Many people wish to start their businesses. The seemingly daunting task of writing a business plan is one of the first things that prevent these would-be entrepreneurs from realizing their dreams. On the other hand, writing a business plan is a relatively simple task if you understand your industry, so let’s look at what a business plan entails.
Before we begin writing our business plan, we should consider why we are writing one in the first place. Most business plans are used to secure financing for a company, whether a start-up or an existing company seeking additional capital. This funding could come from a bank, an equity or venture capital fund, friends, family, or any other possible investor.
Another reason to write a business plan is to organize yourself, to ensure that you have considered all aspects of your business and that it makes sense. A great product or service idea may not translate into a great company unless you can turn a profit through effective marketing, expense management, accounting and information system management, and so on.
Things to Remember
Remember that your audience, whether you’re looking for funding or not, will likely be a potential investor as you write your business plan. You must demonstrate to investors that your company understands its business and has considered all of its industry’s risks, challenges, and opportunities.
You should provide enough detail about your business to demonstrate your knowledge to investors to communicate this understanding. You could, for example, write something like this: “Profit margins in our industry average around 25%, according to the ABC Trade Association. Because of the procedures we’ve implemented, our company can achieve 30% margins due to increased operational efficiency.”
There is no hard and fast rule for where or how to include these details, but it will boost your company’s credibility.
You should also consider your writing style. There is no benefit to using flowery language or fancy vocabulary. This type of writing may cause your audience to lose sight of your company. Instead, write clearly and concisely so that potential investors understand how you operate your business.
The Summary
So, with these thoughts in mind, how should we organize our business plan? The example below shows how a business plan can be structured. This outline contains the most commonly used sections of a business plan, but it is far from exhaustive of the areas a specific business may need to cover.
Highlights of the Business Executive Summary
Overview of Operations
Overview of the Market
Appendix: Management and Personnel Financials
The executive summary of your business plan should be between two and four pages long. It should cover each section of the program briefly and give the reader a good sense of your company even if they don’t have time to read the rest of the document. In this section, you may also want to briefly discuss your company’s history, mission, and values.
Getting to the Point
It’s time to move on to the business highlights section. This section discusses what distinguishes your company and what will lead to its success. You may want to emphasize your management team’s experience, discuss the strength of your market position, or any other factors that make your business competitive.
This section may discuss risk factors and how your company mitigates or addresses these risks. Discussing risks is another opportunity to demonstrate your business and industry knowledge.
Starting the Process
The following section goes over your company’s operations. The operational overview is typically the most extended section of a business plan and typically covers the business strategy, marketing strategy, product or service offering, management and information systems, and any other components critical to the business’s operations.
A section on the industry or market is also beneficial. It will provide potential investors unfamiliar with your industry or call with a better understanding of the environment in which you operate.
This section may include demographic information for the market in which your products or services are sold. It could include a discussion of your industry’s regulatory or legal environment. You can also have some general industry statistics from a reliable source, such as a trade association. This will help to validate some of the assumptions in your financial projections in the following section.
In conclusion
Financial projections are usually one of the last sections of a business plan. This, ironically, maybe the section you want to start with when writing your business plan. Building a financial model for your business is one of the best ways to ensure that you’ve considered all of the fundamental components of your business and that it will eventually generate revenue.
Several questions will arise during the process: What are my startup expenses? How will my marketing strategy translate into increased revenue? What are my gross profit margins? What are my fixed and overhead costs? When will I make a profit? How much capital will I need to get started? How much will my interest cost?
Income and balance sheets should be included in your financial projects. A good rule of thumb for a start-up is to show monthly income statements and balance sheets for the first two years of operations, followed by full-year projections for at least the first five years of operations. You may want to project out to ten years, depending on how long your company takes to reach a break-even point.
Your financial section should also include a discussion of your assumptions, an estimate of when your business will begin to profit, critical margins that you believe your business will achieve, and so on. If your company is already running, you should include financials from the previous three years rather than projections. If you have less than three years of data, you should forecast a few years.
Finally, you may want to include an appendix with additional information. You might want to include a few news articles highlighting how quickly your market’s economy is growing. You might have some news articles about your company. Perhaps you have financial statements for multiple locations that would provide more information about your company.
How much time should it take?
The length of a business plan varies depending on the type of business, whether or not the business is already in operation, and what the business plan will be used for. Some companies may require a lot of technical detail to effectively communicate how they will operate, while others are more straightforward.
Businesses that are already in operation will be expected to provide much more information about their operations, such as the type of accounting software they use, the physical location of their company, pictures of products or facilities, actual financial results, and so on.
Suppose a company is attempting to organize its operations without seeking investors. In that case, they may get away with fewer details in their plan – though they may seek to go into greater detail than investors may require.
A typical start-up business plan should be about 15-20 pages long, though it could be a little shorter or much longer, depending on the above-mentioned circumstances.
Differentiating Yourself
Finally, if you start your own business, you are going pro and should act like it. Make your business plan look professional at all costs. It should go without saying but thoroughly read and edit your project before sharing it with others.
If your company does not have a logo, you should consider creating one. Use images of your company or the products it sells to break up the text and engage the reader.
Again, these may appear to be minor details. Still, a business plan may be the only document a bank underwriter has to go on when evaluating the credit quality of a loan application.
Having these details in place communicates that you are serious about your business and that your business plan was not thrown together a few days before because you needed it for a loan application. You will have a solid business plan if you know your business (or thoroughly research it), are as detailed as possible, and present your company professionally.
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