A Good Business Plan is very important in the success of any business. You need a business plan to convince investors into investing in your business idea. In other words, a Business Plan is a laid out procedure of how the business is to be run.
After coming up with a business idea and collecting all the necessary information, you will have to put the ideas down on paper in form of a business plan. Writing of a business plan is usually the first step when setting up a business.
Although some entrepreneurs have succeeded without having one, many have also failed because they did not have a business plan. But, how do you write a good business plan?
In this article, I have outlined for you features of a good business plan as well as what the business plan should contain. It has details of how content should be arranged in a business plan, therefore, you should read through.
Qualities of a good business plan
A good business plan should have the following qualities.
It should be short
The purpose of every business plan is to be read. No one will be able to read and analyze more than five hundred pages of a business plan. Many investors do nt have time to read through alot of stories in a business plan, therefore, you should be precise and brief in your business plan.
Also, a business plan is a tool that will require modification as time goes by. Having a voluminous business plan makes the modification a difficult task and you might end up operating against your own business plan.
It should be friendly to the audience
When writing a business plan, use a language that your audience can understand. For cases where a potential investor is not an expert in your area of interest, use simple language instead of technical terminologies.
Accommodating your investors and keeping your product descriptions short and precise increases chances of you receiving the funds you need.
It should not make you feel intimidated
Many entrepreneurs and investors learn as they grow in business. Most successful business persons don’t even have a degree in business related courses. Therefore, writing your business plan should not make you feel intimidated.
As long as you are passionate about your business idea, writing a plan on how you plan to grow it should not be a task too hard to handle.
It is advisable that you start by writing a simple one-page business plan (A lean plan). Once you have a lean plan, you can then come back and develop it later on.
Now that you have known the features of a good business plan, it is time to look at what a business plan should have as content. Content is a critical factor that will determine whether your plan will be approved or trashed. The following are aspects that you should include in your business plan content.
Things to include in your business plan
This section gives an overview of your business plan. It should take between one to two pages and should be the first part of your business plan. However, some people write it as last but it is advisable that the overview comes first so as to give the reader what to expect.
In this segment, you give details of the product you want to deal in as well as the need of consumers that you seek to solve. Also, this is the section where you give an analysis of the competition in the market you want to venture in and the target market for your product.
This is the third segment of your Business plan. Here you are required to give an explanation on how you will make use of the opportunity.
In this section, you are supposed to give details of your sales and marketing plan, operations and the criteria you will use to measure success.
Team or company
Most investors not only look for good ideas but also good teams. In this section, you are required to give details of your team. Talk about the team you already have as well as those you need to employ.
You will also be required to provide your legal structure and location. If your company is already up and running, a history of previous businesses will be required.
No business plan is complete without a financial plan. A financial plan gives details about how money is utilized in the business. In this chapter, you are supposed to give details on sales, profit and loss statements, personnel plans, cash flow statements, Balance sheets as well as an exit strategy.
In a business plan, this section is one that many entrepreneurs find to be difficult to handle but it is what investors will look at keenly. An investor will pay much attention to the financial plan because they need to know how their money will be spent and how they will get a return for their money in the end.
A typical business plan usually has a monthly projection for the first 12 months and an annual projection for at least the next five years. Although a Three-year projection is enough, some investors will demand a full five-year projection.
The following is an overview of details you should include in the Financial Plan of your business plan.
A sales forecast is simply the projection of sales to be made over the next few years. Typically, a sales forecast is broken down into various rows with each row having a specific core product or service being offered.
A sales forecast also should have corresponding rows that show the Cost Of Goods Sold. (COGS). The COGS is strictly the amount used to provide goods sold and not additional expenses such as rent and transport.
Your personnel plan contains details of money spent on employees. For a small business, all the posts can be listed with the amount to be paid to each employee stated against the posts. For very big companies, the Personnel plan is divided into small sections such as sales and marketing.
The personnel plan also contains details of additional costs of employees other than salaries. These costs include insurance, payroll taxes, and other related costs. Such costs are typically referred to as “employee burden.”
Profit and Loss statements
Your business number will come in at the Profit and Loss statements segment. This is where you will determine whether a business will be making losses or profits.
The profit and loss statement utilizes all the data from sales forecast, personnel plan and other costs involved in running the business.
In simple terms, the Profit and Loss statement is where the companies total expenditure will be subtracted from incomes to determine the Net profit.
Cash flow statement
Cash flow statements are mostly mistaken with profit and loss statements. However, cash flow statement plays a completely different role in business. Cash flow statements are used to show the amount of money that is available in a business at a given instant.
In profit and loss statements, expenditure is subtracted from gains, Cash flow statements begin with cash at hand then addition of incomes followed by subtraction of money used to pay for expenses such as bills.
Cash flow statements help in predicting instances when the company might run low on cash.
This is the most crucial thing that investors need to see in a business plan. A balance sheet gives a clear illustration of the financial health f a business.
A balance sheet contains a list of assets and liabilities of the company. It also contains the investor’s equity. Using the Balance sheet, you can determine the net worth of a business bu subtracting liabilities from assets.
Use of funds
If you plan to use your business plan to source funding from investors, you must show what the funds will be used for. This section does not need to have detailed information. Just show investors major areas in which money is going t be spent.
The last thing you might need to include in the Financial plan of your business plan is the exit strategy. This is after you decide to sell out your business to another company or IPO.
Investors need returns for their investment and the only to get this is if the company is sold to another party. Therefore, the investors will want to know your thoughts on the exit from the market.
The appendix is usually the last part of a business plan. Here, further descriptions of the product including drawings and images can be inserted.
In most cases, the Appendix is considered as not a must-have chapter in your business but this is where you will give any details that might have been skipped in the plan.
Now you know what to include in your business and how your business plan should look like. This will enable you to write your idea down on paper and look for funds to achieve your dream. However, you should take note that it is not very easy to run a business. It will require time, money and dedication before any business is fully operational.