The basics of a business plan

So you know you need to have one, but what exactly goes into a business plan? Whether you’re going lean or opting for something more detailed, there are some fundamental things you need to include.
Executive summary

This is the enticer – the entire plan, condensed into a page. As succinctly as possible, you’re covering why your business will be a success: what it does, the problem it’s solving, your target market, founding team and any big-picture financial projections or growth forecasts you might have. An external investor will read this page first – so you’ll want to make it compelling, otherwise they might not get any further.

Opportunity

Time to big yourself up a bit. This section should highlight the problem that your business will solve and include more detail on the people, or businesses, that you’ll be serving. It’s handy to put yourself in the shoes of the customer: what are their needs and what benefits will you and your business bring them? Showcase the competitive advantages you have here – that could be the location you’ve got, materials you plan on using, a founding team member with exceptional insight, or the knowledge you have of the sector.

Market analysis

Here's where research on understanding the dynamics of the market and your customer base comes in. Here you might include:

Data on the general size of your sector and specific trends you’ve noticed in terms of growth, new entrants or exits.

Competitor analysis – outlining who your main competitors are, their strengths and weaknesses, and how exactly you’ll stand out against them.

Your target market – the primary (and secondary) group of people you intend to sell to, and how you intend on reaching them.

This is the section where you demonstrate that the opportunity for your business exists in the market – and that you know how you’ll take advantage of it.

Company structure

Get those nitty-gritty details down. You’ll want to note when the business was formed, its address, intellectual property and what its legal structure is. Often this section will include an organisational chart to reflect the hierarchy of the team (assuming you have a hierarchy). Big up your team here – highlight people’s individual skills and what they’ll add to your business.

Financial plan

The fun part. All of that theory will mean little without the numbers to back it up – the idea here is to demonstrate that your business is financially viable, which is – of course – critical stuff. When you’re starting out, a lot of the numbers you’ll include here will be based on projections. Most financial plans make projections for three years. The basics to include are:

Sales forecast: a projection over three years, with the first year divided monthly.

Expenses budget: an estimate of how much it’ll cost to make those sales, divided into fixed costs (like rent and salaries) and variable costs (like promotional spend).

Cash-flow statement: a 12-month projection that shows estimated cash incomings and outgoings each month by using the sales forecast and expenses budget.

Projected balance sheet: a breakdown of all your assets and liabilities. For assets, that might mean inventory, equipment and outstanding invoices; for liabilities, that might mean unpaid invoices you owe or loan repayments.

Profit/loss statement: this takes into account your sales projections, expenses budget and cash-flow statement to reflect what you expect in profit or loss for each of the three years you’re projecting for.

Common mistakes

Here are a few reasons why business plans don’t make the grade to investors – or worse, play an active part in the business failing.

Too little detail on cash flow – highlight periods of shortage and ensure you can pay bills.

Unrealistic estimates of expenses you’ll incur.

A failure to articulate why you’ll use certain distribution channels to reach your customers.

The product description is too detailed, with overly technical language putting off readers.

The target market identified is too broad.

A lack of research when it comes to your competitors – and how your business will stand out from them.

Using out-of-date data for your customer or market research.

Not getting someone to read over it properly.

This article was first published in Courier’s How to Start a Business guide. To purchase the issue or become a subscriber, head to our webshop.

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