How to Write a Business Plan

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Introduction

All sections of the business plan are interrelated, and cannot bewritten in isolation. Each should be written by people who are fullyaware of the contents and intricacies of the other areas of the plan sothat the different sections are all integrated.

Although there is a fairly well accepted structure for a businessplan, there are many ways of putting it down on paper. While mostbusiness plans will have the basic contents listed below, no two planshave identical headings, flows and appendices.

Some of the contentswill have different names and be presented in a different order butalmost any business plan will cover these broad areas:

1. Table of Contents
2. Executive Summary
   
3. General Company Description
   
4. The Opportunity, Industry & Market
   
5. Strategy
   
6. Business Model
   
7. Team – Management & Organisation
   
8. Marketing Plan
   
9. Operational Plan
   
10. Financial Plan
    
11. Appendix

Executive Summary (2 pages)

The executive summaryis probably the most critical part of the business plan. Many businessplan readers will read the executive summary and then decide whether toproceed further or discard the plan.

The executive summary should be written last,once all the other sections are complete. It should not exceed twopages and should eloquently summarise the most important aspects of theplan.

This is a summary of the entire plan and should cover who, what, where, when, why, how and how much as follows:

• The company (who, what, where, when)
• The management and their strengths
• The business objectives and why it will be successful
• If the business needs financing, why you need it, how much you need and how you intend to repay the loan or benefit the investor

General Company Description (1 – 2 pages)

The general companydescription section is used to give a high level overview of thecompany and the business that it engages in. This introductory sectionof the plan section should include:

• Name of the company, type of legal entity, ownership, significant assets
• Mission statement of the business
• Company goals and objectives
• The main features of the industry in which you will operate
• The most important company strengths and core competencies

Avoidgetting into too much detail about the business in the general companydescription. It is often tempting to try and cram everything about thebusiness into this section but there are opportunities to get into thedetails of strategy, marketing, operations, people and finances further on in the plan.

The Opportunity, Industry & Market (2 – 3 pages)

Thissection of the business plan requires that you communicate some of theinsight that you got into the industry, the market and the opportunityfrom the systematic research you conducted before writing the business plan.

a) The Opportunity

Describethe gap that exists in the market and explain what has given rise tothis gap, how it was identified and how it can be filled. Answer thefollowing questions:

• Where is the gap in the market?
• What has given rise to this gap?
• How was this gap identified?
• How will the gap be filled?

b) The Industry

Describethe forces affecting the industry in which you will operate. Theseforces are covered by discussing barriers to entry, suppliers,customers, substitute products and competition. Answering the followingquestions will enable you to cover the critical issues in discussingthe industry:

What are the barriers to entry in this industry?

• Considerwhether any of the following exist for your company and others wantingto enter the industry: high capital costs, high production costs, highmarketing costs, consumer acceptance and brand recognition, extensivetraining and skills, unique technology and patents, tariff barriers and quotas, legislation or regulation.
• How will you overcome the barriers to entry?

How much power do the customers have?

• Who are the customers?
• Do they have significant power or influence over the prices they pay?
• Do they have significant choice when buying the product or service?

How much power do the suppliers have?

• Who are the suppliers?
• Do they have significant power or influence over the prices they charge?
• Is there a limited number of suppliers?

Are there substitute offerings for the product or service?

• Whatis the likelihood that customers will switch to a substitute product orservice? Will you have important indirect competitors? (For example,video rental stores compete with theatres, although they are differenttypes of businesses)

Who are the competitors and how strong is the competitive rivalry?

• What products and companies will compete with you?
• How will your products or services compare with the competition?

What are the major changes affecting the industry?

• Consider changes in technology, in government regulations, in the economy

c) The Market

Presentyour insights into the market in which you will operate. Focus on thecustomers for your product or service by addressing the followingquestions:

• What is the total size of the market?
• How fast is the market growing?
• Whatpercentage share of the market will you have? (This is important onlyif you think you will be a major factor in the market.)
• What are the major trends in target market – trends in consumer preferences, demographic shifts and product development?

Strategy (1-2 pages)

You need to describe to readers how thebusiness will compete in the chosen markets. This requires adescription and explanation of the strategic choices that you have made as a business, including:

• The focus of the business: broad mass market or a specific niche?
• Howthe business will succeed in the market? How will you create a uniqueand valuable position, involving a different set of activities?
• What is unique about the business? How is the offering different from that of competitors?
• What is the value for the customers? Describe the value proposition for the customer?

Business Model (1 page)

A business modelis the profit-making engine of the business. It is central to abusiness’s success. The important aspects of a business model thatshould be presented in a consolidated framework include:The sources ofrevenue

• The major costs involved in generating the revenue
• The profitability of the business (revenue less costs)
• The investment required to get the business up and running (to get to scale)
• The critical success factors and assumptions for making the profit model work

Team – Management & Organisation (2 pages)

In this section you should provide a description of the people behind the business. It should include:

• A list the founders including their qualifications and experience
• Adescription of who will manage the business on a day-to-day basis. Whatexperience do these individuals bring to the business? What special ordistinctive competencies do they offer?
• An organisational chart if you have more than 10 employees, showing the management hierarchy and responsibility for key functions (including position descriptions for key employees)

Marketing Plan (2 – 3 pages)

The marketing plan defines all of the components of the marketing strategy. The marketing plan should draw on market research. It should disclose the important marketing decisions about:

• The product (or service) and why it is valuable to customers
• The focused and detailed description of the target market
• The positioning of the product or service – how it should be perceived by customers
• The pricing strategy with specific price points at which the product or service will be sold
• The sales and distribution channels that will be used to get the product or service to the customer
• Thepromotion strategy including public relations activities, specificpromotions, advertising and intended viral marketing activities

Operational Plan (2 pages)

Explain the daily operation of the business, its location, equipment, people, processes,and surrounding environment. This section will vary depending on thenature of the business but some the more generic items that can bepresented include:

• A description of the operating cycle thatdescribes what the organisation will do to deliver its service orcreate and sell its product
• A description of where all the necessary skills and materials will be sourced
• What will be outsourced, what relationships are in place and how those relationships will be managed
• The cash receipts and cash payment cycle of the business

Financial Plan (3 – 5 pages)

The financial plan is areasonable estimate of your company’s financial future. Include a fewparagraphs on the main features in the financial plan and back this upwith financial projections. Don’t include too much financial detail inthe body of the business plan. If you have detailed projections andsupporting calculations, place them in the appendix. The following arethe most important financial documents to include in the financial plan:

• Start-up expenses and capitalisation: a description and explanation of what it will cost to launch the business and where you expect to get this money
• 12-month profit and loss projection (month-by-month) and a three-year profit and loss projection (quarter-by-quarter)
• A 12-month cash-flow projection and a three-year cash-flow projection (quarter-by-quarter)
• A projected balance sheet at start-up and at the end of years one to three
• A break-even calculation

Appendix

The appendix includes additional documents that thereader of the business plan may want to refer to. Documents that couldbe included in the appendix:

• Brochures and advertising materials
• Industry studies
• Blueprints and plans
• Maps and photos of location
• Magazine or other articles
• Detailed lists of equipment owned or to be purchased
• Copies of leases and contracts
• Letters of support from future customers
• Any other materials needed to support the assumptions in this plan
• Market research studies
• List of assets available as collateral for a loan
• Detailed financial calculations and projections

Allof these sections combine to create what is hopefully an exciting andviable story of a business that is to be launched or a growth path thatwill take an existing business to new levels of impact and success.

About the Author

Entrepreneur Magazine, South Africa.