How to write the R&D section of your business plan?

The research and development (R&D) subsection of your business plan is where you will communicate to the investors, lenders, and other strategic partners how your business intends to invest in innovation, technological advancement, and product or service development. 

This guide will provide you with the information you need to write an impactful presentation of your research and development efforts in your business plan. You will learn about its key objectives, the essential information to include in this section, and guidelines on the ideal length of this segment.

Where should I talk about research and development in my business plan?

Research and development (R&D) is not something all businesses do, and it can mean very different things depending on your industry. As a result, where to include the section in your business plan is very situational.

Where to include the R&D subsection in your business plan, usually depends on the main focus of your efforts:

• If you plan to use R&D mainly to develop new products and services, you should include it in the “Products and Services” section of your business plan. The reader will find it convenient to analyze both your current products and services alongside your future development plan. 
• If your research and development activities are focused on enhancing your manufacturing processes, it can also be a part of the Products and Services section, or be included in a dedicated Manufacturing section, where you cover the supply chain, current production capacities, and R&D all in one place. 
• If your research and development activities are focused on improving business operations, with initiatives in big data or AI for example, then you should include it in the “Operations” section of your business plan.
• Finally, if your business has research and development efforts focused on all aspects of the business, or if you do fundamental research alongside product development, you can create a dedicated section for R&D in your business plan. 

Now that we've addressed the location of the R&D subsection in your business plan, let's look at its content.

What information should I include in the research and development subsection of your business plan?

The research and development subsection of your business plan should explain how you plan to achieve your business goals by investing in innovation, technological advancement, and product and service development.

Below is a comprehensive guide on what information you should include in your R&D subsection.

R&D objectives, goals, strategies

Firstly, you should clearly highlight the purpose behind having a research and development strategy; you should explain in detail what you are trying to achieve through these activities. 

Your objectives and goals, whether they are to develop new products, enhance operations, or any other aspect of your business, should be detailed in the R&D subsection, along with the products or services you plan to develop or improve upon in the future.

The R&D subsection should also emphasize the market research carried out by your business. You need to communicate to investors how the research supports your new products and services and that there is concrete proof of its demand in the market.

You may hold intellectual property rights for the new products, services, or any other information generated from the research and development activities. If this is the case, you need to highlight how you will protect and manage any intellectual property related to them.

Any patents, copyrights, and trade secrets should be clearly outlined, and this section should also link to the key assets and IP section of your business plan (where you should mention this briefly again).

The new products or services you plan to develop as a result of the R&D efforts may need approvals. For example, FDA approvals for food items and pharmaceuticals. Any regulatory rules or compliance requirements must also be mentioned in the R&D subsection.

Resources allocated to R&D activities

Research and development for your business may require you to have a substantial budget depending on the nature of your R&D activities.

Mention in the subsection the details of the resources dedicated to it. If your business has a tax credit or R&D scheme, it should also be made part of the subsection.

Moreover, you must provide certain details regarding the team that deals with the research and development section of your business. Highlight the number of workers, their expertise, and their specific roles. 

If your business does not have a specific R&D team, mention the team which is responsible for overseeing this. Businesses often outsource specific parts of R&D projects, and you should inform investors if your company is doing the same.

Your R&D projects

Highlight in your R&D subsection the projects your business is currently investing in. Some businesses may invest in multiple research and development initiatives, depending on their nature and requirements. 

If your business is looking to understand the fundamental aspects of a concept, you will need to start with a basic research project. 

Once you have gained an overall understanding, you can begin applied research projects with a specific goal in mind, such as product development, services, or practices.

You’ll also need to provide an overview of the current R&D projects in the pipeline. Highlight their expected outcomes and their likelihood of success/failure.

Similarly, it’s important to inform investors and partners when new products or features are likely to be introduced in the future. Link this part to the milestones section by mentioning this R&D part in the milestones section.

Lastly, when you decide to use R&D as an asset rather than an expense by capitalizing on successful projects, you need to mention how that will impact your business’s financial forecast. 

What tools should I use to write my business plan?

Nowadays, the most efficient way to write a business plan is to use online business plan software.

There are several advantages to using specialized software:

• You are guided through the writing process by detailed instructions and examples for each part of the plan
• You can be inspired by already written business plan templates
• You can easily make your financial forecast by letting the software take care of the financial calculations for you without errors
• You get a professional document, formatted and ready to be sent to your bank
• The software will enable you to easily track your actual financial performance against your forecast and update your forecast as time goes by

If you're interested in using this type of solution, you can try our software for free by signing up here.

Example of a research and development section in a business plan

Below is an example of what the research and development subsection of your business plan might look like. As you can see, we've included it as part of the overall products and services section as it relates to continuous improvement in that department.

It contains information about R&D objectives, goals, strategies, resources allocated to R&D activities and both current and future R&D projects.

How long should the research and development section of my business plan be?

The length of the R&D section in your business plan can vary depending on the complexity of your research and development activities, the stage of your business, and the level of detail you want to provide.

Generally, the R&D section should be concise yet informative, covering key objectives, strategies, current initiatives, and future plans.

As a guideline, the R&D section typically ranges from half a page to a couple of pages in length.

A good rule of thumb as to when you should add more details, is to put the impact of your R&D activities in relief with your overall plan.

If the budget allocated to R&D is significant in comparison to your overall expenses (say more than 5%), then lenders and investors will want to know more details.

Similarly, if your business heavily relies on innovation and continuous improvement, you may choose to provide more detail about your R&D processes, including specific projects, timelines, and resource allocations.

On the other hand, if your R&D activities are relatively straightforward or if you're just starting out, a shorter section that outlines your general objectives and plans may suffice.

Ultimately, the goal is to convey to investors or stakeholders that you have a clear strategy for research and development that supports the growth and competitiveness of your business.

It's important to strike a balance between providing enough information to demonstrate the value of your R&D efforts without overwhelming the reader with unnecessary detail.

This is the end of our guide, we hope it helped you better understand how to write the research and development section of your business plan. Please don't hesitate to contact our friendly team if you have any questions of feedback.

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