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How to Write a Business Plan

Every management team should know where it is taking the business, and how it is going to get there.
This is the purpose of the business plan.

This tutorial outlines the key issues to consider when putting together a ‘typical’ business plan.
Depending on the scope of your plan, you may need to omit, expand or combine certain sections.

A primary aim of any business plan is to set out the strategy and action plan for the business for the next one to three years(sometimes five years).
It explains your objectives and how you will achieve them.
By involving your employees in the complete planning process, you continue to build up a successful, committed team.

Priorities are identified. Non-priorities are discarded, saving precious time.
Once written the plan is a benchmark for the performance of the business.
The act of writing the plan helps you crystallise and focus ideas, and identify your priorities.

Content of the plan
Base the plan on detailed information where possible. But do not include all the detail in
the plan. Leave the detail for operational or marketing plans.

A Keep the plan short. 
• Focus on what the reader needs to know. 
• Cut out any waffle. 
• Put any substantial information, such as market research, in an appendix. 
Detailed business plans are often quickly shelved, because they are difficult to use on
an ongoing basis.

B Base your business plan on reality, or it may be counter-productive.
• Over-optimistic sales forecasts can lead to increased overheads followed by a
cashflow crisis and drastic cost-cutting.
• Be realistic, even if you are selling the business to a third party. 
Financiers, business partners and employees will see through over-optimistic plans that
ignore weaknesses or threats. Management credibility can be damaged.

C Make the plan professional. 
• Put a cover on it. 
• Include a contents page, with page and section numbering. 
• Start with an executive summary.
This summarises the key points, starting with the purpose of the business plan. 
• Use charts, if relevant.

D Even if the plan is for internal use only, write it as if an outsider was the reader
• Include company or product literature as an appendix. 
• Give details about the history and current status of the business. 
Show the plan to friends and expert advisers and ask for comments.
Which parts did they not understand?





THE SECTIONS:

1 Company information
- This section details basic information about your business and who to contact with any queries


2 Introduction
A The Business
Describe your business and how it currently operates

B History
Explain the history of the business. 
• When did it start trading and what progress has it made to date? 
• Who owned the business originally?

C Mission Statement
This is an overriding reason to exist objective statement for the business 

D Development
Outline the likely future development of the business. 

E Key business objectives
List the key objectives of the business over the timescale of this plan and how they will be measured 

F Current Shareholdings
What is the current ownership structure?

G Purpose of the Plan
Be clear about what the business plan needs to achieve
This can include: 
• Raising bank or equity finance. 
• Disposing of a business. 
• Attracting new senior management. 
• Attracting business partners, such as distributors and agents.
The plan may need to be tailored to the target audience. For example, your bank manager


3 Resources
A The Management Team/Workforce
A brief resume of the key members of the management team is usually whats included here
Set out the structure and key skills of the management team and the staff. Identify any areas of deficiency, and your plans to
cover this weakness. 
Specific issues such as the personal track records of the directors may need to be addressed. Ask the intended recipient first.
Be realistic about the commitment and motivation of the workforce. Consider how you would survive the loss of a key worker
Note any unusual upward pressure on remuneration.
Spell out any plans to improve or maintain motivation such as share option schemes.
Analyse the workforce in terms of total numbers and by department. Compare the efficiency ratios with competitors, or with
similar industries.

B Premises/Operations
Analyse the capacity and efficiency of your operations, and the planned improvements.

• What premises does the business have?
• What is the capacity of the current facilities compared with existing and forecast demand?
• What are the long-term commitments to property? 
• What are the advantages and disadvantages of the present location?
• Should the business move or expand its premises?
• What production facilities are there and how is production organised? 
• How modern is the equipment?


C Management Information Systems
What management information systems are in place? 
• Are they reliable? 
• Can they cater for any proposed expansion?
A financier would be very concerned if management information systems were
inadequate. Management of a business is always limited by the quality of the information available.

Information technology (IT) is a key strength (or weakness) of almost any business these days.
The reliability of your IT and the development of IT systems to help your business are usually important issues.
Identify any quality or regulatory standards that the business must conform to (eg ISO 9000 or CE approval).

D Recruitment and Training
Explain your recruitment and training plan,including timescales and costs.
If your business is growing, recruitment (and training), IT and finance are probably three of the many
areas which you are consistently replanning.

4 SWOT - This is often done as a team brainstorming exercise with a whiteboard available
A Set out a one-page analysis of strengths, weaknesses, opportunities and threats.

• Strengths might include brand name,quality of product, or management. 
• Weaknesses might be lack of finance, or dependency on a few customers.
• Opportunities might be increasing demand or a competitor going bust.
• Threats might be a downturn in the economy or a new competitor.

B Be honest about your weaknesses and the threats you face.
Spell out mitigating circumstances and the defensive actions you are taking.

5 Marketing and selling

A Customers

Describe the nature and distribution of existing customers.
• Do they fit the profile of the chosen
market segment? If not, why not? 
• Is there a heavy concentration of sales
around one or two large customers?

B The market

Define the market in which you sell. Focus on the segments of the market in which you compete.

• How large is each market segment? 
• What is your market share?
• What are the important trends, such as market growth or changing tastes?
Explain the reasons behind the trend. 
• What are the key drivers affecting each important market segment?
For example, an ageing population for nursing care, or a weakening pound for exporters.
• What is the outlook for those drivers and the market? 

C USP's
Where do you position your product or service in the market place? 
• Is it high quality and high price?
• Is it marketed as a specialist product due to a particular feature? 
• What unique selling features does it have?

D Competitors
Outline the principal competition. 
• What are the competing products or services? Who supplies them? 
• What are the advantages and disadvantages compared to your own?
For example, price, quality, distribution. 
• Why will customers buy your product or service instead?

E Market Research
Outline the results of any market research you have carried out.

F Advertising and Promotion
How do you promote your product or service? 
Each market segment will have one or two optimum methods. For example, direct marketing, advertising or PR.
If you are considering using a new method, start on a small scale.
A failed investment in marketing can be costly
How do you do your selling?
Analyse the cost efficiency of each of your selling methods. For example, telesales, a
direct sales force, through an agent or over the Internet.
Include all the hidden costs of the direct sales force, such as management time.

6 Business and Products
A Products/Services 
Describe what your product or service is. Avoid technical jargon if possible. 
In general, what makes it different?
What benefits does it offer? What are its disadvantages?
What are the planned developments?

B Stock holding policy
Detail your stock holding policy
eg to maintain stocks at current levels (equivalent to 10 days sales on average) replenishing subject to constraints of delivery lead times
& optimal batch sizes & to take full advantage of appropriate volume discounts. 

C Pricing
What is your pricing policy? 
• Explain how price-sensitive your products are. 
• Look at each product or market segmentin turn.
Identify where you make your profits and where there is scope to increase margins
or sales. Set your pricing accordingly

D Distribution

Through what channels do you reach your end user? For example, one manufacturer of
kitchenware might reach the customer via a wholesaler and then a variety of retail
chains. Another might use mail order, or sell ‘off the page’, through advertisements.
Compare your current channels with the alternatives.
Note the distribution channels used by your competitors.
Look at the positive and negative trends in your chosen distribution channel.

7 Assumptions
This section records key information needed in the model such as
• start month and start year
• VAT status
• Method of spreading interest - This can be straight line or a reducing balance method called 'sum of the digits' by Accountants 



Financial performance
You will need a Financial Section of Your Business Plan
Your financial forecasts translate what you haves said about your business into numbers.

A If available, set out the historical financial information for the last three years.
Since this model is geared to startup businesses it may well be that this section is not relevant. 
• Break total sales figures down into component parts
For example, sales of different types of product or to different types of customers.
• Show the gross margin for each component of sales. List what costs are included as direct costs for each component. 
• Show the movement in the key working capital items of stock, trade debtors and creditors.
Use ratios such as stock turnover (in months), debtors period (in days), and creditors period (in days). 
• Highlight any major capital expenditure made in the period. 
• Provide an up-to-date balance sheet, and a profit and loss account. 
• Explain the reasons for the movements in profitability working capital and cashflow.
Compare them with industry norms.

B Provide forecasts for the next three years.
This model is designed to provide the necessary schedules
• Month by month Profit & Loss accounts for the business in both statutory and management account format
• Month by month Cashflow Forecasts for the business in both statutory and management account format 
• Month by month Balance Sheets for the business in both statutory and management account format
• Summary Year on Year performance and Business Ratios or Key performance indicators

Preparing a Cashflow Forecast

A month by month cashflow forecast aims to predict the monthly cash movements from a given set of sales and profit assumptions. 
It takes into account VAT and credit days given to customers and taken from suppliers as well as accruals and prepayments. 
A prepayment arises for example where rent is paid quarterly in advance and expensed to the P&L account monthly. 
The sales template in the model allows you to enter debtor days, % Cash and VAT % for each line of sales. 
The sales template in the model allows you to enter creditor days , % Cash and VAT % for each line of cost of sales. 
The Expenditure template allows you to enter a VAT % for each line of expenditure 
Eg 60 days would mean customers pay you on average 60 days after invoicing 
Eg 50% Cash would mean that 50% of the sales are cash sales 
Eg 100% VAT would mean that 100% of that category of sale attracts VAT at 17.5% 
In the P&L account income and expenditure is expressed as net of VAT in the period to which it was invoiced or to which it relates 
In the cashflow forecast income and expenditure is included as the amount paid or received including VAT in the period in which it paid or received. 
The model takes account of the above and forecasts income and expenditure in the cashflow on the above basis