We take a close look at what you need to include in a business plan, why they’re so essential, and how you should structure yours.
If you’re looking to form your own company, there are many different factors to consider. You can check out our series on how to start a business to find out more. One of the essential parts of any venture is a solid basis for your ideas. That’s why you need to know how to write a business plan.
We explore what a business plan is and why it’s so important that you have one. We also look at some top tips for writing one, as well as a step-by-step guide. By the time we’re done, you’ll be ready to draw up a business plan of your own, no matter what niche you’re aiming for.
What is a business plan?
Let’s start by getting to grips with the key term at the centre of all of this. At a glance, it’s straightforward enough – a plan for how your business is going to work. However, in reality, it’s a bit more complicated than that.
As we’ll see, there are several different types of business plan out there, used for both emerging and established businesses. It’s a strategic document that outlines a business’ aims for the future, as well as how you’re hoping to achieve them.
When you write a business plan, you’re creating a roadmap for business success, focusing on areas such as finances, operational issues, and marketing. To create one, you’ll need a thorough understanding of your business aims, the landscape of the market you’re targeting, and the challenges and opportunities they present.
Business plans can vary in length, scope, and detail depending on the situation you’re going to use it for. However, they often have similar elements and cover the same key areas, no matter how long or short they are.
Why are they important?
Why should you write a business plan? It’s a question that’s often asked by those with a business idea and lots of enthusiasm. Surely, you can just get started and fill in the details as and when the need arises?
For some freelancers, this might be the case. However, there are plenty of reasons why you should consider preparing a business plan, particularly if you’re launching your own business. These reasons include:
If you have a brilliant idea for a business venture, you probably want to dive headfirst into getting it up and running. Although this enthusiasm is certainly useful, without some direction, it’s not always productive. When you make a business plan, you’re creating a strategy, usually for the next one to three years.
You’re able to set attainable business goals and objectives, identify priorities, and set a benchmark for your performance. Not only is this useful for your own ambitions as a business owner, but it also means that anyone else involved in the business (such as a business partner or investor) is on the same page.
One of the main reasons for learning how to write a business plan is for financing your venture. If you’re approaching investors or a bank for money, they’ll need to see financial statements and proof that you have a detailed understanding of what you’ll spend it on and how much it will return.
As well as showing proof that there is a demand in the market for your product or service, it also demonstrates that you’ve forecasted how much you’re likely to make. Ideally, your business plan should clearly show how your business model is going to be profitable.
In addition to providing financial information for your potential investors, a business plan helps with many other areas of your business. As we explored in previous business articles, a central document helps you make informed decisions about your company and its actions.
No matter what type of business you are, a business or marketing plan can make sure everyone is aligned with the same priorities. This, in turn, ensures that processes are well-considered and run smoothly.
There have been various studies that show the link between strategic planning and performance in businesses. One even found that planning can help businesses grow up to 30% faster. Again, part of this revolves around setting clear objectives and having detailed strategies in place.
A business plan can also help you identify risk, forecast sales, and highlight opportunities to reach new customers.
Do I need a business plan?
The answer to this question depends a great deal on the size, scope, and ambitions of your business. For example, a freelancer working part-time on a side project may not need to develop a detailed marketing plan and financial forecast, at least not at first.
For those looking for financial investment or a business loan, then you definitely do need a business plan of some kind. Even in these situations, however, the length, formality, and amount of detail required will vary depending on a large number of factors.
Yet even if you’re not seeking investment or finance, a business plan can still be useful, as outlined above. Whether you’re starting a totally new company or re-thinking an established one, having a strategic document is essential. And, depending on your situation, the process of writing a business plan doesn’t have to be a lengthy one.
Top tips for writing a business plan
Before we get into the step-by-step process of how to write a business plan, let’s first look at some general guidelines that can help. These pointers will help you evaluate the type of document you need, as well as how you should approach writing it.
Choose your style
There are several types of business plan format you can choose from when it comes to things like structure and length. Although most cover the same kinds of points, they vary in terms of purpose and contents. Some of the styles to choose from include:
- Lean business plan. With a lean plan, you only cover the essentials needed for things like managing strategy and cash flow, planning tactics, and deciding on key dates, milestones, and activities. It can be used internally to keep everyone on the same page.
- Standard plan. This is the more ‘traditional’ style of plan that goes into greater detail on the points mentioned above. Generally, this type is used when seeking investment or a bank loan. As such, you’ll need to give more details on how funds will be used and how investors can benefit.
- One-page plan. With a one-pager, you’re getting a much more succinct overview of the business. It doesn’t have all of the intricate details but instead acts as more of a summary document. You could also use this as a pitch document when you’re trying to attract interest in potential investment, backing it up with a standard plan.
The style you choose will depend on the current stage of your business, as well as what your eventual aims are for the next one to three years.
Keep it brief
Whichever style you choose, you want to make sure that you don’t get distracted from your goal. This document shouldn’t be a novel-like tome detailing every intricacy of your business. Instead, it should be a concise summary of your aims and objectives and how you’re going to achieve them.
Of course, you need to give sufficient detail to show you’ve done your due diligence. However, don’t waffle on or create something ridiculously long. At the end of the day, someone is going to have to read it, and you want to keep your readers’ attention.
The details and information you include when you write a business plan should be grounded in reality. Of course, you have ambitions and objectives that you want to reach. However, these should be backed up with research and data. Similarly, you want to recognise potential risks or threats.
If you’re using the document internally, you don’t want to underachieve and miss your targets. When it comes to external use, investors or financiers will be able to see through an overly optimistic plan that fails to account for current market conditions.
Keep your audience in mind
You’ll want to consider where your business plan is going to be used and match the tone accordingly. Whenever you create effective content, you should keep your audience at the centre of your work. For example, if you’re using the document to secure investment, you’ll want to strike a professional tone and style. However, if it’s for internal use, you can match it to the company’s usual tone of voice.
Cover the right details
Although, as mentioned, you’ll want to keep it brief, when you write a business plan, you need to focus on the right details. When someone reads the document, they should be able to easily access the essential information about what your aims are and how you’ll achieve them. However, the finer details will depend on how and where you’re going to use your business plan.
This doesn’t have to be (and shouldn’t be) a static document. The information you research and layout will only be relevant for so long. As such, you should regularly review your business plan and make sure that it’s up-to-date and reflective of your business. You might need to update a variety of factors, and it’s easier to make small, regular adjustments than have to rewrite it every few years.
How to write a business plan: a step-by-step guide
A good business plan has a variety of different elements. It doesn’t matter whether you’re going for a one-page document or a longer and more detailed plan; you still need to cover off some of the basics. As with many such projects, preparation and attention to detail will play an essential part.
Your business plan will be unique to your organisation. And, although there are business plan templates available, you’ll have to work through each section and tailor it to your company. That being said, many of the steps for how to write a business plan are similar, and we’ve outlined a guide below:
Before you get started with the writing, you’ll want to spend some time researching the types of things you’ll need to include. Similarly, you should ensure that you have as much of the key data as possible about your business, marketplace, financials, competitors, and any other relevant factors. A data-driven approach is always beneficial, as it can offer insights you may otherwise miss.
2. Craft your company overview
When you’re writing this section, you’ll want to give some of the necessary background to who you are and what you’re all about. It’s somewhat like a mission statement or company description. There are a few points to cover here, including:
- Details of when you started trading (if you have yet) and the progress that you’ve made so far as a business.
- If you’re starting a new business, you’ll want to give details of your professional background and the steps you’ve taken towards getting your new venture started.
- If you’re taking over the business, you should outline the details of who originally owned it.
- Details of the current ownership and legal structure, including things like who the key stakeholders and partners are.
3. Focus on your product/service
In this section, you want to give an overview of the products and/or services that your business is offering. This should provide the reader with straightforward information that’s detailed without being overly technical.
Try and focus on what makes your product or service different. Hopefully, you already know what the unique selling point is, as well as how it stands out from competitors. Similarly, you should talk about the benefits that come with choosing your business, as well as how you’ll address any potential disadvantages.
You should also talk about the progress you’ve made so far in developing your products/services, as well as what you plan on doing to improve them going forward. Finally, you should mention any unique features of the industry and how you’re dealing with them.
4. Write up your market and competitor analysis
One of the key considerations when you write a business plan is what the market conditions are like. Market and competitive analysis is a cornerstone of a successful plan, as it shows you’ve identified the trends, challenges, and opportunities in the sector you’re targeting.
You’ll first want to look at the different segments of the market, as well as the types of customers in each and their purchasing habits. Identify how much of a market share you hope to achieve, as well as the trends in these sectors and what the outlook for them is.
Next, you’ll want to explore your existing/potential customers. This is where things like customer personas are useful, as we explored in part four of how to start a business. If you’re just starting out, you’ll also want to write about who your best prospects are as well as how you’ll generate leads.
Finally, you need to write about who your main competitors are. Focus on the products/services and how they’re priced, the advantages and disadvantages they offer, and whether customers will buy from you instead of them. This isn’t a time to be critical of others, but to give an honest assessment of the strengths and weaknesses of your competitors.
5. Write your marketing strategy
Your marketing strategy is another essential document when you’re starting or reinvigorating a business. So essential, in fact, we’ve written a whole article on how to create a marketing strategy. This strategic plan focuses on how you’re going to position your product or service in the market. Some key points to cover as you write your business plan include:
- Pricing. How does this reflect the quality, value, and uniqueness of your product?
- Promotion. Which promotional methods will work best for what you’re offering? And how will you scale your marketing efforts?
- Channels. How will you market your product? Will you focus mainly on digital marketing or more traditional means? What does the data show?
- Sales. What is your sales strategy, and how long is your sales cycle?
You also need to take into account the costs of marketing, as well as what your projected return on investment is.
6. Outline your management and personnel
For this section, you’ll want to delve into the human resources you have available to help your business succeed. As well as detailing how the management of the company is organised, you’ll want to identify the skills and strengths of the personnel, as well as any particular gaps.
You should also look at the size and scope of your workforce and how this compares to other businesses in the industry. Focus on how you might grow this team through recruitment, as well as how you’ll manage if you lose key personnel.
7. Highlight your business operations
In this section, you’ll focus on the operational side of things, such as where your business is based, the equipment you use, and how reliable your systems are.
Start by focusing on the premises that you operate from and think about whether it serves your current and future needs. Next, consider how up-to-date and efficient your equipment is and how it compares to industry standards.
You’ll also need to write about how your IT systems are set up and how you’ll manage your accounts, stock, and customer data. Again, consider reliability here, as well as how easy it will be to expand in these areas.
8. Write up your financial forecast
This is one of the trickier parts of writing a business plan and requires a good understanding of business finance and accounting. If your business has been trading for a while, you’ll want to start off by outlining some historical data, such as sales and gross margin. You should also include a profit and loss account, cash flow statement, and a balance sheet.
Regardless of whether you have historical trading data or not, you’ll also need to provide a financial plan and forecast outlining the next three years of trading. This can be as simple as your sales, profit, cost and cash flow forecast if things are fairly straightforward.
Again, you’ll want to make sure that your forecast is backed up by a detailed methodology. You need to take a data-driven approach to show how you’ve worked your forecast model, and that you’ve taken a variety of market factors into account. Ultimately, you want to prove the financial health of your business concept.
9. Perform a SWOT analysis
Next on your list is a SWOT analysis, looking at your strengths, weaknesses, opportunities and threats. It shows that you’ve got to grips with your business and the external factors that impact it. This doesn’t have to be especially long, but it should hit each point with some detail:
- Strengths. The factors that give you a unique position in the market, such as experience, quality, or price point.
- Weaknesses. The challenges that you’ll have to overcome to succeed, such as a small customer base or a lack of financial backing.
- Opportunities. The factors that may present an opportunity for your business to thrive, such as a change in the marketplace.
- Threats. The potential for things to go wrong, such as an economic downturn or a new competitor in the market.
You should outline how you’re going to take advantage of and deal with each of these factors, showing your understanding of the market.
10. Write your executive summary
Structurally, the first chapter of your business plan will be your executive summary. This section outlines who your company is, what you do, and what you’re hoping to get from your readers. Why should this be the last step when you write a business plan? Because, by the time you write it, you’ll know your company better than ever, and you will be able to summarise the necessary points.
You can include a brief summary of all of the points mentioned above, including:
- A one-sentence overview
- The problems you’re going to solve, and how you’re going to do so
- Who your target market and competitors are
- A summary of your structure and personnel
- Your financial summary and funding requirements
- The progress you’ve made and the milestones ahead
The executive summary can act as a standalone document that you can use to gather traction and interest for your business.
So there you have it; a detailed look at how to write a business plan. Whether you’re just starting a business or trying to reach new levels with an existing one, it’s an essential and helpful document. A good business plan is carefully crafted, using your knowledge and understanding of your business and the market it’s operating in. No matter if you’re using it internally or externally, it can help keep you on track with your ambitions.
If you want to learn more about planning and starting your own business, we have business and management learning opportunities that can help. For example, our ExpertTrack on international business management gives a detailed look at the planning and marketing stages.