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If you are applying for a business loan or another type of business finance to expand your business then you may need to write a business plan. Potential investors and lenders often ask to see a business plan so they can understand more about your business and make sure their money isn’t at risk.
In this guide we explain how to write a business plan. We also answer common questions like “why is a business plan important?” and “what should a business plan include?”
Table of Contents
- What is a business plan?
- How to write realistic financial forecasts
- Where do I find a business plan template?
- Frequently asked questions?
What is a business plan?
A business plan is a document that describes your business, its aims and how you will achieve them. Business plans are often used by businesses applying for finance, investments or business grants. Some business owners also use a business plan to help them manage their business, using it to set out their objectives and measure the business’s performance.
A business plan usually includes the following information:
- Executive summary
- Description of your business and objectives
- Marketing plans
- Financial forecasts including cash flow reports
- Details of your management team and staff
What is a business plan for?
A business plan is often used to help apply for business finance or a business grant. In general, the larger the investment the more detailed business plan an investor may need to see. Some lenders and grant providers have a specific template you need to use, rather than preparing your own free-form business plan.
Although most business owners often prepare a business plan for an external investor, it can also be useful for managing your business. A simple business plan can help you to set your business goals and measure your business’s performance in the future.
Here are some of the main uses and advantages of preparing a business plan:
- Gives information on your business to potential investors or lenders.
- Sets your business’s aims and objectives.
- Helps you to spot potential problems and identify how to solve them.
- Gives you a benchmark to measure the performance of your business.
- May be useful to show to potential customers, suppliers and employees.
Why is a business plan important?
A business plan is important for potential lenders and investors. Here are some of the main reasons that lenders, investors and grants providers may want to see a business plan as part of a loan application or a pitch for investment:
- It gives lenders evidence that your business is viable and you will be able to repay the loan or investment.
- It provides information on how you plan to use their money and if the business is likely to grow.
- Financial forecasts demonstrate that you understand how to run a business and manage your business’s money. Investors or lenders will expect to see realistic figures that are backed up by evidence.
- Gives an investor information on the gaps in your business knowledge or skills and where you might need their input or support. Some business angel investors expect to be involved in the running of your business.
What should a business plan include?
A business plan will normally include the following sections and information:
- Executive summary - you should write this last, although it appears first in the business plan. It should be less than 1000 words and summarise the rest of the business plan in 1 to 2 pages. It should explain your business’s current situation and your plans for the future.
- Elevator pitch - some business plan templates include a specific section on this. It’s a short persuasive sales pitch to spark interest in your business and your plans for the future.
- Business information - provide detailed information on your business, its legal name, current legal structure and owners. Explain what your business does; its key products or services; its history; any patents or intellectual property and an analysis of your customers.
- Business objectives - what are your aims for the business? These should be SMART (specific, measurable, achievable, relevant, and timely). For example, we have a sales objective of increasing sales by 10% this year on our greenhouse product line. We will hire 1 extra sales person and have an email campaign and social media marketing. We will grow sales by 5% in the first quarter, 20% in the second quarter (this is our busiest quarter), 8% in the third quarter and 4% in the fourth quarter.
- Marketing plan - include information on your customers and competitors. Give details of your market research on any new products and planned business expansion. Many business plans also include a SWAT (strengths, weaknesses, opportunities, threats) analysis.
- Financial reports and forecasts - include reports for the past 3 years. Also include your current budget and cash flow forecast. Be realistic about costs and timing of expenses. For example, if you plan to launch a new product then marketing costs are likely to be at the beginning of the project rather than spread evenly through the year.
- Operations analysis - information on your key suppliers, production methods, delivery logistics, payment methods, premises, key equipment, transport and insurance.
- Management team - outline the background and relevant experience of each of your key personnel.
How to write realistic financial forecasts
A key part of your business plan is your financial forecasts, and they need to be realistic and backed up with evidence. Here are some tips to help you write those forecasts:
- Look at the past financial performance of your business and work out how much you spend on stock, staff costs, rent and all your other business costs.
- Make sure you have included all your costs, and any expected cost increases in your forecasts.
- Have evidence of your research to back up your figures. For example, provide information on any terms you have negotiated with a stock supplier, or details of new equipment quotes.
- Consider using an accountant to help look over your forecasts and give you advice.
Where do I find a business plan template?
Many websites have free business plan templates you can download. Here are some examples of downloadable templates:
Frequently asked questions
Business plans vary in length and depend on the type of finance you are applying for and whether the lender has their own template. A business plan of 30 - 50 pages is probably about right for a small business.
A business continuity plan, sometimes called a back-up plan, explains what you would do to keep a business running in a disruption. For example, how would a restaurant continue to make sales if a pandemic causes another lockdown?
Writing a business plan can be a time consuming process. It is a good idea to tackle it in small chunks rather than in one go.
The good news is that once you have written one business plan, you can usually adapt it and writing future business plans will be quicker.
Some investors may ask you to present a business plan to them. You should start your presentation with an elevator pitch. This should be a persuasive 30 second pitch where you briefly explain who you are, what your business does and what makes your business a good investment. You could include a surprising statistic or an example of your customer feedback.
Then briefly summarize your business plan and prepare to answer any questions.
Make sure you thoroughly understand your business plan, especially financial information about your business. The investor will want to understand how much profit you make and if you can grow their investment. If you don’t know your financial information inside out you might not be able to convince them that their money is safe.
Some investors or lenders may want to see a 5 year business plan. The basics of writing a 5 year plan are the same as any business plan. You need to provide 5 year financial forecasts and cash flow forecasts and evidence of how you think the market will grow or change in the next 5 years.
There may be information online about your market and your main competitors. You can also ask your customers to gather information. You could use surveys, questionnaires, focus groups and in-depth interviews. Include information in your business plan about how you conducted your research.
An executive summary comes at the beginning of a business plan, but business owners often write it at the end once they have gathered all the other information. It will summarise your business, the business’s achievements, your experience and your objectives. Take a look online to see some examples of other executive summaries.
The marketing section of your business plan should include the following information:
- Market analysis - this should assess the market you compete in and analyse your key competitors and their strengths and weaknesses.
- Marketing strategy - you should explain the unique selling points of your business, your target customers and how you will persuade customers to buy from you. You should also provide information on your pricing strategy, any product development and plans for market research.
- Marketing and sales plans - provide information on planned promotional and advertising activities and your sales targets.
You can make a business plan look professional by using an existing business plan template. Get a friend to check the business plan to make sure it makes sense and there aren’t any errors. You may need to write several drafts before you are happy with your final version.
A business plan is very important for a new business. This is because you don’t have any existing financial records to show to potential lenders or investors.
Focus your executive summary on explaining the business opportunity and how you aim to take advantage of that opportunity. Your business plan will need all the same elements as a business plan for an established business. It will be even more important to provide evidence of your market, competitor and potential customer research.
Your background is also important in convincing potential investors. Include any evidence of running a successful business in the past or your experience in a similar industry.