HOW TO WRITE A BUSINESS PLAN

There is a business plan template which can be used with these notes

Why write a business plan?

When starting up a business, so many small business owners think they only need to complete a business plan if they are trying to raise finance.  Whilst it is an essential document for raising finance, it is also highly recommended to complete a business plan if you are funding the business yourself.  By preparing a business plan it will help you pull all your ideas together, confirm your ideas are realistic and workable and will help you pinpoint areas that you need to address before starting to trade.  Ultimately, it will make you think about areas of your business you may not have otherwise thought of and will help you plan carefully to give your business the best chance of success.

What is a business plan?

According to Wikipedia, A business plan is a formal statement of a set of business goals, the reasons they are believed attainable, and the plan for reaching those goals. It may also contain background information about the organization or team attempting to reach those goals.

The main things to remember are that a business plan is there to:

  • To show you understand the market
  • To prove there is a gap in the market
  • To explain clearly what you are offering
  • To make sure your words in your business plan translate into the numbers in your financial forecasts

Whilst every business plan will be slightly different, a well-constructed business plan should cover the following areas:

Business Owner details

Whose plan is this?  Give details of all the business owners with their contact details.

Executive summary

If you are creating a business plan to raise finance, this is the first page a lender will turn to, so it needs to be a brief summary outlining what your overall business plan is about, clearly explained, without waffle and to attract the reader to want to continue to read the more in-depth information about your business.

You will want to include in this section a short summary of what the business is, it’s overall aims and objectives and a brief financial summary.  Remember, this is a brief overview, all these areas will be covered in more detail within the plan itself.  You need to list the key points, so the reader wants to find out more as mentioned above.

Even though this is the first thing in a business plan, it is best to complete the rest of the plan and then come back and write this section as the very last thing you do.  It will be easier to complete and clearer in your mind when you have been through all the other sections.

Background

Here you need to give the background details of the business owners including both personal and business details that are relevant to your business.

Items to include:

  • Experience
  • Relevant training and qualifications
  • Why you want to start your own business
  • Why you think you will be successful at running your own business
  • Hobbies

When writing this section, please do keep the information relevant to the business you are starting.  Unless you are talking about transferable skills, no one wants to spend time reading about wholly irrelevant information.

 

Business description

What exactly will your business do? What products or services are you going to sell? This needs to be a specific as possible.  I have seen plans where this section simply stated ‘Hairdresser’.  Simply not good enough I’m afraid.  You need to define who your target customers are going to be, where you will be based, what services you will be offered, hours of opening etc.  This is where you can explain how you are going to stand out from the competition.

However, don’t make it so long winded and technical that the reader loses interest.

 

Business goals

This section needs to explain what the aims and objectives are of the business and what it hopes to achieve at set points in the future.  As a general rule of thumb, it is a good idea to have one year, five year and ten-year goals.

Where do you see your business in the future?  Will you have additional products and services?  Will you have employed staff?  What are your growth plans?

 

The market

This is where your market research becomes invaluable.  You need to explain who your customers are, where they are based, what motivates them to buy what you are selling, who do they buy from at the moment and why, how are you going to sell to them and what results you have gained from trialling your product or service with potential customers already.

By completing this section, you will be illustrating that you have done enough research to determine your business idea is viable in the current market place.

 

Things to include:

  • What market research have you done and what results were gathered?
  • How did you carry out your market research?
    • Customer questionnaires
    • Test trading
    • Word-of-mouth
    • Desk research
  • Are your customers’ individuals or businesses
  • Describe your typical customer
    • What age are they?
    • What gender?
    • Where are they based?
  • Why do customers buy what you are selling?
  • How do they choose which business to buy from?
  • Why will these customers buy from you? Why are you different from the competition?
  • Have you sold products or services to customers already? If yes, give details
  • Have you got customers waiting to buy your product or service? If yes, give details.

 

Marketing strategy

You need to state here what marketing you are going to do to make your customers aware of your product or service, explain why you have chosen these methods and how much it is going to cost.

Again, you can pull valuable information into here from your market research finding out where your ideal customers go to buy and how they buy.  If your market research has shown they like to buy online, you need to list here your online store, explain the results from your market research showed this is how your customers preferred to buy and how much it is going to cost you to set your store up and run it.

Areas to think of are:

  • Leaflet distribution
  • Advertising – national and local
  • Advertising – radio
  • Tele-sales
  • Links with other businesses
  • Website
  • Digital marketing – Newsletters/Social media/Adwords
  • Exhibitions/Events/Markets

 

Use a table format to lay out this information if you wish.

Competitor analysis

Here you need to list the competitors for your product or service, where they are based, what size they are, what they offer, what price they charge, what their strengths and weaknesses.

One of the easiest ways of showing this information is in a simple table format.  An example for a photography business is shown below.

 SWOT analysis

Again, use a table format to explain your:

  • Strengths – what are they and how will you make the most of them
  • Weaknesses – what are they and how will you overcome them
  • Opportunities – what are they and how will you make the most of them
  • Threats – what are they and how will you overcome them

Start-up costs

Here you need to list all the things that will need to be paid for to get the business off the ground.  This will include the cost of premises, any equipment that needs to be purchased, insurances and licences that need to be obtained, stock supplies, specialist clothing and everything else you can think of.

Business Funding

Explain where the money is coming from to start your business.  Will it be from personal savings, a loan, grant or a gift from family or friends?  Show any income on your cash flow forecast.

 

Costs and pricing

Here you need to illustrate what your costs are for producing your product or service, what you are charging your customer and what your profits will be.

Here are a couple of examples for both products and services

Sales forecasts

This is usually completed in a spreadsheet format that will be attached to the main business plan.

Using information, you have gathered so far in your research, you need to make an educated forecast of how many sales of each product or service type you are likely to make each month for at least the next 12 months.  Don’t forget to consider seasonal trends and variations.

Personal survival budget

How much money do you need to survive each month?  You will need to complete a table to show the household income and expenditure each month and what the deficit is each month that you will need to draw from the business in order to survive financially.

Cash flow forecast

Here you need to first enter your sales figures for the next 12 months to show the income the business is expected to make.  Then you need to list the direct costs incurred to create your product or service such as raw materials and stock purchases.  Further to this you then need to list all the indirect costs of running your business such as insurance, heating and lighting, phone, stationery and office expenses and not forgetting your own drawings.

When writing a business plan, it is critical, to be honest, and realistic with your forecasts.  All too often small business owners lead themselves into a sense of false reality by overstating how many sales they believe they will achieve in the early months and underestimating costs.  If you are preparing a plan for funding, these areas will be scrutinised, and any unrealistic figures will be questioned.  If you cannot back up your forecasts, your credibility will be lost and quite possibly any funding opportunity.

 

Business operations & legislative requirements

Here you need to explain how the business is going to be operated and what legislative requirements will be covered.  Explain briefly how your business is going to be run, where from, who is going to do what, what licences and insurance you are going to need and how you are going to take care of the administration.

Things to cover are:

  • Production
  • Storage
  • Delivery
  • Payment methods and terms
  • Suppliers
  • Premises
  • Transport
  • Staff
  • Legal requirements
  • Insurance
  • Record keeping

 

Risk analysis

This is the part that so many people leave out as they think it will never happen to them.

Here you need to list your Plan B.  What are you going to do if something goes wrong?  What if you are ill?  What if your supplier lets you down?  Use information from your SWOT analysis to try and cover off eventualities that could cause problems to your business.

 

Appendices

Appendices should include all supporting documentation such as:

  • CV
  • Certificates for any qualifications or relevant training courses
  • Copies of the lease for any business premises you will be renting
  • Market research data
  • Financial forecasts

 

Reference these throughout your business plan and make a list of them at the end of your plan so it is easy for the reader to find the relevant information quickly and easily.

 

Top tips

When you have finished writing your business plan, double check that all the information tallies up.  One of the biggest mistakes is that figures included for things in the plan for items such as equipment or marketing do not match the figures in the financial forecast spreadsheets.  Questions are then immediately raised, and the plan loses credibility.

Get someone not connected with writing the plan to proofread it for grammatical errors and spelling mistakes.

Talk your plan through with a mentor or business advisor who has the experience to be able to cross-question you on any areas to ensure your plan is realistic and robust.

It’s not a bad idea to have an annual review of your business plan and update it to help keep you focused and on the right track.