PlanWare

White Paper - Writing a Business Plan

1. Why Write a Plan?

The preparation of a written business plan is not the end-result of the planning process. The realization of that plan is the ultimate goal. However, the writing of the plan is an important intermediate stage - fail to plan can mean plan to fail. For an established business it demonstrates that careful consideration has been given to the business's development, and for a startup it shows that the entrepreneur has done his or her homework.

Purpose of the Plan

A formal business plan is just as important for an established business, irrespective of its size, as it is for a startup. It serves four critical functions as follows:

• Helps management or an entrepreneur to clarify, focus and research their business's or project's development and prospects.

• Provides a considered and logical framework within which a business can develop and pursue business strategies over the next three to five years.

• Serves as a basis for discussion with third parties such as shareholders, agencies, banks, investors etc.

• Offers a benchmark against which actual performance can be measured and reviewed.

Just as no two businesses are alike, so also with business plans. As some issues in a plan will be more relevant to some businesses than to others, it is important to tailor a plan's contents to suit individual circumstances. Nonetheless, most plans follow a well-tried and tested structure and general advice on preparing a plan is universally applicable.

A business plan should be a realistic view of the expectations and long-term objectives for an established business or new venture. It provides the framework within which it must operate and, ultimately, succeed or fail. For management or entrepreneurs seeking external support, the plan is the most important sales document that they are ever likely to produce as it could be the key to raising finance etc. Preparation of a comprehensive plan will not guarantee success in raising funds or mobilizing support, but lack of a sound plan will, almost certainly, ensure failure.

Importance of the Process

Preparing a satisfactory business plan is a painful but essential exercise. The planning process forces managers or entrepreneurs to understand more clearly what they want to achieve, and how and when they can do it. Even if no external support is needed, a business plan can play a vital role in helping to avoid mistakes or recognize hidden opportunities. It is much easier to fold a sheet of paper than a business.

For many, many entrepreneurs and planners, the process of planning (thinking, discussing, researching and analyzing) is just as, or even more, useful than the final plan. So, even if you don't need a formal plan, think carefully about going through the planning process. It could be enormously beneficial to your business.

Anticipate many weeks of hard work and several drafts of the emerging plan to get the job right. A clearly written and attractively packaged business plan will make it easier to interest possible supporters, investors etc. A well-prepared business plan will demonstrate that the managers or entrepreneurs know the business and that they have thought through its development in terms of products, management, finances, and most importantly, markets and competition.

For more guidance on these matters, check the white paper offering Insights into Business Planning, the Checklist for Preparing a Business Plan and the comprehensive Business Plan Guide.

In the following sections, we discuss the preparation of a strategic plan and present ideas for preparing an outline of a business plan and writing the detail.

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2. Start with a Business Strategy

A short strategic plan (2-3 pages) can provide a very useful foundation on which to base a much more detailed and comprehensive business plan. If you don't have a sensible strategic plan, how can you realistically write a sensible business plan? Use a short strategic plan as the foundation for a more comprehensive business plan.

As the prelude to developing a strategic plan, it is desirable to clearly identify the current status, objectives and strategies of an existing business or the latest thinking in respect of a new venture. Correctly defined, these can be used as the basis for a critical examination to probe existing or perceived strengths, weaknesses, threats and opportunities. This then leads to strategy development covering the following issues which are discussed in more detail immediately below:

• Vision

• Mission

• Objectives

• Values

• Strategies

• Goals

• Programs

Vision

The first step is to develop a realistic Vision for the business. This should be presented as a pen picture of the business in three or more years time in terms of its likely physical appearance, size, activities etc. Answer the question: "if someone from Mars visited the business, what would they see or sense?"

Mission

The nature of a business is often expressed in terms of its Mission which indicates the purposes of the business, for example, "to design, develop, manufacture and market specific product lines for sale on the basis of certain features to meet the identified needs of specified customer groups via certain distribution channels in particular geographic areas". A statement along these lines indicates what the business is about and is infinitely clearer than saying, for instance, "we're in electronics" or worse still, "we are in business to make money" (assuming that the business is not a mint !). Also, some people confuse mission statements with value statements (see below) - the former should be very hard-nosed while the latter can deal with 'softer' issues surrounding the business.

Objectives

The third key element is to explicitly state the business's Objectives in terms of the results it needs/wants to achieve in the medium/long term. Aside from presumably indicating a necessity to achieve regular profits (expressed as return on shareholders' funds), objectives should relate to the expectations and requirements of all the major stakeholders, including employees, and should reflect the underlying reasons for running the business.

Values

The next element is to address the Values governing the operation of the business and its conduct or relationships with society, customers, employees etc.

Strategies

Next are the Strategies - the rules and guidelines by which the mission, objectives etc. may be achieved. They can cover the business as a whole including such matters as diversification, organic growth, or acquisition plans, or they can relate to primary matters in key functional areas, for example:

• The company's internal cash flow will fund all future growth.

• New products will progressively replace existing ones over the next 3 years.

• All assembly work will be contracted out to lower the company's break-even point.

Goals

Next are Goals. These are specific interim or ultimate time-based measurements to be achieved by implementing strategies in pursuit of the company's objectives, for example, to achieve sales of $3m in three years time.

Programs

The final elements are the Programs which set out the implementation plans for the key strategies.

It goes without saying that the mission, objectives, values, strategies and goals must be inter-linked and consistent with each other. This is much easier said than done because many businesses which are set up with the clear objective of making their owners wealthy often lack strategies, realistic goals or concise missions.

For more information on strategic planning, refer to other papers in this series entitled Developing a Business Strategy (and its accompanying worksheet) and Devising Venture Strategies, and consider utilizing the free On-line Strategic Planner. See also a sample strategic plan - you may wish to print it for reference purposes.

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3. Before Writing Your Plan

This section deals with preparatory issues, structure & content, and length & time scale for the preparation of a detailed plan.

Preparatory Issues

Before any detailed work commences on writing a comprehensive business plan, you should:

• Clearly define the target audience

• Determine its requirements in relation to the contents and levels of detail

• Map out the plan's structure (contents page)

• Decide on the likely length of the plan

• Identify all the main issues to be addressed.

Shortcomings in the concept and gaps in supporting evidence and proposals need to be clearly identified. This will facilitate an assessment of research to be undertaken before any drafting commences. Bear in mind that a business plan should be the end result of a careful and extensive research and development project which must be completed before any serious writing of a plan should be started. Under no circumstances should you start writing a plan before all the key issues have been crystallized and addressed.

To get started, use the outline below to prepare the basis for your plan. Bear in mind that if a credible and acceptable outline plan cannot be compiled then it is highly improbable that a more comprehensive plan can be prepared.

For further practical guidance on these matters, review the following:

1. White paper offering Insights into Business Planning.

2. Checklist for Preparing a Business Plan.

3. Comprehensive Business Plan Guide.

Structure & Content

A typical business plan comprises the following main elements:

1. Brief Introduction setting out the background and structure of the plan.

2. Summary of a few pages which highlights the main issues and proposals.

3. Main Body containing chapters broken into numbered sections and subsections.

4. Appendices containing tables, detailed information, exhibits, etc. referred to in the text.

The outline presented below in conjunction with the comprehensive Business Plan Guide could serve as the basis for a detailed business plan.

Length & Time-scale

Whilst the sheer length of a business plan may bear no relation to the underlying prospects of a business, it is likely that a well-developed plan would be at least twenty pages long plus appendices.

The elapsed time needed to produce a detailed plan might be between twenty and one hundred days. This would be determined not only by the complexity and scale of the venture, but also by the scale and maturity of the business and relevant experience and skills of the management team. Whilst the task of writing the plan itself may only take a relatively short time, be sure to allocate enough time to the research, preparatory work and the underlying thinking and discussion.

For more guidance on the length of a plan and the time-scale involved, have a look at Insights into Business Planning.

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4. Planning to Plan

Develop an Outline

Start by defining an outline (i.e. a table of contents) of your plan. This will allow you to to concentrate on the essentials of planning the business rather than becoming too absorbed in the detailed drafting of your plan. It will allow you to see the wood from the trees.

Having devised the basic outline for your business plan, the next task is to expand this to include subheadings and appendix titles (see the Business Plan Guide for detailed suggestions). This extended structure should be critically reviewed to ensure that all the salient elements of the plan are included and that it has a logical flow. This approach should also ensure that the plan has an appropriate levels of detail and is correctly targeted at its audience - investors, directors/shareholders, financial institutions etc. For example, a structure which is mainly devoted to detailed technical descriptions of products would be completely unsuited to a plan being used to raise bank finance.

Prepare a Work Program

Once the plan's structure has been defined, it can be used as a checklist and basis for a work program and timetable to complete the plan. This work program will often entail extensive research and thought prior to the commencement of writing. For example, formal market research may be needed before sales volumes and prices can be determined. Another example: professional advice may be required to assess capital expenditures in relation to the acquisition of premises and so on.

The work program could correspond to key sections of the proposed plan and could include timetables, resource allocations and cost estimates as indicated in the following chart:

Further Suggestions

Some additional tips and suggestions:

• Be absolutely clear about the primary purpose and audience of the plan from the outset. If the plan has to serve multiple purposes, consider producing tailored versions (or tailored summaries).

• Allow enough time to produce revised drafts of the plan - three/five drafts would not be unusual.

• Write the Introduction, Summary and Conclusion of the plan only after the plan's main parts have been finalized.

• At an early stage, make some high-level sales and financial projections (covering 1-3 years) to explore the general direction and size of the business, likely viability and possible funding amounts and mix. For this purpose, consider using the free On-line Financial Planner or the Quik-Plan facility within Exl-Plan, our range of financial planners for use with Excel.

• If the elapsed time needed to prepare the plan and commence its execution is lengthy, set the start date for financial projection close to the commencement of execution. For example, if you begin preparing a plan in January and hope to raise startup finance by October, the start date for projections might be set to September. Any expenses incurred before this date could be rolled up into the opening balance sheet for the projections.

• Seek external assistance sooner rather than later. This may take the form of software tools, consultancy assistance in the form of specific assignments, or mentoring and counseling on an as required basis.

• If planning a significant business, ensure that a management team has been identified (and possibly in place) before the plan is finalized.

• Identify and cultivate possible key recipients of the plan during the plan's preparation. This will ensure that when the plan is finally presented, these contacts will have some prior knowledge of its contents and the promoters and, where appropriate, the views of contacts may have been taken into account during the preparation process.

• Start compiling the plan at the sections devoted to market research/analysis and sales forecasts/plans, or with details of the proposed product/service offerings. Leave the detailed financial projections aside until all details in relation to sales, costs, expenses, operations, capital investment and possible sources/types of finance have been resolved

For further help, check out:

• The white paper entitled Insights into Business Planning which has been based on the views of hundreds of people who have prepared business plans

• The 30-point Checklist for Preparing a Business Plan.

• The comprehensive Business Plan Guide.

If you have a problem or query relating to the compilation of a business plan which is not covered in the various white papers, you may wish to use our free and confidential On-line Business Plan Advice Service.

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5. Develop an Outline of Your Plan

The next section presents an outline structure for a business plan. Feel free to change this outline to suit your project and its state of development. It can be readily expanded to become a 'full-blown' business plan by extending the level of detail as explained in the Business Plan Guide.

The suggested page lengths for a comprehensive plan are given in parenthesis after each section's heading within the outline. A small, straightforward business should work within the minimum page lengths whereas a large, complex business seeking a substantial external investment might hit the maximum page lengths. Note the importance of marketing and sales in terms of the suggested number of pages for these sections. For more guidance on the length of business plans, have a look at Insights into Business Planning.

Avoid going into too much detail within the plan's body by placing detailed or supplementary material in accompanying appendices. Bear in mind that most investors, bankers etc. dislike having to read overlong business plans just as much as entrepreneurs and managers dislike writing the plans in the first instance!

Work on the assumption that whoever reads your plan will be completely unfamiliar with your business or project and will be seeking answers to relatively basic questions and key issues, for example, what will the business do, will it make money etc.

For further information on business planning issues, refer to other papers in this series which cover insights into business planning, financial planning, cashflow forecasting, strategic planning, devising venture strategies and managing working capital. You can use our free On-line Financial Planner to produce 'first-cut' five-year projections for your business. Finally, you should review the contents of the Business Plan Guide.

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6. Business Plan Outline

Use the outline below as the "road map" for your plan and then write up each section concisely but comprehensively. Only address matters of real substance and major significance within the main sections of the plan.

1. Introduction (1)

Introduce the plan. Explain who wrote it, when and for what purpose. Give contact details. See 1. Introduction within the Business Plan Guide for more info.

2. Summary (1-3)

Write last. Present the highlights of the plan. See 2. Summary within the Business Plan Guide for more info.

3. Mission, Strategies etc. (1-2)

What are the central purposes and activities of the planned business? What are its SWOTs? What are its major objectives, key strategies and prime goals ? See 3. Mission, Strategies etc. within the Business Plan Guide for more info.

4. Present Status (1-5)

Summarize achievements and performance (financial, sales, technical etc.) to date. Introduce the stakeholders in the business. See 4. Present Status within the Business Plan Guide for more info.

5. Product/Service Offerings (1-3)

Keep descriptions short and confine them to broad groups. Explain briefly what makes them special. See 5. Product / Service Offerings within the Business Plan Guide for more info.

6. Profiles of Target Markets (3-6)

Size, segments, trends, competition and user/customer profiles. See 6. Profiles of Targets Markets within the Business Plan Guide for more info.

7. Marketing Strategies, Sales Plans & Projections (3-6)

How will the business market its products/services and sell to customers? What sales will be achieved in its main markets? How will it deal with competitors ? Indicate costs. See 7. Marketing Strategies, Sales Plans & Projections within the Business Plan Guide for more info.

8. Technology and R&D (0-2)

If relevant, explain progress, plans, resources and highlight any technological advances. See 8. Technology and R&D within the Business Plan Guide for more info.

9. Operational/Manufacturing Plans (2-5)

Cover distribution & service activities and/or manufacturing. Highlight major elements only. Indicate organization, resources, costings etc. See 9. Operational / Manufacturing Plans within the Business Plan Guide for more info.

10. Management & Administration (2-3)

Introduce the proposed management team, structure etc. Indicate administrative arrangements and specify overhead costs. See 10. Management & Administration within the Business Plan Guide for more info.

11. Financial Projections (4-8)

Use simple tables to present key financial projections e.g. summary P&L, cashflows, balance sheets and key ratios. Place the detailed analyses in appendices. See 11. Financial Projections within the Business Plan Guide for more info.

For more help, download a trial version of our financial planners - Exl-Plan (for Excel) - and review its annual output reports and Textual Summary Report or use our free On-line Financial Planner to produce 'first-cut' five-year projections for your business.

12. Funding Requirements & Proposals (0-2)

If applicable, summarize funding requirements, possible sources, likely terms, and, for investors, the projected return on their investment. Be realistic!! See 12. Funding Requirements & Proposals within the Business Plan Guide for more info.

13. Implementation (1-3)

Explain the major decision points, time scale and actions required by management and others to progress the plan. See 13. Implementation within the Business Plan Guide for more info.

14. Conclusion (1)

Indicate why the business will succeed and why it should be supported. See 14. Conclusion within the Business Plan Guide for more info.

Appendices

Use appendices at the very back of the plan to present important background data and detailed plans. This will avoid disrupting the flow of the plan or cluttering it with excessive detail. See Appendices within the Business Plan Guide for more info.

For further information on business planning issues, refer to other papers in this series which cover insights into business planning, financial planning, cashflow forecasting, strategic planning, devising venture strategies and managing working capital. You can use our free On-line Financial Planner to produce 'first-cut' five-year projections for your business. Finally, you should review the contents of the Business Plan Guide.

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7. When You Write the Plan

The following suggestions may be of assistance when drafting the plan:

1. Build the detailed business plan on a carefully considered outline (table of contents) - see the business plan outline above.

2. The most important and difficult sections to prepare relate to marketing and sales as these can make or break not only the business plan but also the business itself !

3. Support market and sales projections by market research. Ensure that there is a direct relationship between market analysis, sales forecasts and financial projections. Assess competitors' positions and possible responses realistically.

4. Be realistic about sales expectations, profit margins and funding requirements. Ensure that financial ratios are in line with industry norms. Do not underestimate the cost and time required for product development, market entry, securing external support or raising finance. Consider the possibility of the halve-double rule - halve the sales projections and double the cost and time required.

5. Restrict the level of detail on product specifications and technical issues.

6. The financial projections are likely to be straightforward but decide on a sensible level of detail as regards the time horizon etc. Consider using a personal computer and a financial modeling package for the projections.

   • See Invest-Tech's range of financial planners - Exl-Plan (for Excel) - which can be downloaded from the PlanWare site.

   • For further specific information on financial planning for businesses, refer to the page entitled Preparing Financial Projections accessible from the PlanWare site.

   • You can use our free On-line Financial Planner to produce 'first-cut' five-year projections for your business.)

7. If looking for external equity, be realistic about the value of the business, risks involved and possible returns, and be sure to indicate possible exit mechanisms. Put yourself in the shoes of an investor and remember the golden rule - he who has the gold makes all the rules.

8. The management section of the plan is of crucial - experience, balance, ability and commitment. If a new venture is involved, then management is likely to be its only real asset. Consider formation of a management team or strengthening management as part of the plan. Remember the five ingredients of a successful business are management, management, management, market and product (in that order, and not in the reverse order as some inventors and entrepreneurs might like to think).

9. Be positive but realistic about the business's prospects and explicitly recognize and respond honestly to shortcomings and risks.

10. When writing the plan:

    • avoid unnecessary jargon

    • economize on words

    • use short crisp sentences and bullet points

    • check spellings

    • concentrate on relevant and significant issues

    • break the text into numbered paragraphs, sections etc.

    • relegate detail to appendices

    • provide a contents page and number pages

    • write the summary last.

11. Get a qualified outsider to review your plan in draft form and be prepared to adjust the plan in the light of comments secured and experiences gained.

12. External help and guidance in preparing a business plan can be extremely valuable. If outside help is used, make sure that the resultant plan remains your own and not that of your advisers.

13. If presenting the plan to outsiders, attach appendices and number pages. Add a contents page and bind it within attractive covers.

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8. Introducing Invest-Tech & PlanWare

Invest-Tech develops and sells a range of financial planning packages - Exl-Plan and Cashflow Plan - for businesses of all sizes & types. Trial versions of all products can be downloaded from our PlanWare site and many other sources on the 'Net.

We also offer an extensive range of commercial software for writing business plans, market planning, assessing business ideas and evaluating strategies.

PlanWare also features:

• Papers on cashflow, financial, strategic and business planning topics.

• Advice on getting new business ideas, managing working capital, devising venture strategies and much more.

• Free On-line Financial Planner to produce 'first-cut' five-year projections and freeware business plan template (Word format).

• Pages devoted to famous business quotations and examples of bad business advice and mistakes.

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9. Copyright & Legal Stuff

This page and any related files are subject to the normal rules about copyright and attribution. If you wish to make an electronic or printed copy for YOUR PERSONAL USE, you are free to do so PROVIDED THAT IT IS UNMODIFIED AND PROVIDED THAT IT REMAINS COMPLETE IN ALL RESPECTS. All copying for commercial or educational uses requires our written prior permission. You are free to quote short extracts provided our site's URL is acknowledged as the source.

© Copyright 1999-2003. Invest-Tech Limited. All rights reserved.

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