A business plan is a comprehensive document that explains what a business will do, how and what the goals are. All entrepreneurs should write a business plan before they get started. Why? There are several key reasons.
Why You Need a Business Plan
- First and foremost, the process of creating a business plan gives an entrepreneur the opportunity to think through every aspect of their business and make sure that their time, energy and money will be well invested in bringing their idea into fruition.
- When you’ve got past this stage and are in the process of launching your business, you will be incredibly busy. Every day you’ll be faced with myriad important decisions and challenges to surmount. Your business plan will provide a valuable road map to support you through that difficult first part of the journey.
- You will need to convince others that your idea is a good one. Those people may include potential business partners, skilled employees you’re hoping to work with and critically, investors. Your business plan should prove to them that your company will be successful.
How to Write Your Business Plan
A business plan is not a sales tool or the place for elaborate marketing copy. It needs to convince readers that the business is viable, but through objective facts and logic rather than hyperbole.
When writing your business plan think about the intended audience. Just as you would tailor your CV and cover letter before applying to a particular job, you might want to consider tailoring aspects of your business plan to appeal to readers with different priorities. It is important to know your audience and play to their needs.
A Business Plan Appealing to Investors
When investors review a business plan they won’t just be considering if they should invest, but also when and how they could exit the business. Your business plan should include financial projections that make it clear when the business will become profitable. Similarly, if your ultimate goal includes going public, buying out investors or selling the company, this should be included.
Additionally, investors are typically more interested in market-driven businesses than technology-driven ones. For a greater chance of receiving investment, make sure you include an in-depth analysis of the existing and potential markets for your idea.
A Step by Step Guide to Writing Your Business Plan
The following steps will take you through the process of putting together your business plan, while helping you to understand if and how your idea could become a profitable business.
1. Executive Summary
The first section of your business plan is the executive summary. Think of this as the hook. It’s your chance to infect the reader with excitement about what you have to offer. The executive summary should include only the most pertinent information from each of the sections that follow. You should explain in brief:
- What your business will do and how.
- The market for your idea.
- What the growth potential is.
- What you need to make it happen (if you are applying for funding).
2. Business Overview
This section should include an overview of your business, including a description of your brand, values and mission. You should answer the following questions:
- What will your company do?
- How will you deliver it?
- Why is there a need for your product or service?
- What does your brand stand for?
- Who are your customers?
- How will you reach them?
- What have you done so far? For example, have you got a website or any social media channels? Have you started trading?
- How will your company be structured?
- Do you have any existing partners or shareholders and if so, what is their stake in the business?
3. Market Research
The aim here is to demonstrate that a market exists for your idea. To do this you need to include data on the size of the market, explain relevant trends within the market, and show where your business fits within that landscape. Some key elements to include are:
- The size of the overall market for your product or service.
- The size of any niches within the market.
- Where your business fits.
- Whether the market is stable or growing.
- Whether it is a new or mature market.
- What trends exist and what drives them.
4. Competitor Analysis
Knowing who you are up against is essential to winning any competition. And understanding other companies operating in the same space can help you to refine your approach. What’s more, demonstrating to potential investors that you are familiar with the competition and can clearly differentiate your offering will help them to feel confident that you and your business are a good investment.
This section should include who your biggest competitors are, what they offer and their strengths and weaknesses. Don’t just think about existing players. If your idea is addressing a gap in the market, other entrepreneurs like you may have also recognized the opportunity. Anticipating new competition and explaining how you will respond will prepare you for success when this does eventually happen.
You should also take note of what others are charging for similar products or services. This information will give you an idea of what customers are happy to pay and what the range is. Your pricing strategy should take into account your brand positioning, as well as customer perception of what constitutes value for money, and how much quality costs.
5. Customer Research
What you include in this section will depend on the stage you are at. If you are already trading and have existing customers, how have they responded to your product? Is your audience growing? Alternatively, have you created a prototype and engaged with potential customers to see their reactions? Have you conducted focus groups to explain your idea and discover if there is appetite for it?
Whatever your method, this section needs to demonstrate that you have done the research and proven there is demand for the business you want to create. Understanding your customer will also give you a clear idea of the size of your audience, which will in turn inform your sales forecast.
Interacting with potential customers also offers a vital opportunity for you to refine your offering. Feedback from focus groups and one-on-one conversations could give you the insights needed to make tweaks that will improve your chances of success. Be prepared to discover and respond to new opinions and perspectives. Although it can be hard to hear criticism, no matter how well intended, making changes now will make all the difference when it comes to launching your business.
6. Marketing and Sales Plan
A strong marketing plan is the difference between success and failure. When you first start, it is important to focus on determining the most effective channels and platforms for reaching leads and converting them into customers. Money spent on marketing needs to bring a return on investment. A smart marketing plan includes targeted testing and a continuous feedback loop to refine and improve your efforts. Rather than taking a scattergun approach and spending a little of your valuable time and money on each channel, pick the most important for your business and concentrate on them.
The following elements should be included in an effective marketing plan:
- Detailed customer profiles. Determine who your customers are, what their personal goals and needs are, and use these insights to deduce where you can reach them. Starting with a very targeted approach will ensure your efforts are effective. No matter how universal you may believe your product to be, you won’t be able to use the same language and channels to reach a teenager and a pensioner. Be specific about who you are talking to and how.
- Which channels will you utilize? It can be tough to know where to start. If you’re not sure, focusing a part of your marketing budget on search engine optimization (SEO), pay per click search engine advertising (PPC) and email marketing is a good strategy. These channels have proven to be effective time and again for a broad range of businesses and will reach most customer segments.
- How will you announce your launch? Are there any opportunities to engage press?
- Do you have any personal contacts, an existing database or professional network that may be helpful in publicizing your business?
Your marketing plan should also include a budget and details of how you will measure success.
This section covers all the practical elements that are needed to make your business work. What to include in here depends entirely on the type of business you are establishing. Nonetheless, the following bullet points will help make sure you’ve considered all the operational requirements for your company:
- Who are you and why are you starting this business? Before explaining your company structure and describing your team, it is a good idea to describe yourself, your skills and your motivation. Startup investors are often interested in the people behind the idea as much as the idea itself.
- Do you have any employees? Will you be employing anyone in the near future? Here you need to account for salaries you will be responsible for, as well as demonstrating you have the skills you need on board to achieve success. However, don’t go overboard. More salaries means greater responsibility and risk. Startup job descriptions are often very broad for this reason.
- If you’ve never started a business before, showing you have experts to hand who can support you, whether as board members, mentors or co-founders, will reassure investors and others.
- Do you have, or will you need, a physical space? Whether an office or a shop front, you should explain what, why, where and how much it will cost to acquire and maintain. If location is important to your success, for example if you are opening a restaurant, you need to explain why you have chosen the location and include an analysis of similar businesses in the area.
- Do you have, or will you need, any suppliers or partners? Include a list and explain how they are connected to the business.
- A risk assessment is a vital part of the puzzle. Take this opportunity to think through any challenges that could prevent your business from operating. How would you overcome them and what will you to do mitigate the risk of them happening? For example, if you are sourcing materials from another country, what happens if borders are closed and the product cannot be shipped?
- Are there any legal considerations or regulations you need to adhere to? You should also include details of your insurance policy.
- Have you acquired, or are you in the process of acquiring, a trademark, copyright or patent? Include the status of your application if relevant.
Your business plan needs to include detailed financial information that shows the current financial state of the company, what it will cost to run your business, what income you expect to make, and when you predict the company will start generating profit.
It is imperative that the financial information you include is thorough and detailed, especially if you are seeking investment. You need to know your numbers and be able to answer questions about them. If you don’t feel you have the expertise to do this well, you should either work with an accountant to produce the documents you need, or seek a partner who has the skills to take care of this side of the business.
The following documents should be included in this section:
- Balance sheet. This will show the current financial state of the company. Have you ordered any stock or committed to paying rent, for example?
- Income statement. This projects the expected income and expenditure for a specific period.
- Cash flow. This shows how cash flows through the business and ensures that key payments, such as salaries, will be able to be paid.
- Operating budget. How much will your business cost to run? This will include everything from salaries to utility bills.
- Break-even analysis. As the name suggests this will determine how long it will take for your business to become profitable.
When projecting income for the years ahead make sure that you have taken market readiness into account. If you are launching a particularly innovative product or are entering a slow-moving market, the rate of sales may be slower. This should be accounted for in your business plan as it will have a significant impact on the overall financial health of your business.
Where To Begin When Building a Business
There is a lot to consider when launching your own company. However, anyone can do it, it just takes patience, dedication and willingness to learn. There are plenty of helpful templates available on the internet, particularly for some of the financial documents you will need to include, which will help you get started.
If you have an idea and would like to learn from experienced entrepreneurs how to take it to market, explore the business programs we have on offer at EU Business School. Our faculty are working professionals who draw on their own experiences to equip students with the skills, knowledge and mindset needed to succeed. What’s more, our global community of over 27,000 alumni are eager to support students by sharing their skills and expertise.