How to write a business plan
What to include in your business plan, and what not to
A business plan is basically split into four parts: the business; marketing; finance and the management team.
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.
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.
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.
This section should outline all background and experience of all the key members of the management team. You should attach CV’s 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.