How To Write A Business Plan

Yes, You CAN Write A Business Plan!

Writing a business plan can be a daunting assignment, particularly if you’ve never written a business plan. Where does one even start? Quite often, business plan writers become quickly overwhelmed by the task at hand, which may seem enormous.

This article provides a simple approach to writing a basic, no-frills business plan by using an easy method to start thinking about, then start writing, then actually finishing a business plan.

The Questions Your Business Plan Should Answer

Let’s break down the essence of what you’re trying to do and then talk about how to tackle writing a business plan.

First of all, there are four primary questions your business plan should address:

What exactly is the product or service you’re selling and why does the consumer need it?
How will you provide that product or service to your customer and how will you do this better than your competition?
How will your customers know about your company?
How much capital will your company require before breaking even and how much net revenue can you expect the business to generate over the next three years?

Understanding Why You're Writing A Business Plan

It’s important to identify why you’re writing a plan in the first place. Primarily, the most important reason for writing a business plan is to discover, for yourself, whether your business idea has merit. Small businesses typically take at least three years before achieving any degree of success. That’s a lot of your life to invest in a business that may or may not succeed. It’s just a good idea to develop a basic business plan before spending that kind of effort.

Second, many business plans are written at the request of loan officers or investors. They want to know specifically how their funds will be used and how they’ll be repaid. Third, business owners write business plans just as a matter of course and update the plans annually as a way to methodically guide their business.

After identifying the reason for writing a business plan, you’re ready to start thinking through the process.

How To Start Writing Your Business Plan

How To Proceed With Writing Your Your goal is to create a basic document that just describes what you plan to do and how you plan to do it. To accomplish this goal, you’ll need to think through the basic concepts of your business. Think of these concepts as topics, or sections, for your business plan.

Let’s take a look at the main topics of a basic business plan that you’ll be writing. To begin, you can simply start writing notes in a notebook that you’ve divided into topic sections. At a certain point you’ll want to transfer your notes to a computer so you can begin editing your thoughts. Either way, start by simply making five topic, or headline, areas. Then take one section at a time and answer the basic questions within that section.

The Five Basic Business Plan Sections

The five basic topic areas that you’ll write about will make up the essence of your business plan. The topics, or sections, are:

The Business Concept
Products or Services
Marketing
Management and Operations
Finances

Let’s go through each topic and talk about the essential elements of the business. Writing these sections gives you the chance to think through each topic and begin to clearly define the company. In each section you’ll be given a series of questions to answer, laid out in the form of an assignment. Try just answering the questions briefly, then come back later and expand on each point. Don’t get bogged down on any one question. If you don’t know the answer, just make a note that you need to research that topic and come back to it later. Most importantly, just keep writing.

Here are the sections, including a writing assignment for each section:

Business Plan Section One: The Business Concept

The Business Concept section gives you the chance to describe the general situation of the company. Think of it as a way to introduce your readers to the business idea, but not overwhelm them with details. After reading this section, the reader should have a basic idea of what your company is about.

Your Writing Assignment:

Write brief answers (one or two sentences) to these questions:

In what industry is the business?
Where is the business located?
Is the business a start up or an existing business?
What products or services will the business provide to its customers?
Who are the company’s primary customers?
From where will the business buy its inventory? Or, if your business provides a service, who are the service providers?
How is the business legally formed (Sole Proprietor, LLC, Corporation) and who are the owners? Describe the owners experience in the industry, or who the owners will rely on for guidance if their experience is limited.
How much money, or capital, have the owners invested in the business so far?
State the purpose of the business plan (start up investigation, funding, planning, etc.).

Business Plan Section Two: Products or Services

This section gives you the chance to describe what products or services the company is in the business of providing to its customers. After reading this section, the reader should know exactly what the company sells; from where the company gets its inventory (or from where it sources its service providers); and how much net revenue will be made from the sale of one unit of that product or service.

Your Writing Assignment:

Write a paragraph describing each product or service the company will offer. At the end of each paragraph, state how much the company will charge for each product (which is the retail price) and how much the product will cost the company to buy, manufacture, or otherwise provide (generally the wholesale price, which is also called the cost of goods). Subtract the retail price from the cost of goods to establish the net revenue per unit for each product.

Discuss realistically why customers will buy the product (and not just because ‘it’s great!’). Then state from where the company will purchase the product or how the product will be manufacture (or describe the service providers the company will employ).

Then list the retail price, the cost of goods and the net revenue:

Retail Price	$10.00
Cost of Goods	-$ 5.50
Net Revenue	$ 4.50

Repeat this step until you’ve listed each product or service the company will provide.

Business Plan Section Three: Marketing

This section gives you the chance to define your company’s market and its customers. After reading this section, the reader should have a very good understanding of the industry your company is in; who the customer is; and how the company will reach those customers.

Your Writing Assignment:

Write a paragraph that answers each of these questions:

Describe in detail the company’s industry. Go online and find recent statistics that show the size of the industry and include those statistics in this section.
Describe exactly the company’s target customer. Why do they need your product? Where are they? Go online and find recent statistics that show the total number of customers that exist in your region.
Name at least three ways customers currently find the type of products your company will offer.
Name at least five advertising methods the company will use to attract customers and describe why each one is important.
Who are the company’s major competitors? Why are they good? Why are they bad?
Why will customers buy your company’s products rather than the competitions? How will your company beat the competition?

Business Plan Section Four: Management and Operations

This section gives you the opportunity to explain how the company will function, along with a description of the company’s management and personnel team. After reading this section, the reader should have a good understanding of how the company is to be run; who will run the company; how many employees the company will have and how much those employees are paid.

Your Writing Assignment:

Write a paragraph that answers each of the following questions:

Explain in general terms how the company will function. For example, if the company is manufacturing its own products and then selling the products through a distribution chain, describe this cycle step-by-step.
Name all of the necessary employees and describe their function. Include a monthly salary allocation for each permanent employee and include an additional 30% for benefits.
Name the owners and provide a bio for each one that describes their background and what skills they bring to the company.
Name the company’s advisors (an Advisory Group is always a good thing to have) along with the company’s accountant and attorney.

Business Plan Section Five: Finances

This is the section that gives you the chance to discuss the company’s basic net profit projections. After reading this section, the reader should know how much money will be left in the company after paying for all expenses, including inventory and personnel.

This is the section that generally strikes fear into the hearts of business plan writers. Fear not. This section is laid out in a sequence that you can follow, step-by-step. After thinking through each step, you’ll have a good idea of the company’s net profit forecast. Note, though, that this is a very basic, simple method to determining net profits. The sequence does not take into account other important considerations such as taxes, loan repayments, dividend distributions, and a host of other financial considerations.

After you’ve completed this section, bring your calculations to your company accountant. The best way to provide an in-depth analysis of your company’s financial projections is to have the forecasts professionally prepared. Include the accountant’s financial forecasts in your businesses plan and then include the name and phone number of your accountant.

After you’ve completed the financials, summarize your findings at the beginning of the section. This will let your reader know briefly what the financial situation of the company is before wading through the entire financial section. If you’re writing the business plan in support of a business loan, state the loan amount needed within the summary text.

Your Writing Assignment:

Follow this sequence to determine the company’s basic net profit forecast:

Note: If you know how to use spreadsheet software, by all means, use it. If not, just sharpen a pencil and get out a calculator.

Estimating Your Sales Forecast

First, state the retail sales price for each product or service. Make sure your sales price is realistic, based on your competitor’s pricing and the percentage margin you need to make a profit. Also, state how much the product or service will cost you to buy, manufacture, or provide. Make sure your cost for that product is realistic, based on quotes from suppliers. Then, subtract the sales price from the cost. That amount is the net revenue.
Your notes should look like this:

Estimated Sales Price for Product #1	$10.00
Estimated Cost for Product #1	$5.50
Estimated Net Revenue per Unit for Product #1 (Sales Price minus Cost)	$4.50

Next, estimate how many units of that product or service you expect to sell in the first twelve months. Think about how and why sales might increase (or decrease) over the first twelve months. Be conservative, because it’s far better to under-project rather than over-project.

Units Sold per Month for Product #1
January	20
February	25
March	30
April	35
May	40
June	45
July	50
August	55
September	60
October	65
November	70
December	75

Then you can project the net revenue for twelve months.

Net Revenue per Month (Net Revenue per Unit multiplied by Units Sold)
Month	Net Revenue	Units	Net Revenue per Month
January	$4.50	20	$90.00
February	$4.50	25	$112.50
March	$4.50	30	$135.00
April	$4.50	35	$157.50
May	$4.50	40	$180.00
June	$4.50	45	$202.50
July	$4.50	50	$225.00
August	$4.50	55	$247.50
September	$4.50	60	$270.00
October	$4.50	65	$292.50
November	$4.50	70	$315.00
December	$4.50	75	$337.50
Total	$4.50	570	$2,565.00

Do this for each product or service and then total each product’s net revenue together to come up with a 12-month net revenue forecast for all of your products or services. Let’s say, for our example, we come up with a total net revenue of $150,000 for all of our products for the first twelve months.

Estimate Your Expenses Make a list of all your expenses, excluding the cost of the product. We’ve already included the cost of the product in our net revenue projection. To add it as an expense would be redundant.

Think of everything that you'll be writing a check for each month: rent, payroll, utilities, advertising, insurance, accounting, legal, supplies, etc. Add an additional amount for miscellaneous expenses that you’re not aware of now. Come up with a monthly amount for each expense. Your list will look something like this:

Expenses	Annual Cost
Payroll	$60,000
Advertising	$6,000
Rent	$9,600
Etc...

And so on, until you’ve named everything and have come up with a 12-month total for each expense. Then add up each line’s 12-month total to come up with a total 12-Month expense for all of your expenses. Let’s say, for our example, we come up with $130,000 in expenses for our first twelve months.

Estimate Your Net Profit

Now, subtract your 12-month's expenses from your 12-month's net revenue. That amount is your 12-month's net profit. The net profit is what you’re left with after you’ve paid your bills:

Annual Net Profit
12-month Net Revenue	$150,000
12-month Expenses	$130,000
12-month Net Profit	$20,000

Finally, use the same sequence to find the company’s net profit projections for its second and third years. Add a percentage increase for annual growth.

That’s it for the main sections. Now you need to put it all together with an Executive Summary, a Cover Letter, and Exhibits.

Writing An Executive Summary

Writing An Executive Summary After you’ve completed the five main sections, you’ll need to write an Executive Summary. Typically, an Executive Summary is provided at the beginning of the document as a summary of the entire plan. It’s kind of a cheat sheet for the person reading the plan. They can get a good idea of what the company’s all about without reading the entire document. A very good way to write an Executive Summary is to write it last. After you’ve written each of the topic sections described above, go back and copy the most relevant paragraphs from each topic. String these paragraphs together and you’ll have a good Executive Summary that should be no more than two pages long.

Include Exhibits With Your Business Plan

A great way to provide more convincing information is to include Exhibits at the end of your business plan. Exhibits are supporting material that help substantiate the company, but don’t really fit in the body of the document. Items that you might include could be anything that helps substantiate sales, such as Letters of Intent from prospective customers. If the business is based on a product, photos or drawings of the products could be included as Exhibits. You might also include copies of your resume and letters of reference.

Include A Cover Letter When Distributing Your Business Plan

When you’re ready to begin distributing your business plan, draft a cover letter that you can personalize for each recipient. Your cover letter should be no more than one page long, should summarize the company, and should explain the reason you’re sending the plan to the recipient. If you’re asking the recipient for funding, then ask! Provide bullet points that highlight why the company is a good funding risk. Be specific about your request and say how you plan to follow up with the recipient.

Editing and Layout For Your Business Plan

As a rule of thumb, a basic business plan should be between 20-30 pages. If your business is fairly straightforward, or you’re creating an internal document for planning purposes, then fewer pages are appropriate because you have less to explain. If your business is very complex, risky, or you’re seeking a lot of capital from investors then you’ll probably write anywhere from 50-100 pages. Regardless of how complex your business concept, a business plan should never exceed 100 pages. If you’re past 100 pages you should start editing the document for conciseness.

For the most part, your business plan will (and should) change. It’s a living, breathing document that you’ll edit as your information and goals change. For that reason, don’t spend a lot of time or money formatting and printing the document. The best approach is the simple approach, not one that’s overly designed. A business plan that’s heavy on graphic design may look impressive, but experienced business plan readers are looking at the information in the plan, not the fancy graphic design.

The text layout should be pleasing to the eye, with enough white space to break up the pages. Use single line spacing, a business-like font (like Arial) and a readable font size (try 11pt). Write a lot of smaller paragraphs rather than a few really long ones. Also, expensive covers and binding are not necessary. Just use a good inkjet or laser printer to print the document on business-like, white paper. Use a color printer if any material is presented in color. If you feel it’s necessary, have the document spiral bound at your local self-serve printer, otherwise stapling is fine. And don’t make more copies than you need. You’ll just throw them out after you make inevitable changes.

In a nutshell, you must have your document proofread and edited by someone who has good writing skills or you might risk appearing unprofessional. Spelling counts -- and you may not have a second chance to make a good first impression. At the very least, use a spellchecker and develop a healthy respect for the people taking the time to read your document.

Start Writing Your Business Plan By Using An Example

If you can find samples of business plans in your industry, read as many as you can. A good sample business plan provides an excellent template on which you can model your business plan. Good samples are also an excellent source of information on how to actually run the business. Following a sample business plan can save you a lot of time, money, and frustration on many fronts and will cut your learning curve sharply.

Practice Explaining Your Business

After you’ve completed your plan (and before you start scheduling meetings with bankers or investors), practice explaining your business plan to people who can critique you. The more you practice, the better your actual presentation.

Summary

The best part about writing a business plan is that it allows a business owner the luxury of going through a critical learning curve before ever launching the business. Luxury? Hmmm. Seems like ‘luxury’ might be an odd choice of wording for such a daunting task. The effort of writing a business plan takes quite a lot of time, patience, and due diligence. But, gladly, when you reach the end of the business plan writing process, you’ll have in your hands the outline -- the blueprint -- with which to build your business. You’ll have educated yourself and knowledge really is power. Having that knowledge will feel like a luxury when you launch your business. And that’s a very good thing.

I wish you the best of success in your ventures.

Cynthia K. McCahon
SamplePlan, Inc.

©SamplePlan, Inc. All Rights Reserved.

Downloaded Sample Business Plans

Content on this page requires a newer version of Adobe Flash Player.