Writing a business plan may seem like a struggle to a new business, after all, it can be seen as an administrative burden. In this ultimate guide we review how to write a business plan, what it should include and why it is important.
Writing a business plan as a new business is a solid foundation when starting out. A business plan will give you an overview of many aspects of the business and what you should achieve throughout what can be a challenging first year in business. Given this, the answer is generally yes.
Writing a business plan can be a challenging process, but the rewards are great. Remember to break the business plan into smaller, manageable pieces, instead of trying to attack it all at once.
This depends on the complexity of the business itself. Some business plans can be put together in a couple of days. Others may take many more sittings. It should be an iterative process, not viewed as a task to simply “get done”.
A business plan even when not seeking investment is still a worthy investment of time. It will structure all pivotal elements of your business into a succinct document and give you a great grounding for your first year.
Generally, after the first year, a business plan turns into an annual plan as it is assumed the business has become viable.
There are many businesses that will support in structuring, writing and articulating your value proposition and competitive advantage into a business plan, as well as marrying this to a structured P&L and go to market strategy.
The Executive Summary is the very overview of your business, it should give the reader a true feel for what you are doing, what you hope to achieve in your first year and what financials you expect to return in the first year.
Remember, the executive summary should be written last, but is the first thing you or anyone else reviews when coming back to your business plan.
Include in your executing summary:
Keep this short and to the point, this is simply the legal standing of the business, do research into why you want to set up as which type of company and simply state the legal structure. For example, if a LTD company, who the shareholders are and what structure that is under.
A very quick overview of the work found later in this document of why you do you what you do, what it is you offer and how you deliver this. This will be covered in the document, but also becomes your value proposition to customers.
Keep this to the point, covering the headline numbers.
– Year one turnover
– Annual outgoings
– Return on sales
Set out the structure of your business, who will own it, what share they will have and what type of legal entity it will be. For support in trying to understand what this means, review the UK Governments blog on choosing the right business structure. This gives a great overview of what the different legal structures are available and which to use when.
One thing we always try to understand about our customers is the Why, What and How, for more information on defining this, take a look at this incredible (and now infamous) video from rightly lauded business thought leader Simon Sinek.
We always include a list of key personnel, even if it is just the entreprenuer. Don’t forget to write why the key personnel are in the business and how they contribute to the business.
Define your typical customer, what do they look like and where can you find them? A few pointers on this include reviewing:
If you have existing experience of selling to this customer type, it is always of benefit to outline your experience in this sector. Perhaps you have worked with these customer types for another business, or maybe you have started selling already to this type of customer.
Perhaps you have different product offerings for different market segments, for instance – you may offer a one of fee for one customer segment, whereas another segment may be on a subscription service. If this is the case, ensure you outline the varying segments and offerings to each.
What is the purchasing trigger for your customer? This will help in aligning marketing to your customer requirements and where to focus for new business.
Market research can be conducted through desk and primary research to understand the market that you are looking to interact with. Thinking of your customers and services, try to articulate.
This doesn’t need to be geographical closeness, think about your value proposition, what competition is there from a this perspecitve also? What are these competitors doing well, what could be improved on? A good tool to use for this is known as a SWOT analysis. Think about your competition in terms of their:
Where are the competition doing well, what elements of their business do you think are positive and what can you use as part of your Why, What and How.
Are there elements where your competition not doing so well, is their marketing not targeting a specific segment to their full potential, or not at all, can you improve on this? Think of how to target these weaknesses to your benefit.
What opportunities do the market positioning of your competition present to your business?
Are there any threats your competition could offer in the future and how can you mitigate this?
One thing we see a lot of in early businesses is not nailing a brand personality to the mast early on. Making some of the marketing messaging seem somewhat incosistent, or ‘lopsided’. A good information piece to understanding brand personality is from Trendjackers – where the below image is from also. This demonstrates potential dominant brand personality traits a business can use.
Another truly excellent brand personality website and one we use for our customers is Brand Personalities AU – you can purchase the personality test on their site, which will give you a huge amount of detail and is a fun process to go through and at £21 (at time of publishing as it is in AUD) – isn’t a silly amount of investment by any means.
The overarching marketing strategy should align elements of your Why, What and How, your market research and your competitor information to a strategy to focus and gain new customers. This will include the following elements.
Where are you going to focus marketing, will it be in a bricks and mortar establishment, will you be marketing through an e-commerce website, on amazon, through eBay? Consider whether you will spend money on Google ads, joining accreditation companies, or local chambers of commerce.
Remember not all marketing has to happen straight away, when will you phase these elements of marketing, is a website more important than Google My Business? Conversely, does Google My Business come before eBay selling, doubtful, but these are considerations you will need in your business plan.
Put together the budgeting for each element of the marketing plan, what will it cost to market your business at the rates outlined in the business plan? If the revenue isn’t coming through, what is the first to be removed from the plan, if revenues increase, what elements of the marketing budget would be increased?
This element is one that entreprenuers always seem to shy away from, but it is one of, if not THE most important part of the business plan. This should be given a monthly breakdown as well as a unit breakdown of sale price, which can be done whether you are selling hourly, daily or weekly consultancy such as we do, or toothpicks.
Tally together all of your fixed costs and run them through a document on when they will fall, for example insurances will generally fall once a year, whereas rent, or website hosting may be monthly. Remember fixed costs are ones that exist in the business and do not change depending on how many units you sell.
Variable costs change depend on how many units you sell, so for example, a variable cost will be the material for your toothpick machine, or travelling to a clients site for consultancy services. For a simplistic business, I will usually pool all variable costs into a unit margin calculation and then pull through the number of units sold into the overall business plan by month against fixed costs.
Once you have these projections, pull it all together to deliver a profit for the business. It is at this stage that we usually look at avenues to draw down the funds from the business, depending on legal structure.
We always advise new business owners to take care with these numbers, but not to try to make them too complex. When we put together financial projections, we draw on years of experience and financial training to outline the models in the fullest we can. In a new business, this is not always absolutely required and bad financials that are poorly done and overly complex can be worse than simple numbers without over complication.
Writing a business plan takes time, effort and dedication, but you will get benefit in doing so. Remember it isn’t a sprint simply to have it done, but a living document you should rely on into running your business.
Don’t just write a business plan and forget about it, use the business plan to keep your business on track. Have a customer driving your price down, model it through your financials, does it sit within the tolerance of what your business can afford. Wondering if your value proposition aligns correctly to your customers, re-visit your market research. The business plan can act as a steadying force during times of hard work when running your business, because running a business is hard work.
Once you have written a business plan, for the next year, you may want to progress into an annual plan. This is particularly useful once your business has matured and the foundational work for the business has been established. You can read our guide on writing an annual plan here.