What is a business plan and why do I need one?
A business plan is a written document that describes your business, its objectives and strategies, the market you are targeting and your financial forecast. It is important to have a business plan because it helps you set realistic goals, secure external funding, measure your success, clarify operational requirements and establish reasonable financial forecasts. Preparing your plan will also help you focus on how to operate your new business and give it the best chance for success.
Securing financial assistance to start your new business will be directly related to the strength of your business plan. To be considered a viable candidate to receive funds from a financial institution or investors, you must demonstrate that you understand every aspect of your business and its ability to generate profit.
A business plan is more than just something to show lenders and investors, it is also necessary to help you plan for the growth and progress of your business. Your business’s success can depend on your plans for the future.
Listed below are examples of questions to ask yourself when writing your business plan:
- How will I generate a profit?
- How will I run the business if sales are low or if profits are down?
- Who is my competition, and how will we coexist?
- Who is my target market?
What should be included in a business plan?
Although business plans can vary in length and scope, all successful business plans contain common elements. The following points should be included in any business plan:
- Executive summary (business description)
- Identifying your business opportunity
- Marketing and sales strategy of a business plan
- Your team
- Financial forecasts of a business plan
- Other useful documentation
The executive summary (business description)
The executive summary is an overview of the main points in your business plan and is often considered the most important section. It is positioned at the front of the plan and is usually the first section that a potential investor or lender will read. The summary should:
- Include the main points from each of the other sections to explain the basics of your business
- Be sufficiently interesting to motivate the reader to continue reading the rest of your business plan
- Be brief and concise – no more than two pages long
Although the executive summary is the first section of the plan, it is a good idea to write it last – after the other parts of the plan have been finalized.
Identifying your business opportunity
In this section of your business plan, you will describe what your business is about – its products and/or services – and your plans for the business. This section usually includes:
- Who you are
- What you do
- What you have to offer
- What market you want to target
Remember that the person reading the plan may not understand your business and its products and services as well as you do, so try to avoid using complicated terms. It is also a good idea to get someone who is not involved in the business to read this section of your plan to make sure that anyone can understand it.
Some of the things you should explain in your plan include:
- Whether it is a new business venture, a purchase of an existing business or the expansion of an existing business
- The industry sector your business is in
- The uniqueness of your product or service
- The advantages that your business has over your competition
- The main objectives of your business
- Your legal business structure (sole proprietorship, partnership, corporation)
You can also include the date the business was registered/incorporated, the name of the business, its address and all contact information.
Marketing and sales strategy of a business plan
A strong business plan will include a section that describes specific activities that you will use to promote and sell your products or services. A strong sales and marketing section demonstrates that you have a clear idea of how you will get your product or service into market and can answer the following questions for the reader:
- Who are your customers? Do some research and include details of the types of customers who have shown an interest in your product or service. You can describe how you are going to promote yourself to potential customers.
- How are you going to reach your customers? You should know your customers and the best methods to reach them. Research will help you identify the most effective way to connect with your selected audience, whether it is through the Internet, over the telephone or by in-person contact.
- Who is your competition? Once you understand this, you need to research their strengths and weaknesses and use this information to assess potential opportunities and threats to your business.
- How are you going to position your product or service? Describe what makes your product or service unique to the market you are trying to target.
- How are you going to price your product or service? This information will outline your pricing strategy, including incentives, bulk pricing and/or group sales.
Don't underestimate the importance of this part of your plan. Investors need to know that you and your staff have the necessary balance of skills, motivation and experience to succeed. This section describes the people working in your business and how you plan to manage your activities. Information in this section can include:
- A brief organizational layout or chart of the business
- Biographies of the managers (including yourself)
- Who does what, with a brief job description of each position
- The needed skills of each position
- Any other relevant information related to personnel
It is also a good idea to outline any recruitment or training plans, including the cost and the amount of time required.
The operations section of your business plan will outline your daily operational requirements, facility requirements, management information systems, information technology requirements and any improvements you may have planned. This section usually includes information like:
- Daily operations – descriptions of hours of operation, seasonality of business, suppliers and their credit terms, etc.
- Facility requirements – this includes things like size and location, information on lease agreements, supplier quotations and any licensing documentation
- Management information systems – inventory control, management of accounts, quality control and customer tracking
- Information technology (IT) requirements – your IT systems, any consultants or support service and an outline of any planned IT developments
Financial forecasts of a business plan
Your financial forecast turns your plan into numbers. As part of any good business plan, you need to include financial projections for the business that provide a forecast for the next three to five years. The first 12 months of forecasts will have the most details about costs and revenues, so investors can understand your strategy.
Your financial forecasts should include:
- Cash flow statements – cash balance and the cash flow pattern for the first 12-18 months, including working capital, salaries and sales
- Profit and loss forecast – projected level of profit based on your projected sales, the costs of providing goods and services and your overhead costs
- Sales forecast – the money you expect to make from sales of your product or service
Some other things to consider include:
- How much capital do you need (if you are seeking external funding)?
- What security can you offer to lenders?
- How do you plan to repay your debts?
- What are your sources of revenue and income?
- Forecasts should be covering a range of scenarios
- Reviewing risks and developing contingency plans to offset the risks
- Reviewing industry benchmarks/averages for your type of business
It is important to do your research to find out how your business compares to other small businesses in your industry.
Other useful documentation
The following sections are not always required, but can enhance any business plan:
- Implementation plan – this section lists estimated dates of completion for different aspects of your business plan, targets for your business and accomplishments.
Appendices – these should include supporting material, such as licences and permits, agreements, contracts and other documentation that support your business plan.
Who should write my business plan?
Your business plan should be prepared by you, the entrepreneur. It is your business and your plan, but do not hesitate to ask for help from your management team, consultants, accountants, bookkeepers, copy editors or other experienced people.