Your business plan will not just help you find investors and hence the funding for your business, but also a lot more.
With this in mind, let’s learn how to write a good business plan with some business plan examples and business plan templates.
Why do you need a Business Plan?
You might ask “Why do I need a business plan?”
This is a valid question, and the answers are many.
Writing a Business Plan, essentially, is putting your thoughts on paper. You may have an excellent business idea, but turning that idea into a successful and viable business takes a lot of planning.
It is important to realize that your mind is an idea-mine. That is to say that you get new ideas every second, every minute of the day. Sometimes even midnight.
At the same time, you need to stay organized and focused. Unless you have your plan on paper, it is difficult to take off from idea to reality.
By all means, you should improvise. And improvise on a continuous basis. But, have it (your first plan) written down somewhere; on paper or in electronic form, in the form of notes, or spreadsheets, or a text document.
Start off by writing the basic idea with a heading; and then below it, add every new idea or development as a sub heading or bullet points.
Writing a business plan is nothing but breaking down your idea into small tasks. The better you document, the better shall be the outcome. So, basically, the smaller the tasks, the better results you get.
As a result, here are 4 main reasons why you should invest in a business plan.
- You can use a business plan as a roadmap on how to build, run and grow your new business. As a matter of fact, a business plan is the foundation of your business.
- A business plan is your tool to get funding for your business.
- With a business plan, you can bring in new investors or partners. It will convince people that investing in your company will give good returns on their investment.
- In the event that you are planning to recruit personnel at senior levels, your Business Plan shall be a reference tool for them.
The basic elements of a Business Plan.
Every business plan should include the following sections:
- Executive Summary (2 pages)
- Company Description (1-2 pages)
- Service or Product (1 page)
- Market Analysis (2-3 pages)
- Organization and Management (1 page)
- Marketing and Sales Strategy ( 2-3 pages)
- Financial Projections (10-15 pages)
- Funding Request (1-2 pages)
Although there is no standardized template for a business plan, including all the above information helps.
In the light of these 8 headings, let us proceed to discuss what information to include in each of them.
1. Executive Summary
As a matter of fact, you should write the Executive Summary in the end, taking inputs from all other sections, as it summarizes your Business Plan.
However, it is placed first in the docket, so that anyone whom the business plan is presented, can read a 2 page summary and decide if he wants to pursue it further or not.
With this in mind, the executive summary ought to be impressive.
Here is a checklist of the key elements you should include in the Executive Summary.
Business Idea: A brief on why you intend to launch the product or service. Describe where, to whom and how you will sell it.
- Current Market Scenario: Why do you think your product or service will sell. Are there similar products already available in the market. If yes, then what advantages does your product have over them.
- Financials: A simple and straight forward summary of the volumes you intend to sell, the selling price and profitability.
- Funding requirements: Write here about the total project cost, sources of funds and expected return on investment (ROI).
- Achievements: This section should highlight the reasons that make you the most suitable person who can make this project successful.
2. Company Description
In this section, give an overview of the structure of the company and the current business that it is engaged in.
By all means, include the following information:
- Name of the Company
- Type of legal entity (Proprietorship / Partnership / Company / Trust etc.)
- Ownership
- List of Products / Services offered
- Goals, Objectives and Mission Statement of the Business
- Your company’s assets, strengths and core competencies.
In the light of the topic, which is Company Description, do not write in too much detail about the prospective business. In contrast, write about the products or services your company is offering.
You can write about the Company’s assets in terms of the machinery or equipment you have. Equally important assets are your staff and key officials. Mention their experience and highlight the skill sets which are relevant to your Business plan.
Additionally you can write about the markets you are currently operating in: Wholesale, retail or through a dealer network.
Similarly, mention the areas in terms of geography – within the country, or regional, say Asia-Pacific or Americas, or internationally.
3. The Service, Product or ….
This section of the business plan is a narrative of your business idea. In other words it is about your product, service or the business model.
Though usually, the service or product you choose to sell will be a strong deciding factor of the success or failure of the entire effort. However, there are enough examples in history to disprove this axiom.
Did Steve Jobs invent the iPod?
No! An iPod is simply a dignified (and expensive) version of an MP3 player. Steve Jobs only developed it.
So, the iPod was not an original idea. At the same time, no MP3 player in the history of mankind has sold so many units as the iPod.
On the same note, the person who invented the MP3 player did not make so much money out of its sales as did Apple with the iPod.
The point I am trying to emphasize here is that you don’t have to come up with an original and brand new product. You always have the option to develop, or improvise upon an existing product or service.
“Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world’s largest accommodation provider, owns no real estate.
Something interesting is happening.”
It is indeed good if you have come up with an innovative product or service. On the contrary, I have observed that any new product I think of is already available somewhere. Its true potential may not have been recognized or exploited, but it has been made.
Be that as it may, write in brief about your business model or the product / service you intend to launch. Include references to similar products and how your offering is different from the mainstream.
4. Market Analysis
The objective of Market Analysis is to prove that
- There exists a market for your product, and it is big enough to be built into a profitable and sustainable business.
- And, you know the market well.
Hence, it requires extensive research. We will discuss the latter first.
You either are already operating in the market, which is like a feather in your cap. And, your new product is just an extension of your existing product line. You have experienced a gap in the need and availability (or non-availability), and your product or service is going to fulfill it. In such a case, you will be perceived as a market expert.
Alternatively, you are entering a new territory with a new product. Under these circumstances, you have to prove a point with the investors and potential partners.
To prove that there exists a substantial market, break down this section into 4 sub-sections that we shall discuss now. Include relevant data from reliable sources wherever possible. This will make your presentation more convincing.
4.1. Demographics and Segmentation
In this section, you write about the size of the market. Size has two aspects, the Volume and the Value of the market.
If your business plan is about a local business, say a paint shop or a restaurant, your assessment of the volume and value will have to be localized. On the contrary, if you are writing a business plan about a chain of paint shops or a chain of restaurants you will have to be more extensive in your approach. https://www.thebusinessplanshop.com/blog/en/entry/market_analysis_for_business_plan#demographics
Let us discuss this with an example.
| Market | A | B |
| Market Size | $100,000 | $200,000 |
| Potential Customers | 500 | 2 |
| Competition | 10 competitors | 2 competitors |
On the face of it, Market B seems more lucrative with a higher market value and with just 2 competitors. However, notice carefully that Market A has 500 potential customers. Does it not give you a higher opportunity to sell. Trying to grow 2 customers to 500 might take ages. But increasing the market value from $100,000 to $200,000 will be a cinch with the right marketing team.
Even though the above table looks easy to understand, when you sit down to make such a table for your own business, you will be floundering for values to fit in.
- What is my Market Size?
- How many potential customers do I have?
- How many competitors does my business have?
Though there are no specific formulas to calculate the market size, you can arrive at fairly reliable figures using some basic rules of estimation. Let’s discuss them
Market Size
For the purpose of estimating the market size, conduct a small exercise consisting of 4 steps:
Identify your target customer
The target customer is any person or company who is going to benefit from your product, service or technology.
Example: As an illustration, let’s say you are planning to sell online, a shaving cream. Your target customer in this case would be a Male, 16 years plus. Further, depending upon how you are positioning your product, low cost or premium, you can further narrow down your target customers based on their job profiles or income categories.
Estimate the number of target customers
In this case, an estimate of the number of target customers shall be the total number of target customers in the world, or country or the region where you are planning to sell.
Example: As a matter of fact, if you are planning to label your shaving cream in English only, you will have to find the number of males, of ages 16+, in English speaking areas of North America.
Further if you intend to offer free shipping, and you have calculated that you can afford to pay from your own pocket, the shipping cost up to a distance of 1500 miles. Your estimate of the number of target customers will be males, age 16+, around 1500 miles of your production facility, and in English speaking areas.
You will need to have absolute clarity in your mind. On the positive side, data in many forms is available from U. S. Bureau of Economic Analysis, U.S. Census Bureau, Statistics Canada and some private companies. You should know how to dig for it.
Assume a realistic market penetration rate
This number, the market penetration rate, actually means the percentage of the total target customers who will buy from you.
Everyone is NOT going to buy from you.
Example: People have brand loyalties, which they rarely give up. For this reason, account for this market penetration rate.
I just checked a website specializing in men’s grooming, and they indicated they had 130 options in shaving creams. Which of these products or brands are you hoping to replace on your target customer’s shelves?
Source: https://www.grandviewresearch.com
Don’t lose heart over these numbers. Just be realistic in your estimates of market penetration rates. In our example of selling online, you will realize after looking at the pie-chart above, that the ratio of online to offline sales is 1:8.
Source: www.statista.com
Based on the above histogram, let us assume a comfortable market penetration rate of 0.5%
Calculate the potential market size
Based on the above figures, we can now calculate the potential size o
How your site appeared in Search results and how many visitors you got from Search
f the market, both in terms of volume and value.
Market Volume
Market Volume = Number of target customers x Market Penetration Rate |
Market Value
In order to calculate the Potential Market Value, multiply the Market Volume obtained above with the price of your product.
Market Value = Market Volume x Price of Product |
Following the above steps to estimate your market size
4.2 Opportunity
Market Analysis isn’t complete unless you have discussed about the opportunity available for your product or service.
To some extent, you have explained the “opportunity” in the Market Size section above.
Equally important here is explaining the GAP that exists in the market. Therefore, you will elucidate
- That there exists a gap in the market?
- What are the reasons for this gap?
- How did you identify the gap?
- How will your product or service fill the gap?
While you are here, explain who are the customers for your products. Do they have enough choices available? Or are the available products overly priced or sub-standard in terms of quality.
In the same token, illustrate about the suppliers of similar products or services as yours. Why are these suppliers not able to meet the market demand.
4.3 Competition
You should give some details about the competitors for your product or service.
20% startups cited being wiped out by Competition, as the reason for their failure.
In the first place, write about the products or companies that will compete with you. Then you should tabulate how your offering will compare with those of your competitors.
In order to prove that your product or service offering is justified, do not highlight only the positive aspects of the comparison. Keep it balanced. After all, the person reading your Business Plans receives hundreds of such plans every month, and is much more aware of the market scenario as a generalist.
4.4 Entry Barriers
For the purpose of evaluating and writing about the entry barriers, review the following reasons
- High capital costs, production costs or marketing costs
- Consumer acceptance
- Tariff barriers or quotas
- Legislation or regulatory barriers
- Technology availability or Patent issues
- Extensive training or skill sets
Any one or more of the above reasons could pose an entry barrier to your Business Plan. These could also be the reason why no one else is into this business.
At the same time, you should have a written plan to counter these entry barriers.
5. Organization and Management
In the Organization and Management section of the Business Plan, you are required to provide the information about your team.
- Names of the Founders with their qualifications and Business experience
- A list of the people who will manage the business on a day to day basis. Include their qualifications for the job, along with the skill sets which make them suited for the job assigned.
- If you intend to have more than 10 employees, create an organization chart. This organization chart should exhibit the hierarchy and responsibility for all levels.
Also include an approximate count of the support staff you will need as a part of your team.
6. Marketing and Sales Strategy
While you are here, focus on the 4 P’s of marketing while writing this section of your Business Plan.
The primary 4 P’s in the foundation model of marketing mix are:
- Product
- Price
- Promotion, &
- Place
If you carefully integrate these key factors in your Business Plan, no one can stop you from being successful. In the overall business environment, these P’s are constrained by several internal and external factors.
You may have heard of three more P’s taking credit in marketing plans, but they are essentially sub sections, or variations of the 4 P’s mentioned above. These are:
- People
- Process
- Physical evidence.
Do bear in mind that any marketing strategy you propose is not meant to remain static. Keep fine-tuning your strategy from time to time, as your potential buyers change or your product mix changes.
Product
You have read about Product strategies above. According to a CB Insights publication, The Top Reasons Startups Fail, cites
- 35% of startups failed as there was no market need (demand) for the product, and
- 8% failed due to a bad product.
Confidence in your product is good, but you ought to take a practical view of its acceptance in the market before investing money into it.
Price
The same CB Insights report suggests 15% of startups fail due to Pricing issues. In some markets, like India, price is the most crucial factor that can make or break the marketing strategy of your product.
As a matter of fact, you should be clear about the market niche you are going to cater to. Is your product in the luxury segment, or is it a necessity, or are you positioning your product purely on price.
You must always link the price to the real and perceived value of the product. At the same time you should consider the manufacturing / supply costs, coupled with discounting strategy and competitor prices.
Promotion
The purpose of Promotion, (read advertising and public relations), is to explain to your target consumers why they should buy your product. Some promotion is subtle, some is funny, and some are direct.
In the age of Internet, you need to align your promotion strategies on offline as well online media. A social media strategy deserves most attention and care.
Spend some time to create a winning, pocket friendly, social media strategy in your Business Plan. If you are not clear about which of the Social Media you will be active on, spend some time browsing similar websites, or take advice from a consultant.
Place
When you are writing about Marketing Strategies in your Business Plan, give details about where you intend to sell. That been said, ensure how your product or service gets in front of the consumers in those places.
Are you planning to place your product in certain stores’ only to create exclusivity, or are you going to flood the market with your product.
Another key point here is that Place need not necessarily refer to a geographical location.
In some cases, placement also refers to launch a product in films or television shows only to garner attention and create hype about the product even before it is launched.
An interesting case here is the James Bond movie “Golden Eye” which was released in 1995. It is a well known fact that James Bond is portrayed driving Aston Martin cars in all his films. Now, this one was different. Pierce Brosnan got into the driving seat of a Z3 BMW. This car had not been launched till then. And, BMW already had bagged about 9,000 orders from the movie release.
6. Financial Projections
A seasoned investor will spend the maximum time studying this section of your Business Plan. The Financial Projections.
Financial projections, as the name suggests are reasonable estimates of the financial health of your business over the next few years. Hence, it is rational to have a Financial Analyst or Accountant prepare this section, but with your full involvement.
Since you are the one responsible, double check to ensure the following are included.
- Initial investment in plant & machinery, office space, land & building, cost of prototype building, patent and trademark registration fees, website and mobile app. These are termed as startup or capitalization expenses.
- Profit and Loss statement for the current year and projections for the next 3 years.
- Cash Flow Statement for the current year and projections for the next 3 years.
- Balance Sheet for the current year and projections for the next 3 years.
- A break-even analysis.
Include colorful pie-charts, graphs and other visuals to make your proposal easy to read and attractive. In addition to these, here are some basic rules you should adhere to.
In your Business Plan, the cash flow statement should be shown MONTHLY for the first year,
QUARTERLY for the second year, and
ANNUALLY for the following years.
At the end of each statement write a brief note about your analysis and key highlights.
Some investors may ask for your (Founder’s) personal balance sheet in addition to the above documents.
7. Funding Request
If you need investors to fund your business, this section of your Business Plan is the place to outline your requirements. You should be able to explicitly spell out how much funding you require and where are you going to use it.
Funding does sound very exciting and elating. Coupled with this feeling comes the feeling of losing equity. So, take time to decide whether you need equity or debt funding.
Together with this stance, specify whether you need funds to buy equipment, pay salaries, marketing or something else.
The steps revealed above should help you generate a successful Business Plan. Be honest and realistic while you prepare and submit the Business Plan.
Don’t be scared of mistakes, as they are an important part of the learning process, and we all keep learning throughout our lives.
Please share your views below and they will inspire me to gain further insight and write better and more informative posts.
At the same time, if you disagree with something, do let me know.
Embrace change! Move on! and Stay happy!