A business plan is a written document that includes a brief description of your business. It also contains the objectives, strategies, sales, marketing and financial forecasts of your business. It's a useful summary that sells your idea and ambitions to a potential customer, supplier or even staff.
Banks and financial lenders usually require a business plan as part of an application for a loan. A robust business plan also helps you to set out long and short-term goals, measure your progress against these goals, clarify a business idea or proposal, and highlight potential problems before they happen.
Key sections to your business plan
Anyone picking up your business plan should be able to understand exactly what your business does and where you want it to go in the next 12 months or few years.
Your business plan should have seven sections. It’s also a good idea to include an appendix at the end. This can include information such as your CV, permits and leases when you obtain them.
- Executive summary
- Business description
- Market strategies
- Competitor analysis
- Design and development plan
- Operations and management plan
- Financial factors
While there are many sections, you should keep your business plan short and concise. Keep details specific, show you know your market and make sure your finance information is accurate.
This should summarise your business and what you’re trying to achieve. While it’s wise to put this at the front of your business plan, the summary should be the last thing you write.
It’s thought of as an important part of your business plan because it’s the first thing a banker or investor will read if you’re seeking financial support, so you should aim to grab their attention. The executive summary should include details like:
- Your business and its current stage of development
- Where you want to take your company
- Why your business idea will be successful
- The strengths of your overall business plan
- Financial summary – how much money are you going to invest or borrow to reach your targets? Where will that money come from?
In this section, you should describe your company and provide details of its different elements. It’s a good idea to look at it as an elevator pitch, which can quickly explain the goals of your business, how it will stand out from others and will fit in the industry. Things to include are:
- Your business operation, how it operates, and your target market audience
- Your products and services and how they will meet market needs
- Specific consumers, organisations, or businesses your company will serve
- How your business will profit and what will make it be a success, such as its location, operation and industry expertise
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The aim of this section is to:
- show you know your market and your business’ industry
- define your target market (showing that you’re not trying to appeal to too many markets),
- show how your company will be positioned to take its share of market sales.
It’s a good idea to include evidence of your own research and findings too. This section should include things like:
- A description of the industry your business operates in, including its historic growth, current state and size, trends and future outlook
- Details of your target market, like its size, annual purchases and forecasted growth
- Characteristics of your customers, such as demographics, their needs, where they are located, and their seasonal or purchasing trends that might affect your company
- The market share you can gain, including the market share percentage and number of customers you expect to convert
- Your pricing structure, gross margin targets and discounts you plan to use
The aim of this section is to show you have identified and analysed your competition. You should also show how you will differ from your competitors and explain the issues that can help, or hinder, you entering the market. You should include information like:
- Your current and potential competition that could impact your success
- Your competitors’ strengths and weaknesses, such as skills you have that they don’t
- Strategies that will give you a distinct advantage, such as your expertise, equipment your using, or your location
- Barriers to market, such as changing technology, lack of investment or experienced personnel
This should provide a description of the products or services that you’re designing and developing. The idea is to give information that would encourage investors to invest in them. Things to include are:
- Description of the product’s design and development
- Details of how you will market your products or services
- What budget you will have to achieve these development goals
- How you will fund the product or service to the point where your business starts to experience a continuous income
This should show how your business will function on a continuing basis. It should include details like:
- Logistics of your company, like your management team’s responsibilities
- The organisational structure of your company, such as administration, production, and sales and marketing
- Tasks assigned to each division in your company
- Capital and overhead expense requirements, related to your business operation, such as rent, supplies, and equipment leases
This key section usually makes up the final part of your business plan. It should aim to provide an accurate picture of your company’s current value, and show your ability to pay bills and earn a profit as you develop your company. It should include three key areas:
Income statement – This is a report on how your business will generate money each year. It should include key information, such as income generated by your business, cost of goods, gross profit margin, operating costs, net profit before and after taxes, and total expenses.
Cash-flow statement – This should show how much money will be needed to meet your business obligations, when it will be needed and from where you will access it. It should include information such as your cash sales, receivables, total income, and costs for research, manufacturing or performing your service, overheads, and marketing and sales salaries.
It’s a good idea to put together figures in your income statement and cash-flow statement on a monthly basis for the first year, quarterly for the second, and annually for the third and onwards.
Balance sheet – This involves a summary of all the preceding financial information. Unlike the other two statements, it should be given on an annual basis and split into three areas:
- Assets – these are current assets (used by the business in a year or less) like cash and inventory, and long-term assets (will last more than a year) like property you own and long-term investment.
- Liabilities – these are current liabilities (if debts are due in a year or less), like accounts payable and taxes, and long-term liabilities (due in more than one year) payable bonds and mortgage.
- Equity – this is the difference between your total assets and total liabilities; important if investors want to evaluate your company.
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