How to write a business plan
Many great ideas for business never get off the ground; others start with enthusiasm only to slowly crumble away. A business plan provides a roadmap for you to follow to take your idea and turn it into reality.
Eighty percent of the effort required in writing a business plan is undertaken before your fingers ever touch the keyboard. Planning, research and preparation are all essential to building a workable plan.
The two most important sections of your business plan are the executive summary and the financials section. Readers will go to these sections first for their essential information. The Executive Summary summarises the rest of the document so although it appears first you should always write it last.
Write a mission statement
A good idea by itself does not guarantee success. To turn that idea into reality you need to clarify what you want to achieve. You can do this by writing a mission statement.
A mission statement identifies the purpose and goals of the business. Identify what you want to achieve from operating your business. For example you may have identified an opportunity to provide bookkeeping services. Your mission statement would say something like; «To become a reputable supplier of small business bookkeeping services to the greater Chicago area.»
Define your product or service
You cannot be everything to everyone, it’s time to get specific. For example if your business idea is to sell clothing what type of clothing will you sell? Ladies, mens or children’s clothing? Is it formal, business, casual, or sporting wear? Where will you sell it? Through a retail outlet, on the internet or by mail order?
Research your market
What is the current economy like and how will it affect your business specifically? Are people struggling and looking for cheap clothing? Are small business thriving and looking to ousource some of their administrative tasks?
Who are your competitors and what are their strengths? Why would customers choose you over your competitors?
Compile an analysis of your strengths and weaknesses compared to your competitors and the opportunities and threats that are in the market you are about to enter.
Create strategies and plan for action
Develop your strategies. How will you use your strengths to exploit opportunities available in the market? How will you mitigate the risks of your weaknesses and the threats to your survival that exist in the market?
Create an action plan that has clear deliverables, deadlines and names the person accountable for taking the action through to completion. Prioritise the actions with your focus on the first twelve months of operation.
Add your marketing plan
Describe your brand, its personality and your brand proposition. Is your product conservative and reliable or funky and flauntable? Is your service cheap and cheerful or exclusive yet affordable?
Outline your marketing activities for the next twelve months. Include all activities, across all mediums. Note every action you will take to get the word out about your new business whether it costs money or just your time.
Describe your business structure and management team
This section is essential if you wish to obtain external funding. Investors want to understand who will be responsible for bringing the plan to life. Until effective people take charge a plan is simply words on a page. Describe the owner(s) and any key managers, their skills and qualifications.
Many new businesses start as sole traders. Very few individuals have all the skills and experience necessary to run a business. If you are a sole trader and lack a particular skill consider asking a friend or knowledgable associate to act as an adviser to your business.
If you make use of advisers it is important they are willing to be named on your plan in that capacity. You may find they will want an indemnity to do this. If they are providing their services free this is not an unreasonable request.
Compile your financials
You will require a projected income statement, balance sheet and cash flow for the first three years. This is then further broken down by month for the first twelve months.
You will also need to provide a breakeven analysis, the details of capital required and the purpose for which it will be used. Where you are looking for external investment a repayment schedule or expected return on investment should also be included.
Most new small business owners will engage their CPA to compile the financials section of their business plan. It is essential however for you to understand the content of these reports. Investors will expect you to answer any questions they have and you need at least a basic understanding in order to run your business profitably.
If you have no understanding take a short course on small business management to equip you with the necessary knowledge.
Write your executive summary and add a title page
Your Executive Summary introduces your business plan to your readers. This and the financials section may be the only part of the plan they read. It should summarise the content of your plan including: your mission statement, projected income and profitability, the market you are targeting, your business structure and contain details of your management team. An Executive Summary is only required if your plan is longer than five pages.
A Table of Contents is also useful for longer plans. Don’t forget the title page. All plans should include a title page which states the name of the business, the years that the plan covers and the name of the preparer of the plan.