8 Tips on How to Prepare a Business Plan
8 Tips on How to Prepare a Business Plan
One of the major reasons why businesses fail is poor planning. Around 42 percent of startups fail because they eventually find that their products or services do not have enough market demand, while around 29 percent fails because they run out of funds, and 23 percent due to not having the right team, says a 2014 study by CB Insights. A little planning can go a long way to help avoid such situations. And this is exactly why it is essential to develop a detailed business plan before starting a business.
Whether you want to start a new business or expand your existing one, you must have a business plan. It outlines a roadmap for your business growth over the next 5-10 years, providing details about the market you want to enter, products you want to sell, your marketing strategies, how you are planning to build your team, and how you want to manage the finance. A clear and compelling business plan sets realistic expectations, keeps you on the right track, and most importantly, helps you obtain funding from investors.
Thankfully, developing a business plan is not rocket science. All you need is to know your business inside out. Ideally, you should start by doing your own homework, including a thorough analysis of your target market, potential customers, competitors, financial requirements, and whether there is enough demand for the products or services you want to offer. Once you are done with your research and analysis, go ahead and start writing your business plan.
What to Include in Your Business Plan
Once you have gathered ample information about your proposed business, it could be a little confusing to decide what to include in your business plan. It’s okay to follow a general structure, but make sure that what you write in each section is exclusive to your business. This is only possible when you have a clear idea about what makes your business, products, team, location, financial strategies, and marketing plans unique. In general, your business plan should consist of the following sections.
#1 Executive Summary
This is usually the first section that comes after the title page, and provides an overview of your entire plan. It should be clear, concise, and compelling enough to encourage your potential investors continue reading. Ideally, an executive summary should include the following information.
- Mission statement – This is a chance for you to summarize your vision for the proposed business.
- Company overview – This provides general information about the company, including history, location (s), total number of employees, and ownership.
- Growth rate – If your business has seen steady growth over the past few years; be sure to mention the growth rate and, if possible, provide charts and graphs to further highlight your point.
- Products and services – Briefly touch upon your main products and services.
- Growth assumptions – Take no more than 3-4 sentences to outline your growth projections. Describe where you want your business to go in the next three, five or ten years.
- Financial requirements – Provide a brief outline of your funding requirements, current bank, and existing investors. This gives your potential investor a rough idea about how much funding you might need, and whether your company has a good credit history.
If, however, you are writing a business plan for a startup, put more focus on explaining why you are the right person to do the proposed business. Talk about your background and experience and show that you have done the necessary market research, competitor analysis, and financial projections. Usually, executive summary should be the last section you write, because by then you will have a comprehensive understanding of your proposed business.
#2 Company Analysis
This section provides a detailed analysis of your business, with a focus on its short-term and long-term goals and unique value proposition. The idea is to explain what you want to sell, why you want so, what sets your business apart from others, who your potential customers are, and what the USP of your products and services is. Typically, this section should include the following information.
- A brief industry overview, including current market opportunity and how your products and services relate to that
- Details about your potential customer groups and target markets
- A short description of your company’s strengths and what gives your business an edge over the competition
- A brief outline of the reasons you think your business will be profitable
Make sure that whatever you claim is backed by statistics and facts from reliable sources. This helps to show your potential investors that you have done your research and not planning a business out of assumptions.
#3 Market Analysis
This section provides an in-depth analysis of your industry and target market. Ideally, you should start by providing details about the size, structure, and growth trends of your industry. The next step is to define your target market. For best results, you need to narrow down the market to identify the exact segments of a population that are more likely to use your products. One good idea would be to conduct a thorough research based on age, demographics, and purchasing power of your potential customers. For instance, you need to know which age group is more interested in your products or services. This section should also provide a pricing structure of your products, expected profit margins, and discount plans. Overall, it should provide answers to the following questions.
- What are the size, historic growth rate, and projected growth rate of your industry?
- Which is your target market?
- What is the size of your target market?
- Are there enough market demands for the products or services you are planning to sell?
- Who are your potential customers? How old are they? Where are they located? Do they have the buying power to afford your products?
- How much market share do you expect to gain within a stipulated timeframe?
You can use a combination of primary and secondary research methods to find out comprehensive answers to these questions.
#4 Competitor Analysis
The competitive analysis section should identify your key competitors and provide details about their strengths, weaknesses, and market share. In this section, you can talk about any possible barriers that may be developed to prevent you from entering your target market, or any special opportunity that might help you enter the market. You also need to explain what gives your business an edge over the competition, and what the key challenges are.
#5 Organizational Structure and Team
Your potential investors would like to know about the owners of your business, your company’s organizational structure, profiles of your key team members, and the legal structure of your business. This section provides detailed information about everything. Start by stating whether your business is, a sole proprietor, a partnership firm, an S corporation or a C Corporation. Then provide details about the names of owners, percentage of ownership, forms of ownership, and outstanding equity equivalents. The next step is to demonstrate the qualification, background, and experience of your management team and explain what each member is responsible for. One good idea would be to create an organizational chart, giving a clear picture of the hierarchy, and providing details about who is responsible for what. If you are planning to hire new employees or management staff or want to build a new team, talk about the kind of people you are looking for, and what kind of salary and benefits you are planning to offer.
#6 Products and Services
This section of your business plan should provide a detailed description of your products and services, including their features and benefits, how they are going to meet the requirements of your potential customers, and what make them stand out in the competition. Also, be sure to provide details about the current status of your product development activities. If you have conducted (or planning to conduct) R&D activities, do not forget to mention that in this section. It is also important to talk about patents or copyrights and any information about nondisclosure agreements.
#7 Marketing Plans
In this section, describe how you are planning to reach out your target market, how you want to set the price of your products and services, and what marketing channels and promotional strategies you want to use. This section should ideally provide the following information.
- An advertising strategy, with details about your preferred promotional channels, which may include catalogs, brochures, mail-orders, public relations, direct selling, and internet marketing.
- A distribution strategy, providing details about which distribution channels you are planning to use
- A growth strategy, stating whether you have plans for mergers and acquisitions, franchising, or expanding into new markets
It is also important to develop a sales strategy, providing details about your sales team and sales activities.
#8 Financial Assumptions
This section of your business plan plays a major role in shaping the decision of your prospective investors. Ideally, you should provide your both historical and prospective financial information of your company, so that the reader gets a clear idea about your company’s financial status and growth projections. This section usually includes several charts and graphs, visually illustrating the financial projections. You should include the following information in this section.
- Income statements (both historical and projected)
- Balance sheets (both historical and projected)
- Cash flow statements (both historical and projected)
If you are creating financial projections for five years or longer, consider providing a more detailed projection for the first year. From the second year onward, a quarterly or annual projection would suffice.
Finally, you may choose to include an Appendix in your business plan. This could be a very useful section, if you have many additional to provide, such as, details about a study, resumes of your team members, agreements, and leases.
Try to create your business plan in just ONE day!