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A Step-by-Step Guide for Writing an Effective
Business Plan
“One thing most of the companies lack is clarity. They don’t know exactly what they are doing and where they are going. If companies had clarity of focus they would be far more successful.” –Vicki Espin
You are ready to get into business. You are planning to open a store, say for selling watches. Congratulations! But have you considered the following?
Which brands will you keep in your store? –Luxury watches, or watches for daily wear?
Who are the customers you are targeting? –Upper class, middle class etc.
Where will you open the store i.e. what is the location?
How will you get money to fund the shop- use your own money or will you take a loan from the bank?
Who is your competition? How is your business different from others?
Will you repair the watches?
Will you take on a partner? What would be the partner’s responsibility?
How many employees will you keep?
It is like planning to go on a vacation. Would you travel without knowing where you are going, how you will be going, and for how many days you’d be going?
Planning is all about controlling your destiny. The real value of creating a business plan lies in the process of researching and thinking about your business in a systematic way. The act of planning helps you to think things through thoroughly, study and research if you are not sure of the facts, and look at your ideas critically.
It could take time now but you might just avoid some costly and disastrous mistakes later. Your plan could be wrong of course, but how would you track what is going wrong without having a plan in the first place? Remember that even a well-planned route may require a detour. “Planning is bringing the future into the present so that you can do something about it now.”
What is a business plan?
A business plan is a written description of your business’s future. It is a document that describes what you plan to do and how you plan to do it. It is used by firms that are trying to attract key investors, prospects for new businesses, deals with suppliers, asking for loans or simply trying to understand how to manage their business better. It is your first step on the path to success.
So, now that we’ve established that a business plan is needed, let’s examine what is included in a business plan and how you put one together.
A good business plan follows generally accepted guidelines for both form and content. A business plan consists of ten key components: Executive Summary, Company Description, Industry analysis, Market and Competition, Products or Services, Marketing and Sales, Management and Organization, Operations, Funding requests & Financials.
1. Executive Summary: By definition, this entails summarizing the elements of your business. Explain the fundamentals of the proposed business: What will your product be? Who will your customers be? Who are the owners? What do you think the future holds for your business and your industry?
Your summary should highlight the important financial points of the business including sales, profits, cash flows and return on investments. Clearly state the capital needed to start the business and to expand it. It should state clearly how much you want, how you intend to get it, precisely how you are going to use it, and how the money will make your business more profitable and thereby ensure repayment.
This section should be enthusiastic, professional, complete, and concise. It should be around two pages or fewer. This is the most important section of your business plan. It is the first thing that the reader sees. Therefore, it will either grab their interest and make them want to keep reading, or, it will make them put it down and forget all about it. Make it easy for the reader to realize at first glance both your needs and capabilities. It’s a good idea to write this section only at the end.
2. Company Description: What business will you be in? What will you do? Many companies have a brief statement of 30 words or sometimes fewer, explaining their reason for existence and their guiding principles.
Company goals and objectives should also come here. For example, your goal might be to have a healthy, successful company that is a leader in customer service and that has a loyal customer following. Objectives might be annual sales targets and some specific measures of customer satisfaction.
3. Industry Analysis: It should include a description of the industry, the current size of the industry, growth rate, trends and the major customer groups within the industry (i.e. businesses, governments, consumers). It should provide a picture of your industry and of the position of your business within the larger framework.
4. Market and Competition: This means to evaluate what you are getting into. What products and companies will compete with you? List your major competitors (names and addresses). Will they compete with you across the board, or just for certain products, certain customers, or in certain locations?
Will you be having indirect competitors? For instance, video rental stores indirectly compete with theaters, even though they are different types of businesses. How will your products or services compare with the competition?
5. Products or Services: What are you selling? In this section, describe your service or product, emphasizing the benefits to potential and current customers. For example, tell them why people would prefer one-stop shopping for planning a party rather than arranging for a food, florist and Master of Ceremony. Describe in depth your products or services (technical specifications, drawings, photos, sales brochures, and other bulky items belong in Appendices).
What factors will give you competitive advantages or disadvantages? Examples include level of quality or unique or proprietary features. What are the pricing, fee, or leasing structures of your products and services?
6. Marketing and Sales: This section deals with how to market your products or services with the best positioning and to forecast your sales. Marketing is the process of creating customers and customers are the lifeblood of your business.
In this section, you should first define your marketing strategy–how you will penetrate the market, strategies for growing your business, channels of distribution strategy (distributors, retailers), and your communication strategies-how you are going to reach the customer.
It would be a combination of promotions, advertising and public relations. Will you have a sales force? How many sales calls will you make over a certain period of time?
7. Management and Organization: This section should include your company’s organizational structure, details about ownership of your company, profile of your management team, and the qualifications of your board of directors.
It should present the management and personnel who will run the show. Who will manage the business on a day-to-day basis? What experience does that person bring to the business? What special or distinctive competencies will set that person apart? Is there a plan for continuation of the business if this person is lost or incapacitated?
If you’ll have more than 10 employees, create an organizational chart showing the management hierarchy and who is responsible for key functions. Include position descriptions for key employees. If you are seeking loans or investors, include resumes of owners and key employees.
8. Operations: Explain the daily operation of the business, its location, equipment, people, processes, and surrounding environment. How and where are your products or services produced? What qualities do you need in a location? Describe the type of location you’ll have (amount of space, type of building).
Is it important that your location be convenient to transportation or to suppliers? What will be your business hours? How many employees will you hire and what type of labour does it demand (skilled, unskilled, and professional)? Where and how will you find the right employees? How will you determine their pay structure?
9. Funding Requests: In this section, you need to talk about the amount of funding you need to start or expand your business. Include your current and future funding requirements. How would you get these funds- will you take a loan? If yes, for what period? How will you use the funds? Will you use it for capital expenditure or acquisitions?
Make sure you include any strategic information related to your business that may have an impact on your financial position in the future, say going public with your company or being acquired by another company. This is extremely important to future creditors, since it would directly impact your ability to repay the loan.
10. Financials: In this section, you need to write about prospective financial data. Creditors will want to see what you expect your company to be able to do within the next few years. For the first year, you should supply monthly and quarterly projections. After that, you can stretch it to quarterly and/or yearly projections for 2 years through say 5 years.
Each year, the document should include forecasted income statements, balance sheets, cash flow statements, and capital expenditure budgets. Make sure that your projections match your funding requests: creditors will be on the lookout for inconsistencies. Include a short analysis of your financial information.
How long should your business plan be?
A useful business plan can be any length, from a scrawl on the back of an envelope to more than 100 pages. A typical plan is about 15-20 pages. The purpose plays a big role in defining the length of the plan.
If you want to use your plan to seek funding, you may have to do a lot of explaining and convincing. If you are going to use a plan for your own purpose, then an abbreviated version should be fine.
Don’t try to spend a lot of time in coming up with the perfect plan. As George S. Patton said, “A good plan today is better than a perfect plan tomorrow”
Presentation
“There's no second chance to make a good first impression,” is highly appropriate when it comes to your business plan and its overall appearance. It should be neat and have an impressive presentation. Use current desktop publishing to make your business plans look more professional.
Have your figures checked by an accountant and the text proofread by an editor or proofreader. An accurate and systematically organized text conveys professionalism and is much more likely to be regarded as credible.
Very often, this step is forgotten. Despite all the work that has gone into creating an impressive presentation, typos, missing words, poor sentence construction, and figures that don't add up become a significant part of the first impression made on a reviewer.
Important Points to Remember
An accurate and systematically organized text conveys professionalism and is much more likely to be regarded as credible.
Don't necessarily try to balance the material from section to section. Place your emphasis in the proper perspective and accent the features that are most important for your business.
Always include a cover letter with your business plan, because it may get passed on to other staff members who won't know about your venture
As pictures speak louder than words, include graphs and charts where appropriate.
As Earl Nightingale said, “All you need is the plan, the road map, and the courage to press on to your destination.”
Chillibreeze's disclaimer: The views and opinions expressed in this article are those of the author(s) and do not reflect the views of Chillibreeze as a company. Chillibreeze has a strict anti-plagiarism policy. Please contact us to report any copyright issues related to this article.
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—About our writer:
Kirti says, "There are no uninteresting things and I am interested in reading, watching television, hindi movies, and meeting people. I am engineer by profession, mother by choice, blessed with great family."
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