How to write a business plan for a small business
What does a good business plan look like? Do you have to write a detailed business plan or could a short version do instead? A good business plan is a roadmap that helps people see where you’d like to take your business. This guide explains what to put into a business plan if you’re a small business looking for investment or funding.
What is a business plan?
A good business plan describes your business clearly so that other people can instantly understand what you’re doing, why, how, and how successful you could be. For most small businesses, it’s the most important document you’ll need if you want to secure investment or funding.
But a very good business plan does more than that. It helps you clarify your ideas, spot any weaknesses in your plans, and measure your business’s progress. A well structured and clear business plan also plays a role in attracting investors and convincing suppliers and potential employees to support you.
It’s true, if you write a few bullet points on a piece of paper then, technically, you’ve got a plan for business. But the more detail you put into this document, the more useful it should be to you. What’s most important is that you find a way to create a plan that’s really engaging for your readers – with just the right amount of detail.
The six essential parts of a business plan
Every business is different. Your own plans are bound to be unaverage, just like your business. However, even if the format and content varies, a good business plan usually breaks down into these six sections:
- Executive Summary
- The Opportunity
- The Working Plan
- The Management Team
- Financial Plans
It’s the last thing you’ll write but it’s the first thing everyone reads. An Executive Summary is an overview of what you’d like to achieve and how you’ll go about it. This is where to include a vision, a mission statement, and a single-minded proposition.
There’s a temptation to include too much. All it needs is the essentials, no more than a couple of pages at most. The best Executive Summaries are those that explain what the business will do and how it will succeed in as few words as possible. Try writing the answers to these questions, perhaps even in bullet points, to see how this works:
- What is your business setting out to do, exactly? (This is one sentence, not a paragraph. It’s sometimes called your single-minded proposition.)
- What is the problem you’ll be solving and who experiences this problem?
- What’s your target market, who is your ideal customer and what do you know about them?
- Who else is trying to provide a solution to their problem, and why is your business or product more attractive?
- Who is working in or with your business and why is this the right team? *Don’t underestimate the value of this section. Investors and funders may work closely with the right people to perfect an idea that’s missing something.
- What are the key aspects of your finances and how does your business model make a profit? (This is often represented in a concise chart or table showing an overview of growth projections for 3 to 5 years.)
- If you’re a small business looking for funding, what do you want – exactly?
- Where is the business today, what’s your next step, and what’s preventing you from moving forward?
With the answers to those questions on a page, you’ve already created a lean business plan for a small business. It’s the ideal way to think about an Executive Summary. It’s a business plan in miniature: exciting enough to interest people, detailed enough to be realistic, but not overwritten with too much information at this stage.
Vision? Or Mission?
Single-minded propositions are key to communicating what the driving forces are behind your business. But they don’t need to be great works of literature to capture people’s imaginations. A mission statement defines what your business does, while a vision statement is the ultimate goal you’d like to accomplish – and that could be ambitious. Your mission is the ‘how’ you’ll do something, your vision is the ‘why’.
This section has to convince readers there’s a reason for pursuing your small business’s objectives. It covers the problem you’re trying to solve (or the need you’re addressing), what you’re intending to sell, and what the market looks like – who your customers could be and what the competition is.
TIP: The more information you can include about your competitors, the more opportunity you’ll have to spot your own weaknesses.
This is the section that investors and funding houses read to make sure you’ve validated the need for your small business’s products or services. So, start with a short background to your small business’s purpose.
Who are you helping, what is the problem and how are they solving that problem – or not – without you? This helps you to be super-critical of your own motivations for running a small business. If you’re just making a product because you can, or making improvements to a service because you know how to, then you might not have a viable business concept.
Include the results of any market research you’ve done. Show how the market has changed and how it might change in the future – what are the risks? What might influence customers tomorrow and how have you built this into your plans? Items you might want to include in your Appendices could be:
- A short case study that includes statistics, figures, and great quotes
- Pen-portraits – descriptions – of your ideal customers and their motives for purchase
- A breakdown showing the total market, the segment you’re targeting to start with, and how much of that segment you believe you’ll acquire (your share of the market) in the first three to five years.
Depending on your product or service, you may have identified a few key customers already – but you should certainly know who your competitors are. Who else is offering the same or similar solutions to your prospective customers? How are they doing that, and what are your competitive advantages over those businesses?
It’s tempting to believe you have a unique solution to a problem. It’s unlikely. For investors, it’s very useful to see a competitor matrix, which makes it easy to compare your business model and product base to other offerings on the market. Highlight the areas where you have a USP (unique selling point) and how your proposition differentiates itself from other businesses.
Use the right language
Remember that the people reading your business plan may know very little about what you do. Instead of writing this:
“Our API publishes data in a JSON format.”
The Working Plan
This section will cover what you’ll be making, doing or selling. Your logistics, production, manufacturing, marketing and sales plans; key partners in your business plan; your key assumptions and the risks involved.
This is the ideal section in a business plan to include a brief SWOT analysis, describing the Strengths, Weaknesses, Opportunities and Threats to your business. The Working Plan should also explain what your measures for success are, and what kind of timeline you envisage to get up and running.
TIP: Measures for success don’t have to be ‘straight line’. Investors expect to see a pragmatic approach to growing a business with peaks AND troughs.
Start by thinking about how to describe your business in four parts: operations, marketing, risks, and measures of success.
This is how your business works. It’s the logistics that take your product or service from your imagination out into the market.
- If you’re a technology company, then it’s essential to describe what makes your solution effective (you don’t need to give away proprietary information).
- If you’re a creative company, then readers may want to understand what your ethos is – how your style and individual approach might be attractive to customers.
- If you’re a manufacturer, of any size, then readers may want to see details about vendors and supply chains in your business plan. Explain how you get those products, what the risks to production may be – economic, geographic, regulatory etc.
By getting to know your target market in depth, you should find out how and where they prefer to make their purchases. Explain how you’ll present your company to that audience, and why you believe customers might choose you instead of someone else.
At this point, the description of how you’ll market your product or service may not be very detailed. The best possible marketing strategies are those that test and learn, as a target market responds (and a proposition evolves). But you should already have some idea of what your go-to-market strategy could be, and how your pricing may be structured.
- Will you be a premium product or a bargain alternative?
- Do you believe your audience buys on benefits rather than price?
- Are you offering a price based on cost (plus margin) or value?
- Will you need to advertise in the hope of making an instant impact, or will you build a longer-term marketing plan that raises awareness of your product and your business first?
Marketing is a specialised skill. Investors may place more confidence in a business that highlights this area as a weakness – and how they intend to overcome it – than in a company purporting to have all the answers for its initial go-to-market strategy. That said, it’s a good idea to include details of your existing online presence (if any) and how you see different channels being used to reach your customers (social media, TV, radio, local advertising, or direct business-to-business (B2B) marketing).
You must describe the assumptions you’ve made about your business, the market, your target customers, and how your company could evolve. Investors may want to understand what the risks to their capital might be, and how you’re planning to mitigate those risks. For example:
- If you’re a technology company, you’ll need to show that you’ve thought about security, safety, privacy, interoperability, ease of use, and the user experience.
- If you’re a creative company, then you’ll need to demonstrate an understanding of trends, influences, and evaluation of your work.
- If you’re a manufacturer, of any size, then anyone who’s reading the business plan may want to see details about your supply chain, regulatory risk, safety, security, and risks to production. And, of course, customers – what may influence them to buy more of your product (and impact your operations) or less of your product (and affect your bottom-line).
Knowing what the risks are to your business is essential. The more you can do to show you’re mitigating those risks, the stronger your business plan should be.
Finally, your business plan needs to show how you’ll measure progress. These measurements (or key Performance indicators, or ‘metrics’) don’t need to be set in stone. If, for example, you state, “We hope to sell 10,000 units in the first month”, you’re unlikely to be held to account if you don’t achieve that target. However, an investor is more likely to respond positively if you can say, “Our research shows the target market has a need for 100,000 of this product every month, and we believe 10% of that market is an achievable target by the end of the first year”.
It’s a useful exercise to think about which measures you could use other than direct sales. Are there measures of customer satisfaction available? Would a specific proportion of the market be a realistic target, rather than unit sales? Does your business have an objective that’s not materialistic?
The more pragmatic you can be about setting these targets, the better. These measurements can help you to keep an eye on your growth, identify what’s holding you back, and provide confidence-boosting reports to investors, shareholders, colleagues (and sometimes customers, too).
The Management Team
It might be just you at the helm, supported by your family. But it’s good to introduce everyone in the team that’s helping you to run your business.
Banks and investors rarely invest in ideas alone. There are some investors and funding houses that may put money into a good team and then go above and beyond, working with those key individuals, to create a great business. This is also the section you’ll use to describe where you’ll be based, the legal structure and hierarchy of your company, and its evolution.
TIP: Personal profiles do need to be engaging. Include information about people’s characters as well as their skill sets. Go beyond hobbies, be descriptive.
- Can the readers understand who’s in charge and what the reporting lines are?
- Does your staff structure highlight weaknesses and risks to the business?
- What expertise can you highlight – and are you showing how experience outside one industry may pay dividends growing a small business inside another?
Because you’re writing a business plan, and it’s an official document, it is tempting to describe individuals using ‘jargon’ titles. In reality, if you’re a small business then you’re unlikely to have a ‘Chief Operating Officer’, a ‘Chief Finance Officer’, or even a ‘CEO’.
Describe what you do in straightforward language – and if you have gaps on the team, point them out. Which key roles do you need to fill? Do you get tangible input to the business, day to day, from everyone who’s named in your business plan? Or are there some supporters providing counsel and advice from afar – which has its own value?
This section also describes the legal structure of your business. It’s a good place to include relevant details such as your VAT status and number, any patent details, or risk ratings and credit history that your business has established over the years.
Financial forecasting is essential for a strong business plan. It may be less complex than you think. In a good plan, financial projections have sales/revenue forecasts for at least the first 12 months, plus annual projections for the next three to five years.
TIP: Provide the information that supports your calculations in a separate Appendix, and consider asking your accountant to provide a short comment on your forecasts.
Effortless calculations in a spreadsheet make it tempting to include extracts showing smooth, linear, upward growth. But do make sure you can defend those projections.
Be realistic. Investors and funders may pore over your spreadsheets, and projections that don’t allow for business challenges won’t help. When in doubt, be less optimistic in the figures but explain your position in a few words. An investor or funding house may even help you to explore those financials in more detail.
The last section of your business plan is for everything else you’d like to share in the way of information at an early stage. Details about your products, market reports, quotes, financial references, images, cross-referencing documents – these can all be listed as an Appendix.
TIP: Don’t try to build your referencing system as you go. Collate your appendix material first. Cross-reference it all to the body of your business plan at the end.
A few final thoughts
Those are the essential parts of a good business plan. There are then three simple rules that can help make sure you write a document that gets read.
1) Write for your audience
Know who’s reading your business plan and think about what’s important to them. What might they want to see most – or first?
2) Be focused
When it comes to detail, less may be more. A good business plan describes the bigger picture with just enough detail to explain your intentions.
3) Prioritise clarity and presentation
Your business plan gives an instant first impression of your business. Make sure it’s a good one.
- Don’t put off making a plan until you’re up against a deadline from, say, investors or a bank. Have a plan. It can help you to do more business, better.
- Do use a spell-checker, and leave out vague phrases like “world class” or “innovative, new solution”. Incisive content is highly valued.
- An independent review of your business plan can help you to see the wood for the trees – and may be the difference between getting funding or not.
Finally, remember that the objective of your business plan is to engage readers. You want people to be as excited about your business as you are, and equally convinced that it’s a credible proposition. No matter how colourful it is though, a business plan is only useful if it produces the right results. Good luck.
Please note that these guides are provided for information purposes only and not as advice or recommendations. Before deciding to undertake any course of action you may wish to seek independent professional advice.