This article provides a detailed business plan outline as well as a step by step guide to writing a business plan.
I encourage you to read this article in relation with our series of articles on how to write a business plan.
Business plan outline
Below is our recommended business plan outline. Every company is different and the business plan needs to be tailored to reflect that, therefore this is more a guideline than a strict template.
Our business plan outline is structured so that each section answers a specific set of investor questions about your business. It also offers a natural progression making it suitable for both the investor who wants to read the plan cover to cover and the one who wants to simply jump into specific parts to clarify particular points.
- Business Overview
- Market Overview
- Financial Highlights
- Our Ask
- Structure & Ownership
- Management Team
- Products and Services
- Demographics and Segmentation
- Target Market
- Market Need
- Barriers to Entry
- Competitive Edge
- Marketing Plan
- Risks and Mittigants
- Personnel Plan
- Key Assets and IP
- Start-up Funding
- Important Assumptions
- Sales Forecast
- Cost Structure
Let me walk you through each section and get into the details of what to write and where to find the information.
1. Executive Summary
The first section, the executive summary, is the most important one. It is only if they find this section attractive enough that potential investors will dive into the other sections of your plan to get more details.
Because this section is a summary of the rest of the plan this is the one you will write last.
The executive summary is all about getting your investor excited in 5 minutes. Do not try to tell everything about your business. Keep it short and to the point.
There are four things that you must to cover:
- who you are
- what you sell
- how big and profitable it can get
- how much you need
The objective of this section is to introduce the company and its management. The content of this section will vary slightly depending if you already have a business or if you are starting a new venture.
Structure & Ownership
This is a purely descriptive part, the key questions you need to answer here are:
- who are the shareholders: as part of the anti-money laundering regulation, investors have the legal obligation to check the identity of the shareholders of any business they invest in or lend money to. Giving them the full list enables them to do a quick sanity check and gives them the opportunity to raise any concern they might have. If your reader is an equity investor it also gives him a grasp of who the other shareholders are. It is also important that you mention if any of your co-shareholders brings more than just money to the company (for example if one of your shareholders is an expert in your industry and also brings advices and credibility to the company).
- where is the company registered and what is the legal structure: this is also one of the anti-money laundering requirements. But it also gives the reader an indication on the size of the business and the applicable tax system. Some investors also have geographical restrictions on investments, hence this is also where they will check if you are eligible.
If you are writing a business plan for an existing company this is where you would present the key highlights to date. The idea here is to build your credibility and show to your reader that you have a viable business. The main points you want to touch on are:
- how long you have been in business for: this is a real reassuring factor for any investor as it proves that your business is a viable one.
- company milestones: you want to show what has been achieved so far in terms of growth, product launches, internationalisation. If you are seeking growth capital this will build your credibility and show that you have the ability to execute your plan.
- past difficulties: if there have been periods when the company was in danger (for example because of a new entrant in the market, or a sudden drop in demand) and you managed to turn things around and stay in business.
If you are writing a plan for a business for which location is important (for example a shop or a restaurant) or if you are managing a large business with multiple stores or factories this is where you would describe (ideally using a map) the main location(s) of your business.
This is one of the most important section of your business plan. You must demonstrate that your team has a strong experience in your sector and the skills to run this business.
If there are any important skill gaps in your team, you need to address them and mitigate them here. It could be that you are looking for someone with these skills or that you have a board member or a non executive director that can fill the gap.
Try to put some pictures if you can. It is always better when one can put a face on a name! And it helps if you are due to meet your investors at some point.
Now that you have introduced the company it is time to dive into what it does.
3. Products and Services
The key to writing a good product and services section is to be precise about the product or service you sell, the client you are targeting, and the channel you are targeting him through.
After this section your reader will start thinking about how big, how crowded and how profitable your market is and try to guess what the overall strategy is going to be. You want to send him in the right direction! So be ultra precise, don't say for example "I sell shoes" but "I sell leather boots targeted at women aged 16-25 who buy online".
If you can try to include pictures of your products.
By now your reader knows who you are and what business you are in. It is time you show him why this is a good opportunity.
4. Market Analysis
This part is a summary of our article on how to do a market analysis, please refer to the article for more details
The objectives of the market analysis section are to show the investors that:
- the market is large enough to build a sustainable business
- you know who your customers are and why they buy
- despite the competition, it exists a gap in the market where your business will fit
The first step of the analysis consist in assessing the size of the market.
Demographics and Segmentation
The way you look at the market will depend on your type of business. If it is a small business, such as a coffee shop for example, then you need to look at the market on a local basis (your town, your street). If you are targeting a wider audience, then you need to evaluate the market at a national or an international level.
When assessing the size of your market, you need to come up with two variables: the number of potential customers and the value of the market.
The idea here is to get a sense of how atomised your market is. If you are in a market where there is a small set of high value customers then it might be complicated to compete against more established players and your business is likely to be dependent on a handful of customers meaning that losing one would potentially threaten your business. Now if you are in a market with lots of low value customers it might be complicated and costly to reach enough of them to get to the minimum volume for your business to be profitable. Ideally you want to be in a market with a high number of medium value customers meaning that there is enough customers to leave room for a few players and that each customers bring a decent amount of revenues.
Once you have estimated the market size you need to explain to your reader which segment(s) of the market you view as your target market.
The target market is the type of customers you target within the market. You need to identify the different segments in your market and explain who you are going after and why. One way to identify the segments is to group customers by buying pattern or demographics. For example in the fashion market you could have:
- men vs. women
- low price vs. premium clothing
- online vs. in store
- shoes, accessories, and outfit
This section is where you demonstrate that you have insight on your market. You know what makes people buy!
You need to describe the buying pattern of your target customers. What triggers a purchase? Is it something they need such as food? Is it a value associated with the product or a brand perception? Etc.
Later in your plan you will use this analysis to justify your market positioning.
Here you have to explain who your competitors are, how they are positioned on the market, and what their strength and weaknesses are. Some of the items you need to cover are
- who are they? (name, brand, independent vs. part of a larger group, location)
- how big are they? (turnover, number of staff, etc.)
- which customer do they target? (segments)
- what are the key characteristics of their offerings? (price, associated services, etc.)
You should write this part in parallel with the Competitive Edge part of the Strategy section, as the idea here is to find a weakness in your competitors' positioning that your company will be able to use in its own market positioning.
Barriers to Entry
Here, the objective is to show to investors that the risk of having new competitors entering the market is fairly remote. Hence if you are writing your business plan for a start-up then this section is a bit tricky as you need to show that you will succeed where others will fail!
Once again, you can find more details on this section in our market analysis article.
In this section you need to details which regulation is applicable to your sector and how you are going to comply with it.
Until now all the sections of the business plan outline we covered were very descriptive, this is where things get a bit more interesting.
Strategy is a big word for what is really just explaining your view of the market, how you want to attack it, and why it should work.
The first part of the strategy section is the Competitive Edge sub-section which is where you explain your market positioning.
The competitive edge part is where you answer investors' favourite question: "what makes you different from the competition?"
Hopefully you will have laid the ground work for this section in the previous ones and orientated your analysis of the market in a way that prepares the reader to embrace your positioning.
In order to explain and justify your pricing strategy you must touch on the following points:
- Compare it to your competitors pricing
- Show that you are profitable at that level
- Explain the rationale behind your price
I won't touch on the two first points which are pretty obvious but I think the third one deserves a bit more explanation. Setting a price is not easy but there are a couple of techniques you can use to guide you.
The first thing to do is to assess if you have control over your prices. It could very well be that you have limited control over your prices. If you are in a price driven market where all your competitors price at £9.90 it can be complicated to justify a higher price to your customers.
Now if you have control over your prices you then need to come up with a figure. Here are the two main strategies that you can use to do so:
Cost plus pricing: this consist in adding a percentage margin to the cost of the good or service you are selling. The advantage of this strategy is that you are guaranteed to earn your margin on every sale. The disadvantage is that your price could be below or above what customers are willing to pay for a product or service.
Benefit driven pricing: this consist in estimating the gain procured by your good or service to the customer and set the price as a fraction of this gain. It is easier to do when your product or service procure a hard benefit (i.e. when you can quantify the money your customer will save) than when you product procures a soft benefit (i.e. when you cannot easily quantify the value of the benefit as for example if it makes your customer save time). The advantage of this technique is that it allows you to maximise the price of your goods and services. The disadvantage is that it usually requires to try different price points in order to find the right market price.
It is always a good thing to test different prices. Do one week with price A and one week with price B and compare the results in terms of sales and volume.
Ok, so now we know who you will target and how you will price your products. It is time to explain how you are going to reach those customers.
This is the first section where we start to leave aside the helicopter view of the market to really dive into the implementation and execution strategy of your plan. Therefore you need to show your investor that not only you know your market inside-out but that you also have a credible plan to conquer that market.
The best way to show that your business plan is realistic is to get into the specifics of the implementation. Your reader needs to feel that you are ready to go and that he just has to push on a button (write you a check) to make it happen.
In the marketing plan section you need to show that you have identified the best channels to use to target your customers.
By channel I mean both the distribution network (online, owned stores, third party network, door to door, etc.) and the means of communication (flyers, print advertising, online marketing, etc.).
You want to start by listing all the different options and then start diving into the ones you picked and explain why you think they are the most relevant in terms of:
- reach: why do you think you will be able to touch most of your potential customers through that channel?
- cost: why do you think this will be cost effective? What is the budget allocated in your plan?
- competition: why do you think you stand a better chance against your competitors by using this channel?
- implementation: who is going to be responsible for that? What makes him relevant? Which partners / suppliers have you approached so far?
This section is where you set the goals for your company. This is a commitment you are making to your investors and you will be judged on your ability to achieve these goals. It is therefore important that you take time to identify goals that are:
- relevant: i.e. objectives that will make a real difference to the business
- achievable: you don't want to get labelled as a dreamer but rather want to be perceived as an entrepreneurs who delivers his business plan
- measurable: you want to be able to get back to your investors and say "we said we'll get 1,000 customers by year end and we delivered 1,200!".
Here you will be judged on your ability to identify and focus on the key objectives to bring your business to the next level. This will help build your credibility towards your investor and ultimately play a part in his investment decision.
From a relationship perspective, being able to over-achieve these objectives will be key if you are to raise more money in the future.
Risks and Mitigants
The risks and mitigants section has one key objective: enable you to anticipate any objection or doubt an investor might have on your plan or your ability to deliver it and give you an opportunity to show that:
- you know this is a key risk,
- you thought about it,
- you have a contingency measure in place.
It is very important to be transparent in this section. If an investor spots a key risk in your plan that you haven't disclosed he is going to think "well I am not sure he knows this market has well as he claims", and that looks bad. You want to do everything to build credibility and trust with your investors because the moment they start doubting you they will start doubting the investment.
This section is where you get into the details of how your company will operate. It usually starts with the personnel plan.
In the personnel plan section you must explain how many people you will employ and what will be their roles. If your staff is planned to increase over the duration of your business plan, it is recommended to explain what will be the driver. It could be that you plan a new shop opening or that you will increase support staff with sales.
If you have a shop or a restaurant it is also recommended to put the staff plan in perspective with the opening hours.
Key Assets and IP
The idea behind this section is to identify or dismiss any operational risks that could arise on the asset side.
You need to explain which are the assets and intellectual property without which the company could not operate (for example a delivery truck or a licence) and the steps you took to protect them.
In this section your investor will want to check that you intend to do business with respectable counterparties and that you are not dependent on a single supplier. Therefore you need to explain who will be your main suppliers, the relationship you have with them (if any) and what is your backup plan if one was to be replaced.
You also need to mention the main terms you have negotiated with your suppliers (price, days of credit, delivery schedule, etc.).
Now that you have explained how your company will be operated it is time to dive into the numbers.
7. Financial Plan
This is the most crucial part of your business plan. The tone of this section will depend on who the recipient of your business plan is.
If the recipient of your business plan is a lender you need to show that your business is going to be stable, profitable and cash generative and that you are not going to take too much risks. If it is an equity investor you need to show that your business can become big and cash generative enough to make it easy to sell and enable him to reach his target return.
As a minimum you will need to show a full set of financial statements (P&L, cash flow statement and balance sheet) over three years and a monthly cash flow statement. It is also good practice to show a monthly P&L and balance sheet for the first year.
The reason why investors like to see monthly numbers for the first year is that it is going to be the most critical year as:
- it is the year you are the most vulnerable
- any delay or underperformance will have some repercussions over the year 2 and 3
If you don't have a finance background it is recommended that you use a professional tool to help you with the financial forecast. The Business Plan Shop offers an easy to use online solution that can help you easily produce your financial statements as well as a professional looking business plan exportable in PDF. In our application you will find most of the tips included in this guide along with precise examples for each section of the plan. You can learn more about our solution here.
In this section you will list the sources and uses of funds required to start your business.
The investor will look at how much is needed and how much money is brought to the table by the shareholders. If you are writing your plan for a retail bank it is important that you isolate the assets, inventory and VAT on a separate line as they often offer specific loans adapted to each of these categories.
This section is a disclaimer section. You must identify the key assumptions underlying your financial forecasts. These are the assumptions the investor will stress (i.e. run scenarios on) to test the viability of your plan and estimate the potential downsides and upsides.
Try to identify both assumptions on the revenue and on the cost side of the business. Let's take an example and look at an e-commerce site.
If you are operating an e-commerce site there are usually two main things your business profitability will depend on:
- the average basket: which is how much one customer is expected to spend in average
- the customer acquisition cost: which is how much you need to spend in marketing to acquire one customer
The first item is revenue related and has the most significant impact on your plan. This assumption as a 1:1 impact on your sales forecast and even a greater impact on your profit. The second one is also crucial as it impacts your profitability and your ability to scale.
Let's look at a numerical example in order to get a better understanding of the impacts of these two drivers:
|Base case||Average basket impact||Customer acq. cost impact||Cumulative impact|
|Customer acq. cost||£8.00/cust.||£8.00/cust.||£8.80/cust.||£8.80/cust.|
|Total customer acq. cost||£8,000||£8,000||£8,800||£8,800|
As you can see from the table above a 10% deviation on price will have a 30% impact on profit, a 10% deviation in the customer acquisition cost would cost you 20% of your profit and both impacts would reduce your profit by 50%!
And these are not remote possibilities. Let's say that your acquisition costs are related to pay per click advertising on the internet and that your average cost per click is £0.4. A £8 cost per customer means that you have a conversion rate of 5%: it takes 20 clicks to make one sale. Now a £8.8 cost per customer means that it takes you 22 clicks to make one sale. As little as 2 more clicks can cost you 20% of your profit!
Now the positive thing is that if you built a complete financial model and identified these key drivers you can closely monitor these two elements. Chances are that you will get these wrong in your first plan but if you monitor them you will be able to quickly update your plan and get a revised financial projection. This will enable you to get a better view on how much cash your business will generate or need. And give you the ability to anticipate any upcoming difficulties with your investors or plan what to do with the excess cash flow if things go better than expected.
Note that in my example I did not take the number of customers as a key assumption. This is because I made the assumption that 100% of the traffic was coming from advertising. This is specific to e-commerce sites: chances are your site in its first year will rank on page 20 of Google and that you will have to acquire the main part of your traffic.
The sales forecast section is probably the second most important one in your business plan. This section relates directly to the market analysis, competitive edge, marketing plan and pricing sections. The objective here is to build and justify your sales estimate for the next three years.
Building a sales forecast is a double exercise. You first need to build the numbers using a bottom-up approach and then sanity check them using a top-down approach. For a complete how to guide we encourage you to read our sales forecast article.
Once you have built a realistic top line, you need to focus on the costs.
This part is all about analysing the operational risk of a business. The analysis resides in two fundamental notions: operating leverage and breakeven point.
Let's start with the breakeven point which is the level of sales required to reach profitability.
Every business has 2 types of costs: fixed and variable costs. The fixed costs as their name indicates are the costs that will be incurred independently from the level of sales. For example the rent of a shop. The variable costs are the costs which depend on the level of activity. For example the cost of the goods sold in a shop.
The breakeven point is then computed by dividing the total amount of fixed costs by the margin on variable costs.
Let's take an example. If the only fixed cost of a shop is its rent of £2,000/month and if the shop sells goods it buys at £30/item at a price of £50/item. Then the shops makes 50 - 30 = £20 of profit over variable costs per item. Which means it needs to sell 2,000 / 20 = 100 items to cover the cost of the rent. The breakeven point of this shops is therefore 100 items.
The direct conclusion of this is that the higher the fixed costs, the more sales are required to cover them, and therefore the higher the risk of the business is. In plain English variable costs are great fixed costs are bad!
What about operating leverage then? Well, operating leverage has to do with operating profit elasticity, which is the impact of a difference of 1% in sales on the operating profit. This seems complex but it is in fact really simple. There are two dimensions in the operating leverage: the level of fixed vs. variable costs and the margin on variable costs.
As we just saw above the more fixed costs a business has the more sales it needs in order to start making profit. But this is not the whole story. Consider two businesses in the same industry. Business A is manufacturing its goods in house while business B is outsourcing the manufacture to a supplier. As a result business A has higher fixed costs than business B (the cost of the factory), but at the same time business A is earning more on each sale than business B because it doesn't have to pay the supplier's margin. Therefore there is an expectation that a more operationally leveraged business will generate higher returns past its breakeven point.
The second aspect of operating leverage is the level of contribution (or margin on variable costs). If your contribution is high then it takes only a few sales to cover your fixed costs and start making profit. The flip side of this is that a small forecasting error will have a huge impact on your level of profit and cash flows.
The key takeaways here are that investors will look at the level of fixed vs. variable costs in your business to evaluate its operating risk. They will expect to see the calculation of your breakeven point either expressed in units or days of sales.
Investors will also judge you on your ability to use operating leverage to your advantage. If you are starting up in a niche where the market is uncertain they will expect you to focus on sales and to have outsourced as many services as possible. You will make less profit but will require less sales to make profit hereby de-risking the cost side of your business to balance with the risks on the revenue side. Now if you are an established business in a price driven market, investors will expect you to do the exact opposite: outsource services only if it makes you save money and try to limit margin frictions to the maximum by using economies of scale to either increase your margin or reduce you price to increase market share.
This section is where you present your financial statements. You can have the yearly statements here along with the monthly cash flow projections and put the monthly balance sheet and P&L in appendix.
You need to walk the reader through the key items of each statements:
- P&L: revenues, growth, EBITDA, EBITDA margin and any unusual or one-off items
- Cash flow statement: operating cash flow, operating cash flow conversion (% of EBITDA), any major investments, main debt repayments if any, and any unusual items.
- Monthly cash flow statement: any working capital swings or seasonal peaks or troughs.
- Balance sheet: level of cash, debt and equity.
Your funding needs to be balanced (positive cash position) and you need to break even during the course of your plan. You might also want to touch on some additional ratios. In particular if your business has a significant working capital requirement, you can mention the working capital ratios (WC / sales, days of payables and receivables). You can also mention either some credit ratios if the plan is for a bank (debt/EBITDA, net debt/EBITDA, interest coverage ratio) or some more equity focused ratios (operating cash flow / capital employed, revenues / total assets, dividend yield and dividend per share if relevant).
This is where you add any detailed piece of data or backup materials you might have. The objective of the appendix section is to serve as a reserve of materials that the investor can use either to investigate certain areas of your business plan in more details or as a starting point to do his due diligence.
Congratulations you now know the basics about writing a business plan. Now let's get to work!
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