How to Write an Effective Business Plan
Business Planning is Very Important for Business Success
A good Business Plan is the most important (and often overlooked) part of running or starting a business, expanding a business or obtaining finance for a business. If a Business Plan is written properly, starting, expanding or running a business, and / or obtaining finance, is much easier, leaving less room for error and failure. While you cannot predict everything that can happen in a business’ future, a good Business Plan helps you avoid certain pitfalls, overcome obstacles, while anticipating and creating opportunities.
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Types of Business Plans
There are different Business Plan Formats for various circumstances. You should always start with a Comprehensive Business Plan to run your particular business venture or project. Once you have completed your Comprehensive Business Plan, you can take certain aspects of that Plan to form other Business Plans for various situations, like a Funding Business Plan for a Bank or Venture Capital Firm.
Business Plan Guide & Workbook – Do Your Own Plan! For a step by step guide to effective business planning, please see our Comprehensive Business Plan Guide and Workbook.
The Business Plan Process is Critically Important
Formats are important for Business Planning but most important is the Process. The Process is a building block system that is continuous, systematic and comprehensive. It involves the entire Company, produces effective decision making and executes those decisions in a Strategic Plan. A good Business Plan also measures the relationship between Expectations and Performance- it evaluates your Company’s progress or lack thereof. A Business Plan’s goal is to create the future for your company- being proactive versus reactive in relationship to your market niche.
Developing a Business Plan is Both Art and Science
It is said, writing a good Business Plan is more art than science. It is good to have a proven process and format, but you can’t just fill in the blanks on a master planning program or document. It is a matter of asking yourself the right questions within that proven process and format that brings about a successfully written Business Plan (see the Tips Section later on in this article for more details).
A Comprehensive Business Plan has Eight Sections
- Executive Summary
- Company Overview
- Management and Operations
- Products and Services
- Marketing Plan
- Strategic Plan
Table of Contents
Before discussing each section of the Business Plan, let’s cover one of the most important parts of the Business Plan, the Table of Contents. The Table of Contents should be very detailed, so that the person reading and using the Business Plan can find and access the information needed very easily and quickly. You can write a great Business Plan with all the necessary information in it, but if you can’t easily find or access that information, then the Business Plan ceases to be a useful tool.
The Table of Contents should be organized by each section of the Business Plan and the specific page numbers of each section and sub-section. For instance, in Section One, The Executive Summary, you should be able to find the Management sub-section very easily. It is strongly recommended that a Business Plan be organized as an online document, with the sections and sub-sections hyperlinked to the page where that information resides. This way you can access information very quickly on a computer online versus having to flip through the paper document to find the information.
The Organization of the Business Plan is quite important. The 8 Section Business Plan is in a specific order from which each section builds on the previous section. There is fluid thought and reasoning employed to achieve a Business Plan which reaches its specified purpose (i.e. to run a business, to buy a business, to expand a business, to enter a joint venture, to finance a business, to complete a particular project). Although we discuss the Executive Summary as the first section of a Business Plan, the Executive Summary should be written last. With the exception of the Executive Summary, all the other sections should be written in the order they are listed. Remember that a Business Plan is a Business Document; you are NOT writing prose. It should contain a very precise and concise format and be organized into numbered sections and sub-sections, which contain specific information in short, paragraph form. As an example: Executive Summary / Management Section:
I. Executive Summary
A. Mission Statement
B. Business Plan Purpose
1) John Doe, CEO/ Founder : Mr. Doe has been in the tire distribution business for 20 years.
a) Mr. Doe has capability to run this start-up due to his developed skills:
(i) “skill a”
(i) “skill b”
Business Plans should be written in paper form, computer format and online format. Computer Format means the Table of Contents are hyperlinked so you can easily access certain information quickly and precisely in one click on your computer. By using the Executive Summary example above, the Table of Contents for the Management Section, CEO Skills, should appear as such:
Table of Contents:
I. Executive Summary
A. Mission Statement (hyperlinked) : page 1
B. Business Plan Purpose (hyperlinked) : page 1
C. Management (hyperlinked) : page 1
1. John Doe, CEO/Founder (hyperlinked) : Page 1
This article is an excerpt of a Chapter from our Business Success Guide. For the rest of the Chapter, please visit: The Business Success Guide.
The remaining major sections of the book’s Chapter have been left below as an outline so you can get an idea of what else is contained in this Chapter of the Business Success Guide.
Publishing The Business Plan
You should have your Business Plan published securely, online (via password access) so that certain key managers or employees can access and manage remotely. Also, you can use an online Business Plan to attract funding for your venture…
The Business Plan is a Dynamic, Living Document
A Business Plan is a dynamic document, as it changes on a daily, weekly and monthly basis…
- Be readily changed, adapted and updated
- Run a Business
- Be a sales tool
- Obtain funding
- React quickly to market changes
- Give you the ability to make realistic forecasts and projections
- Seize opportunities
- Keep your Competitive Advantage
Consider the Business Plan Audience
Organization of your Business Plan is KEY to its effectiveness and utility. It is important to remember that too many Business Plans are written from the perspective of the Business Owner. When writing your plan, remember your audience extends beyond you…
Business Plan Section One – Executive Summary
As stated previously, the Executive Summary should be written last. Why? Because it organizes and summarizes the entire Business Plan. You cannot achieve this effectively until all other sections of the Business Plan are completed. You should develop two types / renditions of the Executive Summary for your Business Plan. A short version which is 2-3 pages and a longer version that is…
Business Plan Section Two – Company Overview
The Company section of a Business Plan speaks to all the pertinent details of your particular company. For instance, how it is formed; what your company does; how it is organized; your Vision, Mission and Goal Statements: history of the company; where it is located…
Business Plan Section Three – Management and Operations
This section builds on the Company Section explaining in detail who will run the company; who founded the company; who the key employees are within the company; how the company will be run; what are the specific qualifications of those who will run the company, work in the company and be responsible for sales, marketing and strategic direction; the specific gaps in Management and…
Business Plan Section Four – Products and Services
Now that you have developed the Company and Management sections, it is time to describe in detail your company’s Product or Service (P/S). This section also contains information on your competitor’s P/S. One of the most important aspects of the P/S section of the Business Plan…
Business Plan Section Five – Marketing Plan
The Marketing Plan fully develops how your P/S will be marketed; summarizes your Marketing Research (actual research contained in the Appendix); fully details your specific Target Market Segments; and explains your P/S Competitive Advantage. In essence, The Marketing Plan explains in great detail how your P/S will be positioned in the market and should…
Business Plan Section Six – Strategic Plan
The Strategic Plan puts the Marketing Plan into action. The Strategic Plan will show how to implement the Marketing Plan. The Strategic Plan equals action and implementation. It also details your Sales Forecast for each particular product or service. The Strategic Plan translates what will be the result of the Marketing Plan, and how it will be implemented and achieved…
Business Plan Section Seven – Financials
If you develop your Strategic Plan effectively, completing the Business Financials will not be difficult. The principal reason why business owners have such a hard time with the Financials Section of a Business Plan is often due to a cursory job on their Strategic Planning (as well as other important sections). Financial Projections are not believable chiefly because…
Types of Financials
You should have two sets of Financials, simple and detailed, as well as, conservative and best case. The following types of financials are typical for a Business Plan…
- Cash Flow – Monthly basis for 12 months. Yearly and Quarterly basis for 3 to 5 years.
- Income Statement – Monthly basis for 12 months. Yearly and Quarterly basis for 3 to 5 years.
- Balance Sheet – Yearly and Quarterly basis for 3 to 5 years.
Another very important Financial in addition to the three prescribed Financials, is the Budget. Budgets are used principally for two purposes: Planning and Control. A Budget matches short term targets with long term Strategic Planning, while providing an indication of problems ahead. A good Budget system will indicate when…
It is important to understand that your Financials relate to each other when building them (a reason why Financial Software Programs are so beneficial). There’s a lot of back and forth between the Income Statement, Balance Sheet and Cash Flow Statement. The Cash Flow Statement is the most important Financial for many reasons…
Use Software to Develop Financials
Computer Programs are excellent resources for developing your company’s Financials, such as Quicken for Business, Quick Books or other Business Planning Financial Software Programs. It is important that these programs allow you to 1) customize the Formats for your needs and 2)…
The Projection Period for Financials
The projection period differs and depends for a particular company, venture or project. For instance, a large scale Real Estate development project’s Cash Flow could be 5+ years and 60+ months depending on the length of the project build out. Also, Real Estate development projects require more Financials than detailed above. Typically, a Construction Cost Analysis and Cash Flow…
Assumptions Behind the Financials
A very important element of the Financial Section is the Assumptions area. This details the assumptions you have utilized in constructing the financials. You should also list the various calculations and formulas used in your financials since those formulas can be company, deal or project specific…
Financials Need to be Realistic
Your Financials need to be believable and realistic. If anything, they need to be conservative. Too often we see extremes of too few numbers or too many numbers. If you build out your Financials as a direct result of your Strategic Plan (as we have prescribed), this process results in numbers that are realistic and achievable…
Business Plan Section Eight – The Appendix
The Appendix Section of a Business Plan contains all the bulky items: marketing research, construction plans, appraisals, valuations, company art work and graphics, company charters and share details and so forth. Since an Appendix is often large in volume…
Tips for Effective Business Planning
An Important Consideration – Should You Hire a Business Plan Consultant?
Should you hire someone to write your business plan? The answer is Yes and No. You do not want a business plan writer or technical writer to build the business plan. You can use these writers after the business plan is built to make it more professional (i.e. adapted for a Funding Business Plan). However, hiring an experienced Business Consultant can be quite advantageous…