When people think of business plans, what commonly comes to mind is start-ups pitching to investors or applying for loans. But whatever stage of growth your business is at, and whether or not you’re seeking external finance, a business plan - when done right - can be an important tool in helping your business to succeed.
As the roadmap for your business, it sets out what you want to achieve and how you’re going to achieve it – helping you to determine your objectives, focus your strategies and prioritise. It’s therefore just as valuable for internal use as it is for explaining your business to other people.
In this guide, we’ll give you some essential tips and take you step by step through the different sections of a business plan, so that you can start creating one that really works for your business.
Three key tips for creating a business plan
1) Keep your target audience in mind
It’s likely that at some stage you’ll need to give an overview of your company to external people or organisations. In these cases, a business plan is not only the best way of presenting information but is often a must-have.
Readers of your business plan may include:
- Banks, equity investors, grant providers and other funders
- Anyone interested in buying your business
- Potential partners
- Future employees
If you want to pitch your company effectively, then it’s important to adapt your plan for different audiences. This doesn’t mean completely re-writing it for every person who reads it; you’ll just want to include certain pieces of information or emphasise particular areas based on your audience’s interests.
For example, if you’re looking to raise equity investment then your plan should demonstrate your company’s potential for growth, the market demand and the strength of your management team. If you’re applying for a bank loan, your emphasis may be more on cash flow and asset security, demonstrating your ability to keep up with loan repayments.
It’s also important to think about the language you’re using. Most readers probably won’t have the same level of expertise in your field as you do, so avoid using too much technical jargon when describing your product.
If your business plan is intended for internal use only, it’s good to write it as though it were aimed at external readers, and the basic information you include will be the same.
2) Think about the length and presentation
One of the most frequently asked questions associated with writing a business plan is ‘how long should it be?’ The answer to this will depend again on the purpose and audience of your plan. If you’re looking to raise a significant amount of capital, then it’ll likely need to be longer and more detailed than if it’s intended for internal use only. Having said that, an overly long plan that doesn’t get your idea across succinctly may lose a finance provider’s interest.
It’s therefore a good idea to use readability as a measure of length rather than page count. Focus on writing and formatting your plan in a way that is easy to digest while still conveying all the necessary details.
A plan that is only ten pages long but poorly presented is less likely to retain a reader’s attention than a plan twice as long but well presented. Keep your language concise, ensure that text is well laid-out with headings and bullet points, and consider using charts, graphs and images where relevant. If you need more room for supporting information, such as detailed market research, include it in an appendix.
3) Review your plan
Once you’ve written your business plan, it’s essential to review and edit it carefully. Show it to friends and expert advisers, such as your accountant, to check that it’s easily understandable and that all your points are explained clearly.
You also want to ensure that your plan is a realistic assessment of your business, the market and your goals, with evidence and examples to back up the statements you make. Rather than presenting an overly optimistic vision, it’s better to acknowledge the potential risks and challenges and how you’ll address them.
Being realistic and accurate is particularly important when it comes to financial data; you should take care not to overestimate your financial projections as this may reduce your credibility. If you need assistance to get the financials right, you can use an accountant or get help from services like Business Wales.
One final point to mention before we outline the business plan sections is that once you’ve created your plan, remember to use it. For it to be an effective internal tool, it needs to be a living document that is reviewed and updated continuously. Updating your plan on a regular basis will allow you to keep on top of any changes, make adjustments and ensure that your business stays on the right track to meet your goals.
What to include in a business plan
Now that we’ve discussed these key tips, it’s time to take you through the typical components of a business plan. While there’s no ‘one-size-fits-all’ when it comes to business plans, most follow a similar outline and having a guideline for the structure will help you to organise your content.
The introduction, often called executive summary, gives a clear overview of what your business does and states what you’re looking for from your target audience. It’s essentially a summary of the key points from all the other sections of your plan, so it generally makes sense to write this last.
This first chapter is often the most important for many businesses as it can influence your audience’s decision to read the rest of the plan or not – so if you’re looking to raise funding, this may be your only opportunity to grab a lender or investor’s attention. You should therefore aim to make it informative but concise (two pages maximum), covering the highlights of your plan and giving the reader a good understanding of your business without going into too much detail.
2) Outline of business and products
In this section you’ll provide key details about your company, what it is that you’re offering and what you want to achieve.
You should begin with a clear explanation of your business and its history, including:
- When you started or intend to start trading and the progress you’ve made to date
- The type of business (e.g. service, retail, manufacturing) and the industry you’re operating in
- The legal structure (e.g. sole proprietorship, partnership, limited company) and ownership information
- Your goals and objectives for the future
This can then be followed by a description of the product or service you provide:
- The benefits it offers and what makes it different
- Any changes or improvements that you’re planning
- Any patents or trademarks you hold
3) What your market is and who you’re competing against
Next is a description of who you’re selling to, their needs and how you meet them, and who else is providing a similar product or service. You should demonstrate a solid understanding of the market and your place in it, using the results of any market research you’ve conducted to support your statements.
When it comes to competitor analysis, the first rule is never to say that you don’t have competition. However unique you believe your product is, there will always be businesses that are offering something similar, or competitors entering the market in the future. Use this as an opportunity to highlight why your business and product is special.
These are some of the questions you’ll want to consider:
- What are the characteristics of the market you’re operating in? For example, the size, growth rate and important trends
- Who are your target customers? Here you might include demographic information and identify your customers’ motivations, i.e. why they would want to purchase your product
- Who are your competitors? What is their size and market share compared to yours? As part of your analysis you can identify the most important success factors in your market such as price, customer service and product reliability, and rank your competitors in these areas
4) Marketing and sales strategy
Now you’ve identified your target market segments, you should describe how you plan to reach them. Having a great product alone is not enough; you also need to be able to demonstrate that you can effectively position it in the market, convey its benefits and sell to potential customers.
Key areas to discuss here include:
- How you’re positioning your company and product. What features and benefits does your product provide? Are you offering a low-price or premium product?
- Your pricing policy. How will it appeal to your customers? How does it compare to competitors’ pricing?
- The marketing methods you plan to use to promote your product
- Your sales and distribution plan. Which sales methods do you plan to use and what channels will you use to reach your customers?
5) Operational structure
This section provides a picture of the capacity of your current operations and future operational requirements, from your premises to your IT systems – essentially all the major elements involved in running your company on a continuing basis. The operations section will be specific to your business and industry but these are some of the areas that this chapter often covers:
- What premises do you have or need?
- What are your long-term commitments to the property?
- Do you own or rent the premises?
- What are the advantages and disadvantages of your current location? How will you address potential problems? Are you looking to expand or relocate?
- What’s the process involved in producing your product or service?
- What do you produce, how much of it do you produce and how long does it take to produce a unit?
- What equipment do you have or require?
- What’s the capacity of your production facilities compared with the existing and projected demand?
- Do you need to outsource any of your processes?
- What technologies do you use?
- Who are your suppliers?
Management information systems
- What measures do you have in place to control stock, manage accounts and control quality?
- How well will these systems be able to cope with any future expansions?
Information technology (IT) systems
- What IT systems do you use and how reliable are these?
- What IT developments do you have planned for the future?
6) Financial performance
No business plan is complete without the financial section. Here you’ll justify everything you’ve written in your plan with well-researched and reliable figures, setting out where your company stands financially and where you anticipate it being in the near future.
If you’re looking to raise external finance then you’ll need to specify how much capital you require, how you intend to use the capital, the benefits it will bring to your company, how you plan to repay any borrowed money, and what security you have available to offer lenders.
At the minimum you should include the following financial statements:
- Balance sheet. This shows your company’s assets, liabilities, and owner’s equity at a specific moment.
- Cashflow forecast. This should cover at least the first 12 months; more established businesses will usually make longer-term projections.
- Profit and loss statement (also called income statement). This gives a picture of your business’ trading performance, listing your sales and expenses
This section isn’t essential, but if you have documents and detailed information to support your plan then an appendix is the best place to put these. For example, you may want to include market research data, CVs of key team members, legal documents or product literature and images.
For further guidance on writing a business plan, including a downloadable template and business plan checklist, visit the Business Wales website here.