How to write a business plan.
A business plan acts as a road map for your business' future growth. It enables you to clarify your objectives, establish a strategic direction and set goals. It can also help you secure funding for growth.
Reasons to Write a Business Plan
Before you start, define your reasons for writing a business plan. For example, you may want to:
- Develop a blueprint for your business' future growth
- Define your business' overall objectives
- Forecast your business' financial results
- Set specific targets and evaluate whether or not these have been achieved at a later date
Know your Audience
Who will read your business plan? It could be:
- Your current or potential business partner(s)
- Your managers
- Potential lenders and investors
Your audience will partly determine which sections you include in your business plan. For example, if you plan to show your business plan to potential investors, it would be a smart idea to include an executive summary and detailed information on the structure and ownership of your business.
Main Sections of a Business Plan
Although there is no set formula for writing a business plan, most business plans cover three broad areas:
- A summary of your business, its vision and its objectives
- Market analysis such as customer demand, competitor analysis and market research
- Financial data and projections such as break even, cash flow forecasts and pricing and cost calculations
Summary of the Business
If you'll be showing your business plan to potential investors and lenders, it should contain basic information on your business that a reader can skim and get an immediate feel for your business, such as:
- Your business' name – and trading names, if appropriate
- Your business' legal status: sole proprietorship, partnership or Limited Liability Company
- The address of your headquarters – and other locations, if appropriate
- The date of establishment
- Information on yourself and/or other founder(s) of the business, including names, background and experience
Vision and Mission Statement
Summarize your long-term goals for your business. Include a mission statement which captures your strategy for providing value to your customers. It may help to look online at the mission statements of similar companies – or those that you aspire to be like.
Decide on your business' overall objectives. Some examples of specific objectives are:
- Increasing market share to 30% over the next three years
- Raising sales by 5% per year for the next five years
- Achieving a profit in the next year
Your objectives will be unique to your business.
Perform a SWOT analysis of your business' Strengths, Weaknesses, Opportunities and Threats.
Conducting a SWOT analysis helps provide direction by shining a light on what your business does well, and where you'll need to improve.
Usually strengths and weaknesses are internal aspects of your business (what you are good at, what you are not so good at); while opportunities and threats are external forces (what is likely to impact your business in a positive or negative way).
While your SWOT analysis centers on your own business, there are some 'typical' SWOT characteristics of small businesses, such as being time-deprived and cash-strapped.
Take a step back and look at the markets in which your business operates.
Gather and analyze market information
Gather and analyze as much information as possible on your industry and target market. Include market trends, growth rates, demographics and factors affecting customer purchasing decisions. Run focus groups with potential customers, talk to suppliers and research market demand data.
Assess market size and share
Find out the size of your target market in both volume and value terms. How many consumers are in your target market? How much does each consumer spend on average on the products or services you supply? Based on this information, what is your current share of the market?
Identify your competitors, including your indirect competitors. Assess their strengths and weaknesses. Do a SWOT analysis of at least one or two of your main competitors to identify any aspects of their business that you could take advantage of or benefit from.
Products or services
Describe your products or services to explain their benefits and exactly how they meet the needs of customers in your target market.
Unique selling points (USPs) and competitive advantage
Identify your USPs and describe what makes you different from your competitors. Ask your customers what they like about your products, your store/location and your staff. For example, are you cheaper, faster or closer; do you offer delivery, have a wider range of products or maybe a compelling specialty? Why do customers choose you over someone else?
Financial Data and Projections
Before drawing up financial projections, gather the following documents from the past three to five years:
- Income statements
- Cash flow statements
- Balance sheets
Make financial projections
Review results from previous years to project income and cash flow for the next few years. You’ll also want to consider factors like expected growth in the economy, new developments or legislation affecting your industry and seasonal variations.
If you've never been in business before, try talking to your accountant, business adviser or other people in similar businesses to help you make estimates.
Include the following projections for the next one to three years in your financial plan:
- Cash flow statements
- Income statements
- Balance sheets
Look at your financial forecasts and see if you'll need to borrow money or arrange financing from other sources at any point in the next few years. For example, you may need to arrange a short-term loan to cover an anticipated temporary shortfall in cash flow.
On the other hand, if you plan to expand, you may need to arrange a loan if your forecasts show that you won't have enough cash in the bank to purchase new equipment, expand your office, add a new location or launch a new product.
Depending on the intended audience and the nature of your business, you may want to include other sections in your business plan. These could include:
- Executive summary, which is a concise summary of your business plan
- Organizational structure of your business' ownership and an organizational chart
- Operations strategy such as information on your business' processes. This can include manufacturing, purchasing and delivery.
- Human resources strategy such as a plan for increasing your workforce, and a staff retention strategy
Writing a business plan enables you to think about your business as a whole. It allows you to clarify your goals and set strategic direction. It also sets standards against which your business' future performance can be measured. Your business plan should be updated annually, as competitive landscape and other factors may change. A yearly review of your business' strategic direction allows you to remain competitive in the marketplace and continue to achieve your business goals.