How to write a business plan
Keep your business plan simple. It should be as short as possible, as overly detailed business plans can be too cumbersome to use. Focus on the information the reader needs to know. Leave the finer detail for operational or marketing plans or attach information such as technical details of a product in an appendix.
Keep your business plan realistic. For example, unrealistic sales forecasts could lead to increased overheads followed by a damaging cash flow crisis and drastic cost cutting. It could also damage your credibility, because lenders and other interested parties will quickly see through optimistic plans that ignore weaknesses or threats.
Even if your plan is intended for internal use only, write and present it as if it's aimed at an outsider. Put a cover on the plan and include a contents page, with page and section numbering. Start with an executive summary of the key points and purpose of the plan. Use charts if relevant and include business or product literature as an appendix. Get the plan proofread for clarity, spelling and grammar mistakes, and then show the plan to friends and business advisers for comments on how to improve it.
Detail your business and products
Start with a brief history of the business. When did it start trading and what progress has it made to date? Who owned the business originally? What is the current ownership structure? Describe your product or service without using technical jargon. If necessary, you can offer the technical detail for people who want to know more in an appendix to the plan. In general, what makes your product or service different? What benefits does it offer? What are its disadvantages? How do you plan to develop the business?
Include your market and competition
Outline your market, customers and other businesses you compete against in that market:
Define the market in which you sell and then focus on the segments of the market in which you compete. How large is each market segment? What is your market share? What are the important trends, such as market growth or changing tastes and the reasons behind the trend? What are the key drivers affecting each important market segment?
Describe the nature and distribution of your existing customers. Give a typical customer profile for each market segment you target.
Define your principal competition. What are the advantages and disadvantages of their products and services compared with yours? Cover issues such as price, quality and distribution. Then explain why customers will buy your product or service instead (your competitive advantage). Be careful of criticizing or underestimating competitors.
What is your pricing policy? Explain how price sensitive your products or services are. Look at each product or market segment in turn. Identify where you make your profits and where there is scope to increase margins or sales. Explain how you set your pricing accordingly.
How do you promote your product or service? Each market segment will have one or two optimum methods, for example, direct marketing, advertising or PR. If you're considering using a new promotion method, start on a small scale to test if it works.
Analyze the cost efficiency of each of your selling methods, for example, tele sales, a direct sales force, through an agent, or over the internet. If you have a direct sales force, include all the hidden costs, such as management time.
Management and personnel
Set out the structure and key skills of your management team and key staff. Identify any skill shortages, such as IT skills, and your plans to cover these. Explain your recruitment and training plan, including time scales and costs.
Provide forecasts for the next three years. These should reflect the complexity of your business. A small business may need only a profit and loss statement, and sales and cash flow statements. Clearly state the assumptions behind your forecasts. These should tie in with statements in the rest of the plan. For example, if the plan states that the market is becoming more competitive, then profit margins will probably be falling. Look at the overall trends of the historical and forecast numbers. Are they believable? Do the forecasts make allowance for possible problems and delays?
If you're raising finance, use the cash flow forecast to predict your cash requirements. Add a contingency element to the funding requirement shown in the forecast (usually 10% to 20%). Consider what the mid-month peaks might be and include the likely interest or dividend costs of any new finance.
Consider including a one-page analysis of Strengths, Weaknesses, Opportunities and Threats in your business plan, for example:
- Strengths might include brand name, quality of product, or management.
- Weaknesses might be lack of finance or dependency on a few customers.
- Opportunities might be increasing demand or a competitor going bust.
- Threats might be a downturn in the economy or a new competitor.
Be honest about your weaknesses and the threats you face. Spell out mitigating circumstances and the actions you're taking.
Finally, recognize that economies, markets and your business itself keep changing – sometimes favorably, sometimes unfavorably. This means you need to review your plan at least once a year. How well have you done? Have you met the benchmarks in the plan? Revising and updating your plan will keep it relevant as a roadmap for your business.