Jan 26, 2023
Leonardus N. & Prasasti P.
How to Write a Business Plan: 10 Tips for Attracting Investors and Setting Business Goals
One of the most important factors when starting a business is having a solid and well-written business plan.
Keep reading as we go over the ten steps on how to write a business plan and the best practices to apply. We will also include a downloadable business plan template to make this process even smoother.
Let’s start by discussing how writing a plan can make your business starting process more efficient.
What Is a Business Plan?
A business plan is a formal document that contains essential information about a company, including its goals and how to achieve them. This document can help grow the company and get financial support from investors or a business loan from a bank.
Why Write a Business Plan
The following are the main benefits of creating a solid business plan:
- Achieve effective business growth easier.
- Understand your competitors and customers better.
- Determine the company’s profitability by looking at the market and financial data.
- Convince potential investors to put capital into your venture.
- Get a grasp on potential problems.
Besides newly-established companies, existing big or small businesses can also benefit from a detailed business plan.
A company can revisit its business plan to see which goals have been met and make new ones for future development or to prepare to take the company in a new direction.
How to Write a Business Plan in 10 Steps
A good business plan typically includes several important components. In this section, we will guide you through ten of them to help you write and structure your business plan more effectively.
1. Create an Executive Summary
An executive summary is an overview of your business plan that allows readers to quickly identify the main idea. It comes first after the title page and must contain all the essential information of the business plan within one or two pages.
It’s critical to write a good executive summary as it’s often the part that can make or break an opportunity. Investors and executives typically examine the executive summary to decide whether they should look deeper into the business plan or walk away.
To write an excellent one, feature the following information:
Start writing the overview by explaining your business concept. Describe the product or service you’re going to offer concisely. Make sure to highlight what demand the product or service fulfills – this is usually called the value proposition.
Additionally, a company overview should briefly explain how you’re targeting a viable market and how your business can improve people’s quality of life. In addition, mention whether you’re manufacturing products or outsourcing them from suppliers.
Market Opportunities and Competition
In this section of the executive summary, add the market analysis of your business.
Write about your target market and be specific. Thoroughly describe your target audience and explain why you’ve chosen it over others.
For example, if you sell bread, explain which area or economic class you’re going to sell it to since it will influence your sales strategies and promotional costs.
We also recommend covering the market volume in-depth to help you forecast the sales volume potential.
There are often different groups of people within the target market to cater to. Identify the market segments and choose which you will focus on. Figure out their problems and how your products and services can solve them.
Look for competition in the market. If there are established businesses targeting the same customer segment as yours, explain the key differences that will make you stand out.
Financial projections consist of explaining your revenue sources and pricing structure concisely. In addition, show your planned sales, expenses, and revenue figures to overview your projected financial performance.
You can also mention the required capital and how you’re going to finance the business. If you’re looking for external financing, this is the time to explain how much money you need and how you’ll return it in the future, be it the company’s equity or money.
Milestones and Growth Projections
The last element of the executive summary is your future vision once the business grows. If it’s for an established business, list the company’s milestones.
The projection for future growth should contain a plan to scale a business. This includes opening new branches, acquiring new customers, or creating new products. A small business owner can use this to monitor their company’s growth.
2. Write a Company Description
A company description contains basic information about your business, including its main products and services, vision and mission statements, and anything else that makes the company unique.
The vision statement should contain your business purpose and ambition. Meanwhile, the mission statement should reflect what you will do to achieve that ambition.
These statements help align every company member towards the same purpose. The mission statement also plays a vital role in shaping the business strategy to achieve the company’s ambition.
This section may also include your company’s history. Make sure to include the details that add important context to your business planning.
3. Include Business Goals
The next step is to include your business goals and how long it will take you to achieve them. You can set general goals or split them into departments, such as marketing, finance, or operation goals.
Suppose you have a startup consulting company and want to increase the number of your clients.
To achieve this goal, use the SMART framework to help you track the progress:
- Specific – narrow down the goal for more focused planning. In this case, come up with a number, for example, 50 new clients.
- Measurable – define the metrics that will determine your progress and achievements. For this goal, only count the clients who signed an agreement or already paid.
- Attainable – you should be able to reach the goal based on the gathered facts and numbers. Fifty new clients is not an overambitious target if you have a capable team.
- Relevant – every goal should help achieve the company’s vision and mission. Acquiring new clients is vital for the growth of a consulting company.
- Time-based – provide the timeframe in which you want to achieve the goal. For example, give your small business one quarter to find 50 clients.
4. Describe Your Product or Service
In your business plan, the products and services section should focus on the general idea and characteristics of what you offer.
Writing a good product description is crucial to help readers understand what the product does and what makes it unique. Begin the section by explaining how the products and services will fulfill the target market’s needs. Include features and benefits, but don’t go too deep into technical specifications.
You can put more detailed information in the appendix instead. Also, avoid using technical jargon to make the text easier to understand.
Another vital aspect to cover is what makes your goods and services different from the competition. If your products have distinguishable features, include their breakdown in this section.
Alternatively, you may be selling similar products at a competitive price. Explore how you’re able to offer them at a lower price. For example, you may manage to make the production process more efficient or source the raw materials from cheaper suppliers.
5. Conduct a Market Analysis
A market analysis is a critical part of a business plan template. During this phase, you will need to conduct market research.
This involves gathering information about your potential customers and their behaviors, as well as the competitors, to help lay a foundation for your business strategies.
Defining the Target Market
The first step is to narrow down the market segment you want to target with your business. This will help you better understand the market characteristics so you can develop suitable marketing and sales plans.
Defining the target market will also arm you with the necessary information to build strong business-customer relationships.
To do so, try to find out who your potential customers are by paying attention to the following factors:
- Geographic location – choose the area based on your business operations’ reach.
- Age group – this is important if you’re selling products targeted at a specific age demographic, such as alcohol, business attire, or toys.
- Income level – this factor determines the demographic that will fit into your products’ price bracket. Keep in mind that income level can be affected by geographical and demographic characteristics, such as age and gender.
For a business-to-business (B2B) company, you can define your potential customers by their geographic location, industries, company profiles, and relevancy.
Market Volume and Trends
When defining the market size, you need to research the potential number of customers. That way, you’ll have a better idea of the market cap for your niche.
Additionally, find out the latest trends in that market. For example, you can examine whether the demand for your products is related to a booming migration to your operational area.
Competitive Analysis and Environment Analysis
After identifying the target market, it’s time to explore your competitors and your position by conducting a competitive analysis.
Focus on your direct competitors – other businesses that sell similar products or target the same demographic. Once you’ve listed all the competitors, conduct a competitive analysis by comparing your business to them and identifying your strengths and weaknesses.
To present this analysis, use the SWOT model – Strengths, Weaknesses, Opportunities, and Threats.
Strengths and weaknesses represent your business’ internal condition relative to other companies. For example, if you have the technology to produce goods more efficiently, this can be seen as a strength.
Conversely, if the competitors have more experienced employees, you can consider your lack of expertise as your weakness. This will become their competitive advantage over your business.
Knowing your competitors’ competitive advantages will let you better understand how you can position your product or service.
Based on the example above, highlighting your company’s advanced technology in your positioning will spotlight what your competitor lacks.
You will also be able to preemptively tackle your competitor’s experienced employees by conducting training programs for your team.
Next, analyze the market environment – see what opportunities you can exploit and if there are any threats you have to mitigate. Opportunities can include favorable government regulations or positive market trends, while threats may take the form of emerging competitors.
These analyses will be useful for creating marketing efforts and strategic company planning in general.
6. Outline the Management and Organization
In this section of the business plan, you need to introduce your legal structure – the team, each member’s role and responsibilities, and how you organize everyone to accomplish your business goals.
Create a brief biography of each team member and highlight their experience. If you’ve just started a small business, don’t worry about gaps in the management team. It’s better to have a person who works according to their expertise rather than hiring someone for the sake of it.
This practice can indicate the maturity of your business plan and open more opportunities to find the right person to join your team.
Don’t oblige yourself to define the management team using C-level titles like CEO, CMO, and CFO. While it’s tempting to have such positions, it may not be the most effective way to run a startup.
Once you’ve divided the team members’ responsibilities, prepare an explanation of your organizational structure if applicable. Although you can put the organizational chart in the appendix, you still need to define the managerial flow of your team members from top to bottom.
You’re free to choose a flat or tall structure and how you divide the functions in your company. The critical point is that it should support the operations to achieve the business objectives.
7. Create a Marketing Strategy
In this step, you have to develop a marketing and sales strategy to promote your business to the customers.
Product positioning is the process of developing a public perception of your product or service. Doing so is especially important if many similar products saturate your target market.
Customers will compare your products to competitors’ and look for any unique factors. Your goal is to distinguish yours from the competition by giving an association that will stick to your brand.
Examples of common positioning buzzwords are affordable, reliable, heavy-duty, and simple. You can pick any trait that matches your product and business objectives.
After defining your product position in the market, you have to develop a pricing strategy and model.
There are two fundamental rules you must follow. First, you need to cover the product’s cost to the customer. Then, you should match the price with your chosen market.
There are three approaches to determine the ideal price:
- Cost-plus pricing – establish the price by determining the initial costs and then marking them up.
- Market-based pricing – check the market and see what prices the competition offers. Find out the industry average when it comes to the product’s pricing. Depending on your positioning, put your price in the high or low-end of the market.
- Value-based pricing – the price is determined by the value you’re offering to the potential customers. For example, you may be selling a cleaning product that can save $10 and price it at $8.
There are plenty of options to advertise your products and services these days. The mediums range from traditional channels like billboards and print magazines to digital channels like social media platforms.
To determine which marketing channels you should use, look back at your customer profiles. Each demographic has its preferences, so make sure to consider them when picking a platform to advertise your business through.
Next, create a marketing plan to convince your customers to buy your products. Although sales promotions are considered a short-term strategy and ineffective when building customer loyalty, they can still boost sales.
These are some sales promotion plans you may try:
- Trial products – offer a free trial to let customers test your products. This method is prevalent among software companies.
- Bundles – sell combined products as a package at a lower price compared to purchasing each separately.
- Discounts – give a price reduction for repeat buyers or during a festive season.
- Limited-time products – launch products that are only available for a short time. This sales strategy exploits the sense of urgency and scarcity to attract sales.
A sales channel is how you will deliver your product or service to the market so customers can make purchases. In general, sales channels can be divided into two categories – direct and indirect.
A direct sales channel means your company sells products directly to customers. You can do it through personal selling, branded retail stores, or the company’s eCommerce website.
On the other hand, an indirect sales channel is when you use intermediaries like a retailer or online marketplace to sell your products. For B2B businesses, sales representatives often become the intermediary between businesses.
Your ideal sales channel depends on the type of products you sell and your target market. For example, if you sell a commodity product for a broad market, you may want to utilize multiple sales channels to help you reach more customers.
8. Make a Logistics and Operations Plan
A logistics and operational plan contains a breakdown of your methods of operating the business, including how you deliver products and services to the customers. You can cover the equipment you need to run the business, the detailed operational flow, and legal requirements.
That being said, here are three main elements you need to cover in the logistics and operational plan:
First, specify the facilities you need to run the business. This includes the equipment you already have and anything you have yet to acquire. Make sure to mention how you’re going to obtain everything. For instance, you’d rent the equipment or buy out the assets.
Don’t forget to justify why such facilities are essential and why you acquire them a certain way. For example, purchasing expensive equipment may be vital for your production because no rental business leases that machine.
Cover how you carry out daily activities, like production or service methods, inventory control, supply chain management, and facility maintenance.
If you get products from suppliers, explain the process of order fulfillment and delivery.
Alternatively, if your company does the manufacturing on its own, the business plan should contain a detailed production method. Make sure to explain how you get the raw materials, process them into goods, and deliver them.
Be sure to note the time it takes between acquiring raw materials and the end of production. Doing so will indicate that your production process is well-planned.
Note that sometimes you must mention the daily facility maintenance tasks. For example, if you have a restaurant business, you need to clean the kitchen and dining areas daily to maintain hygiene and quality standards.
If the region you operate in requires a business permit, you should present it here. Define how your operation complies with all the necessary legislation in your industry, such as health or environmental regulations.
9. Create a Financial Plan
Making a financial plan is one of the most important parts of writing a business plan.
Business financial projections show the feasibility of the company and the areas you can improve. Include the projected profit margins to provide clarity to investors on how profitable your business will be.
A financial plan generally consists of the business projection for the first 12 months, followed by annual projections for the next three to five years. If the company is already up and running, this section should include the recent financial statements.
There are several financial statements you should add to your business plan:
- Balance sheet – an overview of the business’s financial health. The balance sheet names the company’s assets, liabilities, and equity.
- Sales projection – a general expectation of how many sales you can make. You can also include the Cost of Goods Sold (COGS) to get the idea of how much gross profit you make from each product category.
- Income statement – this statement will show whether your business will make a profit or take a loss. The income statement takes the numbers from the sales projection and puts them together with other business expenses, producing the net income.
- Cash-flow statement – not to be confused with an income statement, cash-flow statements track the inward and outward flows. The purpose is to show how much cash in hand goes through your business. The cash-flow statement also signifies financial health and helps plan future spending since you can project how much money you will have at that time.
- Break-even analysis – for a new business, break-even analysis will show the sales required to become profitable with given variable and fixed costs. It also helps the company to set a sales performance target.
Predicting your business financials in the future requires making some assumptions.
List all the deductions you use to know in what circumstances your business can pursue these projections. For example, you may assume that the market trends will remain the same for the next few years or that the demand for certain products will increase.
10. Include Additional Information in the Appendix
Any additional components that may help clarify or emphasize the previous sections in the business plan should be added in the appendix. Some information you may add to the appendix include:
- Organizational charts
- Documentation of products or facilities
- Information about market research
- Additional financial projections
- Legal agreements
Best Practices for Writing a Business Plan
Aside from knowing the essential parts of a good business plan, it is also important to understand the best practices when writing one. Let’s take a look at five useful tips to optimize your business plan.
Understand Your Plan’s Purpose
Having a clear understanding of why you build a business plan is crucial in the writing process. You may write a business plan to attract investors or provide directions to your internal team – each purpose will lead you to a different type of presentation.
Having a strong grasp on the initial purpose gives you a solid foundation on which information to present and a clear scope of your research. It helps you avoid getting derailed and make your business plan more concise.
Keep It Clear
Remember to always use concise and clear wording and avoid using any technical jargon in your business plan. This helps stakeholders understand your business plan better and avoid any misinterpretation.
Value and consider your audiences’ time by not making your business plan long-winded. Some tips to make your writing clearer and more concise include:
- Eliminate unnecessary words and phrases.
- Try to use the active voice.
- Use straightforward language.
- Pay attention to sentence length and structure.
As writing a business plan is a complex process, you should leave some time for proofreading and double-checking the details.
Allocate a separate time to approach the business plan as a reader rather than as a writer. This can help you identify mistakes you might have overlooked before. You can also pay for a professional proofreading service to ensure better writing quality for your business plan.
Alternatively, use proofreading tools like Grammarly or Hemingway Editor to check for grammatical errors.
Use Charts and Graphs
Visual representations like charts and graphs can vastly improve data presentation in a business plan. They can help condense a large amount of information and communicate it in a clearer and more understandable manner.
Since there are many types of charts and graphs, the key is choosing the right one to visualize your data. For example, bar charts are good for highlighting differences between items, while line charts are perfect for visualizing changes over time.
Most data-processing software offers the feature to convert your data into graphs and charts with a few simple clicks. Some of the most popular tools for this include Microsoft Excel, Google Sheets, and Tableau.
Be Objective During Research
Typically, new entrepreneurs only present the positive aspects when writing their business plans. However, investors usually want to see how you can predict and identify various negative possibilities in your business.
Don’t be afraid to present any bad aspects you find during your research. This can include market research, financial planning, or product design. However, remember to come up with actionable solutions to these problems to show investors that you are ready for any possible outcome.
Business Plan Template
To help you structure your business plan, we have prepared a downloadable business plan template. This can give you a better idea of how to create an effective yet lean business plan.
Having a business plan is crucial when planning to improve an already-established company or start a new one. It creates a roadmap for your operations and guidelines for the team. It may also help you attract potential investors and venture capitalists.
Let’s recap the ten steps to write a successful business plan:
- Create an executive summary
- Write a company description
- Include business goals
- Outline the management and organizational structure
- Describe your products and services
- Conduct a market analysis
- Create a marketing plan
- Make a logistic and operational plan
- Write the financial plan
- Include the appendix
As there are various business plan types, make sure you pick the one that’s most aligned with your vision. As long as you deliver the necessary information and include all the key elements, your business plan should help you achieve your goals.
Now that you’ve learned how to write a business plan, it’s time to start writing one yourself.
How to Write a Business Plan FAQ
Here are some of the most frequently asked questions on how to write a business plan.
What Are the Different Types of Business Plans?
There are four most common types of business plans: a traditional business plan, a lean startup business plan, a summary business plan, and a complete business plan. Each of these types includes different elements and serves different purposes.
How Long Should a Business Plan Be?
A solid business plan should be concise and easy to skim. The ideal length should be around 15 to 25 pages for the main content. You can include any additional information or documents in the appendices.
Is the Order of Your Business Plan Important?
In general, it is important to pay attention to your business plan’s order and layout. This can help readers understand your business plan’s content more easily. While there are no strict rules regarding the layout, it can be helpful to check out templates as an example.