Not every business needs a business plan, but it is important to write a business plan.
When starting a business, writing a business plan is the first step in the establishment of your prospective business.
A business plan is a document that summarizes a company’s operational and financial objectives and contains detailed plans and budgets that show how the objectives are to be accomplished.
It is the roadmap for the success of your business. For anyone starting a business, it is a vital first step.
What are the components of a business plan?
The formal and traditional business plan has the following sections:
- Executive summary
- Industry overview
- Market analysis
- Competitive analysis
- Marketing plan
- Management plan
- Operation plan
- Financial plan
- Appendices and Exhibitions
Why does every startup need a business plan?
A business plan is essential to determine if your business model is viable if you have the idea to start a new company.
If seed financing is required, you should have a business plan prepared for investors that demonstrates how the proposed business will be profitable.
For example, the market analysis will reveal if there is enough demand for your product or service in your target market – if the market is already saturated, your business model will have to be changed (or scrapped).
Competitor analysis will examine the strengths and weaknesses of the competition and help guide your strategy for gaining a market share in your marketing plan.
For example, if established competitors dominate the existing market, you will have to develop a marketing plan to attract competing customers (lower prices, better service, etc.)
The management plan outlines your business structure, administration, and personnel requirements.
If your business requires specific knowledge of employees and management, you will need a strategy for finding and hiring qualified staff and retaining them.
The operational plan describes your facilities, equipment, inventory, and supply requirements. Company location and accessibility are critical to many companies; if so, you will need to explore potential sites.
If your proposed business requires parts or raw materials to produce goods to be sold to customers, you will have to investigate possible supply chains.
The financial plan is the determining factor in determining whether your proposed business model is likely to be successful and (if financing is required). And if it is likely to obtain start-up financing in the form of equity or debt financing from banks, investors angel, or venture capitalists.
You may have a great idea for a business and excellent marketing, management, and operational plans. But if the financial plan shows that the business is not going to make enough after-spending income to be profitable, then the business model is not viable.
The business plan is a living document.
Because the business plan contains detailed financial projections, forecasts of your business performance, and a marketing plan, it is an incredibly useful tool for day-to-day business planning and, as such, should be periodically reviewed and updated as needed.
What is the difference between the business plan and the investment plan?
Not much, considering they both have the same content. You can think of an investment proposal as a business plan with a different audience. The business plan is considered as an internal document, unlike the investment proposal, which is designed to be presented to external agencies.
How To Write A Business Plan Step By Step
Step 1: Executive Summary
While appearing first, the executive summary is the first section of your business plan that is normally the last to be written. It summarizes the key elements of the entire business plan, and it is the first thing that anyone who looks at your business plan read. So your executive summary must be exceptional.
The executive summary is an overview of your business and your plans.
The length of the executive summary does not have to be overwhelmingly long. In fact, it should be as brief as possible while still conveying the most important parts of your business plan. It must be easy to read and written in non-technical language.
What does an executive summary of a business plan include?
Your executive summary should highlight at least one important statement from each of the other sections of your business plan. Think in terms of giving the recipient what they need to decide whether to invest in your business.
If the reader only reads the executive summary, he or she should have an obvious idea about your business, goals, and strategic plan to achieve your goals.
Basic information about your business, such as your business name and location, description of your business and its products or services, your management team, and the mission statement should be included in the executive summary.
The goal of an executive summary is to get read and convince the reader that your business plan is worth reading in its entirety and ultimately that your business is worth investing time or money in.
Here are some tips for writing an effective executive summary.
Always put yourself in each other’s shoes
When you start writing your executive summary, think in terms of your audience.
If you were a banker, investor, or potential partner, what would convince you that this business is really worth your time and money?
Use this as the focus of your executive summary.
Start with an outline
Review each section of your business plan and get the most important statement, statement, figure, or fact from each.
Your executive summary, over time, will include a description of each of these key points, with explanations and transitions that make statements flow and logically fit.
Drive with conviction
Put your most important and compelling statement at the beginning of your executive summary, so it is more likely to be read. As you write, speak directly to your audience, and don’t be afraid to show your passion and enthusiasm in your executive summary.
Use visual aids
An image is worth a thousand words, even in an executive summary. If you have a graph, chart, or infographic that demonstrates an important point you can include in your executive summary of the business plan, use it to back up your key statements.
You can use the format as captions, bullets, and short paragraphs to make your executive summary easy to scan and to draw attention to the most important parts.
Keep it short
There is no rule when it comes to the length of your executive summary, but generally, you should only take as long as it takes to get your point across.
Be direct, clear, and convincing and avoid using overly descriptive writing.
Your executive summary of the small business plan must be able to remain independent and self-sufficient. But that doesn’t mean you don’t want to give readers the option of getting more information with little effort. Use hyperlinks to allow readers to jump to other sections of the business plan and help substantiate their claims.
Have it checked
If you have someone with a new set of eyes and great attention to detail available, ask them to review your executive summary for typos. It’s not a bad idea to have your entire business plan reviewed, but at a minimum, make sure your executive summary is perfect.
Step 2: Industry Overview
An overview of the industrial sector in which your business will be a part, including industry trends, major industry players, and estimated industry sales.
A summary of your business’s place within the industry should be included in this section.
The industry section is best organized into two parts: an industry overview and a summary of your business’s position within the industry.
Use these questions to focus your research before writing this section of the business plan:
- What is the size of your industry?
- What sectors does this industry include?
- Who are the main actors in this industry?
- What are the markets and customers in this industry?
- What are the estimated sales of the industry this year? Last year? Past year?
- What economic trends have affected this industry, and how?
- What national/economic trends could affect it in the future, and how?
- What is the long-term prospect for this industry?
- Writing a business plan: position in the industry
- What products or services will your business sell?
- What is your Unique Selling Proposition? (What makes your business unique and sets you apart from your competitors?)
- What are the barriers to entry in your industry?
- How are you going to overcome these barriers?
- Who are your competitors?
- What is the market share of your competitors?
- What is the competitive advantage of your business (i.e., your niche or estimated market share)?
- What is your target market?
- How are you protecting your product or process (i.e., patents, copyrights, and trademarks, franchise rights that you have or plan to acquire)?
The Industry Section
Once you have all this information, you will write this section of the business plan in the form of several short paragraphs. (Remember, each of these paragraphs is a summary, not a detailed point-by-point explanation.) Use appropriate headings for each paragraph.
Whenever you find a piece of information you want:
- Check its date and determine if the information is current enough to be valid;
- Write down the date and source of information, as you will need to cite your sources of information in the business plan.
When you write a business plan, you should make your research information as up-to-date as possible. After all, there is no point in starting a business if you don’t want it to be successful.
Step 3: Market Analysis
This comprises of examination of the primary target market for your product or service, including geographic location, demographics, the needs of your target market, and how these needs are currently being met.
Its purpose here is to show the reader of your business plan that you have a thorough understanding of the people you are planning to sell your goods or services to. And so comprehensive that you can make educated predictions about how much of your goods or services they could buy.
When you write a business plan, the focus of the market analysis section is a comprehensive examination of your target market and those who intend to sell your products or services.
The first action to take is to define your target market.
Even if you intend to sell the service only in your own city, you are not selling it to everyone who lives there.
You need to have a better understanding of people who might be interested in buying your product or service.
So you need to make some projections about your target market. In terms of how much of your products or services they could buy. And how they might be affected by trends and policies.
Tips to Write a Business Plan Market Analysis
As always, when you are writing a business plan, research is vital. Before writing the Market Analysis section of the business plan, use these general terms to begin your research:
- Years – At what age range am I supplying my products/services? Children? Adults? Gen X seniors? Millennials?
- Gender – Am I targeting men, women, or both sexes?
- Marital status – Are my clients married or single?
- Family – What is your family structure (number of children, extended family, etc.)?
- Location – Where they live? Am I looking to sell locally? At the regional, national level?
- Education – How well are they educated?
- Income – What is your income?
- Occupation – What do they do to live?
- Religion – Are they members of a particular religious group?
- Language – Are they members of a particular language group?
- Lifestyle – How is their lifestyle?
- Motivation – What motivates them?
- Size – What is the size of the target market?
But don’t stop here.
To define your target market, you must ask specific questions that are directly related to your products or services.
For example, if you plan to sell computer-related services, you need to know things such as how many computing devices your potential customer has.
If you plan on selling garden furniture and accessories, you need to know what type of garden furniture or accessories your potential customers have bought in the past, and how often.
Projections on the target market
- What proportion of your target market has used a product similar to yours before?
- How much of your product or service can your target market buy? (Estimate this in gross sales or units of product/service sold.)
- What proportion of your target market could be repeat customers?
- How might demographic changes affect your target market?
- How might your target market be affected by economic events (for example, a closure of local factories or an opening of local department stores)?
- How might broader socio-economic trends affect your target market?
- How might government policies (for example, new statutes or tax changes) affect your target market?
Writing the market analysis section of the business plan
Once you have all this information, you will write the market analysis in the form of several short paragraphs. Use appropriate headings for each paragraph. If you have multiple target markets, you may want to number each.
Remember to properly cite your sources of information within the body of your market analysis as you write it. You and other readers of your business plan will need to know the sources of the statistics or opinions you have collected from others.
Online tools for market research
Keyword searches can give you a general sense of the potential demand for your product or service based on the number of searches.
Google’s trend analysis can tell you how the number of searches has changed over time.
Social media campaigns can give you an indication of the customer’s potential interest in your business idea.
Local sources of market research
There are also a wealth of local resources for information on your target market that you want to explore, including:
- Local bookstore
- Local Chamber of Commerce
- Chamber of Commerce
- City Hall
- Economic Development Center
- Local government agent office
- Provincial Ministry of Business
- Local phonebook, yellow pages (print or online)
All of these will have information that will help you define your target market and provide information on trends.
Do your own market research
These are all secondary sources of information. (Others have done the research and compiled the data.) You may also want to do your own market research (use primary data).
For example, you may want to design a questionnaire and survey of your target market for learning more about their habits and preferences regarding your product or service.
Conducting your own market research is true that it takes time, but it must be done if your business plan is to have any validity.
You may have the most fantastic product or service in the world, but if no one is interested in buying it, you really have wasted money, time, and energy.
If you don’t have the time or research skills to thoroughly define your target market yourself, hiring a professional to do market research for you can be a wise investment.
Step 4: Competitive Analysis
An investigation of your direct and indirect competitors, with an evaluation of your competitive advantage and an analysis of how you will overcome any barrier to entry to your chosen market.
In this section of the business plan, you must distinguish your business from the competition, persuading the reader(s) of your plan that your business will be able to compete successfully.
The competition analysis section can be the most difficult section to compile when writing a business plan because before you can analyze your competitors, you have to research them.
Here’s how to write the competitor analysis section of the business plan.
Find out who your competitors are
The first step in preparing your analysis is to determine who your competitors are.
This is not the difficult part. If you are planning to start a small business that is going to operate locally, chances are you already know which businesses you are going to compete with.
But if not, you can easily find it by doing an internet search for local businesses, looking in the online or printed local phone book, or even driving around the target market area.
The main question for you will be one of the range; If your business plan is focused on the idea of opening a bakery, how far will customers be willing to drive to get fresh loaves of bread?
Your local business may also have non-local competitors that you need to be aware of.
For example, if you are selling office supplies, you may also have to compete with large retailers within a several-hour drive and companies that offer office supplies online.
You want to make sure that you identify all of your possible competitors at this stage.
Find out about them
Next, you need to gather information about your competition that you need for competition analysis. This can be the difficult part.
While you can always approach your competitors directly, they may or may not be willing to tell you what you need to know.
However, to put together this section of your business plan.
You need to know:
- What markets or market segments your competitors serve;
- What benefits does your competition offer;
- Why customers buy from them;
- As much as possible about your products or services, prices, and promotion.
- Gathering information for analysis of your competitor
A visit remains the most obvious starting point – either to the store or to the company’s website.
You can learn a lot about your competitor’s products and services, prices, and even promotional strategies by visiting your business premises. You may also be able to deduce a little bit about the benefits your competitor offers.
Go there once or several times and look around. Notice how customers are treated. Take a look at the prices.
You can also learn a little about your competitors by talking to your customers – if you know who they are.
With a local competitor who has a physical store, you might be able to discover the reasons why customers buy from them through your local friends and acquaintances.
Other suitable “living” sources of information about competitors include a company’s suppliers and employees. They may or may not be willing to talk to you, but they are worth looking for and asking.
And see the trade shows where your competitors may be attending. Companies are there to spread information about their products or services; Attending and visiting their stands can help you find out about your competition.
You will also want to search for publicly available information about your competitors. Online publications, newspapers, and magazines may have information about the company you are researching for competitive analysis.
Once you have compiled the information about your competitors, you are ready to analyze it.
Analyzing the competition
It is the analysis of the information that is important.
Study the information you have gathered about each of your competitors and ask yourself this question:
How are you going to compete with that company?
For many small businesses, the key to successfully competing is to identify a niche where they can capture a specific target market whose needs are not being met.
Is there a particular segment of the market that your competition has overlooked? For example, if you want to start a landscaping business and there are plenty of competitors offering regular landscaping services, can you capture the trend to reduce water consumption by specializing in drought-friendly landscaping?
Is there a service that customers want that your competitor doesn’t provide?
What if you want to start a business offering computer repairs and discover that none of the other computer repair businesses in the city offers home delivery? Computer owners may have a desire for home repair services that you could fulfill.
The goal of your competitor analysis is to identify and expand your competitive advantage: the benefits that your proposed business can offer to the customer or client that your competition cannot or does not offer.
Step 5: Marketing Plan
A detailed explanation of your sales strategy, pricing plan, advertising, and promotional activities, and benefits of the product or service.
This is where you present the reader with your new business unique selling proposition, describe how you are going to get your products or services to market and how you are going to persuade people to buy them.
The marketing plan section of the business plan explains how you are going to make your customers buy your products or services. The marketing plan, then, will include sections detailing your:
- Products or services and your only sales proposal
- Prices for placing strategy
- Sales / distribution plan
- Advertising and Promotions Plan
The easiest way to develop your marketing plan is to work through each of these sections, referring to the market research you completed when you were writing the previous sections of the business plan.
(Note that if you are developing a marketing plan itself, and not as part of a business plan, the plan should also include a target market and the competitor analysis section. You can learn how to do these sections. in how to write the market analysis section of the business plan and how to write the competitor’s analysis section.)
Marketing plan sections
Products or services
Focus on the uniqueness of your product or service and how the customer will benefit from using the products or services you are offering. Use these questions to write a paragraph summarizing these aspects for your marketing plan:
What are the characteristics of your product or service?
Describe your product or service’s physical attributes and other relevant features, such as what it does or how your product or service differs from competitors’ products or services.
How will your product or service benefit your customer?
Remember that benefits can be intangible and tangible; For example, if you are selling a cleaning product, your customers will benefit from having a cleaner house, but they can also benefit from enjoying better health.
Brainstorm as many benefits as possible to get started and then choose to emphasize the benefits that your target customers will most appreciate in your marketing plan
What sets your product or service apart from all the rest?
In other words, what is your unique selling proposition, the message you want your customers to receive about your product or service that is the heart of your marketing? Marketing plans are about communicating this core message to your customers.
Prices for placing strategy
The pricing strategy part of the marketing plan involves determining how you are going to price your product or service; the price you charge has to be competitive, but it still allows you to make a reasonable profit.
Being “reasonable” is the key; you can charge any price you want, but there is a limit to how much the consumer is willing to pay for each product or service. Your pricing strategy must take this consumption threshold into account.
The most common question small businesses have about the pricing strategy section of the marketing plan is: “How do you know what price to charge?”
Basically, you set your prices by calculating your costs, estimating the benefits to consumers, and comparing your products, services, and prices with others that are similar.
Set your prices by analyzing how much it costs to produce the product or service and add a fair price for the benefits that the customer will enjoy.
Examining what others are charging for similar products or services will guide you when you are figuring out what a fair price would be for such benefits. It may be helpful to perform a balanced analysis.
The pricing strategy you describe in your marketing plan will answer the following questions:
What is the cost of your product or service?
Be sure to include all of your fixed and variable costs when you are calculating this; the cost of labor and materials are apparent, but it may also be necessary to include freight costs, administrative costs, or selling costs.
How does your product or service price compare to the market price of similar products or services?
Explain how the price of your product or service is competitive. For example, if the price you plan to charge is lower, why can you do this? If it is higher, why would your client be willing to pay more?
This is where the “strategy” part of the pricing strategy comes into play; Will your business be more competitive if you charge more, less, or the same as your competitors and why?
What type of ROI (return on investment) do you expect with this pricing strategy, and within what time frame?
Sales and distribution plan
Remember, the main goal of the marketing plan is to get people to buy your products or services. This is where it details how this is going to happen.
Traditionally, there are three parts to the Sales and Distribution section, although all three parts may not apply to your business.
1. Describe the distribution methods to use.
How will your product or customer service arrive? Will you distribute your product or service through a website, through the mail, through sales representatives, or retail?
What distribution channel will be used?
In a direct distribution channel, the product or service goes directly from the manufacturer to the consumer. In a single-stage distribution channel, it goes from manufacturer to retailer to consumer. The traditional distribution channel is from manufacturer to wholesaler to retailer to consumer. Outline all the different companies, people, or technologies that will be involved in the process of getting your product or service to your customer.
What are the costs associated with distribution?
What are the turnaround times?
How will distribution methods affect production lead times or delivery? (How long does it take to get your product or service to your customer?)
If your business involves selling a product, you should also include information on inventory levels and packaging in this part of your marketing plan.
- How are your products shipped?
- Does the packaging meet all regulatory requirements (such as labeling)?
- Is the container properly coded, priced, and complementary to the product?
- What levels of inventory should be maintained to ensure there are no sales losses due to problems such as late shipments and backorders?
2. Outline the transaction process between your business and your customers.
What system will be used to process orders, shipping, and billing?
What payment methods will customers be able to use?
What credit terms will customers offer? If you will offer discounts for advance payments or impose late payment penalties, they should be mentioned in this part of your marketing plan.
What is your return policy?
What guarantees will the customer offer? Describe these or any other service guarantees.
What after-sales support will you offer customers, and what will you charge (if there is anything) for this support?
Is there a system for customer feedback so that customer satisfaction (or lack thereof) can be tracked and addressed?
3. If applicable to your business, outline your sales strategy.
What types of vendors will be involved (commissioned vendors, product protesters, telephone attorneys, etc.)?
Describe your expectations of these vendors and how sales effectiveness will be evaluated.
Will a sales training program be offered? If so, describe it in this section of the marketing plan.
Describe the incentives that will be offered to sellers to encourage their achievements (such as getting new accounts, most orders, etc.).
Advertising and promotion plan
Essentially the advertising and promotion section of the marketing plan describes how you are going to deliver your unique sales proposition to your prospects.
Although there are literally thousands of different promotional avenues available to you, what distinguishes a successful plan from a failed one is the focus – and that is what your Unique Selling Proposition provides.
So think first of the message you want to send to your target audience. Next, look at these promotional possibilities and decide what to emphasize in your marketing plan:
Advertising – The best approach to advertising is to think about it in terms of media and which media will be most effective in reaching your target market. Then you can make decisions about how much of your annual advertising budget you will spend on each medium.
What percentage of your annual advertising budget will you spend on each of the following:
- The Internet
- Bank/bus/subway ads
- Direct mail
- Cooperative advertising with wholesalers, retailers, or other companies?
Include not only the cost of advertising but your projections on how much business the advertising will bring in.
Sales Promotion – If appropriate for your business, you can incorporate sales promotion activities into your advertising and promotion plan, such as:
- Offering free samples
- The point of sale shows
- Product demos
Each business will include some of these in their promotion plans. The most common marketing material is the business card, but brochures, pamphlets, and service sheets are also common.
Advertising – Another avenue of promotion that every business should use. Describe how you plan to generate advertising. While press releases come to mind, that is only one way to get people to spread the word about your business. To consider:
- Product’s release
- Special events, including community involvement
- Write articles
- Obtain and use testimonials
Trade shows – they can be incredibly effective promotion and sales opportunities – if you choose the right ones and are equipped to put your promotion plan into action. Before attending the fair, explain how to choose the appropriate trade shows.
Your promotional activities are really limited only by your imagination. Do you need inspiration? See 10 low-cost ways to promote your business.
But if you plan to teach a course, sponsor a community event, or run an email campaign, you’ll need to include it in your advertising and promotion plan. Sporadic offline attempts to promote your product or service are bound to fail. Your goal is to plan and carry out a sequence of focused promotional activities that will communicate the message you want to send about your products or services to your potential customers.
While small businesses often have tiny (or non-existent) promotion budgets, that doesn’t mean that small businesses can’t design and implement effective promotion plans.
No business is too small to have a marketing plan. After all, no business is too small for customers or clients. And if you have these, you need to communicate with them about their products or services.
Step 6: Management Plan
A summary of your business’s legal structure and management resources, including your internal management team, external management resources, and human resource needs.
If the goal of your business plan is to obtain financing, it is advisable to ensure that your management plan includes an advisory board as a management resource.
When writing the business plan, the management plan section describes your management and personal team and how your company’s ownership is structured.
People reading your business plan are looking to see not only who is on your management team but also what are the skills of your management and staff that will contribute to the bottom line.
A convenient way to organize the Management Plan section is to divide it into sections detailing your:
- Ownership structure
- Internal Management Team
- External management resources
- Human Resources Needs
The ownership structure
The ownership structure section describes the legal structure of your business. It can be a single sentence if your business is a sole proprietorship.
If your business is a partnership or corporation, it may be longer; you want to be sure to explain who owns the percentage of ownership in the business.
The Internal Management Team
This section will describe the main business management categories relevant to your business, identify who will be responsible for each category, and the skills profile of that person.
The primary business categories of Sales and Marketing, Administration, and Production work for many small businesses. You may find that your company needs additional management categories, such as Research and Development or Human Resources.
It is unnecessary to have a different person in charge of each business management category you decide to use in your company; some key management persons may manage more than one position.
Identify the key people managing your business and explain what roles each team member will fill.
This is the outline of your management team. You may want to present this as an organization chart in your business plan, although the list format is fine.
Along with this outline, the management plan will include complete resumes for each member of your management team (including yours) and an explanation of how each person’s skills will contribute to the success of your business.
Follow this with an explanation of how your management team will be compensated. What salary and benefits will the members of the management team have? Describe the benefit-sharing plans that may apply.
If there are contracts that relate directly to members of your management team, such as employment contracts or non-compete agreements, you should include them in an appendix to your business plan.
External management resources
While external management resources are often overlooked when writing a business plan (and running a business), effective use of these resources can make the difference between management success and failure.
Think of external management resources to back up your internal management team. They provide credibility to your business management plan and an additional set of expertise.
There are two main sources of External Management Resources that you should use and describe in this section of the business plan; Professional Services and an Advisory Board.
In the professional services section of the management plan of your business plan, list and describe all external professional advisers that your business will use, such as accountants, bankers, lawyers, IT consultants, business consultants, or business coaches.
These professionals provide a “network” of advice and support outside of their internal management team that can be invaluable in making management decisions.
The Advisory board
Also, it is a smart step to establish an advisory board for your business as soon as possible. An Advisory Board is like a part of the administration. Your board members will provide you with additional tips to run your business profitably and well.
If you choose your board members carefully, they can also provide the experience that your internal management team lacks.
In selecting people to serve on your advisory board, you obviously want people who have a genuine interest in seeing your business do well and have the experience and expertise to provide good advice.
Recently retired executives or managers, other successful entrepreneurs or salespeople would be good options.
You do not want to include anyone on your advisory board who may have a conflict of interest, such as lawyers, accountants, clients (or a direct competitor).
An advisory board of just two or three people can be a powerful management tool for a small business.
When you are writing your business plan, you should describe who is on your advisory board, listing their names, titles, experience, and experience, and explaining how each member will contribute to helping you run a profitable business.
If you’re writing a business plan in preparation for starting a business and don’t have an advisory board yet, be sure to include this section anyway, describing your plans to set one up and describing the types of people you will approach to serve on your Board.
Having an advisory board, or planning to have one, shows those who read your business plan that you have the foresight to seek advice and make your management team as strong as possible – an important consideration when most companies fail. Due to mismanagement of one kind or another.
The last question to address in the management plan section of your business plan is your company’s human resource needs.
Human Resources Needs in the Business Plan
The trick to writing about your company’s human resource needs in the management plan section of your business plan is to be able to describe your human resource needs specifically.
Start with the bottom line.
How many employees will your business need, and what will it cost?
- This is what will be of most interest to people reading your business plan.
- Then consider how your company’s human resource needs can best be met.
- Will it be better to have employees, or should you operate with hired workers or freelancers?
Do you need full-time or part-time staff?
Describe your staffing needs in this section of your business plan, including a description of the specific skills that the people who work for you will need to have.
You are now ready to calculate your labor costs. You can calculate the number of employees you will need by calculating how many customers each employee can serve.
For example, if you need an employee to serve 150 customers and forecast 1,500 customers in your first year, your business will require 10 employees.
Next, determine how much the salary each employee will receive and total the cost of the salary for all of your employees.
Add to this the cost of Workers’ Compensation Insurance (mandatory for most companies) and the cost of any other employee benefits such as company-sponsored dental and medical plans to calculate your total cost of labor.
You also need to describe how you will find the staff your business needs, and how you will train them.
Your description of staff recruitment should explain whether there is enough local labor or not, and how you will hire staff if you need to go further.
When you are writing about staff training in your business plan, you want to include as many specifications as possible.
What specific training will your staff receive?
What continuing training opportunities will you offer your employees?
Even if your business plan is to start as a solo act, you should include this Human Resources Needs section in your business plan.
Business plans are about the future and how your business will be successful.
Step 7: Operations Plan
A description of your company’s physical location, facilities and equipment, types of employees required, inventory, and supplier requirements. And any other pertinent operational details, such as a description of the manufacturing process.
When writing the business plan, the operating plan section describes the physical needs of your business operation, such as the physical location, facilities, and equipment of your business.
Depending on what type of business you are going to operate, it may also include information on inventory and supplier requirements and a description of the manufacturing process.
Staying focused on the bottom line will help you organize this part of the business plan. Think of the operating plan as an outline of the capital and expense requirements that your business will have to operate overnight.
You need to do two things for your business plan reader in the operation section. Show what you have done so far to get your business off the ground (and that you know what else needs to be done). And show that you understand the process, manufacturing, or delivery to produce your product or service.
So divide the operational section of the business plan into two parts, starting with the section development stage.
Development section stage
As you write this section of the operational plan, begin by explaining what you have done “to date” to make the business work, followed by an explanation of what needs to be done.
The following should be included:
Production workflow – A high-level, step-by-step description of how your product or service will be performed and identify problems in the production process. Follow this with a subsection titled “Risks” that describes possible problems that can interfere with the production process and what you will do to deny these risks.
If any part of the production process can expose employees to hazards, describe how employees will be appropriately trained to deal with safety issues.
If hazardous materials are used, it describes how they are safely stored, handled, and disposed of.
Industry association memberships – Demonstrate your knowledge of your industry’s local, regional, or national rules and regulations. Indicating which industry organizations you belong to or the organizations you plan to join and indicate the steps you have taken to comply with the laws and regulations that apply to your industry.
Supply chains – an explanation of who your suppliers are and their prices, terms, and conditions. Describe what alternative measures you have taken or will take if these providers disappoint you.
Quality Control – An explanation of the quality control measures that you have or will establish. For example, if you intend to follow some form of quality control certification like ISO 9000, describe how you will accomplish this.
Production processes section
While you may think of the development phase as part of the operational plan as an overview, the production process section sets out the details of your day-to-day business operations.
Remember that your goal in writing this section of the business plan is to demonstrate your understanding of your product or service’s manufacturing or delivery process, so you should let the readers of your business plan know that you have crossed all your shirts. ‘.
Be sure to include all these details of your business operation:
General: Outline the daily operations of your business, such as hours of operation, and the days the business will be open. If the business is seasonal, be sure to say so.
The physical plant: What kind of premises are they, and what are the size and location? If applicable, include building plans, copies of leases, or recent real estate evaluations. You need to show how much land or buildings required for your business operations are worth and tell why they are important to your proposed business.
Team: The same goes for the team. In addition to describing the equipment needed and how much it needs, it should also include its value and cost, and explain financing arrangements.
Assets: Make a list of your assets, such as land, buildings, inventory, furniture, equipment, and vehicles. Include legal descriptions and the value of each asset.
Special requirements: If your business has special requirements, such as water or electricity, ventilation, drainage, etc., please provide the details in your operating plan, as well as what you have done to secure necessary permits, such as zoning approvals.
Materials: Indicate where you will obtain the materials you need to produce your product or service and explain what terms you have negotiated with the suppliers.
Production: Explain how long it takes to produce a unit and when you can start producing your product or service. Include factors that can affect the production time frame and how to deal with potential problems like rush orders.
Inventory: Explain how you will track inventory.
Feasibility: Describe any product testing, price testing, or prototype testing you have conducted on your product or service.
Cost: Give details of product cost estimates.
As you write this section, you can use the headings above as subheadings, and then provide the details in paragraph format. If a topic doesn’t apply to your particular business, leave it out.
The best part is that once you have worked through this section of the business plan, not only will you have a detailed plan of operation to show readers of your business plan, but you have a convenient list of what to do next to make your business a reality.
Step 8: Financial Plan
A description of your financing requirements, your detailed financial statements, and an analysis of financial statements.
This section of the business plan will present the three main financial documents of any business, the balance, the income statement, and the statement of cash flows. (In the case of a new business, this last document will be a cash flow projection).
It’s at the end of your business plan. Still, the financial plan section is the section that determines whether your business idea is viable and is a key component in determining whether your plan is going to be able to attract any investment in your business idea.
Basically, the financial plan section consists of three financial statements, the income statement, the cash flow projection, and the balance sheet and a brief explanation/analysis of these three statements.
This section will guide you through the preparation of each of these three financial statements on the following pages. First, however, you need to gather some of the financial data you need to examine your spending.
Think of your business expenses as divided into two categories; your start-up expenses and your operating expenses.
All costs of running your business fall into the category of startup expenses. These expenses may include:
- Business registration fees
- Business license and permits
- Initial inventory
- Rental deposits
- Down payments on the property
- Team down payments
- Utility installation fees
This is just a sample of startup costs; your own list will probably expand as soon as you start writing them.
Operating expenses are the costs of keeping your business running. Think of these as the things you are going to have to pay for each month.
Your list of operating expenses may include:
- Wages (your and staff wages)
- Rent or mortgage payments
- Raw materials
- Loan payments
- Office supplies
Again, this is only a partial list to get going.
Now, let’s consider putting some financial statements for your business plan together, starting with the income statement.
The income statement
The Income Statement is one of three financial statements to include in the Financial Plan section of the business plan.
The Income Statement shows your Income, Expenses, and Benefits for a given period. It is a snapshot of your business that shows if your business is profitable at the time; Income – Expenses = Result / Loss.
While established businesses typically produce an Income Statement in each fiscal quarter, or even once each fiscal year, for business plan purposes, an Income Statement must be generated more frequently – monthly for the first year.
Are you ready to move on to the next financial statement to include in the Financial Plan section of your business plan? The cash flow projection is as follows.
Cash flow projection
The cash flow projection shows how cash is expected to flow in and out of your business. For you, it is an important tool for cash flow management, allowing you to know when your expenses are too high or when you may want to organize short-term investments to deal with a surplus of cash flow.
As part of your business plan, a cash flow projection will give you a much better idea of how much capital investment your business idea needs.
For a bank loan officer, the cash flow projection provides evidence that your business is good credit risk and that there will be enough cash available to make your business a good candidate for a line of credit or short-term loan.
Do not confuse a cash flow projection with a statement of cash flows.
The statement of cash flows shows how money has flowed in and out of your business. In other words, it describes the cash flow that has occurred in the past.
The cash flow projection shows the cash that is expected to be generated or spent over a chosen period in the future.
While both types of cash flow reporting are important business decision-making tools for companies, we are only interested in projecting cash flow in the business plan.
You will want to show cash flow projections for each month over a period of one year as part of the financial plan portion of your business plan.
There are three parts to the cash flow projection. The first part details your cash income. Enter your estimated sales figures for each month.
Remember, these are cash income; you will only enter sales that are collected in cash during the specific month you are dealing with.
The second part is your cash outlays. Take the various expense categories from your ledger and list the cash expenses you really expect to pay that month for each month.
The third part of the cash flow projection is the reconciliation of cash income to cash disbursements. As the word “reconciliation” suggests, this section begins with an opening balance that is the remainder of operations from the previous month.
Income for the current month is added to this balance; Disbursements for the current month are subtracted, and the adjusted cash flow balance is carried forward to the following month.
The main danger in putting together a cash flow projection is being more optimistic about your projected sales.
Once you have completed your cash flow projections, it is time to move on to the balance sheet.
The balance sheet
The balance sheet is the last of the financial statements that you must include in the Financial Plan section of the business plan. The balance sheet presents a picture of your company’s net worth at any given time.
Summarizes all the financial data about your business, breaking that data into 3 categories; assets, liabilities, and equity.
Some definitions first:
- Assets are tangible objects of financial value owned by the company.
- A liability is a debt owed to a creditor of the business.
- Equity is the net difference when the total liability is subtracted from the total asset.
- Retained earnings are earnings held by the company for its expansion, not paid as dividends.
- Current income is the result of the year to the balance sheet date (income – the cost of sales and expenses).
All accounts in your general ledger are classified as an asset, a liability, or equity. The relationship between them is expressed in this equation: Assets = Liabilities + Equity.
For the purposes of your business plan, you will create a pro forma Balance Sheet aimed at summarizing the information in the income statement and the cash flow projections. Usually, a business prepares a balance sheet once a year.
Once you have completed your balance sheet, you are ready to write a brief analysis of each of the three financial statements.
When you are writing these review paragraphs, you want to keep them short and cover the highlights, rather than writing an in-depth review.
The financial statements themselves (Income Statement, Cash Flow Projections, and Balance Sheet) will be included in the Appendices to your business plan.
Step 9: Appendices and Exhibitions
In addition to the sections described above, at the end of your business plan, you will also want to include any additional information to establish the credibility of your business ideas. Such as marketing studies, photos of your product or contracts, or other agreements legal relevant to your business.
Is the order of the sections of the Business Plan Important?
Only up to a point.
The executive summary, which is an overview, needs to come first. Beyond that, it stands to reason to have all the material related to the markets (the industry outlook, the market analysis, the competitive analysis, and the marketing plan).
However, there is no reason why the management plan section cannot follow directly after the executive summary, for example.
Generally, in a business plan, you want to “put your best foot forward.” So if, for example, you have a stellar group of people serving on the board as an advisor to your new business, by all means, put that section directly after the Executive Summary.
Highlighting the strengths of your new business will encourage your readers to continue reading your plan.
The appearance of your business plan is also important.
This type of business plan (yes, there are different types) is a formal document and has to look like one. You want every aspect of your business plan to impress (especially if you are using it to borrow money).
Pay attention to the margins and the format; make sure it is spellbound and grammatically sound.
Follow the preceding steps, and you will be able to write a business plan that will get read and, hopefully, funded.
Using a business plan to ask investors for money is not a new practice. Many small and large business owners alike have had to write business plans to ask for money and put board members in place. An effective one can help make or break the business, as a sound business plan usually means sound ideas, practices, and commitment to excellence. A successful business plan can mean the start of a successful business.
If you have questions about business plans, please feel free to leave a comment below.