How to Write a Business Plan
How to write a business plan! You’ve decided to start a business. The excitement level is high. It’s something you’ve always wanted to do. All the experts say “you have to have a business plan!” Perhaps that’s why the first research most entrepreneurs undertake is how to write a small business plan. This article will help you gain an understanding of the process and help you to frame how you’ll go about creating your plan.
Ten or fifteen years ago a business plan was a comprehensive research document with 50 – 100 pages or more. You could expect to find exhibits and schedules packed in the back of the document and an executive summary in the front. The executive summary typically comprised about 15 pages.
Today, a small business plan is more like an executive summary, about 10 – 15 pages in length. It’s hard to say exactly when or why the transition occurred. Some say entrepreneurs didn’t have the skill set, desire or inclination to write research papers. Others say bankers and investors didn’t like to read them. Probably both are correct. Let’s answer that question about how to write a business plan right now!
What is a Business Plan?
Your business plan must contain four main sections, listed below. Guidelines on how to write each section of the business plan follow.
- Introduction of Your Business
- Sales and Market Potential
- The Management Team
- Financial Projections
How to Write a Business Plan: Introduction
Probably no aspect of how to write a business plan is more important than the introduction. The introduction of your business plan is the ‘new’ executive summary. This brief section has to be the hook that compels the reader to press on and read the rest of the plan.
Being able to write an introduction that hooks the reader will require that you have thoroughly thought through the essential elements of your business plan. The key to writing an introduction that will grab the attention of an investor or banker, is succinctly describing a business idea that answers the five main questions on their minds. Those questions are:
- What problem does your business solve, or what need does it fill?
- Who will you solve it for?
- How many are there with the problem or need?
- Based on that number of people, what is the dollar potential of the business?
- What makes you qualified to start this business?
Notice how closely the numbered questions above follow the bullet point outline of the business plan. The introduction gets straight to the point, bypassing all the details. Strive to answer each of the five questions above in no more than two to three sentences each. Then read your introduction and ask yourself, “Does this business idea sound exciting to me?” After all, you are the first person that must be sold on your business plan.
How to write a Business Plan section for Sales and Marketing.
In addressing how to write a business plan, the text below uses some examples based on restaurants. These examples are meant to be easy to follow. The thinking behind the examples can easily be mapped over to your line of business.
In the introduction of your business plan you already defined the problem your business will solve and how many people have that problem. A full assessment of your sales and market potential must also take into account the competition. Depending on the nature of your business, you might need to think of competition more broadly than businesses that are exactly like yours. Italian restaurants compete with Chinese restaurants.
For virtually any type of business you can find some metric on the consumption of that type of product or service. For example, let’s say that we find the average per household spending on restaurants is $2,325 per year. With a little additional effort you can easily make your number more precise by factoring in the average household size and income in your area. Then find industry statistics that take those numbers into account. Multiplying the average consumption per household by the number of households in your addressable market will tell you the market potential for all restaurants in your market.
Given the power of the internet, it’s equally easy to determine how many competitors you have in your market. Simple math would help you determine the average revenue per business. Finally, you would need to take into account why your business should be expected to do more or less than the average.
Using this type of thinking you’ll gain a clear understanding of the potential of your business while also ensuring that your business plan doesn’t project revenue that is out of line with what the market can support.
How to write a business plan section for your management team.
Businesses are nothing more than a group of people executing a plan. It’s important that the people be well matched to the plan. Think of a basketball team. The game plan is very important. The people executing the plan are equally or more important.
The management team section of your business plan needs to make the case that you have all the right people for the key positions. Your team must include individuals who know the customers and how to sell to them. Your team must also include individuals who know how to manufacture, procure or deliver the products and services you plan to sell. Most importantly, your team should include individuals who know how to run a business. When you are writing your plan, not everybody ‘on your team’ has to be ‘on your payroll.’ You can surround yourself with advisors who will mentor you through the early phases of your business. Include these people, with their permission, in the team section of your business plan as advisors or mentors.
How to write a business plan section for your financial statements.
When future business owners think about how to write a business plan, the financial projections section is where many need to reach for outside assistance. Even if you need to do so for your final numbers, make the effort to pencil out your expected revenues and expenses on a monthly basis for the first 12 months. Ultimately, your business plan should include 3 – 5 years of projections. If you decide to work with an outside source to help create your financial projections, be sure to work closely with them. In the end there are two things that are important. The financial forecasts must reflect what is written in the rest of your business plan. Secondly, even if they were created by someone else, as the future business owner, you should go over them carefully until you understand them thoroughly and intuitively.
Your business plan will need to include the following financial statements:
- Startup Costs
- 3 Year Income Statement
- Cash flow statement
For example financial templates for each of the items above, visit the following links on the Small Business Plans website: