How to write a business plan | part two
Last week I shared part one of my tips on how to write a business plan. In part two, I am going to cover how to structure and present your business plan.
As I mentioned in part one, I find the easiest way to start is to just write down everything you know about your business in short sentences or bullet points. Once you have done this you can start to structure your plan into smaller sections and fill in the detail.
At a higher level I find the most effective structure to be:
This should be a one-page summary giving potential investors and stakeholders an idea of what is to come. It is important to entice them in at this stage, make your business as exciting as you know it is. Include financials, key achievements to date, market opportunity and crucially you should be able to succinctly explain what you do, how you make money and who your customers are.
In this section you should cover in more detail what your idea/business is and what you plan to do.
What impact will your business have on the market and what kind of sales do you plan to generate? This section should clearly discuss the demand that exists for your product/business and should be backed up with evidence. How can you prove that there is a need or want for what you are doing? Have you surveyed your customers to find out if they want to buy what you are selling? Have you launched a minimum viable proposition and proved that your business works? Even if you are at the very early stages of writing a business plan and launching a business, having qualitative as well as quantitive data to back up what you are saying goes a long way. You can easily set up a short survey using SurveyMonkey or host a series of focus groups to get feedback on what you are planning to do. The aim of the game is to de-risk your proposition as much as possible.
Accomplishments To Date
What are the key milestones you have achieved so far? Completing this section can be really daunting if you are a relatively new company. You may feel like you’ve not really achieved anything but I promise you, you will! Have you built a team? Are you working with any influential advisors? You may have won awards, established a social media following, secured key stockists or achieved growth on your previous years’ activity. All of these are achievements and should be noted here.
For more established companies the above still all applies but a large focus should be on turnover, growth, customers and if applicable profit.
In this section you can also cover any investment your company has had to date.
Put simply, how do you make money? In this section you should cover in more depth the channels you make money from, i.e. retail sales, wholesales or commission, your average order value from each channel, the geographies of your sales (%UK, %US, %ROW) and also the margin.
This may seem really simple for some but I have found that lots of people, particularly if you haven’t ever had to manage a corporate budget or finances before don’t know how to calculate their margin. Your Gross Profit margin is your sales minus the direct cost of generating those sales (i.e. if you have to buy stock) you Net Profit margin is sum left after all of your other costs have been deducted (i.e. staff, office space etc.).
To keep things simple I would keep the Gross Profit in the business plan and leave the Net Profit for the financials as this often fluctuates seasonally and requires some explanation.
Use of Proceeds
If you are using this business plan to raise investment, either from the bank or from another source such as VCs or Angels, then you need to be able to clearly explain how you are going to use the money.
I recommend sticking to concise bullet points as it can be easy to waffle on in this section about your grand plans when really all an investor wants to know is what you are going to do with the money, how and why.
Market | Who is your Customer?
In this section I find it best to give as detailed a profile as possible on your target customer segments. This information should go beyond purely the demographic and include lifestyle choices. Consider covering things like how your customers consume their media, how and where they travel to, how they spend their free time (and how much free time they have), as well as other brands your customer purchases from. A great way to find out this information is to include these as questions in a survey sent to your current customers or potential customers via social media. You will then have the data to back up what you are saying.
Market | Characteristics
This section should cover the more generic aspects of the market and landscape of the industry you are working. Fundamentally, what is the size of your market and what is the growth trajectory? It is useful to have this information backed up by a white paper or industry verified source. The office of national statistics is a good place to start for generic facts and figures.
To summarise, this section should cover the highlights of a separate marketing strategy document. What are your key channels for reaching, acquiring and communicating with potential customers? How do you plan to utilise each channel to reach the sales targets you have set out? Do you have any campaigns you plan to launch to do this?
The key here is not to say you don’t have any competitors because unless what your doing is completely new as that is highly unlikely. Acknowledge your competitors, their strengths and weaknesses, and clearly explain how your business is better and different to what is currently available on the market.
Arguably the most important parts of the business plan are often found at the back. The final two sections should cover Team and Financials.
Who is in your team? What experience have they had before and what do they bring to the table? Don’t forget to include yourself as a business owner/CEO/Director too – you need to be able to convince investors that you are the best person to be captain of the ship.
This can be difficult if you are a new business or a sole trader and feel like you are in it alone but believe me you aren’t. Accountants, communities of other like-minded entrepreneurs, advisors and mentors can all count towards being part of your team.
To really go into any depth about how to go about creating a financial model for your business really requires another post but for now let me say that this section for me is definitely the part I dislike the most. As a natural marketer, I find it easier to tell the story than to crunch the numbers. However it is critical that you know these numbers and your financial story inside out and be able to explain your finances in detail. When I was running my own business, I knew this was my weakest area so I made a point of setting aside a week to go through my numbers with my accountant and mentor in fine detail so that I could clearly explain them in my business plan or when asked.
Depending on whether or not you are planning to raise funding, I would suggest to be on the safe side and forecast the next 3 financial years turnover and prepare a profit and loss account for these years.
Top tip: Don’t just make these numbers up based on what you think sounds good! Do calculations based on past experience and turnover. Work out the number of customers you plan to reach and what their average order value is likely to be. If you are an online business, how much traffic will your marketing strategy drive to your website? What is the conversion rate you can expect in your industry (then half it to be on the safe side)? All of this will help you calculate and justify your financials.
Have you got any tips for writing a business plan for fellow entrepreneurs? Please leave them in the comments below.