Dec 16, 2020
How to Write a Business Plan
Writing a business plan is essential to help you run a business. But with so many business aspects to consider, you may wonder how to deliver crucial information correctly.
We’re going to explain how to write a business plan and the different types of business plans you can adopt.
What Is a Business Plan and What Is Its Purpose?
A business plan is a document that explains a business’s goals and how to achieve them. It contains detailed planning for the marketing, financial, and operational aspects of a company.
That said, it’s essential to understand the purpose of writing a business plan. Here are the reasons why you should have one:
- Establish a business focus – the goals and the detailed steps in a business plan help you to focus on actions that pursue the objectives.
- Secure funding – external investors will look into your business plan to see the goals and how you want to realize a profitable business. A feasible company should have inline financial projection and action plans.
- Attract executive talent – as your business grows, you may want to recruit experienced executives to direct the company even better. They will likely look into your business plan to determine whether they fit into the company.
While a business plan is commonly useful for a new or small business, an established company also benefits from a business plan. A company can revisit its plan to see which goals have been met and make new ones for future development or prepare to take the company in a new direction.
Four Types of Business Plans
Every business plan serves a different purpose. Some business plan types guide the company to attract investors, while others focus on short-term gain. Therefore, you should create a business plan that corresponds to your vision.
Here are four types of business plans, breaking down each one.
Standard Business Plan
A standard business plan covers all business areas. It caters to both internal and external parties, like employees, prospective investors, and suppliers. It’s the most versatile model, hence the name.
We will discuss the elements of a standard business plan more in-depth later in the article. In general, it should contain the following:
- Executive summary – comprises a high-level outline of a business. You can also refer to the summary as a template for a business plan.
- Company description – provides information about the company’s purpose and goals. The company description usually takes place after the executive summary.
- Market research – analyzes the targeted customer profiles, market potential, and competitors.
- Organization and management team – introduces team members and individual competencies and responsibilities in the company.
- Products and services – describes products and services offered and how they can compete in the market.
- Operations plan – provides information about daily activities and how you’re going to deliver the products and services to the customers.
- Marketing plan – specifies the marketing strategies you will use to promote products and services to the customers.
- Financial plan – shows the financial projections and assumptions for ideal business performance.
- Appendix – contains additional information that supports the business plan’s main idea.
Lean Startup Business Plan
The lean business plan utilizes a simpler format to put down your business plan. It’s shorter than the standard business plan as it only highlights the essential strategies, milestones, and numbers.
This type of business plan is useful to track the growth of a small business. You can monitor your business performance numbers and milestones, and then compare them with the projections of a financial report.
It has four essential elements:
- The guiding principles – a brief description of the target market, the company’s identity, and business goals for tracking purposes.
- Execution strategy – lists the operational strategies such as promotion plans, social media campaigns, and production planning.
- Performance measurement – defines what metrics will be used and the targeted numbers. This information can be delivered using KPIs and OKRs.
- Important numbers – specifies the basic financial plan like sales projections, budget allocations, and expected cash flow.
Various business plan templates are available to help you build one for your business. One of the most famous templates of a business plan is Alex Osterwalder’s Business Model Canvas that maps out your business on a single page with nine components.
Summary Business Plan
This business plan comprises of a single page. It condenses all the essential information conveyed on a standard business plan into an informative summary.
Despite its similar one-page characteristic with a lean business plan, both models have a distinctive difference.
First, a summary business plan uses structured and worded summaries to explain the business. A lean business plan skips that and uses lists, tables, or bullet points.
Second, a summary business plan is mostly used to present a business to external parties, like investors, banks, or potential partners. A lean business plan, on the other hand, is mostly used for internal growth tracking.
Complete Business Plan
A comprehensive business plan generally aims to acquire funding. Hence why this business plan puts a lot of emphasis on the financial aspect of a business while still retaining other elements like the executive summary, market opportunity, and product explanation.
The financial details that a complete business plan should convey are:
- Current financials – describes the company’s recent financial performance. It needs to be fully transparent as investors and creditors want a full picture of the business.
- Projected financial statements – estimates future sales, expenses, and cash flow. This detail is mainly vital for a new business that has no revenue to show yet.
- Loan requirements – a detailed description of current funding needed and future loan requirements. You need to explain why you need a certain amount of capital based on your financial projections.
- Spending plans – an explanation of how you’re going to spend the funds. Investors and lenders will assess whether you have a good spending plan that can yield profitability and a high chance of repayment.
- Loan repayment plans – outlines your repayment plans for any ongoing and future loans.
9 Elements of a Standard Business Plan
Every business may take a different approach to the standard business plan’s structure, but you must deliver on these points when you make a business plan.
1. Executive Summary
It comes first after the title page and must contain all the essential information from the business plan within one or two pages.
It’s essential to write a good executive summary as it’s often the part that can make-or-break an opportunity. Investors and executives examine the executive summary to decide whether they should look deeper into the business plan or just drop it right then.
The following information should be used in an executive summary.
The first talking point is the product or service your business is going to offer. Explain your products concisely and whether you’re going to manufacture them or outsource from suppliers.
If you’re providing services, describe how they can improve people’s quality of life, and what’s the market size.
Market Opportunity and Competition
In this section, you summarize the market analysis for your business.
Write about who is your target market — be specific. For example, if you sell bread, explain in which area or economic class you’re going to sell it to since it will influence your pricing and promotional costs.
It’s also recommended to cover the market volume, in-depth as it will outline the sales volume potential.
After explaining your target market, identify the problems that exist in that segment and how your products and services can solve them.
Look for competition in the market. If other businesses target the same segment as yours, explain the key differences that make you stand out from the rest.
With financial projections, it’s all about explaining your revenue sources and pricing structure briefly. Also, show your planned sales, expenses, and revenue numbers to give an overview of your projected financial performance.
You can also mention the required capital and how you’re going to finance the business. If you’re looking for external financing, this is the time for you to explain how much funding you need and how you’re planning to return it in the future, be it equity in the company or money.
Milestones and Growth Projections
The last element of an executive summary is your future vision once the business grows. If the business plan is for a running business, show the milestones that the company has achieved already.
The projection for future growth includes opening new branches, acquiring a certain amount of new customers, and so on. A small business owner can use this to monitor their business’ growth.
2. Company Description
The company’s purpose can be outlined using the vision and mission statement. A vision statement should contain your ambition for the company — what you want the company to be. Meanwhile, a mission statement reflects what you will do to achieve that ambition.
These statements are useful for aligning every member of the company to act towards the same purpose. They also play a vital role in strategic planning as they will shape the strategy to achieve the company’s ambition.
The next step is to construct your business goals. These are a set of accomplishments you want to do within a certain period of time. You can set goals for the business in general or split them into departments, like marketing, finance, or operation goals.
When constructing a business goal, use the SMART framework to help you track your progress:
- Specific – narrow down each goal for more focused planning.
- Measurable – define the metrics that will determine your progress and achievements.
- Attainable – you should be able to reach the goal, based on facts and numbers.
- Relevant – every goal should be aligned with the company’s vision and mission.
- Time-based – provide the timeframe in which you want to achieve the goal.
For example, a startup consulting company may set a goal of acquiring 50 clients in the first quarter of operating. The SMART aspects of that goal can be broken down as follows:
- Specific – it’s clear that they are targeting 50 clients.
- Measurable – they can track the number of clients obtained.
- Attainable – 50 new clients in a quarter is not an overambitious target.
- Relevant – acquiring new clients is important for the growth of a consulting company.
- Time-based – they should achieve that goal by the end of the first quarter.
3. Market Analysis
Market analysis is a critical part of a business plan template. In this process, you will gather information about your customers and their behaviors as well as the competitors to help you lay a foundation for your business strategies.
Defining the Target Market
The first step is to narrow down the market you want to involve your business in. This will help you to understand the market characteristics better so you can develop a suitable marketing campaign and deliver relevant products.
To determine your target market, try to find out who your potential customers are. They can be specified using several factors:
- Geographic location – decide the area you want to serve based on your business operation’s reach.
- Age group – this is an ideal method if you’re selling products targeted at a specific age demographic, such as alcohol, business attire, and toys.
- Income level – this factor determines the demographic that will fit into your products’ price bracket. Keep in mind that income level can be affected by geographical and demographic characteristics as well, such as age and gender.
For a business-to-business (B2B) company, you can define your potential customers by the geographic location, industries, and company profiles, and relevancy.
Market Volume and Trends
When defining the market size, you need to research the potential number of customers you might have. That way, you’ll have a better idea of the market cap for your niche.
Additionally, discover the latest trends in that market. For example, you can examine whether the increase or a decrease in demand for your products is related to a booming migration to your operational area.
Competitor and Environment Analysis
After identifying the target market, it’s time to explore your competitors, and your position is relative to them.
Focus on your direct competitors — companies that sell similar products or target the same demographic. Once you’ve listed all the competitors, try to compare your business to them and identify your strengths and weaknesses.
You can use the SWOT analysis — Strengths, Weaknesses, Opportunities, and Threats — to present this analysis.
Strengths and weaknesses represent your internal condition relative to the competitors. For example, you have the technology to produce goods more efficiently as your strength.
Conversely, if the competitors may have more experienced human resources, you can consider your lack of expertise as your weakness.
And then you analyze the market environment — what opportunities you can exploit and are there any threats you have to mitigate. Opportunities can be favorable government regulation or a positive market trend, while threats may take the form of emerging competitors.
These analyses will be useful for the creation of marketing strategies and company strategic planning in general.
4. Organization and Management Team
In this section, you need to introduce the people behind the business idea, each member’s role and responsibilities, and how you organize everyone in order to accomplish your business goals.
Create a brief biography of each team member and highlight their experiences. If you just start a small business, don’t worry about gaps in the management team. It’s better to have a person who works according to their expertise rather than hiring someone for the sake of it.
This practice can indicate the maturity of your business plan and open more opportunities to have the right person to join your team.
Don’t oblige yourself to define the management team using C-level titles like CEO, CMO, and CFO. While it’s tempting to have such titles, it may not be the most effective way to run a startup.
Once you’ve divided the team members’ responsibilities, prepare an explanation of your organizational structure if it’s applicable. While the organizational chart can be put in the appendix, you still need to define the managerial flow from top to bottom.
You’re free to choose a flat or tall structure and how you divide the functions in your company. The important point is that it should support the business operations to achieve the goals.
5. Products and Services
This is the section where you explain what products and services you offer.
Explain how the products and services will fulfill the target market’s needs. You can include features and benefits, but don’t go too deep into technical specifications — you can put them in the Appendix instead. Also, avoid using technical terms to make it easier to understand.
Another vital aspect to cover is what makes your products and services different from the competition. If you create a good with features distinguishable from your competitors, make sure to include its breakdown in this section.
Alternatively, you may sell similar products at a competitive price. Explore how you’re capable of selling them at a lower price. For example, you manage to make the production process more efficient, or you resource the raw materials from cheaper suppliers.
6. Operations Plan
This section contains a breakdown of your methods in operating the business, including how you deliver products and services to the customers.
You can cover the equipment you need to run the business, the detailed operational flow, and legal requirements.
First, specify the facilities that you need to run the business — this includes the equipment that you already have and any that you have yet to acquire. Make sure to mention how you’re going to obtain everything. For instance, you’d rent the equipment or buyout the assets.
Don’t forget to justify why such facilities are important and why you acquire them in a certain way. For example, you purchase expensive equipment vital for your production because there’s no rental business that rents that machine.
Cover how you carry out daily activities, like production or service methods, inventory control, supply chain management, and facility maintenance.
If you get products from suppliers, be sure to explain the process of order fulfillment and product delivery.
For a business that does the production on its own, the business plan should contain a detailed production method. Make sure to explain where you get the raw materials, process them into goods, and deliver them.
Be sure to note the time interval it takes from acquiring raw materials to the end of production. Doing so indicates that your production process is well-planned.
Mentioning the daily facility maintenance tasks is also required. If you have a restaurant business, you need to clean the kitchen and dining area every day to maintain hygiene and quality standards.
If the region where you operate requires a business permit, you should present it here. Define how your operation complies with all the necessary regulations in your industry, such as health or environmental regulations.
7. Marketing and Sales Strategy
In this step, you have to develop a marketing plan to promote your business to the customers.
Product positioning is the process of developing a public perception of your product or service. Doing so is especially important if many similar products are circulating your target market.
Customers will compare your products to competitors and look for any unique factors. Your goal is to distinguish yours from the competition by giving an association that will stick to your brand.
Examples of common positioning buzz-words are “affordable”, “reliable”, “heavy-duty”, and “simple.” You can pick any trait that matches your product and company goals.
After defining your product position in the market, you have to come up with a pricing model.
There are two fundamental rules you must follow. First, you need to cover the costs of delivering the product to the customer. Second, the price should be matched to your chosen market.
There are three approaches to determine the ideal price.
- Cost-plus pricing – establish the price by determining the initial costs and then mark it up.
- Market-based pricing – check the market and see what prices the competition offers. You can put your price in the high-end or low-end of the market, depending on your positioning.
- Value-based pricing – the price is determined by the value you’re offering to the customers. For example, you sell a cleaning product that can save $10 of expenditure so that you can price your product at $8.
These days, you have plenty of options to advertise your products and services. The mediums range from traditional marketing channels like billboards and print magazines to digital channels like social media platforms.
To determine which marketing channels you should use, look back into your customers’ profile. Each demographic has its own preferences, so make sure to consider it when picking a platform to advertise your business.
Next, create a sales promotion plan to convince your customers to buy your products. Although sales promotions are considered a short-term strategy and ineffective to build customer loyalty, it can still boost sales.
These are some of the sales promotion plans you may try:
- Trial products – offer a free trial to let customers test out your products. This method is particularly popular among software companies.
- Bundles – sell combined products as a package at a lower price compared to purchasing each of them separately.
- Discounts – give a price reduction for repeat buyers or during a festive season.
- Limited-time products – launch products that are only available for a short time. This strategy exploits the sense of urgency and scarcity to attract sales.
A sales channel is the way you will deliver your product or service to the market so customers can make a purchase.
A direct sales channel is when your company sells products directly to customers. It can be done through personal selling, branded retail stores, or the company’s eCommerce websites.
An indirect sales channel, on the other hand, is when you use intermediaries like a retailer or online marketplace to sell your products.
Your ideal sales channel depends on the type of products you sell and your target market. For example, if you sell a commodity product for a broad market, you may want to have multiple sales channels as they help you to reach more customers and you’ll still make a profit.
8. Financial Plan
Making a financial plan is often considered the most daunting part of writing a business plan. Business financial projections show the feasibility of the company and the areas you can improve.
A financial plan generally consists of the business projection for the first 12 months, followed by annual projections for the next three to five years. If the company is already up and running, this section should include the recent financial statements as well.
There are several financial statements you should add to your business plan.
- Balance sheet – an overview of the business’ health. It names the company’s assets, liabilities, and equity.
- Sales projection – a general expectation of how many sales you can make. You can also include the Cost of Goods Sold (COGS) to get the idea of how much gross profit you make from each product category.
- Income statement – this statement will show whether your business will make a profit or take a loss. The income statement takes the numbers from the sales projection and puts them together with other expenses of running the business.
- Cash-flow statement – not to be confused with an income statement, cash-flow statement tracks the inward and outward flow of your money. The purpose is to show how much cash in hand goes through your business. It also helps plan future spending since you can project how much money you will have at that time.
- Break-even analysis – for a new business, break-even analysis will show the sales required to become profitable with given variable and fixed costs. It also helps the company to set a sales performance target.
Predicting your financial future requires some assumptions. List all the deductions you use to know in what circumstances your business can pursue these projections. For example, you may assume that the market trend will remain the same for the next few years.
This section contains some additional information to clarify or emphasize the previous elements of a business plan.
You may include additional information like:
- Organizational charts
- Documentation of products or facilities
- Information about market research
- Additional financial projections
- Legal agreements
Practical Tips to Turn the Template Into a Proper Business Plan
Writing a template of a business plan can be challenging for business owners. Here are some tips on how to write the business plan for either a small or big company:
- Be realistic – provide a logical plan of action and financial projections to achieve your goals. Don’t forget to be honest about your resources and capabilities.
- Keep it clear – focus on delivering important information. Write concisely and avoid any filler language as investors don’t want to read a lengthy business plan.
- Use charts and graphs – present data using charts and graphs to make it easier to interpret.
- Substance over form – don’t overthink about the formatting. You can play around with the business plan’s presentation only if you’re sure it already has all the essential information.
- Know your audience – you may want to adjust your style and tone depending on your audience and industry. Feel free to get creative with your formatting to engage their attention, but make sure to prioritize its content’s value.
Having a business plan is crucial when you’re planning a business. It creates a roadmap for your operation and acts as a guideline for the team. Also, it may help you to attract investors.
As there are various business plan types, make sure you pick the one most aligned with your vision. As long as you deliver the important information and include all the essential elements, your business plan should help you to achieve your goals.
Now that you’ve learned how to write a business plan, it’s time to start writing one for yourself.