Colobus What goes into a business plan?

What goes into a business plan?

Sometimes clients ask us for guidance on how to write and what to include in a business plan.

Some people think a financial model or financial projections are the business plan. They’re not. Your business plan is a written document. It should include summary information from your financial model but they’re not the same thing. Your business plan describes your plan for achieving your objective, so either before you start or during the preparation but certainly before you finish, you need to know where you want to get to.

Your business plan needs the following sections:

1. Executive Summary

A concise overview of your business, short and as well written as possible, the summary should draw readers in. Write this last. It’s the most important bit and should include:

your business name
your location
the products or services you sell and
the purpose of the plan (Are you raising money? Is it for internal target setting and monitoring?)

2. Company Description

This needs to contain an overview of your business. Write down who you are, how you operate and your goals and include:

Your legal structure (limited company, LLP, partnership)

The nature of your business, how long you’ve been in business, what customer needs you meet

An overview of your products or services, your customers and your suppliers

If you are trading, summarise your financial performance to date: revenues, gross margin, net asset value and, if there are any highlights (e.g. awards), describe these too

A summary of your short (1 year) and medium (2–5 year) business goals

3. Products and / or Services

Describe what you sell. Use layman’s language and focus on customer benefits.

Include details of your product or service costs, and the profit expected from the sale of those products or services. If you can, include relevant pictures, images or diagrams.

Provide a detailed description of your product or service focussed on the customer benefits.

Describe the market benefits for your product or service and its competitive advantages. Identify the key competitors.

DO NOT say that your product has no competition. Even if you think this is true, other people and certainly investors or lenders won’t believe you. There is always the competition that a potential customer can simply hold on to their money.

Describe the product’s life cycle: Does it need constant investment? For example, do you make constant physical investments (as
in telecommunications) or constant development of your product (as with most software)?

Recurring revenue: Are your sales one-off or do you earn contractual monthly or annual revenue? What is it that ties your customers to you? Is it a contract or your service quality or your location? For example, supermarkets don’t bind us to them contractually but they build loyalty from the mix of price, quality, convenience and other benefits like offers and loyalty cards. By contrast, if you buy a car on finance, you’re contractually bound to the finance company for 3 or 4 years.

Cash flow from sales: Do you invoice in arrears or in advance? If your product or service takes time to deliver, for example a building project or a bespoke software project, can you invoice in stage payments or do you have to finance your work through to completion?

Barriers to entry: Do you have copyright, patent, or trade-secret protection for your business? These are competitive barriers to entry. If you have patented products or registered trademarks, include the patent references in an appendix.

Describe current and planned product development activity that may lead to new products or better services.

4. Market Analysis

Show your sector and industry knowledge and present conclusions based on reasoned market research. Taking care not to breach
copyrights of others, if you have relevant detailed market analysis, put it in an appendix.

Include an outline of targeted customer segments with information identifying each group. Explain whether you are targeting
consumers or other businesses. Are you B2C or B2B?

Include historic and projected market data for your products and services but put detailed analysis in an appendix.

Document your evaluation of your competitors, highlighting your strengths and weaknesses compared to theirs. You don’t care about their SWOT analyses but you do need to care about your relative position. If you’re seeking investment, this will show potential investors that you have thought about your competitive position but, in any case, thinking clearly about your competitive situation is always helpful.

5. Sales and Marketing Opportunities and Strategy

Describe your products and or services

Pricing and margins and

Contract length.

List your key customers and the length of relationship.

Summarise the marketing process, from prospecting for customers to concluding a sale.

Explain how the company functions, including the operations cycle (from acquisition of supplies through to production, delivery and collection of revenue).

Describe your operating hours and facilities. Are you 9 to 5 or 24/7? Do you need factories? Can you operate from serviced offices? Can your people operate effectively from home?

Are your products / services fully developed or is more development needed? Explain what further work is needed and, for example, how and where you will find staff.

6. Organisation and Management

Organisation Chart

Board members: If you’re seeking investment include brief CVs in Appendix. Investors will check LinkedIn and other social
networks so make sure your LinkedIn profiles are consistent with the CVs.)

Management team: Names, profiles, positions, responsibilities, experience.

If you can show that members of the board or your management team have previously delivered profit for investors, this is a big plus when seeking external investment.

Ownership (equity): names, % ownership, involvement

List advisers, NEDs, accountants, lawyers and bank.

7. Financials and Projections

Recent financial performance: income statement and balance sheets for the 3 most recent years

Current year projection

Forecast performance including income statement, balance sheets and especially cash flow for the next (at least) 3 years

8. Action Plan

Not necessarily for distribution to external parties but essential for management because without action we don’t get outputs.

In my experience, when I see a short, numbered action plan with tasks allocated to specific individuals, things are usually being done. By contrast, businesses which are less effective tend to have wordy wish lists and vague strategies not assigned to anyone in particular.

9. Length

Concise is better than long-winded. Try to make your business plan as concise as possible; 12–15 pages is ideal. You really need a working document rather than something that just sits on a shelf gathering dust.