A Brief Guide to Business Plan Writing
PART A: Introduction to Business Plans
Definition
Business
plans are roadmaps for setting the direction of the company -- they outline the
key goals of the company and set plans for how to achieve those goals. The time
horizon for business plans varies, but typically they provide plans and
forecasts for the upcoming 3-5 years. Business owners can gauge performance
over time by comparing actual performance with plans set out in the business
plan. Moreover, business plans are often used to help secure financing options
for the business.
Audience
Business
plans are written for a wide variety of audiences, including but not limited
to:
●
Management team
●
Financing sources
●
Potential customers
●
Potential suppliers
●
Prospective hires
●
Advisors
●
Regulators
Quick Tips
Here
are some helpful BP guidelines:
●
Keep the business plan short and focused
●
Spend a significant amount of time on the executive summary, it’s an
important first impression for readers
●
Graphs and charts are almost always better than words
●
Clearly articulate your unique selling proposition by asking yourself
how you plan to differentiate your products / services
●
Identify your niche and show that you understand your customers
●
Be honest about risk and discuss contingency plans and mitigation
strategies
●
Be realistic with assumptions and projections
●
Look at existing business plans and get advice from trusted advisors
PART B: Contents of the Business Plan
Table of Contents
1.
Executive Summary
2.
Company Description
a.
Mission
b.
Management Team
3.
Context & Business Opportunity
a.
Industry
b.
Market
c.
Product & Services
4.
Operational Plan
5.
Competition & Risks
a.
Competition
b.
Risk Factors & Mitigation Strategies
6.
Funding Needs
a.
Financial Data & Projections
b.
Funds Required & Uses
7.
Appendices
Executive Summary
The
executive summary is often considered the most important part of the business
plan because it provides a concise snapshot of the business and is the first
section that readers will encounter. It should summarize the entire business
plan in 1-2 pages. Therefore, it is best to write the executive summary after
completing all other sections of the business plan. Also, it is useful to
selectively bold the key points and data in the executive summary so that the
reader does not miss any of the critical information. The essential topics to
cover in the executive summary are:
●
Characteristics of the market and industry
●
Company vision and mission
●
Value proposition of company products / services
●
Overview of the operational plan
●
Financial projections and funding needs
Company Description
Start off with the mission statement of the business, which is essentially a statement that succinctly describes the goals and purpose of the business. An example of a mission statement for an early stage technology company is below.
After
the mission statement, it is important to provide information on the business
organization and management team, specifically:
●
Management team profiles - Who are the business operators / owners and
what are their qualifications?
●
Corporate organization - What kind of legal classification of the
business (e.g. LLC, sole proprietorship)?
●
Ownership table -- What is the ownership structure of the business?
●
Organizational chart -- What is the organizational structure of the
business and how will this structure change over time?
Context &
Business Opportunity
It
is important to provide context and describe the market opportunity that the
business is trying to address. Readers should be given information on the
industry that business operates in, the market that the business is trying to
address, and product / services that the business plans to produce.
For
the industry description, address the following questions:
●
What products / services do companies in the industry produce?
●
How large is the industry (number of firms, total revenue, etc.)?
●
What kind of companies operate in the industry? What are the key common
characteristics and key differences across industry players?
●
How has the industry changed over time? What are the current industry
trends?
For
the market analysis, focus on describing your potential customers:
●
What is the market that your business is addressing?
●
What are the key characteristics of potential customers in this market?
What customer needs does your business intend to fulfill?
●
What is the size of this market? How is that size changing over time?
●
What are the key market trends?
When
describing the product / services, it is important not only to describe the
fundamental characteristics of the products / services, but also to illustrate
product-market fit (i.e. how the product / services address the needs of the
market):
●
What are the products / services that your business is offering? How
will you produce and deliver these products / services?
●
How are these products / services differentiated from existing products
/ services (pricing, quality, etc.)?
●
How do these products / services address customer needs?
●
What the underlying economics behind the products / services (unit
cost, price, etc.)?
Operational Plan
The
structure of the operational plan varies considerably from business to
business. The overall goal is to provide a detailed implementation plan for how
the business will achieve the goals set out in earlier sections. This requires
providing a timeline of business activities for each function of the
organization, such as marketing, sales, product development, research &
development, and human resources. Key questions to consider for business
function are:
●
What activities does each function need to undertake to achieve
business goals?
●
What is the timeline for these activities? What resources do they
require?
●
How will the day-to-day activities of each business function be
managed?
Competition &
Risks
A
business plan that thoughtfully considers the challenges and risks facing the
business indicates that the owners / operators of the business understand both
the upside and downside potential of the business. The key topics to cover are:
●
Who are the competitors? What are their characteristics? How much
market share do they have?
●
How does your business differ from that of competitors?
●
What are the key challenges posed by competitors and how will you
address them?
●
What are the most significant risks associated with the business and
what mitigation strategies can be employed to address them?
Funding Needs
First,
provide financial data and projections. Tables showing the historical financial
performance for the business since its inception are great ways of illustrating
historical performance; if the business is a start-up, then focus on providing
realistic projections. The key financial information to include is:
●
Income statement -- Also known as
profit & loss statements, income statements provide detailed information on
revenue, cost and income / profit for the business; they also indicate which
business activities drive revenue and cost.
●
Balance sheet -- The balance
sheet primarily provides information on assets and liabilities; examples of
line items include cash, receivables, and debt.
●
Cash flow statement -- Business owners
are often told that “cash is king,” which is to say that cash flow is a
critical indicator of the financial health of a business. The cash flow
statement provides information on cash inflows and cash outflows that occurred
as a result of business activities.
Using
this financial data and assumptions about the operations of the business,
develop forecasts for each of the statements described above. The forecasts
should provide a month-by-month or quarter-by-quarter projection for 2-5 years.
The key financial metrics to forecast are: number of goods sold or customers
serviced, market share, sales / revenue, costs of goods sold, operating costs,
income / profit, net change in cash balance, debt outstanding, total assets,
and total liabilities. When developing the forecasts, it is important to use
reasonable assumptions (e.g. a year over year growth rate that can be justified
through historical data or industry comparisons); the assumptions and
supporting research can be inserted in the appendices.
Based
on these forecasts, determine how much capital is needed to fund business
activities. This can usually be done by determining how much cash is required
during the initial few years to fund cash deficits until the business generates
enough sales to finance business activities at a profit. Once you’ve arrived at
the amount of funding required, develop a detailed breakdown of the uses of the
funding so that potential financing providers understand how the capital will
be deployed.
Appendices
This
section is optional. You can add any supporting charts, data, or research here.
An effective business plan writing strategy is to focus on key points in the
above sections by not presenting supporting information that might distract
from these points, and then place all supporting information in the appendices
(note: be sure to clearly indicate in
the above sections that additional information can be found in the appendices).
Examples
of information to include in the appendices:
●
Resumes / CVs of management team
●
Customer profiles
●
Market size calculations
●
Assumptions and methodology for financial projections
●
Historical financial statements
●
Research citations
Very useful, thank you
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