A business plan is a comprehensive document that maps out a company’s journey. Commonly used to secure investment in the start-up stage, a business plan includes key sections, including the company’s objectives, market research, and financial forecasts.
In this article, we will explain what a business plan is and its purpose. We will also guide you through the main sections of a typical business plan, and share some top tips for preparing your own one.
What is a business plan?
A business plan explains who you are as a business, the goals you plan to achieve, and how you’re going to achieve them. It is an essential document that every business should have.
For small companies, the main purpose of a business plan is to attract investors. Whether you’re crowdfunding, pitching, or applying for a loan, you’ll need to explain some of the following key details:
- Who you are and the products/services you sell
- Your key demographic and market research
- Your competitors and what makes you stand out from the crowd
- Financials, including production costs, profit margins, and forecasts for the next few years
- Your exit strategy if things go wrong
A business plan explains why someone should invest in you. It should instil confidence in your company and show potential investors that you’ve done your research and risk analysis, and that you’ve got a successful future ahead.
What your business plan should include
There is no set way that a business plan should look. However, there are several key sections that it must cover:
1. Executive summary
Business plans typically start with an executive summary. This is a short but vital part, as it summarises the document and highlights its key takeaways – think of it as your company’s personal bio (or the first part of a Dragon’s Den pitch).
This section should be informative but concise, covering the basics of who you are, what you do, and why you do it. It should also express your future business aims and your financial forecasts for the first year.
Furthermore, add a snapshot of your background. For example, you may want to explain the reasons behind your company name, what inspired you to form this particular business, and any relevant personal experience you might have. The idea is to inform but also fuel more interest, encouraging a potential investor to read on and find out more about your company.
You might find it easier to construct your business plan first and return to the executive summary at the end. This will ensure that this opening section doesn’t mention anything that isn’t explained later on.
2. About the owner
The next part of your business plan is all about you, the owner. Essentially, this is your CV. Its purpose is to explain why you have started (or going to start) your new company. Here, you should cover the following details:
- Why you want to run your own business
- Work experience (perhaps you’ve formed a company before or worked in the same field)
- Skills, qualifications, and education (including any relevant certificates and proof of training)
- Hobbies and interests
Additionally, if you have any business partners, they should each provide this personal information. Remember that everything you include here should express how it’ll contribute to your company’s success.
3. Your products and services
Here, explain the products or services (or both) that you sell. For instance, if you own a hair salon, you’ll be selling hairstyling services. Perhaps you’ll be selling some products as well like hair tools and treatments.
You’ll need to provide as much detail as possible, so that readers can easily understand what you do, especially if your business function is more niche. For example, you may have developed a brand new app that people aren’t familiar with, or maybe you have a product that plugs a hole in the market.
Additionally, you should express any particular timelines for the rollout of your products/services.
Going back to the hair salon example, you might start your business by offering basic cutting and colour services. As you expand and build a solid customer base, you might want to partner up with a haircare brand and use and promote their products in your salon.
The main purpose here is to explain how your products and services will evolve, and what you need to do to achieve those timeframes.
4. Your customers
Next, explain who you sell (or are going to sell) your products/services to. Is it businesses (B2B), consumers (B2C), or both? You want to paint a picture of your typical customer in this section. In their profile, you should include:
- Their age bracket
- Average annual income
- Geographical area
- Business size (if applicable)
- The industry they operate in (if applicate)
- How your products/services are relevant to them and why they’d choose to purchase them
- How and why they’d choose to support your business over others (maybe it’s your expertise, your prices, or trendy products)
If you’re already trading, portraying your typical customer is fairly straightforward. If you’re preparing to trade, use market research to understand your target audience and explain how many planned orders you have in the pipeline (if applicable, supported by pre-orders or letters of intent).
5. Market research
Now that you’ve described your typical customer, the next step is to describe your potential one. In other words, as your business expands, what does your future demographic look like? To do this, you should conduct thorough market research.
You should explain your findings from both primary and secondary research.
This is information that you have collected yourself directly from your target market. This involves methods like surveys, interviews, and focus groups.
It also includes test trading, whereby you put your products/services to the test and see if they sell before you officially launch. You can run test trades through pop-up shops/stalls, or by selling them on marketplace platforms.
This is existing data that helps you understand your target market further. This includes sources like websites (authoritative sites like the gov.uk website are best), books, study reports, and public statistics (such as Statista). You should also assess your competitors’ customers to better understand your own.
Remember to be as detailed as possible in this part of your business plan. Include all your findings (good and bad), explain what you’ve learned, and how you’ll apply those learnings to strengthen your business.
6. Marketing plan
In this section of your business plan, you should outline your marketing strategy – how are you getting customers to engage with your products/services? Your marketing plan must reflect your current and future efforts to bring your brand to market.
You should also demonstrate a comprehensive strategy that encompasses multiple marketing avenues. Here are some common methods and the information they should cover:
You’re likely to have a website up and running already. Explain how people can (or will be able to) find your website (such as sponsored advertising to improve its visibility on search engines), and be sure to include the web address, so that readers can access it in their own time.
If you don’t have a website yet, outline what it’s going to look like, what its main features will be, and how much it’ll cost you to set up and maintain it.
If your brand has a social media presence, summarise which platforms you use and how many followers you have. Then, explain what your plans are for boosting sales and brand awareness. For example, maybe you’re running targeted ads, or maybe you’re collaborating with an influencer.
There are certain events like trade shows, exhibitions, and networking events, specifically designed for small businesses to penetrate their markets. If you’re already taking part, explain which events you attend, how often, whether they are business or consumer events, how much it costs you to attend, and how they benefit your business (e.g. boosting sales, product trials, or newsletter sign-ups).
Word of mouth
A traditional yet incredibly effective form of marketing is word of mouth. Ultimately, people want to know that the brand they choose will be money well spent. So, they often turn to friends and family for tried and tested recommendations.
People naturally recommend products and services when they’ve had a good experience. However, you can also boost those recommendations by offering your customers an incentive, such as a discount on their next purchase, or an entry into a prize draw if they refer a friend.
There are many other marketing strategies that you could opt for. If you haven’t carried out any campaigns yet, be sure to do your research, choose the right strategies for your business, and explain your activation plans and cost implications.
7. Your competitors
Understanding your competitors is essential to scale your business. Regular competitor research will help you visualise your position in the market, evaluate your company’s strengths and weaknesses against others, and make sure that you keep up with trends.
Another important purpose of conducting competitor research is to be proactive. In other words, spotting the opportunities that they are missing and filling those gaps to stay ahead. Your research should include:
- Direct competitors: Businesses that offer similar products and services to you (e.g. if you run a hair salon, a direct competitor will be another hair salon in your target area)
- Indirect competitors: Businesses that sell different products to you, but operate in the same category (e.g. if you run a coffee shop, another store selling tea and cakes is an indirect competitor, as both businesses are in the food and drinks category)
- Substitute competitors: Businesses that sell different products to you, but target the same customers
When covering each of these sections, you should outline your company’s strengths and weaknesses versus your competitors and your USPs.
In this part of your business plan, you need to explain the practicalities of your products or services reaching your customers. You should answer questions like:
- How long does it take you to make your product? (If you sell a service, explain how long do you need to order and receive stock from a supplier)
- How long does it take you to deliver the finished product/service to customers?
- How does your business get paid for its products or services? (e.g. cash, card, BACS, upfront, monthly etc.)
- Who are your suppliers and why have you chosen to work with them?
- Where do you carry out your business activities? (e.g. from home, a commercial office, or a retail outlet)
- What equipment do you need to be able to carry out your business activities? (e.g. a computer or certain tools, and do you already have them or do you need to source them? How much will that cost?)
- What transport do you need? (e.g. how do you visit clients? Maybe you need a van to store large/heavy-duty tools)
- Do you have business insurance? (including the right level of cover)
In this part of your business plan, you need to explain your costs and pricing strategy. If you’re already trading, you should show your profit margins and markups, by outlining your production costs and the final price you charge your customers. If you’re not trading yet, present a forecast of what you expect these costs to be.
To work out your profit margins, divide your gross profit by your sales revenue and multiply the answer by 100. To work out your markup, divide the gross profit per item (or service) by its production cost and multiply by 100. You can try the Xero calculator to make it easier.
Once you’ve done all your calculations, be sure to check your prices against your competitors, to see how you compare to others in your market. If your prices are below average, perhaps you need to increase them. Alternatively, if they’re above average, think about the reasons why people should pay more for your products/services.
10. Financial forecasts
You now need to let potential investors and business partners know how much money your company expects to make in the next year, and how you’re going to achieve those numbers. You should present realistic forecasts, as well as a worst-case scenario.
Your sales calculations should be monthly, starting from the first month of trading. To work out your projected monthly sales, multiply the number of sales you make (or think you’ll make) per day by 4.3 (the average number of weeks per month). Then, multiply your projected monthly sales by your profit margin to see your turnover.
Finally, your financial forecasts should show realistic numbers, as well as worst-case scenarios. Think about any external factors that might affect your projections (such as the weather or changes in the financial market).
As part of your financial planning, you should also present a cash flow forecast. This is the net amount you expect to go in and out of your company. You can do this easily with a Xero cash flow calculator, for which you’ll need the following monthly costs:
- Projected monthly sales
- Other revenue
- Total value of unpaid invoices
- Equipment and supplies
- Any other costs
11. Exit strategy
The final section of your business plan is your exit strategy. As much as people naturally want to be positive and their businesses to succeed, the reality is that things might not always go to plan.
When it comes to seeking investment, it’s essential to be honest and transparent about your company’s potential. Having a backup plan also shows that you’re thorough and prepared, and you’ve considered all the possible outcomes – good and bad.
Think about your answers to some of these questions:
- How long can your business last if nothing changes? In other words, if your company continues on its current financials, how long will it survive without additional financing?
- Do you or your company have any existing debt that could impact the success of the business? If so, what steps will you take towards paying it off?
- If your business starts to lose money, what will/can you do? For instance, can you cut costs by changing suppliers, or boost your sales?
- What if you fall out with your business partner(s)? You should have relevant agreements in place that’ll help you deal with broken professional relationships, without affecting the business.
- How will you ensure that your business remains competitive? For example, will you regularly train staff or take part in industry events to keep up with the market?
- If you have to close up shop, will you sell or liquidate?
- How will all the above affect your employees and existing investors/stakeholders?
By having an exit strategy, you’re showing that you have thought your business idea through from all angles. Remember that they’ll be looking for a realistic, future-proof business plan, and a thorough exit strategy shows that you’re prepared.
So, there you have the main features of a business plan. Its overall purpose is to inform readers about who you are as an individual (the business owner), what your company does, why it does it, and what its future looks like.
This comprehensive document is normally intended for securing financing, such as bringing new investors on board or applying for a business loan.
We hope you have found this article helpful in understanding how to write a business plan. If you have any questions, please post them below.