How to make an effective business plan

‘Failing to plan is planning to fail’ – the old adage is particularly true when it comes to business. Here we look at the why, what and how of writing an effective and successful business plan.

What is a business plan and why do I need one?

A business plan is a road map for your business – describing its strategy, objectives, financial forecast, sales and marketing. It helps you to make your new business idea clearer, identify potential problems and understand its viability, measure your progress and set your goals. No matter what type of business, it’s essential for securing investment and business loans and for convincing potential lenders, customers, suppliers and employees to support you. A typical plan might include:

• Product goals and deadlines for each month
• Monthly financials for the first two years
• Profit and loss financial statements for the first three to five years
• Balance sheet projections for the first three to five years

Startups and small businesses use business plans as a guide as their company progresses, while larger organisations tend to use business plans to keep track of high-level goals, financials and timelines.

A good business plan can help to determine when your company will first turn a profit and how much money you will need from investors. It can also act as a ‘shop window’ to attract investors, helping your business to grow.

Research has shown that companies that take the time to write a plan and review it regularly grow 30% faster than those businesses that don’t plan. They also perform better and are less likely to fail in the long run.

What are the four types of business plan?

Business plans, can vary as much as the types of business they serve, but can be grouped into four distinct categories according to their target audience and setting. A new staff member, for example, might not want to read the same in-depth version of your plan that might be important to an investor about to sink a lot of money into your business. Here are the four main types, as described by Entrepreneur:

1. The ‘Mini-Plan’

This is a pared down version of a business plan which gives the main highlights while telling the same story. It can be read quickly or downloaded to a phone or tablet to be read later. For a small business venture, this is typically all that is needed.

2. The Presentation Plan

Presenting your business plan as a powerpoint slide deck can be a strong way to communicate the story of your business from concept and mission statement through to financial forecasts, as well as answering on the spot any questions readers might have. It’s a great way of showing your passion for the business in a way that a document cannot. While a presentation might seem more ephemeral, it still requires in-depth planning if it is to be a success.

3. The Working Plan

Unlike the first two polished, external-facing plans, this type of plan is more of a tool to be used in the running of your existing business. It must include all of the details, including those you wouldn’t share externally, and can be more informal.

4. The ‘What-If?’ Plan

This is a contingency plan that is based on all the worst case scenarios you can imagine your business having to face, and survive – whether it’s loss of a key member of your team, or perhaps heavy price competition. “A contingency plan can soothe the fears of a banker or investor by demonstrating that you have indeed considered more than a rosy scenario,” says Entrepeneur.com.

How do I write a simple business plan?

Startups, entrepreneurs, and small businesses will not necessarily need a detailed business plan – in fact it may be more useful to write a super slimmed-down, one-page plan. To do this, Palo Alto Software’s Bplans suggests covering the following points:

1. The problem: What is the problem your service or product will solve or the need your customers have? Include any relevant supporting data.
2. The solution: How your new product or service solves the problem.
3. Business model: How you will make money, including the costs of production and selling, and the price that customers will pay.
4. Target market: Demographic and audience information – who is your customer and how many of them are there?
5. Competitive advantage: What makes you different from the competition and how will this lead to greater success or customer loyalty?
6. Management team: The management structure of your business, including current staff, ideal candidates, and any management gaps.
7. Financial summary: Key financial metrics including profit and loss statements, cash flow statements, balance sheet, income statement and your sales forecast.
8. Funding required: Clearly display what you need from investors.

What is the difference between a business plan and a marketing plan?

Both are aimed at selling your business to potential investors, so what’s the difference between a business plan and a marketing plan?

The main difference is the scope of what they cover. A business plan is a broad, all-encompassing plan which considers every aspect of your business from operations to HR and resources to milestones and sales.

Marketing plans are a sub-part of the business plan, with a much tighter focus on making customers aware of your product or service and interested in buying it. A marketing plan may touch on some of the same things that a business plan does, such as product pricing and market research, but viewed only through the prism of identifying and selling to potential customers.

What are the essential parts of a business plan?

Most business plans, whether simple one-pagers or traditional business plans will include the following business plan template elements:

Executive summary: This is your business plan in a nutshell – it should include the goal or mission of the business, its launch date, number of employees, locations, products, investor information, summary of financial information and future plans.

Product or service: Describe what your product is, why customers will need or want it – along with any intellectual property and R&D that will be needed to develop it.

Description: This should say why your business will be a success and why it will appeal to your target market.

Market analysis: An overview of the industry, target market and competitive analysis along with any regulations, trends, and purchasing and product cycles.

Organisational structure: A chart of the key people involved in the business, including owners, investors, employees and team members, as well as management team profiles.

Financials: Detailed financial information on the past five years, and projections for the next five years and beyond.

Funding:  How much money will be needed to operate the business, how it will be used and any future plans.

Marketing and sales: A marketing strategy explaining how you will get people to know about your business and how you will grow it.

How much does a business plan cost?

Business owners can download free business plan templates to fill in and write their business plan – for example, The Prince’s Trust and the UK Government offer a step-by-step guide to steer you through the process. 

However, business owners may also decide to outsource writing a business plan to a consultant or dedicated business plan writing company. In the UK this can cost anywhere between £500 for a mini-plan or one-pager to £4,000 for an in-depth, 50-page plan containing years of financial projections.

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