What is a business plan?

A business plan is a written statement of your business; what you want to achieve with it and how you will do that. It should outline the structure of your business, the product or service, the customer, the growth potential and the financials.

But as well as giving information about your business it should also inspire you for the future.

Every business should have a plan whether it is to open a second shop or float on the stock exchange. It is why you are in business. It helps you to define strategy and, if properly used, will help you involve and motivate key members of staff.

It allows you to work out how to make your business a success and can help you avoid failure by plotting the pitfalls along the way. It should outline a realistic target for how that can happen while remaining flexible enough to make changes along the way. By setting out a plan and some targets, you can also monitor your progress and get the business back on track fairly quickly if anything goes wrong.

What should a business plan cover?

A business plan is basically split into four parts: the business; marketing; finance and the management team.

For a full guide on what to put into your business plan, see our FREE business plan template

The business

Your business plan should start with the basics of your business. A cover sheet should outline the company name, address and current owners. Start by outlining the legal structure of your business and who owns it. Keep this brief – any reader or potential financier will be more concerned about how the business will operate in the future.

Then describe your business and the product or service that you will provide. Explain why the product will be profitable and why your customers will buy it, whether your product is unique or simply better than other products on the market.

If your business is in the high-tech or biotech sector, you may include any patents or intellectual property owned by the business.

Try to give a breakdown of the overall sector and its potential. Perhaps you can use competitors to show how big the market is and what percentage of sales you think you can capture. However, avoid falling into the trap of basing your business on simply taking a small share of a large market. Trying to capture a 1% share of the whole Chinese population just because it is a big population won’t impress. You will need to have a clearer idea of who your customers are and how you will get them to buy your product.

All of these will tie into your goals and objectives for the business, the eventual aim for the company and how you expect to achieve that.

Marketing

The key to marketing is understanding your customers. You must be able to profile your target customer and their likes and dislikes accurately. This will help you understand how to position your product or service in the marketplace, and how to price your offering. You must also be aware of how your customer base is likely to change over time, whether it is declining or growing.

Your plan should offer the reader a combination of clear description and analysis, including a realistic SWOT (strengths, weaknesses, opportunities and threats) analysis of each area.

This will demonstrate to investors or lenders that management is realistic about the company’s prospects. This should also include spelling out any competition. By ignoring any competitors, readers will think you have overlooked a major problem for your business.

Finance

This should include all the financial data on your business. If you have already started trading, include any previous year’s accounts, (up to three years) as well as details of any outstanding loans or assets. Also include the current management accounts, cashflow forecasts and a breakeven analysis.

Make sure that realistic financial projections are outlined and that you provide different scenarios for sales, costs and cashflow for both the long and short term. Don’t be tempted to dress up the figures. Sales figures growing ever steadily will not impress a seasoned investor. Similarly, be realistic about your costs. Consumer products, particularly those on the internet, will need to plan for a large upfront marketing budget. Neatly spreading an equal amount of your marketing budget across the whole year simply isn’t realistic.

The management

This section should outline all background and experience of all the key members of the management team.

You should provide CVs for each individual and outline the strengths and weaknesses of the team as a whole. If you are missing certain skills in your management team, this can often be solved if you are seeking equity investment. Business angels often take an active part in the companies they invest in and any venture capital firm will have a wide network of contacts that may be able to join the board in a non-executive capacity.

The executive summary

The last thing written is the first thing that appears in the business plan – the executive summary. This is the most important section and summarises in two pages what is written in detail in 10 or 15.

This is where, among other things, you state the company’s mission statement – a few sentences encapsulating what the business does for what type of clients, your aims for the company and what gives it its competitive edge.

The mission statement should combine the business’ current situation with your aspirations.

Just as the business plan, the executive summary should be clearly written and powerfully persuasive, yet it should balance sales talk with realism in order to be convincing. It should be no more than 1,000 words.

Any reader should be able to get a good feel for the business from that summary. In fact, this summary may be the only opportunity you get to put your case to investors. Venture capitalists refer to the elevator pitch. If you can’t convince an investor of how good your business is in the time it takes for a lift to travel between the ground floor and whatever floor you exit on, you may have missed your opportunity. That sounds harsh, but remember that investors are busy people, who typically receive hundreds of business plans every year.

Perhaps you can use competitors to show how big the market is and what percentage of sales you think you can capture.

The mission statement

One of the hardest things for people to write in a business plan is the mission statement. Mission statements can tell a lot about your business, so it’s important to take time, look at some mission statement examples, and put effort into writing a good one.

You should think of a mission statement as a cross between a slogan and an executive summary. Just as slogans and executive summaries can be used in many ways so too can a mission statement. An effective mission statement should be able to tell your company story and ideals in less than 30 seconds.

Here are some basic guidelines in writing a mission statement:

• A mission statement should say who your company is, what you do, what you stand for and why you do it.
• An effective mission statement is best developed with input by all the members of an organization.
• The best mission statements tend to be 3-4 sentences long.
• Avoid saying how great you are, what great quality and what great service you provide.
• Examine other company’s mission statements, but make certain your statement is you and not some other company. That is why you should not copy a statement.
• Make sure you actually believe in your mission statement, if you don’t, it’s a lie, and your customers will soon realize it.

Different types of business plan explained

Business plans are also called strategic plans, investment plans, expansion plans, operational plans, annual plans, internal plans, growth plans, product plans, feasibility plans, and many other names. These are all business plans.

In all these different varieties of business plan, the plan matches your specific situation. For example, if you’re developing a plan for internal use only, not for sending out to banks or investors, you may not need to include all the background details that you already know. Description of the management team is very important for investors, while financial history is most important for banks.

Some of these specific case differences lead to different types of plans:

Start-up plan

The most standard business plan is a start-up plan, which defines the steps for a new business.

It covers standard topics including the company, product or service, market, forecasts, strategy, implementation milestones, management team, and financial analysis. The financial analysis includes projected sales, profit and loss, balance sheet, cash flow, and probably a few other tables. The plan starts with an executive summary and ends with appendices showing monthly projections for the first year.

Internal plan

Internal plans are not intended for outside investors, banks, or other third parties. They might not include detailed description of company or management team. They may or may not include detailed financial projections that become forecasts and budgets. They may cover main points as bullet points in slides (such as PowerPoint slides) rather than detailed texts.

Operations plan

An operations plan is normally an internal plan, and it might also be called an internal plan or an annual plan. It would normally be more detailed on specific implementation milestones, dates, deadlines, and responsibilities of teams and managers.

Strategic plan

A strategic plan is usually also an internal plan, but it focuses more on high-level options and setting main priorities than on the detailed dates and specific responsibilities.

Like most internal plans, it wouldn’t include descriptions of the company or the management team. It might also leave out some of the detailed financial projections. It might be more bullet points and slides than text.

Growth plan

A growth plan or expansion plan or new product plan will sometimes focus on a specific area of business, or a subset of the business. These plans could be internal plans or not, depending on whether or not they are being linked to loan applications or new investment.

For example, an expansion plan requiring new investment would include full company descriptions and background on the management team, as much as a start-up plan for investors. Loan applications will require this much detail as well.

However, an internal plan, used to set the steps for growth or expansion funded internally, might skip these descriptions. It might not include detailed financial projections for the whole company, but it should at least include detailed forecasts of sales and expenses for the company.

Feasibility plan

A feasibility plan is a very simple start-up plan that includes a summary, mission statement, keys to success, basic market analysis, and preliminary analysis of costs, pricing, and probable expenses. This kind of plan is good for deciding whether or not to proceed with a plan, to tell if there is a business worth pursuing.

Next steps creating your own business plan

Hopefully, you now have a better understanding of what needs to go into a business plan, and how to begin tackling your own.

However, creating an effective business plan isn’t a couple of hours work – you’ll need to put some serious time into this in order to get the result you’re after (whether that’s new investment, or internal stakeholder buy-in). We’re here to help.

Startups.co.uk has created a simple, free business plan template you can download and use.

Remember, a business plan is all about your vision, above all. There are some essentials you’ll need to cover, but the real success is down to you – push the reasons you believe in your business idea, and show your audience why you care. They may just come along for the journey with you.