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The Step By Step Guide To Writing A Business Plan From Scratch

Publish Date: 13 Dec 2019

Your business plan is very important. It outlines what your company does, the values you follow, what you are aiming to achieve, and how long it will take you to reach your goal. If you have found an opportunity in the market, explain what makes your business special in that niche and put it on paper. It is easier to see as a potential investor, bank manager, or business owner, whether a business will be a success if they have a well thought out and structured business plan.

Does having the greatest business plan in the world make your startup success inevitable? Unfortunately not. However, planning objectives and developing processes could be the difference between failure and success. By doing these things you have set goals to achieve, given yourself a road map on how to get there, and you know what it looks like once those goals are reached. That is why a great business plan is a staple of success for your company.

The following step by step guide will tell you the pitfalls to avoid and key concepts to take under review. We will start with a broad overview of topics to consider then dive into each section of a typical business plan.

  • Executive Summary
  • Mission Statement
  • Company Description
  • Service or Product
  • Organization and Management
  • Market Analysis
  • Marketing and Sales
  • Funding requests
  • Financial Projections
  • Appendix

 

How long should a business plan be?

For some reason people think a business plan needs to be a long complex document outlining every inch of your company. The trend is changing, these days we need to go back to the fundamentals, with good projections and solid market analysis. Formatting is more important than ever, easy to read and understand should be what you think of most when writing, my best advice is to keep it simple and straightforward.

Don’t confuse simple wording and formats with simple and lazy thinking. The reason you are keeping the plan simple isn’t because you haven’t developed your idea properly, it’s because you want to get your point across as quickly and as easily as possible. Here are some more specific ideas when trying to simplify your business plan.

  • Use short snappy sentences, long and complex wording can mislead people from the meaning of the text.
  • Jargon is good, if you tell people what it means, you might know that ROI means Return On Investment, but others may not.
  • Try to convey information in bullet points, they are easier to digest. But flesh them out with brief explanations when needed.

A general rule of thumb is: If your business plan is over 40 pages you probably haven’t summarized as much as you could.

 

When should you begin writing a business plan?

If you can get a full business plan written proofed and placed into action before you start your first days trade that would be perfect but it is not necessary. Most people write a business plan when they need financial help from banks or investors, this is because they want future predictions for assurance purposes. The other main reason for writing a business plan is if you are going to take on an employee. If you want to take on employees it is important they know the businesses values and goals, as well as their role in day to day tasks. This is where a business plan can help, by outlining what your goals are, and describing what you want from your staff, you can organise jobs relating to their departments.

Let's dive into the major aspects of a business plan and how they should be formatted.

 

Executive summary

The summary is where you introduce your ideas. Make sure your executive summary covers these main questions.

  • What niche/sector are you in?
  • Who is your main target audience?
  • What products or services do you provide?
  • How is the company scaleable?
  • What does the future of your sector look like? Is it growing or is there a problem you can solve?
  • Who are the owners of the company and what experience do they have?
  • Why are you starting the company and what is motivating you?

By answering these questions you are giving the reader a snapshot of your business and how you will compete in the niche.

 

Mission statement

This is probably the most important part of your plan, it shows the world what your goals are and how you want to achieve them. You and your team should share values that keep you focused towards the same goal.

Your mission statement should include your goal and the objectives that will lead you toward it; your industry, how you see it evolving in the short and long term, and who your customers are. Your mission statement also says who you are, and talks about the strengths of you and your team. This is where you, in part, sell the features and benefits of your company.

 

Company description

This section provides a snapshot of your small business. It contains important information including its registered name, address of any physical locations, names of key people in the business, history of the company, nature of the business and more details about products or services that it offers or will offer.

 

Service or product

This is a business plan, it’s important to list the cost of products or services you provide.

  • How much does it cost to produce? And how much will you sell it for?
  • Do you include packaging for the product?
  • How do you distribute the product? How can the customer purchase the said product?
  • What systems will you use to bill the customer?
  • Are there any extra costs to deliver the product or service? How will it be transported?

This section should also differentiate your new business. You need to find out what makes your business different, how does your product or service solve a problem and what gives it an edge in the market. Most importantly what distinguishes it from your competitors?

 

Organisation and management

In this section you should include a hierarchical chart of your company and how the operations we talked about above flow through it. List the positions and briefly describe the functions of each integral member of your business, including but not limited to: board of directors, advisors, technical specialists, accomplished salespeople, accountants, and lawyers.

Once you have a base you need to plan for expansion. Your workforce will grow and you need to reflect this growth in your financial plan, discuss any plans you have to increase staff wages with success of the company, or how you want to build new departments.

Our related article: 5 Tools That Will Make Your Business More Efficient

 

M1 Finance

 

Market analysis

Moving further along describing the process of how to write a business plan, your next step is to perform an in-depth analysis of your industry, market, and competitors. Whereas the first two sections were high-level overviews, this section is where you’ll start to get into the details.

The purpose of the market analysis section is to allow readers and investors to come away feeling confident that you, the business owner, have a solid understanding of the dynamics of your industry, market, and competitors.

These next bullet points might be what makes or breaks your company, the more you know about your industry, the better you will understand how to maximize profit.

  • Industry description: Give the reader a look into your industry. Describe how big it is, how it’s grown in the past, how industry leaders predict it will grow in the future, and other important trends and characteristics. Then, list out the important players in your industry.
  • Market characteristics: Who are the customers in your target market, and what are their needs? Who is currently trying to serve those needs? Where is your target market located? What’s the key demographic you’re serving? These are the questions you should be answering as you give in-depth information on your target market.
  • Target market size and growth: You should also give readers a look into how big your target market is. Try to give as much data as possible into how your target market makes purchases in the overall industry—how many, how often, and at what time of the year. Once you’ve looked into the current state of your target market, give a sense of the projected growth of your market. You can reference the SBA’s guide for more information on how to conduct market research to get these numbers.
  • Your market share potential: Now that you know what your target market looks like without you, what will it look like with you? How much market share do you expect to gain in your targeted geographic area?
  • Market pricing: By conducting this market research, you can give the best estimate of where you should be pricing your products, how you should distribute your product, and how you can get ahead with promotional strategies.
  • Competitor research: Now that you’ve looked into your target market as a whole, you can narrow in on your top competitors. Look at their market share, strengths and weaknesses, any barriers they present, partnerships, and so on.

 

Marketing and sales

This is simply an explanation of what your marketing strategy is and how you will execute it. Here, you can address how you plan to persuade customers to buy your products or services, or how you will develop customer loyalty that will lead to repeat business. This section can also highlight the strengths of your business and focus on what sets your business apart from your competition.

You should also include ideas about your market position and how you plan to expand your brand. How do you plan on promoting your company, advertising campaigns and public relations? Describe how your sales force will work, will it be automated? Who will organise the operation? How big should your team be? Finally you will have to develop a selling strategy. Give an overview of how you will sell your product or service. Will you be cold-calling people or attending sales meetings in person? If you sell to the general public, will you sell online? From a store? Or house to house?

 

Funding requests

If you’re a startup, you may not have much information on your business financials yet. However, if you’re an existing business seeking small-business loans, you’ll want to include income or profit-and-loss statements, a balance sheet that lists your assets and debts, and a cash flow statement that shows how cash comes into and goes out of the company.

You may also want to include ratios that highlight the financial health of your company. These would include:

  • Net profit margins.
  • A debt to equity ratio to show your ability to pay off loans.
  • Accounts receivable to turnover ratio to measure how well you collect outstanding invoices.

 

Financial projections

This is a critical part of your business plan if you’re seeking financing or investors. It outlines how your business will generate enough profit to repay the loan or how you will earn a decent return for investors.

Here you will provide tables and graphs of monthly or quarterly sales, expenses and profit estimates over at least 5 years. Your future estimates should be proofed by your partners or an accountant to make sure they are realistic. You also want to include any loan or investment income you will receive in these figures.

Your projections are not only important for generating income from investors, it is important for you as a goal or assurance your business will succeed. You want to show a strong enough cash flow to cover any regular debt or future expenses. But you should make multiple cash flows taking into account different risk factors such as market shift or increase in raw materials used in your product.

 

Appendix

List any supporting information or other additional information that you couldn’t fit in elsewhere, such as resumes of key employees, licenses, equipment leases, permits, patents, receipts, bank statements, contracts, and personal and business credit history. If the appendix is long, you may want to consider adding a table of contents at the beginning of this section.

 

The annual update

Updating your plan at least once a year is vital to make it meaningful. You should be adjusting financials, making new projections, and building new avenues to explore. You will be starting with an old plan and revise, but make sure you distance yourself from the crowded forest and take a fresh look.

Talk to your customers to review your value proposition. What are they buying? What problems do you solve for them? What else can you offer? And are you valuing yourself correctly? All of these questions will help you determine how you are performing, what your current position is in your niche, and where you want to go next.

The last thing you should do is to look beyond your market, to develop problem solving procedures or products that you can use to expand your reach and build your business into a multi-functional corporation.

 

The bottom line

Now you have a step by step guide to writing a business plan all you need to do is go and write it.  Plus, you not only know how to write one, but it is also one that’s complete, comprehensive, and hopefully, effective.

As we mentioned earlier, although writing a business plan might seem overwhelming at first, it can be much more manageable if you take it one step at a time. After all, this is going to be the road map that your business uses and continues to refer to as you progress, and therefore, you should make sure that you give it the time and attention it needs.

 

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