In this guide we step you through the basics of writing a business plan and explain why and how you should structure it in a certain way.
1. Give a structure to your plan
The following can help you decide what should go in to the plan to give it its structure:
- What is the nature of your business?
- What is the market?
- Outline the potential of the business
- Management team
- Forecast profit figures
- How much money will you need?
- What are the prospects for investors/lenders?
In general, while you are structuring it, try to keep in mind making your plan match its purpose.
However, you may have different objectives for writing your business plan so this will determine what needs to go in. If you’re developing the plan for your reference only, and not for outsiders, then you will not, for example, need to include background information on the company.
“Be clear who your audience is. Description of the management team is very important for investors, while financial history is most important for banks,” advises Tim Berry, founder of Palo Alto, which produces business planning software.
2. Prove every part of your business plan
A business plan needs to be a persuasive tool, especially if you are using it to raise outside finance. You need to convince whoever is reading your plan to keep turning the pages.
Emphasise what is exciting about the prospects of your business, such as potential revenue streams and customer base, and back this up with accurate figures and thorough research. Remember that investors and banks are flooded with business plans, and yours will stand a chance of being read if it stands out – but don’t fall into the trap of producing unrealistic figures or statements. Your plan and figures must achieve a balance between optimism and realism.
Business plans can be easily ripped apart so every assumption will need to be justified, not once but again and again. It’s a good idea to ask a friend to pull it apart, to ensure you are prepared with facts and figures to back up your statements.
According to Berry, including specific details can lend credibility to the business, and show how committed you are.
“Plans are often not as specific as they could be. Include any milestones you have achieved, the dates on which these occurred, and any marketing activity that has been a success. Implementation details are crucial,” recommends Berry.
Presentation is also key – your plan should be typed, neatly presented and easy to read. Computer programmes will help you to produce different versions and experiment with forecasts.
3. Financial forecasts in your business plan
The more money you need to raise, the more financial detail you will need to include and the greater period they should cover, such as cash flow forecasts, profit forecasts, and possibly a balance sheet forecast.
According to Berry, a standard business plan will include forecasts for the next three years, with a monthly breakdown of financial details for one year.
‘A common mistake people make is to try to do a monthly breakdown that stretches four years into the future, which can result in diminishing returns, because you can’t be certain what will happen in four years time,’ says Berry.
It’s a good idea to have a forecast related to what might happen if things don’t go to plan, as this will show that you have thought about the downside. But use a degree of judgment as you do not want the plan to look unduly pessimistic. Much of this will depend on the nature of your business and the stage it is at. If it’s a new business, much is based on what you think may happen, with an established business, you have a track record to refer to.
4. Keep it succinct
An ideal format when writing your business plan, if you intend it to be for outside use, is to have between three and ten pages of text that draw out the important points, plus a series of financial figures. Excessive detail should be confined to appendices.