What Goes Into a Business Plan?

Don’t even consider starting a business or seeking capital without a detailed business plan. What goes into a business plan you might ask. The business plan needs to at least cover the analysis of the business, the environment in which it is in, marketing, sales, fundraising, and a repayment plan. But do remember that your business plan should be a working document and not just for use when seeking business funding. What Goes Into a Business Plan

Creating the right business plan and strategy takes a lot of time and effort. We see this often with our business plan consulting services. It’s a balancing act as your priority is clearly the business itself, which you need to focus on. At the same time, you will need to get your business plan right in order to attract the right investors. If your project is a big one then consider if you require a business feasibility study.

Dependent on who you are raising money from, your business plan may be requested. Understanding what goes into a business plan becomes very useful here, especially when targeting specific types of investors. Some investors will ask for a pitch deck or two pager first, while banks will ask directly for the business plan. It can be used to assess your knowledge, effort, the business itself, market research, cash flow estimates, and whether you are being realistic or are just overselling a pipe dream.

In reality, most investors make their decisions without even seeing your company plan. You might of course also be using a pitch deck to generate initial interest from investors. Make sure you read our post on creating a pitch deck that is easy to understand and easy to remember.

So what goes into a business plan and how important is for the fundig process?

A business plan may account for up to 10-20% of the funding process. It’s a difficult question to answer as the business plan itself is really the tool that gets you to the next stage of the funding process. If the investors you are targeting don’t get the opportunity, scope or uniqueness of the business at the outset, your chances of moving further in the investment process will be limited.

The rest of this chapter accounts for 70-80% of the decision to fund your business.

Why? Because most business ideas are boring. No one has time to read a business plan unless they are considering funding you and are simply doing their due diligence. Business professionals and investors realise that plans change. In reality, the money you get may alter your plans and the strategy you are able to follow. Investors themselves might want to amend the strategies you have created due to their own experience in helping businesses grow.

Invest in an solid business plan. But don’t mistake it for a fundraising tool. More than a business plan, I would advise you to create an 18-month plan that outlines your capital raising strategy.

Make sure your team is on board and committed to your plans. If you want to raise money for your start-up, you must have a clear message and a cohesive staff capable of articulating it.

Language in the business plan is vital. The content you write and language you use to outline your plan matters. So does the tone you use. They matter in terms of marketing, getting funded, and even who funds you and on what terms.

Preparation is the key to securing the money and terms that you seek. Know your target investor as well as your clients, and cater to them. Say what you mean.

Help the investor to understand you and your business. I often say to entrepreneurs, that we don’t know what they know in terms of the business and their goals. As the entrepreneur or team, you have been working on yor idea for months, sometimes years. You have lost sleep, spoken to your team, brainstormed ideas and tried it on clients. You need to find a way to outline your insights to the investors you speak to.

Find a way to relay what you know and the excitement you feel.  You will be helping them if you are a good match and can deliver. Help them see why investing in your startup is a good idea and why you are a better choice than your competition. Getting the message right involves four steps:

  1. Identify your audience
  2. Determine how to acquire their business by demonstrating that you have exactly what they need.
  3. Highlight terms that will resonate and boost your standing (and that connection)
  4. Get the whole crew on board

It won’t work if only one founder knows how to pitch, or if cofounders send mixed signals. Likewise for the rest of the team. So let’s agree: Get team input. Gather the best ideas. Publish them in your internal documentation and ensure everyone uses the same messaging when discussing the initiative. This includes social media and personal networking. Consistency is key.

You may be a financial technology firm. Most likely, you’ll want to identify as a Fintech firm with a fantastic edge, or a tech company with a agricultural edge. Without a clear direction, you risk alienating the wrong individuals.

Essentially, investors are buying into your idea and you. It is often easier to sell an idea than a piece of paper that puts people to sleep.

So, What goes into a Business Plan?

By now you’ve talked to some investors or contact who have raised money successfully who say that if you provide a business plan, you might be able to secure the necessary funding. You’ve never developed a business plan and have no idea what goes into one! Continue reading to learn what goes into a business plan.

What Goes Into a Business Plan

Executive Summary

Because it’s a short, comprehensive overview of everything else in your strategy, the executive summary is mostly created last. It will be a summary of everything else you have included. It’s also the most critical portion of your plan, because it’s the part that investors are most likely to read first and then decide to move forward or not. Similar to first impressions you get when meeting people, the executive summary creates the first impression of you and your business idea.

Business Outline or Concept

In the next section of your business plan, describe your company, the concept as a whole, what makes it unique and what the opportunity is for your business. Its important to remember that investors will be looking to answer the question, what is in this for me?

What Goes Into a Business Plan – Market Analysis

This is a quantitative and qualitative examination of the market. It examines market size (volume and value), consumer groups and buying behaviours, competition, and the economic environment (entry obstacles and regulation).

How to analyse a market?

The market analysis portion of a business plan should demonstrate to investors that:

To achieve so, I suggest the following plan:

  • Population and Segmentation
  • Market Needs Competition Entry Barriers Regulation
  • The initial step in the analysis is to determine market size.
  • Population and Segmentation

Your approach will depend on the type of business you are selling to investors. If your company plan is for a small shop or restaurant, you should focus on the local market. Writing a business plan for a restaurant chain requires a nationwide market analysis.

Depending on your market, you may want to segment it. This is important if you or your competitors target specific demographics.

A market’s size is determined by two factors: the number of potential customers and the market’s value. Let’s look at an example of why it’s vital to look at both statistics independently.

Market potential

The definition of a potential consumer varies by industry. For example, if you create a small furniture store, your market will be all businesses within driving distance. As in the aforementioned example, most firms have only one person in charge of acquiring furniture, so the size of these organisations is irrelevant when analysing potential consumers. You would consider that while valuing the market.

Counting potential customers is easier than estimating market worth. The first step is to see if the figure is issued by a consultancy firm or a government agency. There are likely to be a few on a national level.

You can purchase market research from a business who deliver such services or do it yourself.

After estimating the market size, explain to your reader which market segment(s) you consider your target market.

Target market

The target market is the type of customer you want. If you sell jewellery, you can choose to be a generalist or focus on the high or cheap end of the market. This part applies when your market is segmented with distinct demand drivers. In my jewel example, price is a lower end market driver, whereas exclusivity and status are higher end market drivers.

Now it’s time to look at the demand side of the market.

Marketing Drivers and Strategy

This section is vital in showing a potential investor that you understand your market. You know why!

Here you need to dig further into the market drivers for your product or service. Takeaway coffee is one way to look at a driver.

Tactically, here is where you should place your competitive edge without mentioning it. Prior to explaining your own market positioning, you will discuss your competitors’ strengths, weaknesses, and market positioning in the Strategy part of your business plan. Preparing the reader to embrace your positioning and invest in your organisation is key.

To do so, you must emphasise in this area the drivers that your competitors have overlooked. For an independent coffee shop surrounded by coffee chains, another driver for demand is the venue itself, as what coffee shops sell before anything else is a place for people to gather. Then you would showcase your rival. To differentiate yourself, explain in the Strategy section that you would focus on residents seeking a place to meet rather than takeaway coffee.

This is the section of your business plan where you tell potential investors how you will promote your firm, product, or service. Potential investors will want to know the size of your market, why they will buy from you, how you will price your items, and what you will do to advertise and promote to them.

Competition

There are different schools of thought in relation to competition. One the one side more competition indicates healthy demand. On the other hand, if there are one or two dominant competitors, you might find it more difficult and hence time consuming to enter this market. These cases normally indicate either that you need more investor for marketing, or require a stronger and more clear differentiation from the competitors. You must discuss your competitors’ strengths and weaknesses.

The objective is to analyse your competitor’s market positioning to uncover a weakness that your company may exploit.

Benchmark your competition against each of the market’s key demand factors (price, quality, add-on services, etc.) and present the results in a table.

Entry Barriers

Why can’t someone open a shop in front of yours and take 50% of your business?

After answering the last question, what makes you think you can enter this market?

Higher barriers to entry indicates that new competitors might find it more difficult to compete with you. On the other side, if you are starting a business in a sectors with high barriers to entry, it will be more challenging for you.

Examples of entry barriers:

  • Investment (a project that requires a substantial investment)
  • IT (sophisticated technology a website is not one, knowing how to process uranium is)
  • Strength of Brand (the huge marketing costs required to get to a certain level of recognition).
  • Norms (licences and concessions in particular)
  • Resource access (exclusivity with suppliers, proprietary resources)
  • Distribution channel access (exclusivity with distributors, proprietary network)

Although a business like Amazon or Youtube probably reflects each of the bearers above, dependent on your sector, be as specific as you can with he barriers and how you and your business will overcome these.

The answers to the above questions will vary depending on your firm, management team, and any relationships. So I can’t give any broad advice.

Regulation

If regulation is a deterrent in your industry, I suggest merging this section with the prior one. Otherwise, this section should be a checklist of the principal regulations that apply to your company and the steps you will take to comply.

Management

Potential investors will also want to hear about your company’s management and key employees. Include your histories and what makes your team especially qualified to operate this firm.

Services and Goods

Any new product or service, or even a fresh take on an old one, need a business plan that clearly explains what you will do and what makes it unique. This is the section to utilise.

Team

No firm can function without suppliers or employees, and potential investors will want to know where you plan to buy, what deals you have in place, and who will be working for you. This is where you give those details.

Equipment and Space

Whatever type of business you plan to start, your equipment and location will determine your success or failure. For example, a shop on a busy street will generate more sales than one on a quiet one. A factory is required if you need to manufacture. Explain what apparatus and equipment you will utilise, how it will increase productivity, and whether you already own it or will need to buy it.

Financials and Budgeting

Probably the most difficult part of writing a business plan, but also the most interesting to investors. What are your start-up costs? What are your sales projections, monthly operating expenditures, and break-even point? Make sure your financial plan makes sense when read alongside your business plan, so put in the effort!

As you can see, a business strategy contains a lot of information. It will assist you gain a clear image of where your company is currently and where you want to go if done correctly. Hopefully this article helped you to answer the question of what goes into a business plan. For further support with your specific business, you might consider our business plan consulting services.

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