Many entrepreneurs get confused about what to include in their business plan. In short, there is no correct answer. What you include in your business plan depends on the business, the purpose of the business plan and the intended audience.
There are however some core components every business plan should include. Below is an explanation of how to write a business plan for an investor.
The Executive Summary
The Executive Summary is your opportunity to sell your business. You need to prove that your business is unique, viable, profitable and you have the expertise and people to make it happen.
If your Executive Summary does not intrigue the reader they will reject your plan without reading the rest, so it has better be good.
The Business Overview is a high-level view of your company and it should explain who you are, how you operate and what your goals are.
Clearly describe what you are selling, focusing on the customer benefits. Incorporate details about suppliers, product or service costs and the net revenue expected from the sale of those products or services. Consider adding pictures or diagrams.
In general, this section should include:
- The legal form of your business (corporation, sole proprietorship, etc.)
- The nature of your business, and the needs you plan to satisfy
- An overview of your products/services, customers and suppliers
- A summary of company growth, including financial or market highlights
- A summary of your short-term and long-term business goals
- Information about the product or service’s life cycle
- Relevant copyright, patent or other intellectual property.
- Research and development activities that may lead to new products and services
Marketing & Sales Plan
It doesn’t matter how good your product or service is, you have to prove to the investor that there is a market for it. Show your industry knowledge, and present conclusions based on market research. (Place detailed findings of any studies in an appendix.)
Your market analysis should include:
- A sketch of targeted customer segments, including the size and demographics of the groups
- An industry description and outlook, including statistics
- Historical, current and projected marketing data for your product/services
- A detailed evaluation of your competitors, highlighting their strengths and weaknesses
Next, you need to show the audience you have the ability to engage with your target market and convince them to buy your product/service.
You need to:
- Explain how you will reach target customers
- Demonstrate how you will penetrate the market and beat your competition
- Provide details about pricing, promotions and distribution
Outline your company’s organisational structure, and identify the company owners, management team and board of directors. You need to demonstrate to the audience that you and your management team have the skill, experience and resources to make the business successful.
Include the following:
- An organisational chart with descriptions of departments and key employees
- Information about owners, including their names, percentage of ownership, the extent of involvement within the company and a biography listing their background and skills
- Profiles of your management team, including their names, positions, main responsibilities and past experience
- List of any advisor’s, such as board members, accountants and attorneys
- An explanation of how the company will function (sales, marketing, operations, IT, finance & HR)
- Information on sources of labour and number of employees
- Data on operating hours and facilities
Financial Plan and Projections:
Explaining how much money your business will make is the most important part of your business plan. No investor or bank will inject funds into your business if your plan does not foresee making a profit. This does not mean you should be overly optimistic in your plan as serious investors will challenge the assumptions in your plan or perform due diligence on your business before they make a firm offer.
You should include:
- Historical financial data, if you own an established business, including income statements, balance sheets and cash flow statements for the past three to five years
- Projected financial information, including forecasted income statements, balance sheets, cash flow statements and capital expenditure budgets for the next five years
- A brief analysis of your financial data, featuring a ratio and trend analysis for all financial statements
Professional investors want to know how much money they will make and when they will get their money. The only realistic way this will happen is if you sell the business to a larger company.
In your business plan you should mention the business will be valuable enough to be acquired from a larger business within 2-5 years.
IPOs and management buyouts are rare and do not appeal to investors.
Conclusion – How To Write A Business Plan
Writing a business plan can be very difficult. The key to success is understanding your business, the market and your competition. Another important factor in writing your business plan is understanding the purpose of the plan. A business plan written for a bank loan is very different from one that is written for a crowdfunding campaign. A bank will focus on the business ability to repay the loan whereas an individual on a crowdfunding website would invest in a product because they think it’s cool or understand the cause behind the business.
When we write a business plan for our clients we use the framework above as guidance but write plans based on who the intended audience is. We would recommend you have different versions of your plan if you are attempting to get funding from a variety of sources.
We have a number of business planning services available.