Your guide to writing a business plan

A business plan is the roadmap for your new business venture. It establishes what your business aims to achieve, and the steps you’ll take to achieve it. By putting the plan in writing, you’ll be able to make sense of your ideas, spot potential problems, and work out how to solve any challenges. You will also be able to set out your goals and how much money you expect to make and decide what financing you’ll need from the outset.

This guide will take you through the points to consider when writing your plan and explains what you need to include in order to provide a clear, professional and convincing document that supports your business goals.

Why do I need a business plan?

The first advantage of writing a business plan is that it clarifies your thoughts and ideas for the business. By writing it all down, you’re forced to identify your objectives and how you’re going to reach them. Problems and challenges will come into a focus in a way that they never did while your plans were just in your head.

A good business plan will present your strategy for the next one to three years – or perhaps longer. This helps you to focus and expand upon your original ideas and decide where your priorities lie. It also gives you a touchstone to return to – starting up a business can be time-consuming and hard work. It’s sometimes worthwhile to look back at what your original intentions were.

The second advantage of a written plan is that you can show it to others to explain your thinking. This is essential if you’re hoping to attract investment or need support from a bank, but also helps to convince potential business partners that you know what you’re doing.

Once you have a finished business plan, it should be easy to make adjustments depending on its intended audience; what starts as your roadmap can quickly be tailored to become a persuasive aid to sell the idea to investors, or to assure lenders that your business is viable.

Writing your business plan – what to remember

Before we look at what goes into a business plan, it’s worth establishing some key points.

Firstly, keep your plan short and easy to read. The details can be left for your operational and marketing plans or included in an appendix.

Investors don’t want to wade through large amounts of text – they’re more likely to be persuaded by short, clear facts. And you’ll find it easier to go back to the plan on a regular basis if it’s simple to locate the relevant part.

Secondly, be realistic. If you’re overly optimistic with your plans, you’re more likely to overspend and get into trouble from the outset. Potential backers and partners will quickly see through exaggerated forecasts or challenges that are ignored. This will damage your credibility and make it harder to get the support you need.

Finally, present the plan in a professional way. Make sure it has a cover, contents page, and an executive summary outlining the key points. Even if the plan is purely intended for internal use, write it as if you were presenting it to a third party, and include all the extra information they would need, such as the history and status of the business.

Writing your business plan – what to include

With the above advice in mind, it’s time to begin creating your plan. We recommend working through the eight steps below; however, every business is different, so you may wish to adapt the structure given to suit your individual needs. Nevertheless, it serves as an important checklist to ensure you don’t leave out any essential information that should be considered within your plan.

1. About the business

Outline the history and current ownership structure of your business, including its progress to date. If you’re just starting out, this section will be more about your personal industry experience and what you’ve done to develop the business thus far.

Explain your business’s products and/or services, as plainly as possible – try to avoid technical language or industry jargon. Make sure you show what makes your offering different from others, including its benefits and drawbacks. Address how you will overcome these disadvantages, and highlight any improvements you have in mind.

Briefly talk about the industry you will operate in. Are there special regulations you need to consider? Is it dominated by a few major companies or many small ones? Have there been any major changes to the market recently, or are there likely to be in the future? We will go into more detail about the market in the next section.

2. About the marketplace

Show that you understand the market which you’ll be selling into. What are its key segments, and what are the customers like within each segment? How large is each segment, and what will your market share be? Identify the important industry trends and explain the reasons behind them. What is the outlook – is a particular segment likely to grow or shrink?

Demonstrate an understanding of your existing and potential customers. Who makes the purchasing decisions, and what influences their choice? If you already have customers, are they typical of the market you’ve chosen, and are you reliant on one or two major customers. If you’re just setting out, do you have any confirmed customers yet? Identify your best prospects.

Describe your main competitors and the products they offer. Look particularly at their advantages and weaknesses – such as price, product quality, supply and distribution. How will you persuade customers to buy your product/service instead? How will your competitors react if you take away some of their business – for example, are they likely to cut their prices? How will you respond in turn?

Remember, you cannot always control who sees your written plan – especially if you send it out to potential investors – so be professional in your assessment of competitors. Don’t be disparaging, and don’t underestimate them.

3. Your strategy – position, pricing and promotion

Where does your product fit into the market – is it ‘cheap and cheerful’, or high quality with a high price? Is it for general use or a specialist product? What makes it uniquely useful – is it more reliable than other products, or does the customer service you provide make it stand out? Once you’ve established the key benefits, decide which will be the key ones you’ll use to sell the product.

How price-sensitive are your customers? Are they happy to pay more for better quality, or will they switch suppliers every time they find a lower price? Set your pricing policy for each product and segment in turn, looking at where your profits will come from, and where it is possible to increase sales and margins.

To promote your business, look at what’s already working best in that market. Will you need to use direct marketing, advertising, or PR sent to industry publications/websites, or some combination? Are you planning a big campaign from the outset, or will you start small and increase your marketing as your business grows?

4. Selling to the customer

Are you planning to sell directly to the customer, or through retailers or agents? Are you selling in a physical location, online, or both? How does this compare with what you competitors are doing? What are the positives and negatives for your business?

Consider the cost-efficiency of your sales methods, including hidden costs such as management time. Calculate how long it takes to make a sale and get paid for it, what the average value of each sale is, and the likelihood of repeat orders.

5. Company structure

Explain how your management team and staff will be organised – how will they cover the key areas, such as administration, finance, marketing, production and sales?

Identify any deficiencies, and explain how you intend to cover them. Outline plans for recruitment and training, including timescales and costs. If you’re starting out solo, or with a small team, show how the structure is likely to change when you expand.

Compare your workforce with competitors and/or similar industries. How efficient and productive are they likely to be, and what’s the likely retention rate?

Examine the commitment and motivation of the workforce. For example, how much does the management team have invested in the success of the business? What happens if you lose a key worker? Is there unusual pressure on pay levels, such as a severe shortage of skilled personnel? What plans do you have to improve or maintain staff motivation?

6. Operational considerations

Consider your business premises: does it meet your current and future needs? What if your business grows? Are you committed to it for the long-term? What benefits and disadvantages does the location offer? Should you move, either as soon as possible or in the longer term, or are you already in the best position?

Outline your production facilities (if applicable), including equipment age, production capacity and key suppliers. Explain what management information systems – accounts, sales, stock control, etc – are in place. Look at the reliability of your IT systems and their importance to your business. How will these areas of the business cope with any proposed expansion?

Management information – and the quality of the data available – is a key consideration for many financial backers, so make sure this area is adequately explained. This may include plans for stock control, accounting and payroll systems, internal communications software, etc. You don’t have to know exactly what system you are going to select at this stage, but you should make it clear in your plan that you need a system that will be “future-proof” if you anticipate quick growth and that your plan reflects the costs of obtaining timely and reliable management information.

Finally, this is the place to mention any quality or regulatory standards that your business conforms to.

7. The financial outlook

Financial forecasts are often the most difficult part of the plan, so don’t be afraid to get help. Many banks have small business advisers who will help you put together financial forecasts free of charge, as do some business support organisations.

If your business has been operational for a while, begin with financial information for the last three to five years. This should include:

·      Total sales figures broken down into component parts, such as sales of individual product types

·      Gross margins for each sales component

·      The movement in the key working capital items of stock, trade debtors and creditors

·      Any major capital expenditure

Additionally, provide an up-to-date balance sheet, and a profit and loss account. Discuss the reasons for variations in profitability, working capital and cash flow, and compare these with typical industry performance.

Next, provide your forecasts for the next three to five years, ideally in the same format as the historical information. The detail will depend on the scale of your business. A small enterprise will only require sales, profit and cashflow budgets, whereas a more complex business will need to include balance sheet forecasts.

If your business is not yet operational, financial forecasts may be a challenge, because you have no historical data to give you a starting point. It’s often easier to start with sales forecasts derived from the earlier parts of your business plan; from that you can use either known direct costs, or rely on industry averages.

From the forecast gross margins, you’ll then need to build up the bottom part of your profit and loss account which will allow for overhead costs – that is, costs which enable you to run the business, but which might not be directly attributable to one particular sales line (for example, public liability insurance or rent and rates).

These overhead costs will start to become apparent to you as you explore your ideas for the size of premises you may take on, or the number of employees.

Don’t forget to allow for all costs of employing staff or having business premises – for example, employer national insurance and auto-enrolment pension costs, staff uniforms, council tax, repairs and renewals for the property. Also, you might want to allow for the cost of IT equipment, desks/chairs, etc for staff, or other capital expenditure such as production equipment. If you are forecasting for capital expenditures, then these would be important in your balance sheet and cashflow forecasts – but if they are significant, you may wish to allow an element in the profit forecasts to show how these will depreciate over time.

Don’t forget that you will wish to be paid yourself! You should factor in your own salary/dividend requirements – is the business plan/financial plan going to produce what you hope?

Make sure you’re clear about the assumptions that underpin your forecasts, and that these are consistent with what you’ve said elsewhere in your plan. Be realistic about your expectations, and compare them with historical trends.

It’s also worthwhile to consider ‘what if’ situations, such as the impact of lower sales on cashflow.

Remember, detailed information should go into an appendix at the end, so it’s worthwhile producing a comprehensive list of your assumptions including profit margins for each product, payment collection times, credit availability from suppliers, expected financing and interest rates.

Your predicted cashflow will help you decide what financial support you’ll need. Consider adding an extra funding contingency of about 10-20% on top of what you’ve forecast. Explain what financing you’re looking for, such as long-term loans or increased overdraft facilities, and look at how the likely interest costs will affect the business.

Test the cash required by looking at the outcome of changing key parameters such as sales or profit margins.

Finally, and importantly, make it clear why you need financing, and what it will be used for.

8. Summarise with a SWOT analysis

To demonstrate that you really know your business, end your report with a one-page SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis. Be honest and realistic about the weaknesses and threats facing your business, and use the opportunity to explain the actions you’re taking to counteract them.

Examples of your strengths might include brand name recognition, the quality of the product or service you provide, or the particular skills you have, while weaknesses could be lack of finance or a reliance on a small number of clients.

Opportunities could include a surge in demand, a competitor leaving the market, or a new market opening up. Threats might be posed by economic downturns or increased competition.

The final steps

Once you’ve completed your business plan, read it through carefully, putting yourself in the place of the target reader. Think about what impression it will make on, for example, your bank manager. Consider the following points:

·      Is it realistic? Does it include evidence to back up what you say (possibly in the appendix), or can you provide that evidence if asked?

·      Have you assessed all the risks? Do you know what you’re going to do if something goes wrong (for example, losing a key customer or supplier)?

Make sure the executive summary is polished and clear. Investors and financiers will often look at this first before deciding if it’s worth their while to read the rest of the plan.

Finally, get feedback from others, including friends and expert advisers. Are there any spelling or grammatical errors that make it look less professional? Were they any parts they didn’t understand? Was anything unconvincing or unrealistic?

Follow these steps, and you’re much more likely to have produced an effective business plan that will help you meet your goals and persuade investors to support you.