Basics of Writing a Business Plan

This may be used during a workshop on Business Plans or Entrepreneurship in general.

This can be used during any course in entrepreneurship combined with adequate

theoretical inputs.

A business plan is a written description of your intended business. This is where you put

down what you intend to do and how you intend to do it. Sometimes you may also add

‘why’ you want to do it too. Business plans can help perform a number of tasks for those

who write and read them. They’re used by investment-seeking entrepreneurs to convey

their vision to potential investors. They may also be used by firms that are trying to

attract key employees, prospect for new business, deal with suppliers or simply to

understand how to manage their companies better. Putting you goals and ideas down on

paper helps you organize your thinking. Your employees and other stakeholders

understand what you plan for the business and it helps keep the organization focused on

the big picture. Simply stated, a business plan conveys your business goals, the strategies

you'll use to meet them, potential problems that may confront your business and ways to

solve them, the organizational structure of your business (including titles and

responsibilities), and finally, the amount of capital required to finance your venture.

Preparing a business plan can be a time-consuming and daunting task. However, the

one should get down to it and start composing a business plan.

1. Decide why you're writing your plan

• Raising money

• Clarifying the company’s future

• Launching a new venture

• Searching for partners

• Plotting against the competition.

• Recruiting

Whatever your reason, the business plan will serve its purpose better if it is spelt out in

the very beginning

2. Study business plans

Before accumulating mountains of research and information, take a look at other business

plans. Your goal is to get a feel for what a business plan is, what it isn't and what to

expect from your business plan. With this new insight, prepare an outline that includes

the major sections and subsections that you believe should appear in your business plan.

3. Collect Information

Dig through every computer file, box and file cabinet you have to unearth the information

that's already available to you. You'll surprise yourself with what you find and with how

nicely this step will move you forward. Consider marketing pieces you've prepared, press

releases, related articles, industry journals, historical financials, important web sites and

notes or ideas you've accumulated over time. Don't rate the quality of this information -

just gather it. At this point quantity is the name of the game, and the more you can find

the better.

4. Put it down on paper

Start typing thoughts, ideas, words, questions and to-dos into each section of your

business plan outline. Put rough thoughts on paper and empty your brain. Don't worry

about complete sentences or proper grammar - just type. Approach this step like a

brainstorming session, the more powerful the storm, the more potent your business plan.

Jot down any ideas that demand further consideration, areas that present a challenge and

topics that require the input of others. Strive to place your thoughts in the most

appropriate section of your business plan outline and rearrange the outline if it will be

more logical for your readers.

5. Prepare your rough draft.

Now it's time to take your outline, the information you've got handy and your

brainstormed ideas and shape them into a useable rough draft. Move through your entire

outline, section by section and begin writing complete sentences and paragraphs. As you

work, start a To-Do List to keep track of topics that require in-depth research, statistics or

back-up information. Go through your draft several times, revising lightly as you go.

Your plan should be rather sparse, but when you've completed this step, you've truly

made progress.

6. Its research time

Now is the time to think like a lawyer and build a case for your business plan. Your goal

is to compile information and research to support the claims and assertions you make in

your plan. In short, talk to anyone and everyone that might be able to help you collect

information for your business plan. This is when you also decide which sections of your

business plan get highlighted more. It should be those sections, which help present your

case in better light.

7. Start thinking about the numbers. It is advisable to begin developing your pro-forma

financial statements at this point. If you prepare your financial statements at this stage,

your numbers have a much better chance of matching and supporting the text in the body

of your business plan. For example, if you mention a specific advertising medium in your

marketing section, you'll need to include the corresponding costs somewhere in your

financials.

8. Write a final draft and finish the numbers

Finishing is probably the hardest part. Make sure you have included all you want in the

business plan. Check the language and the spelling. Make sure it is systematic and not

haphazardly put together. Even small errors can leave a negative impression and in many

cases your business plan is the first chance significant business associates have of getting

to know you and your business

9. Set a deadline

To ensure that you complete your plan, set a deadline for yourself that you can't ignore.

We suggest calling a few people you respect to ask if they would be willing to read your

plan and offer suggestions. Make this arrangement with someone whom you are not

particularly close with, possibly a professional acquaintance, so it's more difficult and

uncomfortable to call and delay. Ask for feedback and make it clear that honesty is what

you are after. Record their feedback, evaluate what they have said and if necessary, make

the changes.

10. Polish your plan to perfection

The comments you receive from your readers will help you to beef-up the sections of

your plan that need attention. Track down any additional information you may need,

incorporate the ideas that your readers offered and clarify sections or points that were not

clearly conveyed. Put together an appendix if necessary, create a clean cover page and

table of contents and include a non-disclosure form. Lastly, prepare a one-page executive

summary that encapsulates the highlights of your entire business plan and place it up

front. A business plan consists of the following sections:

1. Executive summary

2. Business description

3. Market strategies

4. Competitive analysis

5. Design and development plan

6. Operations and management plan

7. Financial factors

EXECUTIVE SUMMARY

Clearly state what you’re asking for in the summary. The statement should be kept short

and businesslike, probably no more than two pages. Often the potential investor will

decide to read the rest of the business plan only if he likes the summary. In some cases,

the summary is all that the investor will read of the business plan. Within that space,

you'll need to provide a synopsis of your entire business plan.

Key elements that should be included are:

1. Business concept: Describes the business, its product and the market it will serve. It

should point out just exactly what will be sold, to whom and why the business will hold a

competitive advantage.

2. Financial features: Highlights the important financial points of the business including

sales, profits, cash flows and return on investment.

3. Financial requirements: Clearly states the capital needed to start the business and to

expand. It should detail how the capital will be used, and the equity, if any, that will be

provided for funding. If the loan for initial capital will be based on security instead of

equity, you should also specify the source of collateral.

4. Current business position: Furnishes relevant information about the company, its legal

form of operation, when it was formed, the principal owners and key personnel.

5. Major achievements: Details any developments within the company that are essential

to the success of the business. Major achievements include items like patents, prototypes,

location of a facility, any crucial contracts that need to be in place for product

development, or results from any test marketing that has been conducted.

BUSINESS DESCRIPTION

Begin with a short description of the industry. When describing the industry, discuss the

present outlook as well as future possibilities. You should also provide information on all

the various markets within the industry, including any new products or developments that

will benefit or adversely affect your business. Base all of your observations on reliable

data and be sure to mention sources of information. This is important if you're seeking

funding; the investor will want to know just how dependable your information is, and

won't like to risk money on assumptions or shaky data. When describing your business,

the first thing you need to concentrate on is its structure. By structure we mean the type

of operation, i.e. wholesale, retail, food service, manufacturing or service-oriented. Also

state whether the business is new or already established. In addition to structure, legal

form should be reiterated once again. Detail whether the business is a sole proprietorship,

partnership or a limited company, who its principals are, and what they will bring to the

business. You should also mention who you will sell to, how the product will be

distributed, and the business's support systems. Support may come in the form of

advertising, promotions and customer service. Once you've described the business, you

need to describe the products or services you intend to market. The product description

statement should be complete enough to give the reader a clear idea of your intentions.

You may want to emphasize any unique features or variations from concepts that can

typically be found in the industry. Be specific in showing how you will give your

business a competitive edge. It could be a better service, a wider range, better after sales

or a host of other things.

MARKET STRATEGY

Market strategy is a result of meticulous market analysis. A market analysis forces the

entrepreneur to become familiar with all aspects of the market so that the target market

can be defined and the company can be positioned in order to garner its share of sales. A

market analysis also enables the entrepreneur to establish pricing, distribution and

promotional strategies that will allow the company to become profitable within a

competitive environment. In addition, it provides an indication of the growth potential

within the industry, and this will allow you to develop your own estimates for the future

of your business. Begin your market analysis by defining the market in terms of size,

structure, growth prospects, trends and sales potential. Once the size of the market has

been determined, the next step is to define the target market. The target market narrows

down the total market by concentrating on segmentation factors that will determine the

total addressable market--the total number of users within the sphere of the business's

influence. The segmentation factors can be geographic, customer attributes or product-oriented.

For instance, if the distribution of your product is confined to a specific

geographic area, then you want to further define the target market to reflect the number of

users or sales of that product within that geographic segment. Once the target market is

detailed, the total feasible market needs to be defined. It’s important to understand that

the total feasible market is the portion of the market that can be captured provided every

condition within the environment is perfect and there is very little competition. In most

industries this is simply not the case. There are other factors that will affect the share of

the feasible market a business can reasonably obtain. These factors are usually tied to the

structure of the industry, the impact of competition, strategies for market penetration and

continued growth, and the amount of capital the business is willing to spend in order to

increase its market share. For a market plan, you need to estimate market share for the

time period the plan will cover. While doing so you need to consider the projected growth

of the market and the expected conversions from the competitors. Here you must also

discuss the pricing of your product. Pricing strategy and computation will have to be

mentioned in detail Distribution includes the entire process of moving the product to the

customer. The type of distribution set up chosen will depend on the structure of the

industry and the size of the business.

Various promotional plans will have to be initiated over a period of time. You will have

to list your choices and give the reasons to go ahead with them. You may decide to have

advertising campaigns, seasonal discounts or improved packaging.

COMPETITOR ANALYSIS

The purpose of the competitor analysis is to determine the strengths and weaknesses of

the competitors within your market, strategies that will provide you with a distinct

advantage, the barriers that can be developed in order to prevent competition from

entering your market, and any weaknesses that can be exploited within the product

development cycle You can start to analyze their strategies and identify the areas where

they’re most vulnerable. This can be done through an examination of your competitors'

weaknesses and strengths. A competitor's strengths and weaknesses are usually based on

the presence and absence of key assets and skills needed to compete in the market. You

can also look at the reasons behind successful as well as unsuccessful firms this involves

defining the elements. According to theory, the performance of a company within a

market is directly related to the possession of key assets and skills. Therefore, an analysis

of strong performers should reveal the causes behind such a successful track record. This

analysis, in conjunction with an examination of unsuccessful companies and the reasons

behind their failure, should provide a good idea of just what key assets and skills are

needed to be successful within a given industry and market segment. Strategies primarily

revolve around establishing an endurable competitive advantage that will set your

product or service apart from your competitors or strategic groups. You need to establish

this competitive advantage clearly so the reader understands not only how you will

accomplish your goals, but also why your strategy will work.

OPERATIONS AND MANAGEMENT PLAN

The operations plan will highlight the logistics of the organization such as the various

responsibilities of the management team, the tasks assigned to each division within the

company, and capital and expense requirements related to the operations of the business.

In fact, within the operations plan you'll develop the next set of financial tables that will

supply the foundation for the "Financial Components" section. This section will describe

the operational procedures, manufacturing equipment, level of production required,

locations, licensing and other aspects related to providing the product or service. The

organizational structure of the company is an essential element within a business plan

because it provides a basis from which to project operating expenses. This is critical to

the formation of financial statements, which are heavily scrutinized by investors;

therefore, the organizational structure has to be well defined and based within a realistic

framework given the parameters of the business.

Four stages for organizing a business:

1. Establish a list of the tasks using the broadest of classifications possible.

2. Organize these tasks into departments that produce an efficient line of communications

between staff and management.

3. Determine the type of personnel required to perform each task.

4. Establish the function of each task and how it will relate to the generation of revenue

within the company.

Once you've structured your business, however, you need to consider your overall goals

and the number of personnel required to reach those goals One of the most important

elements of your business plan is the section describing the experience, qualification and

skills of you and your management team. The investors want to feel confident that you

will be able to handle the various challenges in running the business and you need to

assure them of that.

FINANCIAL STATEMENTS

The three common financial statements are the cash flow statement, profit and loss

account and the balance sheet. Together they can give a very accurate and revealing

picture of the enterprise. You may need to give the projected financial statements for the

next three years and in case your firm is an existing one you will need to give past years’

financial statements too. All the three statements are interlinked with changes in one

affecting the others. The profit and loss statement is the scorecard that tells how much

money does the business earn over a given period of time. The cash flow statement is an

information tool telling how much cash is needed to meet obligations, when will it be

needed and where is it coming from. The balance sheet is a summary of all the financial

data giving a macro view of the company at a given point of time. In addition to these

statements, you may find it prudent to include a break even analysis and a pay back

schedule. Break – even can be calculated on sales volume, capacity utilisation or

sometimes as time till break – even. Additionally, an NPV or IRR calculation indicates

the envisioned continued fair state of the business.