Contents of a Business Plan
A good business plan should include all of the following information:
The cover gives the reader an instant impression of the business so it needs to look professional. It should show the business name and logo, if you have one, and your name. A well laid out cover page will present a professional image to funders and will attract their attention and interest. You should make every effort to have your plan word-processed. It will make the document easier to read.
Although the summary is the first section that people will read, it should probably be written last. However, since it is the first bit you will read, we will describe it first.
The summary should briefly describe the business and highlight its purpose. It should explain how the purpose will be achieved and why the proprietor is the person to make it happen.
If one of the uses for your business plan is to raise finance, then a clear simple outline will catch the attention of prospective funders and make them interested enough to read on. Remember that the people assessing your business are likely to be very busy. Highlight the strengths of the business and why you should be supported. Indicate the expected turnover and profitability for the following year. If you are already in business, briefly describe your history to date and, in particular, provide details of turnover and profitability for the previous one or two years. How does the business’s performance compare with its competitors? What have been its major achievements?
Lastly, indicate how much money you need to raise and the proposed sources.
This section should briefly describe the purpose and goals of the business. Whether or not the business has started, explain who owns it. What was the trigger to launch the business?
If the business has already started, outline its history and performance to date. How high is the sales turnover? How profitable is it? What is its net worth? Provide summary figures here and detailed profit and loss account and balance sheets in the appendices. How does its performance compare with its competitors? How has the business been funded (e.g. equity, loans, grants)? What have been the major achievements to date?
Explain the legal structure of the business (company, sole trader or partnership). State if there are any distinguishing features, such as a unique feature of the product or service or approval to ISO9000.
2. Purpose and goals
Describe the purpose and goals of your business.
Product or Service
Describe what you are selling, or intend selling, in language which any reader will understand. Avoid jargon wherever possible; a reader wanting more detailed information on technical aspects of your product will ask for it. Or else include such information in an appendix.
Explain why customers will want to buy the product or services. What needs does it fulfil? Describe not only the features but also the benefits. Benefits might include, for example, ease of use, comfort, safety, economy, flexibility, taste, etc. Remember that the customer buys the benefits but you pay for the features.
Are any of the features unique? Give details of patent, design registration or copyright if appropriate.
3. Describing your product
Describe your product or service. In particular, explain its features and its benefits.
Define carefully who you perceive to be your customer groups or niche markets. Your market research may have suggested that you aim your sales at a precisely defined target market or segment.
Outline the research that you have undertaken – both primary and secondary research are important - including summary information in tables or graphs. Detailed supporting information can be included in the appendices.
You need to show that a market exists. What is the overall size of the market? Estimate likely demand for your product or service in the short and long-term and justify this estimate. It is on the basis of such information that you will estimate your sales turnover.
You need to explain to the reader the extent of the competition. What competition is there? How many competitors will you have? Is there likely to be further competition in the future? Explain why your product is going to be preferable to those of your competitors. What is your product’s unique selling point?
Are there any barriers to entry to this particular market - and, if so, what are they and how will you overcome them?
4. Describing your market
Describe the market for your product or service. Explain the market research that you have undertaken and estimate your expected sales.
You described the purpose of your business in the summary or in the business section. That purpose should be translated into marketing objectives and goals which will support its realisation.
Objectives should be quantifiable, measurable, challenging and achievable. Typical objectives might be profitability, sales growth, diversification and improvement in market share.
Objectives might include, for example:
- to sell 220 units and generate £100,000 over the next 12 months
- to achieve a gross profit margin of 45%; or,
- to capture 18% of the defined market.
The marketing plan to achieve these objectives should be described using the 4Ps. Your chosen “positioning” will also affect how you implement the 4Ps.
Explain how you propose to position the business (and the product) in the market place. Is the product a quality product targeted at a quality market (and therefore able to command a premium price)? This is known as differentiation. Is the product a commodity - with nothing to choose between competitors except price? This is called cost leadership.
You have described already what your product or service is. Outline plans for future development over, say, the next two years. Will you phase in additional products or services as you start to make more money? Will you pilot an initial product to test the market? Will you add to the product range later?
The location of your business and the way you will distribute your product to your clients are both important. How will the product or service be sold to customers - directly or via dealers or agents (such as wholesalers or retailers)? How will the product be transported to its point of sale?
If customers come to the business, can it be reached conveniently? Does it give the right image? Explain why you have chosen the site or premises from which you intend to operate.
The price must cover all your costs and provide a profit. You will need to explain how you reached your decision on price. If you choose a differentiation strategy, quality and service is, within reason, more important than price. If you choose a cost leadership strategy you will need to set the price by reference to the market - and then control your costs to enable you to sell at that price whilst still making a profit. The latter is often a difficult strategy for small businesses so most, either consciously or unconsciously, choose the differentiation route.
Finally, you need to explain your promotional strategy - how you intend to break into the market and let the customer know you exist.
Explain how you will promote what you have to offer, for example, through advertising, direct mail, door-to-door leaflets, social media campaigns, etc.
5. Your marketing plan
Describe your marketing plan.
Management and Organisation
It is important to demonstrate that you have the ability to carry out the tasks to make the business work. Focus only on the key points.
Describe the people involved highlighting the particular strengths and skills they bring to the business. This may include technical skills (such as joinery or sales experience), personal attitudes (such as enthusiasm or ability to work under pressure), education and specialist training. If you wish, provide curricula vitae for the key staff in the appendices. If there are apparent weaknesses, explain how these will be overcome (for example, by sub-contracting a particular aspect of the production process).
Describe the production process (if appropriate) and highlight any competitive advantages.
The reader is already aware of the logic behind your choice of premises; here describe the premises themselves, including details of any necessary licences, health and safety requirements, planning permission, etc.
6. Managing your business
Describe how you will manage and organise your business. Who will be involved and what are their skills? What are their development needs? Include an explanation of how you will monitor business performance from start up.
Once you have worked out your likely costs, and determined the price at which you will sell your product or service, you can work out exactly how much you need to sell in order to cover costs - either in terms of units sold or productive hours worked. The level of sales at which you start to exceed your costs is known as the break-even point. Beyond this you start to go into profit.
7. Break-even point
Explain how you have derived the price for your product or service and show the expected break-even point. Mention the margin of safety.
The two key financial requirements are to generate a profit and to generate sufficient cash to be able to make payments to suppliers, staff and others as they fall due. The objective of this section of the plan is to demonstrate that the business will achieve both of these requirements. Forecast for at least one year ahead. If a substantial investment is sought or if the business is unlikely to show profitability within the year, then forecasts for two or even three years may be required.
This section will normally include a cashflow forecast, a forecast profit and loss account and a forecast balance sheet. Let’s look at each in turn:
- A forecast of the profit and loss account: The sales turnover is derived from the market research section. What are the direct costs, the gross profit, the overhead costs, and the likely net profit? How will the profit be distributed? It may also help to explain how the price has been derived. Remember to include drawings and interest when adding the total overhead cost to the direct costs.
- A cash flow forecast: Explain likely delays in receipt of income and in paying for expenditure. Provide a cashflow forecast to show receipts and payments on a month by month basis and, therefore, the required level of external finance.
- Ideally, you should also include a forecast of the balance sheet - otherwise the prospective funder will attempt to derive one from the other information you have provided. This might not, however, show the business exactly as you would like; you might, for example, be introducing fixed assets or stock which will not appear on the cash flow forecasts.
8. Financial forecasts
Prepare detailed financial forecasts which should include at least a profit and loss forecast and a cash flow forecast. Ideally include a balance sheet forecast also. Include a brief explanation of how and when you will monitor forecasts against actual progress.
Prospective funders are interested in risks - the risk that you may not achieve your forecast, the risk that you may default on the loan and even the risk that your business might cease to trade. It will help them considerably - and demonstrate that you too have thought about risk - if you include a break-even analysis (explained earlier) and a sensitivity analysis.
Sensitivity or Risk Analysis
Sensitivity analysis looks at “what if...?” questions. What will be the effect, say, of a 10% fall in sales or a 20% increase in raw material prices? You can help the business plan appraiser by briefly considering such questions yourself and assessing the likely risks particularly of falling sales or rising prices.
Indicate how much money or other assets will be invested by yourself (and any partners). Give details of how much is sought from other sources and explain whether it is wanted as overdraft (for working capital), as term loans (for equipment for example), as equity, or as a combination of these.
If any security, for example, in the form of a house, is available, then say so. Most banks look for at least some security, particularly if they are being asked to provide the bulk of the finance. The offer of security is a demonstration of your commitment to, and confidence in, the business. It is also a demonstration of your willingness to take risks, especially if you have little cash of your own to invest.
9. Your financial requirements
Explain your total financial requirements and the way in which, ideally, you would like these to be met; explain how much you will be introducing to the business and whether you have any security.
Keep any additional material to a minimum. You may find there are some aspects of your business where more background information might be helpful, but don’t regard this as an excuse to include everything.
In addition to the items mentioned above, you might include:
- quotations for equipment and necessary insurance
- legal information - partnership agreement, leases etc
- a copy of your primary research questionnaires; and
- relevant secondary research information.
In describing your business, in highlighting the features and benefits of your product or service, in demonstrating your knowledge of the market, in providing details of actual performance or forecasts of potential and in demonstrating your willingness to take risk, you have prepared a business plan. You can now think about writing the summary.
10. The summary
Now write your summary.
Earlier, we suggested that the quality of the information you gather for your plan will determine the quality of your business plan. Equally, the quality of the business plan will determine the success or otherwise of any application for funding. No less importantly, the quality of your business planning will determine the success or otherwise of your business.
Remember that your plan is neither a static document nor simply a tool with which to get funding; it is an evolving statement of all the ideas, research and actions which you are employing to ensure the survival and growth of your business.
Your business will require frequent changes of direction as new opportunities present themselves. How you meet those opportunities will be a function of the quality of your planning, of your flexibility of approach, and of how you develop and use your plan.