Any entrepreneur with serious aspirations for their business and overall quality of life will undoubtedly be required to create a business plan to map out their objectives and how they intend to achieve them. Whilst budding business owners can absolutely attain success without creating a comprehensive plan, it is not advisable to conduct business in this way: why not mitigate certain risks that may lead to failure? Planning is crucial to maximising the potential of success for your business.
The term ‘business plan’ may appear daunting if you are a new business owner, but rest assured once you get into the detailed creation of one, the initial trepidation may then turn into concerted excitement to venture into the management of your business and its growth. With this guide, you will discover a simple-to-follow framework and explanation as to why creating a business plan is advantageous.
What is a Business Plan?
Fundamentally, a business plan is a document from which you and external stakeholders will use to understand what your business plans on doing, how it will operate, how it will make a profit and also details the minute details as to the intricacies of the business.
Writing a business plan that is of high quality will, ordinarily, detail the business as it is now and the expectation of it in the future, whilst also providing examples of how you intend to lead your business, facilitate its growth and the implications of any such growth.
A thorough business plan – and an honest entrepreneur – will recognise that business is not a continuously upwards journey: there will be pitfalls and downsides to plan and account for. Your business plan should lay down a clear foundation for acknowledging common challenges for newer businesses and establish a clear strategy to overcome or avoid them entirely.
What Makes a Good Business Plan?
Outside of the fundamentals, a business plan may not immediately be determined as good until external factors – such as investment – are apparent. A good business plan will often be a crucial factor in attracting external investment or attaining commercial lending in the absence of market presence or a proven track record.
5 Reasons Why You Need a Business Plan
A comprehensive business plan can often be the single-most-important document in unlocking doors and facilitating commercial agility: increasing the likelihood of external funding and investment, as it marks your business as one which is well-operated and confident of its place in the market and potential in reaching sustainable growth and profitability.
Here are the core reasons that make your business plan important:
- You know what’s coming down the road and you are prepared for it
Your business plan should cover an approximate timeframe that projects your business’ next 3-5 years and details the intended path to growth and profitability. Although your business plan will not contain every answer, it will be useful as a reference guide to where you need to go and how you intend to get there.
2. Milestones are signposted
Setting up milestones and acknowledging their achievement is the key to correctly evaluating the progress of your business venture. Your business plan gives you a point of reference and allows you to take a break from the day-to-day operations to look at the bigger picture and decide on the steps you need to take next.
3. Directing your business will be far easier
When writing a business plan you could metaphorically envision it as a treasure map: X marks the spot. Your plan should be the guide you refer to at each stage of your business: informing you of where you started, where you intend to go, how you will get to your destination and overall management of your business.
4. Business plans can help in securing external funding
A well-thought-out, comprehensive business plan can assist you in securing funding by way of bank loans or new business partners. What you must consider is that penning a quality business plan can instil confidence in investors that your business will be successful and that they will see a return on their investment.
5. Building your confidence as a business owner
Creating a business plan is a smart decision for any budding entrepreneur as it can go a long way toward increasing your own confidence and authority in the pursuit of your commercial goals.
Put simply, a well-structured business plan can be helpful in allowing you to keep track of your business’ progress, as well as giving you the peace of mind to remain level-headed when facing challenges.
Common Types of Business Plan
One of the key misconceptions of writing a business plan, which can be a huge deterrent, is that there is a “correct” way to write one: this is not the case. There are numerous formats and structures that may be beneficial for your business, though there are two layouts that are most frequently used: traditional and lean startup. They will often be determined by the type of business to be run and the industry sector.
Traditional
Arguably the most common type of business plan format, the traditional business plan is standardised and usually requires a lot of detail in each section. As traditional business plans are much longer, they require much more effort and expertise, so it’s advisable to consult a specialist.
Lean Startup
As the name suggests, lean startup business plans are far shorter than their traditional counterparts and will, often, use an abbreviated framework, instead, marking the key elements for ease of inspection. There are no set limits as to how brief a lean startup business plan can be: one page can be sufficient.
That is not to say that, if you rely on a lean startup business plan, you should not have the external factors of your business details and interests organised. If your business is subject to a lean startup business plan, you should still be ready and able to provide more in-depth information to a lender or investor, should they request it.
6 Components You Should Include in Your Business Plan
No two businesses are identical, and therefore, no two business plans will be the same; however, it is advisable to include certain core components within all business plans.
1. Budget
All companies require a budget and it should be reflected in the business plan. Your budget will include costs and expenses relating to marketing, consumables, staff wages, training & development, manufacturing, advertising and external costs.
2. Financial Planning
Any commercial entity that intends to attract the attention of lenders and investors should include the details of financial planning and estimates of future projections. Crucial documentation, such as balance sheets, financial statements and other financial documents should be included, particularly for businesses that have been established for some time.
For newer businesses, carefully curated targets and estimates (based on market research and initial performance) should be included within the business plan.
3. Marketplace Research and Analysis
Any business which has aims of prospering should conduct comprehensive research on the marketplace and its target audience. Consider that the majority of new businesses fail within the first decade; knowing this, it is advisable to perform ongoing research and analysis on competitors, innovations and consumer trends so that your company is proactive as opposed to reactive.
Market research and analysis must be honest and transparent: this allows external parties to understand your position in the market but also helps your business understand its own strengths and weaknesses in comparison to the competition. This research should also detail the expected marketplace demand for your products and services, as well as the challenges your business may face in attaining market share amongst a competitive scene.
4. Marketing and Advertising
This component will detail the company’s strategy in its pursuit of customers and how it intends to entice customers towards its products and services. This section of the business plan will demonstrate how the business will conduct its advertising and marketing campaigns and the channels and mediums of which such advertising will use.
5. Products and Services
It is crucial that the business plan provides a brief description of the products and services it offers. Certain details that may be included in this section include patents and intellectual property licenses. Information pertaining to research and development may also be included within this section of the business plan.
6. Executive Summary
This section is the overall outline and description of the company, including its values and mission statement as well as details of the company’s location, business operations, executives & leadership and employees.
Other Elements to Consider
Though not integral, it is advisable to consider including the following components within your business plan.
Financial Projections
It is advisable to include the financial projections of your business – often referred to as pro-forma financial statements – including general budgetary requirements, market analysis, marketing strategies and projected financing needs.
Business Funding
Understanding any potential costs and pitfalls of business decisions can be useful when considering the types of financing that may be required to get their business off the ground. It’s a good idea to consider your business funding options, including business loans, merchant cash advances and business banking.
How Long Should a Business Plan Be?
Best practice determines that your business plan must balance conciseness with ample demonstrations of your considerations for any challenges that may hamper your success. What this means is that your business plan should have just enough detail to be robust but not so much that it would confuse or put off third parties reading it.
The trick is to reference all integral components to your business model – such as patents – in short within the main business plan, but include more details as part of the appendices for any interested parties to view if they wish to do so.
Although the overall length of a business plan will vary depending on the particular business and its intricacies, it is advisable – when utilising a more traditional planning format – to limit the plan to 15-20 pages in length.
How to Write a Business Plan
Though committing to penning a business plan may seem difficult at first, carefully plotting points of the business plan and creating each section individually – including revisions – can bring the business plan together quicker than you may anticipate. Here are some practical tips on how to do this.
General Advice
- Ensure it is concise and to the point
- Absolutely no spelling or grammar errors
- Focus on the needs of the reader
- Be realistic in your assessments, assumptions and projections as not doing so can be detrimental to your cash flow
- Ensure professional presentation: give the document a cover and include a contents page, starting with the executive summary
- Where useful and practical, use charts and graphs to create visual representations of your claims and projections
For the Appendices
Any lengthy detail should be included in the appendices, including:
- Market research data, which justifies your claims and projections
- Comprehensive financial projections
- Product tech specs and literature
- CVs/resumes of key employees, executives and non-executives
Your Business, its Products and Services
Detail the history of the company
- When did it become operational, begin trading and what progress has been made since?
- Detail the business owners from the beginning until now, including the current ownership structure
- Relevant key personnel with industry experience and backgrounds
What is your product/service? A brief description
- What differentiates your product/service from the competition?
- Are you planning any improvements to the products or services you offer?
- What tangible benefits does your product/service bring to the market? Does it have any disadvantages: how will you amend these?
Specific industry features
Detail any specific industry rules and regulations that may affect your business, its products and services.
The Market and Your Competition
Describe your marketplace
- Include trends and chances for market growth: attempt to give an explanation for such trend
- Split segments of the market and the key indicators of the customers, including the influences on their purchasing
- What is your market share of these segments?
- What are your projections for each segment?
What is the main competition?
- Detail your main commercial competitors, as well as their products and services
- Compare and contrast their strengths and weaknesses against your own
- Why do you believe that customers will do business with you, as opposed to your competition?
- How do you think your competitors will respond to losing business to you and how will you respond in turn?
Marketing, Advertising and Sales
Your analysis of your marketplace position
- Is your product or service specialist?
- Are you a higher-end, boutique brand or one of low-cost?
- Does your company, its products or services have unique benefits in comparison to the competition?
- Are certain benefits to be focused on more heavily than others?
Promoting your product or service
- Market sectors and demographics often respond differently to various methods of promotion: how do you intend to approach this?
- Do you seek to use innovation in your marketing strategy?
Pricing Policy
- Research and determine if your customers are price-sensitive, and, if so, how much.
- Set your pricing according to the relationship between each individual product, its market segment and competition: possibly increasing sales or margins.
Your sales channels
- Do you see through third parties – such as agents or retailers – or directly?
- Do you sell your products and services online?
- What are the positive and negative trends and associations intrinsic to your chosen methods of distribution?
- Compare your selected distribution channels to that of your competitors. How could you use their strategies to your benefit?
Internal Personnel and Management
Key skills, industry background and structure of management and influential staff
- Detail recruitment strategies, as well as training and development plans – including costs and timeframes.
- Strengths and weaknesses of your onboard team of employees, and how you plan to rectify deficiencies.
Workforce motivation
- Be realistic with regard to the commitment of your employees and management team.
- How will you maintain employee morale and motivation?
- Are there contingency plans for the loss of a highly-important employee?
Business Details
Management information systems
- The systems you have in place for sales, stock rotation, point of sale, accounts, quality control, distribution, human resources etc.
- How reliable are said systems and are they suitable for expansion, once your business grows?
Is your onboard IT system sustainably reliable?
- The robustness (or lack thereof) of an internal IT system can be a determining factor in the day-to-day success of your business. Ensure that your IT systems are capable of conducting your daily operations, as well as onboarding any important management systems and software.
Your business premises
- Is your current premises suitable for the needs of your business today and in future?
- Do you have long-term commitments to the premises, and how so?
- A list of the strengths and weaknesses of your current premises.
- Will the business seek to expand the current premises, or relocate operations entirely?
Your production facilities and product arrangements
- Are your current facilities ample to accommodate current and increased forecasted demand?
- Is the equipment you hold modern, or do they require ongoing maintenance?
- Are the relationships with your key suppliers reliably sound, and who are they?
Financial Forecasts
Historical financial information
- Must be as accurate and honest as possible
- Ideally, demonstrate key figures from the last three to five years
- Separate sales information based on market segment, demographics, sales channels, marketing channels, product type, cost bracket etc.
- Up-to-date profit & loss statements and balance sheet
- Detail gross margin for each sales component, including direct costs for each component of the product
- Use sales ratios, such as debtors paid, stock turnover and creditors paid
- Provide information detailing any significant capital outlay or expenditure
Forecast the next three to five years
- Use forecasting data and present it in the same format as your historical financial information, lending easy comparisons
- Always state your assumptions within your forecasts and ensure that the forecasts are relative to your assumptions. For example, should you assume that customers are becoming more price-sensitive based on extraneous variables, sales figures of higher-priced items should be forecasted to reflect this
- Always be realistic and honest with your sales forecasts and expected growth
- Demonstrate a commitment to considering challenges and potential pitfalls that you and your industry may face. Should external factors affect your sales and the sales of your competitors, how will a reduction in liquidity and cash flow affect your daily operations?
Predicting financial requirements using cash flow
- Determine the type of financing you require, depending on your daily cash flow: long-term loans or overdraft?
- Always disclose the interest or dividends cost involved in new financing options.
- Detail why the particular financing option is required, beneficial and more appropriate than an alternative
- Explain what the additional financing will be used for
Always request help if necessary
- There is a lot of support available for small, fledgling businesses. Entrepreneur support groups and banks can assist in the creation of financial forecasts for very little cost and, sometimes free of charge.
Business plans are useful for organisations of all sizes, not only smaller entities, therefore it is highly recommended that you create a business plan, however small your business may be. You should also take the time to review your business plan at regular intervals to determine if your goals have been met and what has changed or must be amended going forwards.
We hope that this guide has helped familiarise you with how to create a business plan. If you have any questions, require assistance or would like to enquire about business support loans, commercial mortgages or payment systems, please give AptPay a call – we are more than happy to help.
