No matter the size of your business or the industry that it operates in, you need a business plan.
Writing a business plan is more than an exercise in self-reflection and goal-setting. Instead, it’ll be a vital document when applying for investment, premises or insurance.
But while writing a business plan could seem like a daunting task to the everyday entrepreneur, it doesn’t have to be complicated. Remember to keep it simple and concise in order to hold your reader’s attention.
Below, we’ll explain the advantages of writing a business plan, how you can start writing one, and how to avoid the common pitfalls that are associated with the task.
The advantages of writing a business plan
1. Grow your business
Establishing a strategy will help you to grow your business in a way that aligns with your core values. As your business grows, expect that your business plan will evolve. Having a planning document will help you to assess progress and will also formalise your way of thinking at a certain point in time.
You can also lay out growth targets and determine what you need to do to achieve them, so that you know that your business is growing with intention. Use the business plan as a written record of the growth rate that you want to achieve, so you can spot whether you’re growing in a sustainable way. This approach can mitigate a lot of teething issues that come with scaling up.
2. Win pitches
Investors and loan providers will use your business plan to assess your company, and work out if you’re worth their investment. Use it to prove that you’re financially stable. Fill it with statements, forecasts and a strong market assessment that will boost your profile with investors.
3. Make confident decisions
Whether you’re working in an ideal market or a period of economic uncertainty, there are plenty of factors to consider before making a business decision. Having a business plan means that you have a formalised document to rely upon when you want to make confident decisions that are in the best interest of your company — minimising risk whilst allowing you to think outside of the box.
Structuring your business plan
There are five main parts to a business plan: the executive summary, opportunity, execution, company overview and financial plan.
Not all of these parts are necessary for every business, but similarly, some businesses may need extra sections in order to provide a clear picture of their goals and objectives.
Your executive summary is one of the most important parts of your business plan. Often, this section will act as a standalone statement that covers the highlights of your more detailed plan. Make it engaging, concise and clear — around one or two pages should suffice.
Use this section to explain the story behind your business, and answer some key questions:
- What is your trading experience to date?
- What is your product or service?
- Can you demonstrate your industry expertise?
By answering these questions in layman’s terms, you’ll create a statement that will really make you stand out. To go one step further, use a SWOT analysis (strength, weaknesses, opportunities, threats) to ensure you cover all bases.
The opportunity section of your business plan should include information about the problem you aim to solve, your audience, ideal customer and market knowledge.
Include a business overview or value proposition. Here, summarise the problem that you have noticed in the market, and detail how your product or service solves that problem. What makes you different from your competitors?
Highlight key aspects of your financial plan with diagrams that visually display projected sales, expenses and profitability. The most important question to answer here is ‘how will you make your money?’.
Answer the following questions:
- Who is your ideal customer?
- Who or what is your competition?
- What is the problem that your product will solve?
- Why can customers trust your company to solve the problem?
To determine the level of opportunity for your business you can use the TAM, SAM, SOM approach. This helps you to look at demographics to ensure that your target market is accurate.
- TAM (Total Available Market) - everyone you’d like your product to reach, use data to make it more accurate if necessary
- SAM (Served Available Market) - the portion of the available market that you will target
- SOM (Share of Market) - the subset of your served market that you will realistically reach
This part of the business plan will demonstrate exactly how you intend to make your business work. It’ll cover marketing and sales plans, operations, and how you’ll measure success. Set yourself goals and milestones to ensure your continual progress.
You should also write a positioning statement, which will highlight where your business sits within the marketplace. Are you a budget solution, or a luxury brand?
Evaluate the market to define your strategy, being sure to differentiate your products and services from the competition. From here, you can begin to work out pricing, promotion, advertising and social media plans.
Make sure that you address the following:
- What marketing and operations systems are best for my business?
- How will my pricing strategy differ from competitors?
- What tech or services should you invest in?
- What will branding look like? What elements need to be created?
- What metrics do I need to track?
- What milestones should I hit and what’s necessary to meet them?
The company overview should be the shortest section of your business plan — but if you intend to use the business plan outside of your company, this is an important section. It should include a mission statement, intellectual property, legal structure and ownership, and business location.
In order to make sure you cover all bases, answer the following questions:
- Who makes up the team and what roles are there in the company?
- What is my core mission?
- Do I need business premises and where should it be located?
- What is my company structure and how will that change over time?
The financial plan is the part of the business plan that often feels the most daunting. But remember: you don’t have to be an accountant to work this out.
Include monthly sales and revenue forecasts for the first 12 months of trading, and then annual projections for the remaining three to five years. Be sure to detail sales forecasts, a personnel plan, income statements, cash flow statements and balance sheets.
If you’re running a larger scale business, you may outsource this area to a Finance Team or accountant. But if you’re a small business or a start-up, it makes sense to become familiar with the language of finance as you write this section of your business plan.
Things to consider:
- What are your sales expectations?
- What expenses are necessary?
- When will you become cash positive?
- How much cash do you need upfront to fund the business?
- How will you use the loans or investment that you secure?
No two business plans will be the same. Depending on what type of business you run, and who you are, as a business owner, you may well decide to include other parts.
- Elevator pitch - this will be the way that you talk about your business: a two-minute summary that will leave a lasting impression
- Owner’s background - explain your personal motivation for setting up the business, and why you have the experience to make it work. Include your CV and copies of qualifications.
- Market research - include the detailed research that you have undertaken, including questionnaire answers and test trading results
- Personal survival budget - a fully costed amount that you can survive on
Perfecting your business plan
Business owners and entrepreneurs don’t need to be intimidated by writing a business plan. This document will act as a record of your business’ way of working at a particular point in time — so remember that it’s expected that it will change and evolve as the years go by, and as your business expands.
Remember that a business plan could be vital in securing investment, or even Business Insurance - so when completed well, the benefits of having a business plan can be huge.