How to make a business plan – 10 simple steps
Tips / 21.04.2022
Starting your own business can be a truly exciting time of your life, but it does not come without challenges, or at the very least, prior preparation. One part of such preparation is the creation of a business plan – or the roadmap to your business creation, development, and growth.
But what is a business plan and how can you create one?
This post offers you some useful tips on information that should be included in your plan to help you reach the right investors, pique their interest, and offer all the right information to help them invest in your business as opposed to others out there.
Table of Contents
What is a business plan?
Simply put, a business plan is a roadmap that helps you navigate the startup, development, and growth stages of your business. It looks at all the different angles of running a business and lays the groundwork in preparation for actually running it. Some refer to it as the “Bible” of a business because it’s a document that you’ll continue to refer to time and time again as your business takes off the ground and matures.
When preparing this plan, it’s vital to sit down and take your time with it. You are not in a race so you do not need to rush. Taking the time out to prepare all the different aspects of your business plan together with supporting documentation and forecasts will help you stand a stronger chance of getting noticed and getting that valuable initial investment in your business.
Why should you prepare a business plan?
If you’re thinking that many entrepreneurs started out without a business plan and they were successful, you’d be partially right. However, preparing your business plan comes with many advantages. Here’s why you should invest your time in writing one:
- It helps you run your business
- It guides you through each stage of starting your own business
- It helps you structure, run and grow the venture
- It helps you think about all aspects of your business through
- A solid business plan can help you get funding, alternatively, it can help attract new business partners
- It’s a great way of convincing investors to take the plunge and choose you
- It helps you recognise potential obstacles prior to the business’ set up and how to overcome them
- It can help you throughout the duration of running your business and not just during the startup phase
- It acts as a great check to see if your business idea makes sense
- You can better plan your sales, marketing, and business operations
- It aids in setting up your strategy and action plan for the years to come
- You will be able to set solid objectives as well as action steps on how to achieve them
- It helps you identify any gaps you may not have thought of before
- It acts as a benchmark for business performance
- It can help you identify and attract top talent new partners, distributors or agents
- Communicate the business’ purpose and vision
How to write a business plan
When it comes to how to build a business plan, you need to think about several overarching themes, which are covered in more detail below. Ultimately though, you’ll want to figure out what problem or gap your business is aiming to address as well as what solution you have in mind for this.
You’ll also need to do a competitor as well as a SWOT analysis to see where you currently stand in the marketplace. But before all this, you need to think about whether you’re going to prepare a traditional or lean format of your business plan. The lean format is usually one page and is less common. It also usually only focuses on the most important elements of your plan.
The traditional format is the most common one and can go over a dozen pages, depending on the information and details you’re providing your target audience with. Because it’s a more common format, this will be the main focus of this post. So, without further ado, here’s what you need to consider including in your business plan.
1. Executive summary
Although the executive summary is usually the very first page of a business plan, it’s usually written last after all the other details have been ironed out to help give investors or lenders a more thorough idea of what to expect.
In fact, some investors typically only request to see the executive summary and only ask for the rest of the plan later, if they feel convinced the business has potential. What’s important to note with an executive summary is that it shouldn’t try to hype up the business, but rather speak in a logical, informative, and neutral tone that’s balanced and presents all the facts. Ultimately, the executive summary should focus on these aspects:
- What the company is, what makes it different and why it will be successful
- A description of the products or services offered
- A summary of objectives
- An overview of the target market
- Mission statement
- How you’ll market your ideas
- Information about the ownership structure, leadership team, and employees
- Financial information such as high-level growth plans and how much you expect to earn and spend
2. A thorough company description
The company description is the place where you give a more detailed overview of your business and its structure (owners and legal structure), the problem that you’re going to be solving or the opportunity you’ll be exploiting, as well as your ideal target market and why you think your business will be a success. Regarding the target market, it’s essential to identify whether you’re going to be a B2B or B2C business. Alternatively, you might be serving organisations instead. You need to make this point clear. Other features of this part of your business plan could include:
- Name of the business
- Your history, and if none, what experience do you bring to the table
- Your competitive advantages
- Your leadership structure and specific expertise
- Location and address
- Details about products or services to be offered
- Overall strengths
- Short- and long-term business goals
- Your need for funding
- Plans on achieving growth targets
3. Market analysis
Another step in the process of how to make a business plan is undertaking an in-depth market analysis. This entails several aspects. First off, you will want to take a closer look at the industry in which you’re operating. You’ll be able to show potential investors what your competition is currently doing and how you plan on addressing any gaps while acknowledging their strengths. All the market research (whether qualitative or quantitative) you’ve done up until this point should go here.
You can also emphasise industry trends and key, underlying themes. For example, in what way do you observe changes in the market? Is there growth in it? Are you seeing changes in tastes and if so, what are the underlying reasons for these?
Then there’s the target market. Ideally, answer these questions: where is your business going to be selling from, and importantly, to who? What are the demographics and characteristics of your potential customers, what growth in your customer base do you foresee as well as on what grounds? Here, consider indicating what the user benefits are, the fact that there’s a marketplace interest, documenting market claims, or all of the above.
4. SWOT analysis
We are all familiar with the strengths, weaknesses, opportunities, and threats analysis. But now it’s time to put it into action. When starting out, consider breaking up a single page into four equal squares, each one dedicated to a different aspect of the SWOT analysis. This type of analysis can really help to exemplify the fact that you know your industry and your business inside out because you’ve studied all the potential threats and know how to capitalise on your strengths.
Regarding strengths, ask yourself how these will help you make the most of opportunities; what is the quality level of the product or service you’re offering; what will your management’s experience bring to the table.
Regarding weaknesses, ask yourself how these (such as lack of finance or few customers at the outset) could potentially amplify threats and how your strengths may be able to overcome them. As for opportunities, look out for increasing demand in your specific industry as well as whether any of your competitors have gone bust. Finally, the threats – can be identified by observing economic downturns or even the entry of new competitors in your marketplace.
Another useful idea is to do a SWOT analysis for your competitors in order to determine how you might win a larger share of their existing market pie.
5. Management, staff and leadership
Unless you plan on being a solopreneur, or a one-man show, your business will require the skills of an experienced team. This is why you’ll want to prepare an organisational structure and identify the key leaders, their experience, educational background as well as skills. Mention whether these leaders also have industry experience and if they do not, mention what they can bring to the table. Discuss the duties of each position as well as the respective responsibilities. Mentioning the percentage ownership of the business is also a good idea. Adding their CVs to the business plan is also a good idea.
As for staff (and management, too), think about the salary levels that will be required. Will you need to attract qualified candidates for the positions you’ve outlined or do you have people in the wings to get started? How would you keep your employees motivated?
Other factors to consider include:
- Plans for business continuity in the event of the loss of a key employee
- Whether there are any unusual upward pressures on pay levels
- Plans for improving or maintaining productivity and motivation
6. Products or services
Now it’s time to get to the nitty-gritty – the actual product or service offering you’re planning to provide. It’s important to describe this in as much detail as possible. Factors to consider here are customer benefits and the product life cycle. Furthermore, you will want to explain how your product or service works; the pricing model; the typical customer; a sales and distribution strategy; your competitive advantage; order fulfillment, etc.
Intellectual property, copyright, patent or trademark reservations and filings, and their legal aspects should also be presented here.
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7. Marketing and sales
You can implement no marketing or sales strategy without a thorough understanding of the market in which you’ll operate. Therefore, it’s crucial to present in your business plan the market size (its growth, stability, or decline), the overall industry positioning, the market segment you’re targeting, and which demographics your product or service will ultimately serve (think total households, median income or income by demographics), whether there’s demand for the product or service, meaningful competitive advantage, and differentiation from the competition and of course, the cost of the product and service which is market-related.
When you’ve determined this information, it’s time to put together a sales and marketing strategy. This strategy will outline how you intend to attract and retain customers. Also, it will include the process of making a sale. You may consider including the different marketing channels – online, direct to consumer, or via other retailers.
There’s also direct marketing, advertising, and PR to consider. Creating and retaining customer loyalty should also be included here for repeat business. Important to note is how your competitors approach this and see whether you can not only take key takeaways from them, but also how you might do better.
8. The business operations
In the next part of this article on how to create a business plan, we take a look at the actual business operations. Efficiency, capacity, and planned improvements will be a must here. Also important will be the premises and the location where the business will be situated. Consider current and future needs or long-term commitments to the property. In addition, determine what the advantages and disadvantages of the present location are so that you determine whether you should eventually stay put or move to another location.
Other factors to keep in mind are your facilities and the organisation of production; management information systems that may be in place; the reliability of your IT systems; conformity to quality or regulatory standards; inventory; and supplier relationships.
9. Funding and financial forecasting
This part can be divided into two: the funding request part and the financial forecasting part. We take a look at each one in turn.
With funding requests, you’ll want to explain with clarity the amount of funding you’ll require over the short- to medium-term as well as what this funding will be used for. Also, clarify whether you’re looking for debt or equity plus the length of time it will be applicable.
Regarding financial projections, you need to focus on providing detailed information about future earning potential over the next five years. This is a great way of creating the foundation for negotiating how much investors will get back in return for their initial investment. Make sure your forecasts are realistic and accurate. You may want to include information such as:
- Sales forecasts
- The cost of goods sold
- A forecast of profit and loss
- A cash flow statement
- A balance sheet
- Anticipated net profit margin
- Current ratio
- Accounts receivable turnover ratio
- Gross margins
- Major capital expenditure
- Cash flow statements
- Monthly sales and revenue forecast
- Income statement
- Break-even analysis
The appendix should be used as the place where you provide supporting documents. These may include:
- Credit history
- Organisational charts
- Product images
- Reference letters
- Licences, permits, patents, etc.
- Legal documents/agreements
- Graphs, tables charts, and notes
- Legal notes
- Marketing and advertising collateral
- Financial documents and projections
Some useful tips when writing a business plan
You now have an idea of the information that’s required in a business plan. But are there any tips to keep in mind when preparing it? Actually, yes there are. Here are a few of the ones we recommend:
- Know why you’re writing the business plan in the first place
- Keep your target audience in mind
- Don’t go overboard with text, rather keep it concise
- Keep the text simple, avoid buzzwords or complicated phrases
- Focus on the presentation – make it easy to understand difficult figures or concepts
- Don’t be over-optimistic but rather realistic
- Proofread and edit the document when you’re done
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And there you have it – some of the most important components required when you’re thinking about how to put together a business plan. It may seem like a lot of work at first, but if you break it down into smaller sections and work on each one at a time, the task of preparing your business plan will not seem as arduous as you thought.
Disclaimer: Please be aware that the contents of this article and the myPOS Blog, in general, should not be interpreted as legal, monetary, tax, or any other kind of professional advice. You should always seek to consult with a professional before taking action, since the particulars of your situation may materially differ from other cases.