A Step-By-Step Guide On How To Write A Business Plan

A Step-By-Step Guide On How To Write a Business Plan

Introduction

team doing some business plan

When trying to get a business off the ground, you’ll hear the same advice over and over – make a business plan. Having a business plan is important for knowing how your company will be structured, identifying your ideal customers, and developing a long-term vision for your business venture.

Not everybody knows how to write a business plan, especially those of you who find this page. Fortunately for you, we’re here to help! We have a step-by-step guide that covers all of the following:

  • What Is A Business Plan And Why Write One?
  • How To Write A Business Plan
  • Tips For Writing A Business Plan

Between those, you’ll have everything you need to know about business plans and how to write good ones. A good business plan can then steer your company to profits and be shown to lenders to secure financing.

Businesses can succeed or fail on the strength of their business plans, so there’s money on the line here. We’ve included links to supporting materials that provide further reading and prove that the information given here is accurate.

Let’s start with what a business plan is and why every enterprising business person should write one.

What Is A Business Plan And Why Write One?

What Is a Business Plan And Why Write One

A business plan can be considered a foundational document for your business. It doesn’t matter if you’re on your own or setting up an entire company, a business plan describes the nature of your business, answers some of the necessary questions that need answering, and provides an overview of what the business can look like in the future.

It’s essentially a document that you can refer others to when they ask what your business is all about, something that lenders will do if you’re financing via loans. It’ll explain your strategy and outline goals and achievements that will take your business from where it is now to where you want it to be.

Note that business plans are living documents. This means that it should be reviewed and edited as your business grows in accordance with (or despite) the plan. Plans should be updated regularly as the situation surrounding your business changes. After all, it’s no good working to a plan that’s a year or two out of date.

A Business Plan Consists Of:

The main goals of a business plan can be separated into three questions. Here’s a breakdown of each one below:

1. How Do You Plan To Make Your Business Profitable & Grow It?

The goal of every business is to make a profit for those in charge. This is done by providing products and services that people want and charging for them, that’s pretty simple to understand.

Producing those goods and services requires money, often through recurring costs that need to get covered by sales or other forms of income. The business plan should detail how your overhead costs will be surpassed by the money you can make.

Even then, you won’t make much profit if you’re serving the same small group of people repeatedly. That’s where growth comes in. Your business plan should detail how your business can scale, so you can reach more customers and increase your profit margin.

2. How Are You Planning To Grow In Your Target Market?

Every business plan should identify your target market. Unless you’re bringing something truly revolutionary into the world, there should already be an identifiable audience for whatever products or services you’re selling. Thanks to the Internet, it isn’t hard to find communities centered around products, services, and industries.

The business plan should detail how you will identify the target market, infiltrate that market, compete in the market, and then outgrow competition to secure your place there.

Yes, this means you need to find competitors who offer similar goods and services and analyze them. Business plans often detail competitors, what they do right and what they do wrong, and how your business will build upon or rectify each one. Once again, the Internet makes keeping tabs on your competitors much easier. Remember that the same applies to you too!

3. Where Do You See Your Business In One, Three, Or Five Years?

This question may sound cliché but business plans are plans for the future. This means you need to figure out how you’ll set up your business and take it into the future. It’s a good idea to have one-year, three-year, and five-year time spans to cover your business’ short, mid, and long-term future.

Roughly half of all businesses fail within the first five years. Having that first-year plan is great for figuring out how to establish your business and gain a foothold in your chosen market. From there, the three-year plan should be orientated around further growth and survival in the market. The five-year plan should focus on long-term growth and reaching a position of market dominance if that’s possible.

So, those are the main things that your business plan should do. You may have some ideas brewing already! While that’s great, you came here for our step-by-step guide to writing a business plan.

We go into much more detail below on the structure, content, and recommended appendices of business plans, so get ready to take some notes.

How To Write A Business Plan

How To Write A Business Plan

Now that we know what a business plan is and the general ideas that should be contained in them, let’s get into the practical details. If you have a lot of great ideas but you’re not sure how to format and express them, our guide on the business plan structure below should help!

The Structure Of Writing A Business Plan:

There’s a generally accepted structure for business plans that lends itself towards easy reading. Starting with a summary, the following structure eases readers into the technical details behind your master plan to make some money.

There are eight parts in total – let’s take a look at them:

1. An Executive Summary

The executive summary is exactly what it sounds like, a summarized outline of your company’s purpose and the goals that you want it to achieve. It doesn’t need to be anything too long and fancy – it should fit on one to two pages for easy reading. If you need more pages to explain what your business is about, it isn’t much of a summary!

Your executive summary should outline your business, its mission statement, what it would do to get there, and how it solves a problem faced by customers in the market right now, offering them something they’d gladly pay for.

Here’s what you should try to include:

  • Short descriptions of goods/services offered
  • Summary of the target market
  • Summary of business objectives
  • Justification of your potential place in that market
  • A short explanation of growth potential in that market
  • A short overview of the funding required

Fitting all of that on one or two pages can be daunting, especially if you’ve never written a business plan. Think of it as a prelude to the content of your plan, touching upon the ideas that will get fleshed out later. It’s essentially pitching your business, the same way you would with a product or service, in a short and easy-to-understand burst of information.

2. A Business Description

Next is a more in-depth description of what the business is. If you’re operating alone, it’ll describe what you’re doing and how you’re going to do it. If you’re creating a company and hiring employees, you should include the organizational structure of the business.

Naturally, the description of your business will need to be amended as you grow and the nature of your business shifts and changes.

To adequately describe your business, you can turn to a reliable concept that you’ve probably heard before – the Five Ws. Where any information needs to be expressed, covering the who, what, where, when, and why of things is very effective. Once that’s done, you should also then explain how you will achieve the five Ws where applicable.

Here's a list of what to include that should have your five Ws (and one H) covered:

  • The name of the business
  • The goals of the business
  • The mission statement of the business
  • Offered goods and services
  • The business’ targeted customers
  • Advantages and features that allow the business to compete
  • The location of the business, in the real-world and online
  • Relevant dates, like opening dates for locations or launch dates if based online
  • The structure of the business

3. Details Of Your Market Strategies

Your marketing strategies will differ depending on your own ideas, your industry, and other things unique to your business. That doesn’t mean we can’t help you, however, as many experts have boiled marketing strategies down to their fundamental elements.

Like with business descriptions and their five Ws, marketing strategies should cover the four Ps – Product, Promotion, Price, and Place.

Product: This will be the goods or services that are offered by your business. You should include brand names, their function, quality control, packaging and how it could be used for marketing, and warranty information if applicable.

Promotion: Promotion is where the full marketing information comes in. You should cover advertising methods, available marketing budget, strategies for product promotion, and any plans for public relations if you have any. This is where sales promotion will be detailed too.

Price: Next you should mention how the products will be priced. Cover how much the products will cost when you buy them wholesale, how flexible the price is, and why you arrived at certain prices for your products. Include the estimated retail price along with potential seasonal changes.

Place: When you see the word “place,” think “distribution” instead. You’ve already covered the where of your business in the description, so this is where you include information on the logistics of moving products instead.

How will you manage inventory? Where will it be stored, in warehouses? How will the orders get processed and transported to the customers? What are your distribution channels and do you need distribution centers?

Answering all of those questions should be enough to cover the distribution processes of your business in the detail that it deserves.

Try to do these seven things when writing any marketing strategy, to keep it interesting and informative:

  1. Focus on unique aspects of the business and relate them to each of the four Ps
  1. Demonstrate that you’re familiar with clients in the industry and what they want
  1. Stretch the meaning of the four Ps if you’re offering a service (so use websites instead of physical locations, etc.)
  1. Have plenty of data to back yourself up, especially on pricing and competitor movements/comparisons
  1. Demonstrate findings through the use of images, diagrams, graphs, and charts that condense information into points that are favorable to your business
  1. Remember that marketing needs to fit into your budget, something we’ll explore more below when we get to financial information
  1. If you have marketing collateral, it should be included in this section as photographs, leaflets, videos, and other media.

4. A Full Analysis Of Your Competitors

Every business has competitors, so your next section should be an analysis of those competitors to see what they’re doing right and wrong. You can then copy the things they’re doing right, short of plagiarizing any trademarked material, and then work on remedying any flaws in their operation. This should give you a competitive edge over them since you’re doing everything they’re doing and more.

  • Identify the current competition.
  • Highlight other potential competition that could impact future success if the plan proceeds as, well, planned.
  • Detail your business’ advantages over theirs. This can be expertise in the field or at a particular offered service, more advanced technology available to you, your position in the local area, and/or a stronger web presence online.
  • Barriers to competing in your chosen market, often related to a lack of experience, lack of finances, or lack of access to rapidly updating technologies.

If you cover those four points, your competitor analysis should be relatively strong. It should all be written from the perspective that you want to enter a new market and the competitors are keeping you out. How will you get past them and how will you make sure you’re one step ahead, so they can’t freeze you out in the future?

5. Sales & Marketing

You will have covered market strategies already at this point but there is always more to be considered. For pretty much every modern business, it is necessary to have a rigorous sales and marketing apparatus that can grab people’s attention and then sell them whatever you’re selling.

Even in the smallest business operations, it’s common to have salespeople and marketing professionals employed due to how important this function is. If you or a founding member of the business is skilled at marketing then this should be noted. Create a sales funnel and detail how that would look in the real world and how prospects will be lured into the funnel by marketing and passed to sales for closing.

Memorable businesses have a brand voice that helps them stand out from the crowd. The marketing section is where this should be detailed if you have one. Along with a description of the image you want to foster for your business, you can also include practical details like brand colors, fonts, and tone of voice on social media and marketing copy.

With your marketing plan covered, you should also detail more about the sales process. First, how will your products be priced? Competitor analysis is vital for gauging how much people are willing to pay in your industry. Does your service have added value that justifies the price increase?

While distribution will be covered further below, you can make some mention of how the goods/services will be delivered to your business’ clientele. Similarly, you’ll end the plan with a financial breakdown but you can detail how much budget is expected for marketing your brand and its goods. 

6. A Development Plan For Your Products & Services

Whatever you’re selling, it isn’t coming out of thin air. When you’re writing a business plan, you likely haven’t started making the goods or creating the service that your business offers. That’s why you need a design and development plan for them. It helps you just as much as it’ll help a potential investor or lender understand your business.

Your products should be described in a way that’s informative yet enthusiastic since this is the part that should be exciting for investors. Describe, in the detail that it requires, the process of designing and developing the goods. How much of your budget will that take? Are they easy to market and have you factored that into your marketing plan? How will you pay to create the goods until your business makes a profit?

You should have the answers to all of these questions while hyping up the product or service, but not to the point of exaggeration, hyperbole, or mistruths.

7. Management Plans

Next comes a deeper dive into the logistics of some things covered above. How will your business function in the day-to-day? How will those functions adapt and evolve once the business makes a profit and grows to become a mainstay of your chosen market? What are the responsibilities of management? How is the company structured across management, administration, sales/marketing, and production/service rendering? How are tasks and responsibilities divided between those divisions, if they exist?

When it comes to the organizational structure of the business, it’s more useful if you’re starting a company or planning to hire employees. That said, showing the ability to scale your business model and the willingness to hire people in the future is a good thing to add to your plan even if you’re a lone enterprise for the start of it.

Keep a breakdown of your current available capital and the overhead expenses for operating and maintaining the business. This can be:

  • Rent paid on any properties necessary to conduct business, including warehouse fees if you have an inventory to manage
  • Site-running fees if the business is online or is intended to have a large online presence
  • The cost of supplies required to maintain the business and create the goods you’re selling
  • Subscriptions to any software or other services used for the administration and running of the business
  • Any equipment leases and other agreements to secure materials needed to create and deliver the goods

8. Financial Information

Lastly, you should finish off with the financial information that proves all of the above is a feasible business strategy. It should also provide a financial snapshot of your business once it’s up and running, showing the venture’s ability to pay its bills and earn a profit after expenses have been deducted from earnings. This means you should include several financial documents in this part, such as

  • An Income Statement: A report detailing how the business generates its money every year. It does this by playing off generated income against the cost of goods and costs of operation and creating a total expenses figure. Then it uses the information to detail the business’ gross profit margin and your net profit before and then after taxation.
  • A Cash-Flow Statement: Sometimes called a cash-flow forecast, this document figures out how much cash is needed to pay for the business, where it comes from, and when it will be needed to fund business operations.

    Cash-flow statements are exactly what they sound like, a breakdown of how cash moves around your business. It starts by detailing cash sales and any outstanding payments owed to the business and tallies a total income from that. Then it’s divided into manufacturing costs, overheads for maintenance and other logistics, research costs, and the salaries of any marketing/sales staff.
  • A Balance Sheet: A summary of all financial information, including some of those covered in the first two documents described above. Balance sheets are typically created on an annual basis to reflect the condition of the business.

    Balance sheets are split into three main sections that cover assets, liabilities, and equities. Assets are the cash stores and the inventory/equipment used by the business within the last year. This includes property and any investment items financially tied to the business.

    Liabilities are taxes deducted, debts that are due within the next year, other outstanding payments, and any payments required for bonds, mortgages, or paying off business-related credit cards.

    Finally, equity is the difference between those assets and liabilities. This shows how profitable the business is. If your assets exceed your liabilities then you’re making money and vice versa.

Appendices 

So, you’ve followed the above steps and have built a fairly rigorous business plan that’s brimming with factual yet convincing content. Are you done now? Well, you might be, but you can always do more.

While the structure detailed above will serve you well, it’s the bare minimum for those who want to create a high-level business plan. If you want something that can be used to secure funding or convince others of the viability of your business, you might want to add some extra details to make it more appealing.

That’s where appendices come in. These are additional documents and data that are attached to your business plan. They may provide more context to the plan, those behind it, and the equipment that’s needed to see it through. They shouldn’t introduce new ideas or concepts that haven’t been referenced in the main body of your plan.

You don’t want to artificially bloat your plan by loading it full of appendices. The plan should still be a relatively brisk and easily understood read, so the appendix section shouldn’t be longer than the plan itself. Experts recommend that the plan be 30 to 50 pages minimum.

If your business plan doesn’t justify the presence of appendices or you haven’t got the resources or the know-how to gather them yet, you can leave them out and add them during a business plan revision.

Here’s a list of the appendices that can work well in a business plan:

  • The resume of business leaders and relevant personnel
  • Descriptions of products/services, potentially with attached images
  • Any pertinent legal agreements necessary for enacting the business plan, primarily with clients, vendors, and lenders
  • Charts demonstrating the organizational structure of the company and the division of responsibility between personnel
  • Other pertinent photographs of buildings/locations and other entities that may have been mentioned in the content of the plan
  • Supporting research into marketing conditions or competitor behaviors that support content in the main body of the plan
  • Examples of advertising and marketing that has been alluded to but not included in the main text of the plan
  • Surrounding financial information that didn’t make it into the plan but is relevant to the industry
  • Financial projections that didn’t make it into the plan but is of relevance to the industry and, by extension, your business idea

Tips For Writing A Business Plan

Tips For Writing a Business Plan

By following the eight steps above, you can structure a business plan that includes all the details you need to cover to keep you focused and please investors. Since you’re here, you’re likely a beginner who hasn’t got much experience with writing business plans. We can tell you what to do but you may not know how to do it.

That’s why we have these six tips for writing an effective business plan. Keep these in mind when creating each section of your own.

Do Your Research Well

A plan with no research behind it is just wild speculation and fantasies of financial success. To convince others and ensure you have an accurate, achievable plan for future business growth, you should have data backing up your assumptions about the industry that you want to penetrate.

With the Internet, you have no excuse to source valuable information about any industry and the competitors in that space, from the biggest players to startups that are on your level. Try to source from reputable, mainstream areas of the Internet and immerse yourself into online forums and communities oriented around your offered products/services.

Know Your Audience

That brings us to our next tip, you should know your audience. This means two things. First, you should know the clients and customers that are expected to interact with your business. Your business idea will have a clear audience unless you’re offering something truly new to the market. Even then, joining online communities of customers is great to see who they are, what they want, and what they like from companies in the space. If a community doesn’t exist, you could take steps to build one!

Then you should also consider who will be reading your business plan. You don’t need to focus on this yet if you’re only writing one for yourself at the moment. That said, most businesses need to secure funding from lenders and investors to grow. In those cases, your plan needs to be convincing to business-savvy people who know what to look out for.

They’re typically looking for inspired, enthusiastic entrepreneurs who have plans backed by data, research, and financial planning. The plan shouldn’t be an empty sales pitch but you also don’t want it to be boring. Of course, every investor and lender has different tastes and you can often find guidelines on how to approach them for financing.

Have Proof To Back Up Your Claims

You need to have proof of any claims made in your business plan. As we said, you need to demonstrate that you have researched your targeted market. If you have data to present, make sure that it’s presented in a way that’s easy to read and understand. You don’t want potential investors struggling with diagrams and charts that obscure the potential of your venture.

Be Realistic

When talking about the future, some people tend to get too optimistic. This is especially the case when money is on the line. Try to write your plan based on your skills and personnel right now. If your plan is based on a skillset you have yet to develop then it’s all bluster until you get those skills. Amend your business plan to your skillset and growing personnel so, at any one moment, your plan reflects what is actually possible in the foreseeable future.

Document Why Your Idea Will Work

Proving a theoretical idea can work can feel like proving a negative – difficult. Assuming you’re not the first-mover, you should be able to find businesses that came before you. Some of them will be competitors while others won’t be a threat, but each one can provide examples and context clues that show why ideas like yours have worked in the past and why your take on them can work again. Document those cases and present them in the relevant sections of your plan.

Don’t Include Rumors About The Competition – Only Include Facts

With the mention of competitors, that brings us to our final tip. While it’s great to have a competitive edge and enjoy participating in the market, you should keep things strictly professional.

Rumors tend to surround those who have found success in the market so, if your competitor has a bad rep, don’t rely on that to convince investors. At worst, they’ll see through your attempts to emotionally manipulate them on hearsay and at best, they’ll see unsubstantiated information that will degrade the quality of your entire plan.

Summary

a company planning their business plan

That brings us to the end of our guide on creating a business plan. The importance of having a good business plan cannot be stressed enough.

Business plans allow entrepreneurs to figure out what their business will look like and plan a growth strategy, so they can bring that business into reality. They can also be presented to investors and lenders to secure financing, which is crucial for small businesses and those who haven’t got the capital.

You can follow the guide like a step-by-step checklist that enables you to structure your plan properly and fill it with content that is useful to you and investors.

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