What to Consider When Creating a Winning Business Plan
What to consider when creating a winning business plan
The act of creating a business plan shifts a mere idea into a working strategy. A well thought out business plan is paramount to the success of such ideas where the business plan is the basis of bringing in investors and laying out the steps for profit.
The business plan details what the company’s status, current needs, and its prospects. It must portray the company in an honest manner whilst also being attractive to the intended target audience. The plan must present the company’s current financial projections, demands from prospective buyers and explain past and present major structural decisions made by the owner.
Because they struggle so hard to assemble, organise, describe, and document so much, it is not surprising that managers sometimes overlook the fundamentals. We have found that the most important one is the accurate reflection of the viewpoints of three constituencies.
1. The market, including both existing and prospective clients, customers, and users of the planned product or service.
2. The investors, whether of financial or other resources.
3. The producer, whether the entrepreneur or the inventor.
What should a business plan include?
1. Problem
A problem is an unmet or underserved need of people you have observed. Your business is relevant because you propose to meet this need.
For example, Netflix in its budding days identified a problem with video stores. It was time consuming and inconvenient to go to the video store every time you felt like watching a new movie. Ensure you are constantly addressing this issue as it is fundamentally central to how your business will operate.
Ask yourself:
• What do I sell or offer? Why?
• To whom do I sell?
• What is the history of the business?
• What is my vision for the future?
• What is different about the services I offer?
• What is the legal structure of the company?
2. Solution
Here, you bring out your business idea that will solve the problem you had highlighted above. Your product and/or service is immediately justified because of the problem you had introduced to the audience beforehand.
Again, looking at Netflix, the company initially solved the problem of time consumption and inconvenience by delivering movies directly to customers’ homes.
Defining the problem you are solving for your customers is by far the most critical element of your business plan and crucial for your business success. If you can’t pinpoint a problem that your potential customers have, then you might not have a viable business concept.
To ensure that you are solving a real problem for your potential customers, a great step in the business planning process is to get away from your computer and actually go out and talk to potential customers. Validate that they have the problem you assume they have, and then take the next step and pitch your potential solution to their problem. Is it a good fit for them?
Once you have described your target market’s problem, the next section of your business plan should describe your solution. Your solution is the product or service that you plan on offering to your customers. What is it and how is it offered? How exactly does it solve the problem that your customers have?
For some products and services, you might want to describe use cases or tell a story about a real user who will benefit from (and be willing to pay for) your solution.
3. Business Model
A business model highlights how your organization will create and capture value or make money. You will need to provide details like production costs, selling costs, pricing strategy and distribution channels, among others.
Consider the example of YouTube. YouTube’s business model hinges on users who by and large engage on the platform for free. YouTube leverages this ever-increasing user base to attract advertisers, which provides revenues.
4. Market Analysis
The market analysis includes a qualitative and quantitative evaluation of a particular group your business will target. You should include the size of the said market, regulatory considerations and customer segments along with their respective buying powers and patterns.
Think about your industry and what you think the future trends will be. Then analyse your competition. Determine what size of the market they hold and then clearly define where you fit into the mix.
For example, Swedish furniture brand Ikea’s US target market could be described as urban young professionals who like Scandinavian style and are willing to put in a little set up work themselves to save money on quality furnishings. These individuals spend, on average, $8,000 on furnishing when they move into a new home or apartment.
5. Competitor Analysis
In this section, identify your main competitors, who could turn into competitors with time and what differentiates you from them.
Take the example of coffee giant Starbucks. Their competitor analysis would yield large brands like Dunkin’ Donuts, Panera Bread and McDonald’s McCafé, as well as boutique coffee shops on a neighborhood by neighborhood basis. Starbucks differentiates itself through providing specialty coffee products of consistent quality under a national brand.
6. Financial Projections
Strong financial projections include an income statement, a cash flow statement and a balance sheet. These detailed spreadsheets will not fit into a one-page business plan. Instead, simply include one or two graphs that illustrate the crux of your financial projections.
This is often what entrepreneurs find most daunting, but it doesn’t have to be as intimidating as it seems. Business financials for most startups are less complicated than you think, and a business degree is certainly not required to build a solid financial forecast. That said, if you need additional help, there are plenty of tools and resources out there to help you build a solid financial plan.
A typical financial plan will have monthly sales and revenue forecasts for the first 12 months, and then annual projections for the remaining three to five years. Three-year projections are typically adequate, but some investors will request a five-year forecast.
Following are details of the financial statements that you should include in your business plan, and a brief overview of what should be in each section.
Sales forecast
Your sales forecast is just that—your projections of how much you are going to sell over the next few years.
A sales forecast is typically broken down into several rows, with a row for each core product or service that you are offering. Don’t make the mistake of breaking down your sales forecast into excruciating detail. Just focus on high-level buckets at this point.
For example, if you are forecasting sales for a restaurant, you might break down your forecast into these groups: lunch, dinner, and drinks. If you are a product company, you could break down your forecast by target market segments or into major product categories.
Your sales forecast will also include a corresponding row for each sales row to cover the Cost of Goods Sold, also known as COGS (also called direct costs). These rows show the expenses related to making your product or delivering your service. COGS should only include those costs directly related to making your products, not regular business expenses such as rent, insurance, salaries, etc.
For restaurants, it would be the cost of ingredients. For a product company, it would the cost of raw materials. For a consulting business, it might be the cost of paper and other presentation materials.
Income statement
Your income statement, also known as the profit and loss (or P&L), is where your numbers all come together and show if you’re making a profit or taking a loss. The P&L pulls data from your sales forecast and your personnel plan and also includes a list of all your other ongoing expenses associated with running your business.
The P&L also contains the all-important “bottom line” where your expenses are subtracted from your earnings to show if your business is making a profit each month or potentially incurring some losses while you grow.
The most common income statement items include;
• Sales (or income or revenue): This number will come from your sales forecast worksheet and includes all revenue generated by the business.
• Cost of goods sold (COGS): This number also comes from your sales forecast and is the total cost of selling your product. For service businesses, this can also be called the cost of sales or direct costs.
• Gross margin: Subtract your COGS from your sales to get this number. Most profit and loss statements also show this number as a percentage of total sales (gross margin/sales = gross margin percent)
• Operating expenses: List all of your expenses associated with running your business, excluding the COGS that you already detailed. You should also exclude taxes, depreciation, and amortization. However, you do include salaries, research and development (R&D) expenses, marketing expenses, and other expenses here.
• Total operating expenses: This is the sum of your operating expenses.
• Operating income: This is also known as EBITDA, or earnings before interest, taxes, depreciation, and amortization. This is a simple calculation where you just subtract your total operating expenses and COGS from your sales.
• Interest, taxes, depreciation, and amortization: If you have any of these expense streams, you will list them below your operating income.
• Total expenses: Add your operating expenses to interest, taxes, depreciation, and amortization to get your total expenses.
• Net profit: This is the all-important bottom line that shows if you’ve made a profit, or taken a loss, during a given month or year.
Cash flow statement
The cash flow statement often gets confused with the profit and loss statement, but they are very different and serve very different purposes. While the P&L calculates your profits and losses, the cash flow statement keeps track of how much cash (money in the bank) that you have at any given point.
The key to understanding the difference between the two statements is understanding the difference between cash and profits. The simplest way to think about it is when you make a sale. If you need to send a bill to your customer and then your customer takes 30 or 60 days to pay the bill, you don’t have the cash from the sale right away. But, you will have booked the sale in your P&L and shown a profit from that sale the day you made the sale.
Balance sheet
The last financial statement that most businesses will need to create as part of their business plan is the balance sheet. The balance sheet provides an overview of the financial health of your business. It lists the assets in your company, the liabilities, and your (the owner’s) equity. If you subtract the company’s liabilities from assets, you can determine the net worth of the company.
What should a business plan look like?
Appearance
The binding and printing must not be sloppy; neither should the presentation be too lavish. A stapled compilation of photocopied pages usually looks amateurish, while bookbinding with typeset pages may arouse concern about excessive and inappropriate spending. A plastic spiral binding holding together a pair of cover sheets of a single colour provides both a neat appearance and sufficient strength to withstand the handling of a number of people without damage.
Length
A business plan should be no more than 40 pages long. The first draft will likely exceed that, but editing should produce a final version that fits within the 40-page ideal. Adherence to this length forces entrepreneurs to sharpen their ideas and results in a document likely to hold investors’ attention.
Background details can be included in an additional volume. Entrepreneurs can make this material available to investors during the investigative period after the initial expression of interest.
The Cover and Title Page
The cover should bear the name of the company, its address and phone number, and the month and year in which the plan is issued. Surprisingly, a large number of business plans are submitted to potential investors without return addresses or phone numbers. An interested investor wants to be able to contact a company easily and to request further information or express an interest, either in the company or in some aspect of the plan.
Inside the front cover should be a well-designed title page on which the cover information is repeated and, in an upper or a lower corner, the legend “Copy number______” provided. Besides helping entrepreneurs keep track of plans in circulation, holding down the number of copies outstanding—usually to no more than 20—has a psychological advantage. After all, no investor likes to think that the prospective investment is shopworn.
The Executive Summary
The two pages immediately following the title page should concisely explain the company’s status, its products or services, the benefits to customers, the financial forecasts, the venture’s objectives in three to seven years, the amount of financing needed, and how investors will benefit. It is arguably the most important section in the entire business plan.
This is a tall order for a two-page summary, but it will either sell investors on reading the rest of the plan or convince them to forget the whole thing.
Most executive summaries include:
• Mission Statement
• Company history and leadership
• Competitive advantage overview
• Financial projections
• Company goals
If investors don’t like your Executive Summary, they won’t read any further, so this section is critical.
Concisely describe what your business does and what market need it solves. Of critical importance, describe your “unique success factors,” which are the 4-7 reasons why your business will be successful.
The executive summary of your business plan introduces your company, explains what you do, and lays out what you’re looking for from your readers. Structurally, it is the first chapter of your business plan. And while it’s the first thing that people will read, I generally advise that you write it last.
Why? Because once you know the details of your business inside and out, you will be better prepared to write your executive summary. After all, this section is a summary of everything else you’re going to write about.
Ideally, the executive summary can act as a stand-alone document that covers the highlights of your detailed plan. In fact, it’s very common for investors to ask for only the executive summary when they are evaluating your business. If they like what they see in the executive summary, they’ll often follow up with a request for a complete plan, a pitch presentation, and more in-depth financials.
Because your executive summary is such a critical component of your business plan, you’ll want to make sure that it’s as clear and concise as possible. Cover the key highlights of your business, but don’t into too much detail. Ideally, your executive summary will be one to two pages at most, designed to be a quick read that sparks interest and makes your investors feel eager to hear more.
The Table of Contents
After the executive summary include a well-designed table of contents. List each of the business plan’s sections and mark the pages for each section.
Even though we might wish it were not so, writing effective business plans is as much an art as it is a science. The idea of a master document whose blanks executives can merely fill in—much in the way lawyers use sample wills or real estate agreements—is appealing but unrealistic.
Businesses differ in key marketing, production, and financial issues. Their plans must reflect such differences and must emphasize appropriate areas and deemphasize minor issues. Remember that investors view a plan as a distillation of the objectives and character of the business and its executives. A cookie-cutter, fill-in-the-blanks plan or, worse yet, a computer-generated package, will turn them off.
Write your business plans by looking outward to your key constituencies rather than by looking inward at what suits you best. You will save valuable time and energy this way and improve your chances of winning investors and customers.
The SWOT Analysis (strengths, weaknesses, opportunities, threats)
A good business plan will not only identify ways to make your business idea work, it can also help you identify reasons why your idea might not work so you can address them before you invest time and money. After which you would need a force field analysis – for each issue identified in your SWOT analysis, identify the positives and negatives of each issue and the actions you will take to address the issue. Investors are interested in not only what problems may arise, but more importantly how you can tackle them and in the best way possible. Using internal and external data, the technique can guide businesses toward strategies more likely to be successful, and away from those in which they have been, or are likely to be, less successful. Independent SWOT analysts, investors, or competitors can also guide them on whether a company, product line, or industry might be strong or weak and why.
Strengths
Strengths describe what an organization excels at and what separates it from the competition: a strong brand, loyal customer base, a strong balance sheet, unique technology, and so on. For example, a hedge fund may have developed a proprietary trading strategy that returns market-beating results. It must then decide how to use those results to attract new investors.
Weaknesses
Weaknesses stop an organization from performing at its optimum level. They are areas where the business needs to improve to remain competitive: a weak brand, higher-than-average turnover, high levels of debt, an inadequate supply chain, or lack of capital.
Opportunities
Opportunities refer to favourable external factors that could give an organization a competitive advantage. For example, if a country cuts tariffs, a car manufacturer can export its cars into a new market, increasing sales and market share.
Threats
Threats refer to factors that have the potential to harm an organization. For example, a drought is a threat to a wheat-producing company, as it may destroy or reduce the crop yield. Other common threats include things like rising costs for materials, increasing competition, tight labour supply. and so on.
How Do You Write a Good SWOT Analysis?
Creating a SWOT analysis involves identifying and analysing the strengths, weaknesses, opportunities, and threats of a company. It is recommended to first create a list of questions to answer for each element. The questions serve as a guide for completing the SWOT analysis and creating a balanced list. The SWOT framework can be constructed in list format, as free text, or, most commonly, as a 4-cell table, with quadrants dedicated to each element. Strengths and weaknesses are listed first, followed by opportunities and threats.
Setting up your business plan
Here at Company123, our expert team will combine their two decades of business and legal experience to assist you in creating your Business Plan once you fill in the form on our website.
We offer a range of bespoke Business Plan options:
Standard Business Plans
At $199, we offer plans that are perfect for any basic business development goals.
Our Standard Business Plan includes:
Key Activities
Key Resources
Value Propositions
Market Analysis
Cost Structure
Revenue Streams & Sales Forecasts
These standard plans can be the first step in applying for more financing, assisting with rental lease applications, outlining your company's mission statement and drawing up business projections.
Advanced Business Plan
At $399, we offer plans that are highly tailored to achieving all financing ambitions.
Our Advanced Business Plans includes:
Executive Summary
Company Description
Market Analysis
Organization & Management
Service/Product Line
Marketing & Sales
Funding Request
Financial Projections
The advanced plans are perfect for business loan applications, sale of business and raising finance
Professional Business Plan
Our most comprehensive and robust business plan includes, and can include by discussion with our expert team, absolutely anything needed for the running and future goals of the company.
Our Professional Business Plan includes:
Plan Summary
The Business
The Market
The Future
The Finances
The Business
Business Details
Registration Details
Business Premises
Organization Chart
Management & Ownership
Key Personnel
Product/Service
Innovation
Insurance
Risk Management
Legal Consideration
Operations
Sustainability Plans
The Market
Market Research
Market Targets
Environmental/Industry Analysis
Your Customers
S.W.O.T Analysis
Your Competitors
Advertising & Sales
The Future
Vision Statement
Mission Statement
Goals/Objectives
Action Plan
The Finances
Key Objectives & Financial Review
Assumptions
Start-up Costs
Balance Sheet Forecast
Profit & Loss Forecast
Expected Cash Flow