In this article, I explain how you write a business plan. I have simplified the process for you by:
- Outlining the main sections. A complete, robust business plan should address each section.
- Within each section, I list the questions commonly asked by investors.
In addition, I have provided freebies and templates to get you started right away.
I provide some tips on best practices as well as tips to help you tackle the business plan efficiently.
In the financial section, I provide some basic terminology to help you feel comfortable and develop a solid financial forecast.
For the complex parts of the business plan, I present real life examples to help you understand the purpose of that section.
You have come to the right place. Here we will teach you how to write a business plan step by step.
Who needs a business plan?
You may need a business plan if you are applying for a loan, searching for a business partner or looking for an investor. In Germany, we have seen some government agencies request a business plan, before granting permission to start a business.
Even if nobody is asking you for such a document, there are significant benefits to developing one anyways. Writing a business plan will force you to think about finances, accounting and marketing. This, in turn, may highlight gaps of your endeavour and inspire you to change your approach or product.
You have never written a business plan before, so how do you get started?
Grab a piece of paper, open a Word Document, or clean your white board. Jot down the basic sections of a business plan.
Click here to download our free template to write a business plan step by step.
If you want to offer a very high-level overview of your business, you can write a plan within an hour. Yes, that’s possible and here’s a Soundcloud by the $100MBA explaining how.
The 10 main sections of a business plan
1. Write an Executive Summary
In 7 – 10 sentences explain:
- How much capital do you need and if equity capital is being offered, how many shares in your company will you offer?
- What is your business? Explain the product and/or service you offer.
- Define your industry.
- If you have already started your business, when did you start it?
- What is current state of the business (general trend)?
- Where do you plan on growing it to? Be bold. Offer a 5 year trajectory.
Best Practice: Write your executive summary AFTER you have written the rest of your plan.
Essentially the executive summary should provide a high-level overview of the rest of the document. Once you know what the rest of the document states, you are ready to summarize it.
2. Present your Objective and Background
In 4 – 6 sentences describe the objectives of your company. Cover the following topics:
- What is the offering of your company and in which industry are you operating?
- Write what your projected goals for the next 12 months, 3 years and 5 years are.
- What is your vision?
In 4 – 6 sentences describe the how and when the company started. Be able to answer the following questions:
- How many months/years ago was the company was established?
- Define whether it is a new business or whether you have acquired it from a third party. Has any key personnel change taken place as a result?
- How did you originally fund the companies operations?
Tips for Women in Business: Be bold. Women are more likely to take a conservative approach to their business and don’t plan on growing big. They are more likely to focus on short-term plans with smaller endeavors. Change your approach.
3. Define your Business Environment
In this section you write about external factors that impact your business.
Example: You are starting a construction company with a focus on new homes in middle-class neighborhoods. An external factor that will significantly impact your business is changes in interest rates. High interest rates may discourage new home construction, leaving your business dry.
Business environmental factors to consider:
- Interest rate changes
- Currency changes (important if you are starting an import / export company)
- Changes in populations
- Employment rates
- Government changes in funding for health care, military spending or environmental causes
- Changes in duties / import tarifs
Tip: A clear definition of environmental factors that impact your business is an indication that you have knowledge of your field. Do not skip this section.
That said, don’t overdo it. Changes in population in California will not impact your plumbing company in Florida. Limit this section to 12 – 14 sentences.
4. Present your Products and/or Services
This section is likely the easiest section for most entrepreneurs to write.
To write a business plan step by step, you have to do more than just describe the product.
Here’s what you must cover in this section in 6 – 12 sentences.
- Define your product and/or service. Present the general gross margin of your product and pricing policy.
- Does the product already exist or is it in design or development stage? When will the product be market ready?
- Describe any planned changes to your offering. For example, your business is based on a mobile app, which you have acquired. Part of your plan is to drastically change the layout. This is important information for an investor to know as it my impact their decision.
- How is your product different from that of your competition? What makes it better? How is it inferior? This is a touchy question to ask, but an honest answer to this question will determine the proper next steps for you and your investor.
Best Practice: When writing your business plan, start with the product and services section first. This will be the easiest one for most entrepreneurs to write.
5. Define your Market
Describe the market landscape as it is today. Here are some questions you should be able to answer in this section.
- What is the geographic location of your market?
- Who is your customer?
- Share the size of the market.
- Explain the predicted growth of the market. You may have addressed parts of this in the environment section of your business plan.
- In case you already have customers, define how much business you currently do with them. What type of relationship do you have to your customers?
- Explain how you currently target your customers. Have you developed brochures or AdWords campaigns to increase exposure and acquire new customers?
- Is your business seasonal?
- What is your collection policy? How and when do customers pay you?
Example: A construction company may not get paid until a project is done. The development of a home may take several years, leaving the construction company an investors in a negative cash flow for an extended timeframe.
6. Discuss your Competition
Honesty and research is required to write this part of the business plan.
- List your competition: First, list your competitors BY NAME. If you know what percentage of the market each competitor holds, document it. How long has your competition been in business?
- Discuss differences between competitors. How do their products differ to one another and to yours?
- Describe what the “Key Value Propositions” are and chart the differences by competitors.
Example: Your product is a washer that uses 20% less electricity and 40% less detergent while costing 30% more than the competition.
7. Create your Marketing Plan
You have talked about your product, the market and explained who your target audience is. Now you need to define how you will reach your target audience then convert them to happy customers.
A good marketing plan includes:
- Explain your marketing channels. How will you reach your customer?
- Trade shows
- Advertising (online or print)
- Articles and press releases
- Direct selling (door-to-door)
- Direct marketing (via flyers or brochures
- Define your pricing strategy. Is pricing part of your marketing plan? Will the low price of the product sell itself (please never say this)? Will you be branding and pricing your product as a luxury item or commodity?
- Define your specific marketing plan. Some marketing plans and goals you may have could be:
- Reach out to 40 influencers per week.
- Distribute flyers to 5,000 residents per month.
- Implement an Adwords campaign with a reach of 3,000,000 viewers.
- Presenting at all trade shows within the next 3 months.
- Explain how you will monitor your marketing plan and goals.
- How frequently are you going to “check in” on your marketing tasks?
8. Present your Management Team
In this section you present all the key individuals who will run the business with you. A company is more likely to be successful if it is driven by highly qualified and experienced individuals. If you’re currently running the show on your own, indicate your hiring plan and what type of individuals you plan to hire.
Here are some items you should present about each person.
- Education level
- Years of experience in field
- Historical success with similar projects
- Strengths / weaknesses of individuals
Be prepared to talk about changes in your management team. To write a business plan, you should identify key gaps in your management team.
Example: You are launching a company based on a gaming app but do not have a marketing manager to promote your product. Therefore your business plan should indicate the current managerial gap and explain when you intend to hire the key individual.
In case key individuals of your management team will be leaving the company, indicate this projected change. But don’t end it there. Explain succession plans and how you will find new individuals to join your team.
How many key managerial individuals will your company hire in the next 12 – 24 months? Make sure these numbers are presented in your financial statement as well.
9. List your Business Resources
In this section of your business plan, you are expected to list the key assets of your company. This ranges from physical assets you own to key relationships with suppliers.
For each key asset, indicate:
- Quantity of asset on hand
- Description of asset
- Is the asset owned or leased?
- In case owned, value of asset.
Relationship with suppliers:
Do you have favorable terms and conditions with suppliers?
Other resources to fulfill customer requirements:
Do you need any other specific resources to satisfy customer requirements? Some examples:
- Team for packing and shipping orders.
- Key testing utility to pass regulatory requirements
- Permission/money to build on an existing patent
10. Create your Financial Plan
This is the section of a business plan that most have anxiety about. Consequently, it is the section that most don’t write enough in. Yet the financial plan just as vital as the product section of your business plan.
In order to write a business plan, you’ll need to become familiar with some key financial terms and documents.
- Capital: The monetary resource to purchase assets.
- Equity: Shares of a company
- Capital Structure: The distribution between debt (loans) and equity.
- Profit: The money left for the company once the cost of the product, sales commissions, employee salaries, marketing budget and administrative costs have been paid. In short: what is left after everything and everyone that needs to be paid has been paid.
- Profit margin: A percentage calculated as profit divided by the total sales of the company.
- ROI (Return on investment): A performance measure to evaluate the efficiency of an investment. Source: Investopedia.
- Forecast: A prediction (of the finances).
- Operating statement: Also known as an income statement. This table will define the income (sales and other earnings) and list all of the expenses which will derive the profit.
- Cash-flow statement: A financial document that will define the movement of cash – income or expenses.
- Accrual accounting: Under the accrual method of accounting, expenses and income are noted when they are incurred – not when the money actually flows in.
- Cash accounting: The opposite of the accrual method of accounting. Income and expenses are noted as money flows in and out.
- Liabilities: (Financial) responsibilities to others
What your financial plan needs to cover:
- Indicate which accounting method you have implemented (cash or accrual).
- What is source of your capital? What portion of your company will be financed through loans and what portion through equity?
- In case of existing loans and liabilities, provide a description of the structure of these loans. How long are the contracts? What are the interest rates?
- What will be the future source of capital? Do you plan on obtaining more loans? Will you be selling more shares of the company to raise capital?
- Provide a 5 year forecast of your income statement. Include up to 3 years of historical information, if your company has been operating that long already.
- Describe historical trends of your income statement.
- You provided a detailed marketing plan above. You also plan on hiring individuals. Make sure those numbers are reflected in your income statement forecast.
- Explain, in detail, how much funding you need. Do you need equity capital or debt? How will the money be used?
- Advanced: If you are offering shares of your company, what is the value of the company and how many shares are you offering?
- Three to five year forecast? It depends on the amount of capital you are trying to raise and who your audience is.
- Provide a 3 to 5 year cash flow statement. (Optional)
5 Year Net Income Forecast – How to write a business planFreebie: In our template, we offer an income statement template for your to use.
Click here to download our free template to write a business plan step by step.
Format of Business Plan
A Word document (or other equivalent type of software) is the recommended format for a business. If you are going to present to a group of investors, also prepare a PowerPoint presentation. The presentation should cover all of the sections of the business plan at a very high level.
Limit your PowerPoint presentation to bullets and key highlights.
Highlight all of the WOW factors:
- Does your product have a high margin? Highlight this.
- Do you have a phenomenal team?
- Do you have key strategic investors?
We hope you feel more comfortable in writing your business plan. Let us know what you thought of this post. We look forward to your comments!
How to write a business plan when you don’t know where to start