How to Write a Business Plan and Make Sense
How to Write a Business Plan – Business plan is the major ingredient in every business. Just as you will not start building a home without a workable design – that’s how you cannot bootleg any startup without a business plan. With the help of planning, you will go through all the necessary intricacies, challenges/problems about the business and the environment where you are.
It is in the course of planning that making and correcting mistakes is “okay”. It’s better to discover your lapses and errors on paper rather than after you have started. I guess you have heard this adage before: “The man that fails to plan plans to fail”.
In this article I will cover:
- Definition of a business plan
- Users of a business plan/ what type of business needs a business plan
- The Importance of a business plan
- The contents of a business plan /How to write a business plan
- The difference between a business plan and a feasibility study
Definition of a Business Plan
A business plan is a document that is prepared by a business entity to formally state and demonstrate its business operations, business goals for the future and how these goals will be achieved. This document acts as a template to guide the business in forging long term strategies and policies that will affect the daily running of the business. A business plan may be modified from time to time as conditions change and new possibilities or challenges emerge.
Simply put; a business plan is created to explain the vision you have for your business and to persuade others to help you achieve that vision. To be able to do this, your plan will need to convince others on paper that the concept of your business will be successful and that you have what it takes to compete with the current market and economic trends.
Who are the Users of a Business Plan / what type of business needs a business plan?
A business plan is for everyone who is in or wishes to venture into the world of business. So are you thinking of starting a business, revamp an existing business or you are a multinational company who wishes to expand to new territories – you need a business plan. A doctor, lawyer, graphic designer, farmer, dry cleaner, home teacher, etc. – A business plan is a “MUST HAVE” before you set out to build that your dream business.
A business plan is can be used to determine…..
- How much capital you will need to start your business.
- Your marketing strategy.
- Your targeted costumers.
- How many people you will employ?
- Who your major and minor competitors are.
- The trends and conditions that are impacting your business.
The Importance of a Business Plan
Whether you are just starting out, growing your business, or seeking outside help, a well drafted business plan is very vital for the success of your business. Some of the most important reasons you need a good business plan are listed below;
- It helps map future growth: By creating a business plan, it helps you better understand the business you are venturing into. This is because when you put your thoughts to paper, you can chart specific actions necessary to improve your business. A business plan can help foresee the future of your business and set specific objectives and goals along with the resources necessary to achieve such goals.
Once you can understand your business and the market better, you can then plan how best to operate within the market environment, thereby ensuring your long term success.
- It helps support growth and secure funding: Most businesses cannot survive for long without cash flow from investors hence cash flow from investors therefore business owners must seek external funding. These external sources would require access to the company’s recent income statement, along with an up to date business plan. When seeking investors, it is important that your business plan contains such information as why the investors would be better off investing in your business rather than leaving the money in their bank accounts, what the unique selling proposition for the business arising from the opportunity is and lastly, why people will part with their cash to buy from your business.
These help the investors feel confident in you and in the thoroughness with which you have considered future scenarios, thereby giving you a better chance for their investments.
- It helps in developing and communicating a course of action: A business plan helps a company access future opportunities and commit to a particular course of action. Once a good business plan is drafted, all other options are effectively marginalized and the company is able to focus on key activities. The plan can also assign milestones to specific individuals thereby helping management to monitor progress in the long run.
- It helps in managing cash flow: It is a fundamental requirement of every business to carefully manage its cash flow. This is simply because many businesses end up failing not because they are unprofitable but because they ultimately become unable to pay their debts as at when due.
To avoid this, a good business plan is necessary so as to monitor income, profits, expenditures, etc.
The Contents of a Good Business Plan /How to Write a Business Plan
A typical business plan should include the following:
- The Overview or Executive Summary of the Plan – The overview/executive summary is the first section of the document that prospective investors will read and therefore makes it an important part of the business plan. It should briefly describe the main points of your business, emphasizing the purpose and key features of the business and how the purpose will be achieved. The executive summary should be written in an interesting way because for many potential investors it will determine whether to continue reading the business plan or not.
The summary should cover:
- The business’s products/services, and the market it will serve.
- It should also highlight just exactly what would be sold, to whom, and why the business would hold a competitive advantage.
- State its expected turnover and profitability over a one or three years period.
- Indicate how much money that will be needed and the proposed sources.
- Description of the Business – In this section, you are to briefly describe the goals, vision and aspirations of the business. State who owns the business, have the business started or not, what were the reasons behind the launch of the business?
If the business is already running, then you will have to give the readers the current status of the business. This includes all relevant information and history on the business; when it was formed, its principal owner(s), business funding, its sales turnover, profitability, net worth (in the form of P/L account and Balance sheets), Its achievement and performance rates in comparism with competitors.
- Product or Service – In this section, you will describe the product or service that you selling or wish to sell. It is in this section that you will mention any unique features about the product (e.g. details of patent or copyright). In simply language, explain to the reader why customers will want to buy the product or service that you are offering….Include the advantages of them doing business with you…..could it be that your product is more economical, safer, easier, comfortable, faster, works better, closer, etc. Now is the time to showcase your product/service.
- The Market – In this section, you will also need to show that there is a group of people who will be more than willing to patronize your business.
Your market survey should also include:
- An outline of the research you have undertaken
- An estimate of possible demand of your product or service
- Estimated sales turnover.
- Your unique selling point.
- Who your competitors are and why your product/service will be preferable to theirs.
- Any barriers in entering the market – if so, what they are and how you intend to overcome them.
- Marketing Plan – As you have defined the goals of your business in the “overview” or the “description of business” sections. This section should show how you intend to realize your goals through the marketing objectives. You marketing goals should be measurable, doable and profitable.
- To sell 10000 birds (in the case of a poultry business) and generate N30000000 over the next 12 months.
- To reach a gross profit margin of 47% within the next 8 months.
- To capture 12% of the market within 6 months of operation.
- Product design and development – In this section, you are expected to lay out any plans for development of your product/service. Whether you will include additional products or services when your business starts making more money or include a wider range of products/services in the future.
- Location of Business – Here you will need to state where your business premises is located – will it be accessible, Is the business area zoned for the type of business operations you intend to carry out? Do you have the necessary licenses, health and safety requirements, etc.? How you intend to get your product or services to the final consumers? Will you sell directly to customers or will you use middle men? Will your product be transported by a delivery van to clients?
- Business Management – Here, you are going to show the reader that you are able to carry out the tasks that will make the business work. This phase should talk about the person(s) that will manage the business – their qualifications, their strengths and skills that they will bring to make the business work. You can also provide their curricula vitae to stress your point.
- Financial Information – The key questions to answer in this step should include;
- The start-up Costs: these are the costs that would be incurred in starting up a new business which also includes ‘capital goods’ such as land, equipment, building etc.
- Operating Costs: these are the costs that would be required in the process of running the business. This would include rent, utilities, salaries and wages that are incurred in the everyday operation of a business. This should also include payments on any debt incurred for start-up costs.
- Revenue Projections: this is how you will price your goods and services. Assess what the estimated monthly revenue would be.
- Break-Even Analysis: Determine at what point your sales begin to exceed your costs thereby making profit.
- Financial Sources: if your proposed business won’t be able to run on your finances alone and you would need to borrow money from a bank or other lending institutions, you may need to research potential lending institutions.
- Profitability Analysis: The major purpose of venturing into any business is to make a profit at the end of the day, week or month. Given the cost and revenue analyses above, will your business be able to generate revenue to cover operating expenses and still make a profit? That is the question to be answered here.
The difference between a Business Plan and a Feasibility Study
Before we can differentiate between a business plan and feasibility study let me take a minute to define and explain feasibility study:
What is a Feasibility Study?
A feasibility study is an analysis or evaluation of a proposed project to determine if;
- It is technically viable
- It is viable within the estimated cost
- It will profitable.
The major aim of a feasibility study is to objectively and rationally uncover the strengths and weaknesses of an existing business, proposed venture, opportunities and threats present in the environment, the resources required to carry through and ultimately the prospects for success. The purpose is to identify any “make or break” issues that would prevent your business from being successful in the marketplace. Simply put, a feasibility study determines whether your business idea makes sense.
Differences between a Business Plan and a Feasibility Study
A feasibility study is not the same thing as a business plan. The feasibility study is completed prior to the business plan. The major differences between them are as follows:
- Business plans are for strictly business purposes and is done only after the feasibility of the business venture has been established while feasibility studies can be used for non-business purposes such as scientific research, information technology research etc.
- A business plan is made up of mostly marketing strategies and other processes that have to be implemented to grow the business. Whereas a feasibility study is a part of the business plan mostly filled with calculations, analysis and estimates.
- A feasibility study is mainly about the viability of a business idea but the business plan deals with business growth and sustainability.
- A feasibility study will answer the question ‘will this work’? A business plan will answer the question ‘how will this work’?
- A business plan is usually targeted at investors and lenders to explain how the business will work. Feasibility studies are for the entrepreneur’s benefit, to determine if the business idea is worth proceeding with.
- A business will probably fail if its feasibility study is done poorly or not carried out at all. Business plans can be re-written as many times as possible and are designed to evolve to describe an ongoing business.
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