How to Write a Business Plan

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I've recently had quite a few people asking me about how to write a business plan. And it is a very good question because all businesses need a master marketing plan to work with, however small the company. It’s like trying to steer a ship without a rudder if you don’t have a business plan.

You can keep it simple, but do have a plan and refer to it often to check that you are ‘on track’. Consider carefully the logistics of running your business and develop a workable plan. Write your own business plan or use the template we’ve included on the CD for this module, as by doing this you will know your business and what you are trying to achieve with it better than anybody else.

There are business consultants who will write business plans for you  -- for a fee, but you are far better to write your own. Use ours as a guide and develop it to suit your own circumstances and your own aspirations for your company. Be specific about your business aims and objectives but keep it flexible and review your plan frequently to allow for unexpected twists and turns. Running a business can be very exciting and you never know what opportunities will arise. Be prepared to alter course sometimes so you can take advantage of them!

A business plan should be a working document about your business and about you. It should contain information about your business and your customers but also about how you develop as a businessperson or entrepreneur.

For small companies, who do not need to rely on outside funding to get started, a business plan is more like a company ‘blueprint’.  It identifies the company's purpose, products, market, and goals as well as the steps you plan to take to reach these goals.

Before you start writing you plan, your need to decide what purpose your business plan is going to serve.  If you're writing a formal business plan to secure financing, you need to be far more concerned about detail and format than if you're just preparing one for your own personal use.  No matter which approach you're taking, though, you need to know that there are certain sections that should be included in just about every business plan.

1.    Executive summary

The executive summary is basically your entire business plan condensed down into a page or two (at the most).  If you show your business plan to others, this is the only part that 75% of them will actually read!  For this reason, you need to make sure that this section is as clear, concise and exciting as possible.

Your executive summary should contain a few key items.  You want to start it with a brief description of exactly what your business does, who your market is, and what opportunities you have identified.  Explain what distinguishes your company apart from others in the same field.

You also need to discuss financial information such as projected revenues and if you'll be using this business plan to secure financing, how much funding you will need and what you’ll be using it for.  Don't give too much financial detail in this section.  You just want to include the most important figures.  And, be sure to mention your company's achievements to date.

Even if all you've done so far is register a domain name, put together a website, and put in a patents application, be sure to include this information in your business plan.  Since the executive summary is actually a summary of the plan itself, it’s best to leave writing it until last.

2.    Introduction

This is a couple of paragraphs to describe your business and summarize the main aims and objectives of your business. You could mention why you decided to start a business and why you think it will be successful. Perhaps give a time scale as to when you will start. Describe the status of the business, whether you are to be a sole trader, a partnership or a limited company.

3.    Business Background and management

If you're approaching a bank for funding, this section is especially important since a prospective investor will probably read your executive summary, then flip straight to your management section before reading anything else.  They will want to get a clear idea of who your company is -- after all, the business idea is only as good as the people behind it.

This is where you introduce yourself and your management team, if you have one.  Focus on your strengths and achievements and make sure you go into detail about what makes you uniquely qualified to operate this sort of business.  How do your areas of expertise give your distinct advantage over people operating similar companies?  This is where your passion for your area of interest will come into its own.  If you have unbounded enthusiasm and passion for your subject you can't fail to get attention and attract success.

Describe your background and any business experience or specialist skills you have which are relevant to the business you plan to start. It’s a description of your resume really but don’t just write out your resume, you can place that in an appendix at the back of your business plan. Here, you will need to pick out the pertinent points about your skills, knowledge and experience that are applicable to your business.

Talk about what inspired you to start the company and how fast it is growing.  Address the more concrete details as well, such as how much equipment you own or lease and where your offices are located (maybe your home). List any assets you have (and liabilities, of course, such as a mortgage, credit cards or loans).

Describe your company and your operating structure -- are you a wholesaler, a reseller, or a manufacturer?

Give the legal details of your company -- are your sole proprietorship, general partnership or LLC

4.    Keys To Success

This is the section of your business plan where you will describe your product or service and identify what makes your company unique. It is where you will address the following questions:

a)    What are you offering that others aren't?

b)    What sets you apart from your competitors?

c)    Why people should choose to do business with you instead of the other players in the same marketplace?

Pull out the key points here and summarize what it is about your business that will make it successful. Is it a high profit margin or a gap in the market that you intend to fill? Think about why your business will work and write it into your business plan in bullet point form or in a few sentences.

5.    USP

In a couple of sentences, you should be able to describe the UNIQUE SELLING PROPOSITION of your business. How is it special from other similar businesses and what will make the customer buy from you rather than your competitors?

6.    The Market

As we have seen it is vital to identify and target your customers and this should be detailed in your business plan. Give as much information as you can about your potential customers and include any market research you have carried out. Include detrimental information too as this shows you have the full picture. No business is without its pitfalls and if you can identify them you are better prepared to deal with problems should they arise.  Include information such as:

a)       How big your target market is

b)       How fast the market is growing

c)       How large can you expect your market share to be

You can achieve all this using any of the search engines on the Internet.

7.    Marketing and development strategy

One of the most important things you can do in any business is to develop an effective marketing strategy. This is where you talk about how you intend to market your product or service to your target audience. For instance, you might describe your marketing strategy in terms of one of the business models from our discussion in module one. Here’s a reminder:

a)       Sales model

b)       Subscription model

c)       Click-and-mortar model

d)       The vertical portal model

Think carefully about which marketing strategies you will use and realistically evaluate all the possibilities. Then focus on the two or three marketing techniques that will produce the biggest return on investment for you.

Be careful that you don't just list off every single advertising technique you can think of.  It is important that you focus and evaluate your marketing strategy.

You may be thinking that this sounds like a lot of work for a business plan.  But this is just the kind of groundwork and research you should be doing if you want your business to succeed.  In fact it is so crucial, it could make or break your future as a successful entrepreneur.  Just think about the number of new businesses that fail -- some 90% in fact, and you will see why it is so important to plan for success.

If your company is still in the developmental stage and you don't yet have a product, this is the section where you will explain how you're going to bring your company into the marketplace.  A good way to do this is to write out a development action plan with the projected completion dates for various milestones your company will need to reach before it can start making sales.

If your business is already up and running but is not generating a profit yet, then this is where you will need to identify how you will make up the shortfall and to become profitable.  For many home-based businesses, this is achieved from your savings or income from a job.

Regardless of what stage you are at, you should still include a table of projected milestones for your business.  Estimate the month and the year of each of the important milestones that you plan to achieve over the next one or two years.  This not only looks great and is very professional, but it also reminds you of your goals every time you refer back to your plan.

8.    Pricing

Give a breakdown of how your product or service is priced and include information on the volume of sales you are expecting as well as any seasonal variation there may be. Consider factors that could affect your business. For example, the weather might affect sales if you are planning to offer a lawn cutting service or skiing vacations in Colorado. All businesses have peaks and troughs so give some thought to this aspect when you consider pricing issues.

9.    SWOT Analysis

This stands for Strengths, Weaknesses, Opportunities and Threats. A SWOT analysis is a useful summary of your business and will point out areas where weaknesses can be turned into strengths. Imagine you are setting up an online tutoring agency where you match up tutors with students. You may set out your SWOT analysis like this:

Strengths

a)    A diverse range of qualifications and teaching skills offered through your database of tutors

b)    Tutors are screened with a background check, etc and interviewed, which adds credibility to the business and addresses insurance and safety requirements

c)    Repeat business from customers is very likely

d)    Low running costs

e)    Able to work from home

f)     Highly targeted niche market online

(Add in your own personal strengths such as being organized, hardworking or having specific educational achievements or skills)

Weaknesses

a)       No direct supervision of tutors… the agency works on trust

(Put your personal weaknesses here. For example, you might lack business experience or time to devote to the business)

Opportunities

a)       To expand - by taking on more tutors across the county (or even internationally!)

b)       To expand the range of services offered or subjects covered

c)       To develop a vertical portal site in order to create a community hangout online

d)       To employ office staff to help with the administration and running of the business

Threats

a)       Tutors could take payments from customers directly and not go through the agency (could you devise a system to avoid this happening, such as advance payments to the agency by the student?)

b)       Competition from other companies or individuals

c)       Health and safety issues

d)       Bad health

We can see that some things like having a part time job while the business is becoming established is a strength because of the financial support it gives but also a weakness because it reduces the time available to run and promote your business.

Through opportunities, some of the weaknesses can be turned into strengths.

Threats can be general and apply to all businesses or specific to your particular business. By thinking of the possible weaknesses and threats your business might face, you are pre-warned of the danger areas and have time to develop contingency plans or modify your system to account for them.

Think through a SWOT analysis for your own Internet business…

10. Competition

Give information on your competitors. Explain in detail, the strengths and weaknesses of your main competitors.  This will allow you to realistically determine where you are positioned with your business in the marketplace in relation to the competition.  Consider the following:

a)       Who are they?

b)       Where do they operate?

c)       How long have they been established?

d)       What sector of the market do they appeal to?

Make sure you do an honest appraisal of your competition.  For example if your site is selling children's board games, your main competition is not ‘Toys ‘R’ Us’. While you should consider all the major players, your biggest competitors are the other niche sites focused on selling children's board games.  These are the sites that you can realistically expect to compete with for customers interested in buying your products online.

Based on your research, you should now be able to capitalize on the weaknesses of others in your niche market and ‘snatch’ customers away from them by positioning your offer to meet the needs that everyone else is neglecting.

State how your product or service is better than your competitors and how you will overcome any difficulties in reaching customers or making sales despite the competition.  Show how you will continue to evaluate the competition by using research tools such as the keyword analysis programs available on the Internet that we discussed in the last module.

There is a section in a later module on competitors which goes into more depth about why and how you should know and monitor your competition as well as sneaky ways to get the upper hand!

For now – let’s cover cash flow forecasts…

11. Cash Flow Forecasts

If you've seen a few business plans before, you may have noticed that most of these documents are filled with balance sheets, earnings projections, capital requirements, depreciation estimates, and dozens of other highly detailed financial statements.

Don't let this put you off!  If you're not seeking funding, you don't need most of this stuff anyway.  Instead, for your own benefit, focus on your monthly income and monthly expenses.  The best way do this is put together a simple 12-month cash flow forecast.  If you are seeking a small amount of funding from a bank, this may be enough.

A cash flow forecast is simply an educated guess at the sort of turnover and profits you might be able to make with your business and the costs involved. It is definitely a worthwhile exercise to do with any business before you start… it's always good to know how much profit you could expect to make!

You may be able to identify areas where you can cut down on your overheads and by writing a cash flow forecast you would become aware of and be able to prepare for the peaks and troughs in your sales… and all businesses have peaks and troughs.

To prepare a cash flow forecast, simply list your income and expenditure for the business over a year or two.  Use the following chart as a guide. The cash flow forecast is really meant as a guide, not a prediction.

Jan Feb March April May June July Aug Sept Oct Nov Dec Total
Income
Sales
Total
Expenses
Materials
Wages
Rent
Electricity
Insurance
Phone
Travel
Total
 
Profit

 

a)   Estimate how much your business will earn on a monthly basis.  Include all your sales, cash or money from your savings, grants or sponsorship money or money your business has been loaned.  This is your total cash in.

 

b)   Determine what your monthly expenses will be.  This should include things like advertising costs, office expenses like phone bills and stationery, the cost of your stock, equipment purchases, loan repayments, as well as any cash drawn out of the business for your personal living expenses.  This is your total cash out.

c)   Now simply subtract your total cash out from the total cash in to get your monthly net cash flow.  If this is a negative number -- you're losing money!  While that might be okay short-term, if the numbers stay negative for too long you will need to re-evaluate your business plan and find a way to increase sales or decrease expenses if you aim to make a profit.

The sales you make and the success of your business depend on many variables, not least the amount of effort you put in to your business. We can show you how to set up and run your Internet based business but ultimately, it is up to you how you use the information and put it into practice. The cash flow forecast should be based on realistic figures not wishful thinking.

12. Business plan resources

If you find the idea of writing your own business plan a bit daunting – there are companies that will do this for you, at a price.

Although it is always better to write your own business plan there are resources available to help you with its.  Try the following free services:

B Plans offers a free business planning template…

And for some useful tips and advice try Score.org

Once you have written your business plan, you will be amazed by how often refer to it.  It will become your ‘battle plan’, as well as the tool you will use to measure how close you are to meeting your goals -- or by how much your surpassing them!  You can even show your business plan to prospective joint venture partners, potential employees, or advertisers.  A professional looking business plan will give you TONS of credibility simply because most businesses never take the time or effort to prepare one! (and 90% fail, don’t forget!).  Most people spend more time on their shopping list than they do on planning their life or their business yet it's a great way to evaluate how good that idea of yours really is!  For many people, the process of writing a business plan shows them that their business can make even more money than they originally thought!

If you're already running an online business, writing a business plan can help you decide exactly what aspects of your business are succeeding and which could be improved upon.  When you do an in-depth analysis of your marketplace, your customers, and your competitors, you'll be amazed by how much you can learn!

And be sure to make your business plan a perpetual work in process.  Go back and review it every few months, and make changes where necessary.  If your sales are twice what you expected, go back and update the figures in your business plan.  This ensures your map to profitability is always right up-to-date.

Fill in the actual figures month by month as you get going with your business.  Use it as an evaluation tool. Keep it on the wall in your office where you can see it every day. It’s even an idea to plot the figures on a graph so that you can see at a glance how you are doing!