. With pricing and positioning, being fair and reasonable is essential because there is always a limit on the price that the customer will pay. If you have gotten an understanding of your target market, then your pricing strategy should have taken them into account. Some questions that you need to answer are:
- What is the cost of your product or service? Explain how you got to this particular price by including your fixed and variable costs.
- How competitive is the price you have chosen and how does it compare to others in the market?
- What sales volume will you need to be profitable?
- How will you give discounts, if any?
Place
Place simply refers to how the product or service will be seen, sold or distributed in the market. It is important to consider where your target market spends most of their time so that the product or service can be deliberately placed to appeal to them. You also want to make sure it is accessible and can easily be found. Some questions to use as a guide:
- How will your product or service get to the customer? Will you sell online or will the product be brought in to retail outlets? Will you go door to door?
- How long will it take to get your product or service to your customer?
- What are the costs for distribution?
- How will the product be packaged for display vs shipping?
- How does your distribution channel differ from your competition?
- What advantage do you have in choosing this method of distribution?
If shipping of the product or service is involved:
- What are the costs for shipping?
- How will the product be packaged for shipping?
- Is there a return policy? Warranty?
- Will there be opportunity for customer feedback?
Promotion
The goal of promotion is to make your target market aware that your product or service exists. Promotion then allows your market to form certain expectations about the product or service. Promotional activities include advertising, exhibition, personal selling, public relations and sponsorships. Some questions to answer while doing this piece:
- What mediums or channels does your target market use most often?
- Which promotional activity will you use and how often?
- How does your competition promote the same product or service? How will you carry out the promotion any better?
- Through the selected means of promotion, how many customers do you expect to gain in a specified timeframe?
- How much will promotion cost?
Modern marketing experts believe that there is a 5th P to add to the mix and we agree.
People
People make or break your business. So, a big part of business is to also focus on the quality of service that is being provided to customers – customer service. Exceeding customer expectation and giving them the best experience is definitely the best way to keep customers and get new ones. So the people who talk about the product to customers and those who bring it to them will need to be properly trained to ensure excellent customer service is provided. This brings us to our next item – sales strategy.
Sales Strategy
Marketing will get people interested in your product but it does not matter until you make a sale. This section then calls for a breakdown of how you will sell your product or service to your target audience and who will do it. We mentioned the people who will talk about your product and bring them to customers. These are likely to be salespeople. Some areas you can consider are:
- How many salespersons would you require?
- How would you hire them?
- Will there be a training program to hone their skills?
- Will they be paid by commission or straight salary?
- Will there be any incentives offered to encourage their good work?
You also want to include goals that you have set to be achieved in a timeframe. Including things such as:
- Sales targets: How many sales do you intend to make in the first month, six months or a year?
- The intentions for growth: The introduction of new products? Expanding your staff?
4. Financial Plan
No matter how great the vision is, the marketing and the strategies, it all comes down to how much money your business can earn. The financial section of the business plan is designed to justify just that. If your business requires funding, this section is where you will also make your case.
Your financial plan should entail:
- Business Expenses
- Financial Projections & Financial Statements
- Funding Requests
- Exit Strategy
Business Expenses
Highlight your items that you will spend money on for the business. Show the amount being spent on the items on a monthly basis and indicate which ones are fixed and those that will change. You can also divide the expenses into startup expenses and operating expenses. These can include:
- Utilities
- Rent or mortgage payments
- Deposits and down payments
- Advertising and marketing
- Business fees such as licenses, permits, subscriptions
- Hosting platforms
- Ecommerce platforms
- Payroll (salaries, benefits, incentives, taxes)
- Taxes
- Equipment
- Storage
- Insurance
- Maintenance
- Travel or transportation
Financial Projections
This is just an overview of how many sales you anticipate each month. You can also report your anticipated revenue for the first 12 months and your annual projected earnings for at least five years of business. It may be challenging to predict with a startup business but come up with a realistic goal based on your market analysis. Supplement your projections with financial statements called pro forma financial statements.
Financial Statements
There are three main types of statements that should be included. These are the income statement, cash flow statement and balance sheet.
Income Statement
The income statement summarizes the income and expenses of your business for a particular period. It allows you to determine whether you are making a profit or operating at a loss. You can base your numbers based on the performance of other competitors in the market.
While established businesses are required to produce income statements annually, startups and small businesses should provide monthly reports while writing a business plan.
Cash Flow Statement
Cash flow statements provide a breakdown of the incoming and outgoing cash in the business. By keeping track of how much money you have, you are able to determine to whether there is enough cash on hand to meet monetary commitments.
A startup business should show monthly projections for the first year of business, along with quarterly information for the next two years.
Balance Sheet
A balance sheet shows what your business is worth. It adds ups the business’ assets, liabilities and shareholder’s equity. This will help with identifying the allocation of resources, debt management and growth decisions.
While writing a business plan for a new venture, you will have to work on creating projections for balance sheets. These will serve as the benchmarks to compare against actual results at the end of the fiscal year.
Funding Request
If you are looking for financing, here are some key questions to answer:
- How much money are you looking for?
- What are the reasons for the request?
- What type of funding will it be? A loan or investment?
- Will you require more money over time and what would that timeline be?
- How will you pay off the debt or what would the return on investment be?
- If this is a loan, will there be anything that will affect your ability to repay?
Exit Strategy
In covering the points above in your funding request, you will also have to explain what you will do if you need to close or sell your business or retire. This is known as the exit strategy. Lenders and investors will want to know that their investment or loan is protected if the business is not able to continue.
Tips for writing the Financial Plan
Be prepared
Take to the time to carefully prepare all the information that is needed for the financial section. Especially with asking for funding, investors or lender need to know all the details so they can make a decision. Be prepared to answer any additional questions they may have by doing extensive research.
Go with simple math
We mentioned that the financial projections may be a little challenging as you do not have much to go on. However, you have the vision for your business so just put that into numbers. Try not to overcomplicate your predictions as this will only be difficult to explain and understand. Instead opt for easy calculations and do not clutter the section with unnecessary details as this can distract readers from focusing on core digits.
Be Realistic
You want to provide reasonable estimates in your projections. You don’t need to spend much time justifying your assumptions unless they are critical to the company’s success. Nobody will like if they are over optimistic or too perfect. Your investors or lenders will see right through it.
Have an introductory page
Include an introduction to your financial plan with a page that has just plain words. Use that to explain your key assumptions and how you arrived at each one.
Use visuals
Visuals help to grasp content especially when numbers are involved. Create pie charts, bar graphs, histograms – any diagram that will help to represent your data.
Review and proofread
Do You Need a Business Plan?
When you are just starting a business, the business plan is an essential and helpful document. It is always good to plan so that you are prepared for anything. The business plan is the tool that helps you to understand how the business is put together, allows you to monitor your progress and plan strategies for problems that may arise in the future. You also gain knowledge and have a sense of the market you will now be apart of.
There you have it. A comprehensive look at the business plan. It is not a plan that will guarantee success but it is a key resource to have. If you need more insight, you can take a look at a sample business plan here.
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