Guidelines for Writing a Business Plan

Having a formal business plan can be invaluable. It will likely be needed to obtain financing and can serve as a guide for the policies and planning review. You will articulate the strategies and tactics required for running your business. The plan can be shared with potential key employees and serve as a critical document when working with vendors and even when you sell your business. The process of preparing the plan forces you to focus on the issues that are essential for the success of your business.

To prepare your plan, you may want to organize it electronically or go old school with a three-ring binder with each numbered item divided into sections. Your business plan should be a “living document” reviewed often and modified as needed.
 

1. Title Page

The title page should include the business’s name, address, owners, and contact information (person, phone number, and email address). You should also include your logo if you have one. You may also want to include the date it was initially prepared and note the date of any changes or keep separate versions and a summary of revisions for a historical look back.
 

2. Executive Summary

A concise plan summary should run no more than one page, if possible. This high-level summary should give the reader insights into:

1. What your business does,
2. Who your customers are,
3. What your competitive advantage is,
4. The financial dynamics of your business,
5. Any capital requirements if it is being used to help secure financing and
6. A short business history, including significant developments and key employees.

While this sounds like a lot to summarize in less than a page, here is one sentence that covers the first, second, and some of the sixth items above. ABC Toys, Inc. was formed by John Hughs, the current majority shareholder, in 1989 to manufacture high-quality educational toys for sale to specialty toy retailers nationwide.
 

3. Table of Contents

The Table of Contents deserves a full page and a separate section because it will be the reader’s guide to the plan. For each section, write a one-sentence description of what is included.
 

4. Business Description

Please describe your business in a way that will help the reader understand how your business fits into its industry and marketplace. This includes an overview of the industry and significant competitors. Industry trends should be supported with references to authoritative sources such as government publications or industry analysis from professional research firms.

You should also include information on your business’s legal structure, including details on ownership, the principal employees, and your directors if you have a Board of Directors.

The business description should include information on your products or services. Be sure to describe how your products or services compare to your competitors. Any unique competitive advantages should be spelled out in detail. The reader of the plan will ultimately make decisions (financing, employment, purchasing, providing you professional services) based on their perception of the potential for the success of your business. Be sure to give them all the necessary information to arrive at a fully informed conclusion.
 

5. Marketing Strategies

No matter how good your products or services are, someone has to buy them. This section will include a great deal of information, the results of your research, and your thoughts.

• The Market – Include information on your market in terms of overall size, any geographic constraints, pricing constraints, growth trends, and your estimates of what share of that market you can secure.
• Positioning – How you intend to have customers and potential customers view your products or services compared to those of competitors is critical. Generally, you must convert the features of your products or services into perceived benefits for the customer. Then, you must have a convincing argument for why your products or services are superior to your competitors. Often, it comes down to a quantifiable differentiation by your product or service’s unique nature, quality, or pricing. In other cases, it may be through a level of service offered to customers.
• Pricing – Setting your prices can be one of the most critical factors in determining the ultimate success of your business. The pricing strategy description must include the financial aspects (making sure your prices cover your costs) and how you use your pricing to compete. Include your intention to use short-term and long-term pricing strategies to accomplish your goals – gain share, maximize current profits, or maximize the long-term value of your business.
• Distribution – How are your products or services sold, and who are your salespeople to the ultimate user? Do you sell directly to consumers, sell to retailers, or use manufacturer’s representatives? Include details on any distribution agreement you may have in place.
• Promotion – How do you inform potential customers about your products or services? Include descriptions of your advertising and public relations efforts and information on any direct mail or sales promotions you may use.

This is an excellent place to include copies of brochures, advertisements, and company literature you may use.
 

6. Competitive Analysis

You and the reader of your business plan must understand where your business fits in your industry. Not only should you identify your competitors, you should identify their strengths and weaknesses and how your business can take advantage of their weaknesses and compete against their strengths. Detailing why competitors are successful or unsuccessful demonstrates that you understand your market and provides insights into how to copy their successes and avoid their failures.

It may make sense to include a table with your comments on each competitor’s products, pricing, and service like this:

Competitor	Product	Pricing	Service
ABC	Very high quality with unique attributes.	Very expensive.	Multiple locations with highly knowledgeable personnel.
123	Generic with little ability to customize.	Least expensive.	Sales through the Internet with poor customer service.
XYZ	Generally, medium quality, but with the flexibility to upgrade or downgrade to customers’ desires.	Middle-of-the-road pricing, but customization flexibility can result in high or low prices.	Very capable service personnel, but with limited locations and availability.
My Company	Unique features are highly desirable to certain customers.	Expensive, but perception of quality is accepted by customers.	Highly trained and enthusiastic personnel are available in limited locations. Quality telephone support is available during business hours.

7. Development Plans

This section describes your plans for the growth of your business. How will you develop new products, new markets, and the organizational capabilities to grow into a larger, more profitable business? If the purpose of your business plan is to help secure financing, this section is where you can justify the need for the funding and describe how it will be used.

If your market analysis has identified the opportunity to expand your product offering, describe the new products you intend to develop, including the development costs and your goals for accessing the potential market. If you want to enter new geographic or customer markets, include as much specific information as possible on your plans for developing those markets.

The other critical issue to include in this section is to describe how your organization can and will grow. Specifically, discuss how you will supplement your management, marketing, and selling capabilities. Identify job functions that need to be filled or need to be strengthened. The readers of your business plan need comfort in knowing that the business can function efficiently and grow. They also need comfort in knowing that the human resources necessary for functioning and growth are in place or can be in place as required.
 

8. Operations

This section includes information on exactly how your business functions from the physical, marketing, and human resources perspectives.

Include descriptions of your locations, workflow, product development, order processing, and shipping, if applicable.

To describe your marketing and selling, you may want to organize it around the marketing definition: identifying and understanding potential customers’ needs, positioning your products or services as solutions to those needs, and then facilitating the purchase decision and fulfillment of that purchase.

In most, if not all, businesses, the ability to attract, retain, and motivate employees is critical. Include information on your hiring, employee evaluation, and compensation practices. Describe any employee benefit programs you have, such as formal insurance and retirement plans and any other perks you offer employees.
 

9. Management Plan

How are decisions made, and who makes them? An organization chart can present a formal look at the management structure but also include descriptions of how information flows among decision-makers. Do the structural and informal relationships among senior managers make crucial information available and considered as decisions are made?

For many businesses, especially new ones, the lack of a management succession plan is a serious weakness. If your company has a succession plan, be sure to describe it. If you do not have a plan in place, create and implement one. It is essential that the business can continue to function and grow if a key manager leaves, dies, or is no longer able to function effectively.
 

10. Key Personnel

Readers of the business plan will want to ensure that the people running the business are capable. Information on critical employees should include their current functions, company history, and professional backgrounds. The number of individuals included will vary depending on the size and nature of your company. At a minimum, information on the CEO, operational managers, marketing and financial executives, significant shareholders, and members of the Board of Directors should be included.

You should also include information on any employment contracts with these people.
 

11. Financial Information

This section should include historical and projected results. Audited (or unaudited) balance sheets and income statements for the past two or three years should be included. Income and cash flow projections for the current year and at least one additional year should also be included.

Depending on the nature of your business, you may also want to include detailed information on accounts receivable, inventory, fixed assets, investments, and even your insurance coverages.
 

12. Other Items

Your business plan should include a complete picture of your business, enabling readers to fully understand its nature and make informed decisions. Make sure they have everything they need.

Other items you may want to include:

• Information on essential patents or proprietary processes you may have.
• Information on contracts, agreements, or relationships with major customers.
• Information on contracts, agreements, or relationships with key vendors.
• Details on other important contracts or leases.
• Details on any current or threatened litigation.

Suppose you are using your business plan to request financing. In that case, you may also want to include information on your personal finances, such as tax returns or personal financial statements.
 

Closing Comments

Preparing a business plan can be exhaustive. Gathering the information, organizing it into a logical and understandable form, and then creating a document will take time and effort. However, it will have been worth the effort if your business plan helps you obtain needed financing, attract a key employee, market to customers, or ultimately sell your business.

By making your business plan a living document that is constantly updated and used as a guide for making operational decisions, you will make it an invaluable and integral tool for running your business more effectively and profitably.