How to write a business plan for a buy-to-let business?
Putting together a business plan for a buy-to-let business can be daunting - especially if you're creating a business for the first time - but with this comprehensive guide, you'll have the necessary tools to do it confidently.
We will explore why writing one is so important in both starting up and growing an existing buy-to-let business, as well as what should go into making an effective plan - from its structure to content - and what tools can be used to streamline the process and avoid errors.
Without further ado, let us begin!
Why write a business plan for a buy-to-let business?
Being clear on the scope and goals of the document will make it easier to understand its structure and content. So before diving into the actual content of the plan, let's have a quick look at the main reasons why you would want to write a buy-to-let business business plan in the first place.
To have a clear roadmap to grow the business
Small businesses rarely experience a constant and predictable environment. Economic cycles go up and down, while the business landscape is mutating constantly with new regulations, technologies, competitors, and consumer behaviours emerging when we least expect it.
In this dynamic context, it's essential to have a clear roadmap for your buy-to-let business. Otherwise, you are navigating in the dark which is dangerous given that - as a business owner - your capital is at risk.
That's why crafting a well-thought-out business plan is crucial to ensure the long-term success and sustainability of your venture.
To create an effective business plan, you'll need to take a step-by-step approach. First, you'll have to assess your current position (if you're already in business), and then identify where you'd like your buy-to-let business to be in the next three to five years.
Once you have a clear destination for your buy-to-let business, you'll focus on three key areas:
- Resources: you'll determine the human, equipment, and capital resources needed to reach your goals successfully.
- Speed: you'll establish the optimal pace at which your business needs to grow if it is to meet its objectives within the desired timeframe.
- Risks: you'll identify and address potential risks you might encounter along the way.
By going through this process regularly, you'll be able to make informed decisions about resource allocation, paving the way for the long-term success of your business.
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To maintain visibility on future cash flows
Businesses can go for years without making a profit, but they go bust as soon as they run out of cash. That's why "cash is king", and maintaining visibility on your buy-to-let business's future cash flows is critical.
How do I do that? That's simple: you need an up-to-date financial forecast.
The good news is that your buy-to-let business business plan already contains a financial forecast (more on that later in this guide), so all you have to do is to keep it up-to-date.
To do this, you need to regularly compare the actual financial performance of your business to what was planned in your financial forecast, and adjust the forecast based on the current trajectory of your business.
Monitoring your buy-to-let business's financial health will enable you to identify potential financial problems (such as an unexpected cash shortfall) early and to put in place corrective measures. It will also allow you to detect and capitalize on potential growth opportunities (higher demand from a given segment of customers for example).
To secure financing
Crafting a comprehensive business plan for your buy-to-let business, whether you're starting up or already established, is paramount when you're seeking financing from banks or investors.
Given how fragile small businesses are, financiers will want to ensure that you have a clear roadmap in place as well as command and control of your future cash flows before entertaining the idea of funding you.
For banks, the information in your business plan will be used to assess your borrowing capacity - which is defined as the maximum amount of debt your business can afford alongside your ability to repay the loan. This evaluation helps them decide whether to extend credit to your business and under what terms (interest rate, duration, repayment options, collateral, etc.).
Similarly, investors will thoroughly review your plan to determine if their investment can yield an attractive return. They'll be looking for evidence that your buy-to-let business has the potential for healthy growth, profitability, and consistent cash flow generation over time.
Now that you understand the importance of creating a business plan for your buy-to-let business, let's delve into the necessary information needed to craft an effective plan.
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Information needed to create a business plan for a buy-to-let business
You need the right data in order to project sales, investments and costs accurately in the financial forecast of your buy-to-let business business plan.
Below, we'll cover three key pieces of information you should gather before drafting your business plan.
Carrying out market research for a buy-to-let business
As you consider writing your business plan for a buy-to-let business, conducting market research becomes a vital step to ensure accurate and realistic financial projections.
Market research provides valuable insights into your target customer base, competitors, pricing strategies, and other key factors that can significantly impact the commercial success of your business.
Through this research, you may uncover trends that could influence your buy-to-let business.
You may find that there is an increased demand for rental properties in certain areas of the city, which could suggest an opportunity to expand your business in those areas. Market research might also reveal that there is a growing interest in shorter-term rental contracts, which could provide you with an opportunity to diversify your services and attract more customers.
Such market trends play a significant role in forecasting revenue, as they offer valuable data about potential customers' spending habits and preferences.
By incorporating these findings into your financial projections, you can present investors with more accurate information, helping them make informed decisions about investing in your buy-to-let business.
Developing the sales and marketing plan for a buy-to-let business
Budgeting sales and marketing expenses is essential before creating a buy-to-let business business plan.
A comprehensive sales and marketing plan should provide an accurate projection of what actions need to be implemented to acquire and retain customers, how many people are needed to carry out these initiatives, and how much needs to be spent on promotions, advertising, and other aspects.
This helps ensure that the right amount of resources is allocated to these activities in order to hit the sales and growth objectives forecasted in your business plan.
The staffing and equipment needs of a buy-to-let business
Whether you are at the beginning stages of your buy-to-let business or expanding its horizons, having a clear plan for recruitment and capital expenditures (investment in equipment and real estate) is vital to ensure your business's success.
To achieve this, both the recruitment and investment plans must align coherently with the projected timing and level of growth in your forecast. It is essential to secure appropriate funding for these plans.
A buy-to-let business might incur staffing costs such as paying for a property manager, as well as the costs of hiring and training new staff. Equipment costs might include purchasing and maintaining items such as furniture, appliances, and security systems. Additionally, the business may need to pay for insurance, taxes, and permits related to the properties.
To create a financial forecast that accurately represents your business's outlook, remember to factor in other day-to-day operating expenses.
Now that you have all the necessary information, it's time to dive in and start creating your business plan and developing the financial forecast for your buy-to-let business.
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What goes into your buy-to-let business's financial forecast?
The objective of the financial forecast of your buy-to-let business's business plan is to show the growth, profitability, funding requirements, and cash generation potential of your business over the next 3 to 5 years.
The four key outputs of a financial forecast for a buy-to-let business are:
- The profit and loss (P&L) statement,
- The projected balance sheet,
- The cash flow forecast,
- And the sources and uses table.
Let's look at each of these in a bit more detail.
The projected P&L statement
The projected P&L statement for a buy-to-let business shows how much revenue and profit your business is expected to make in the future.
A healthy buy-to-let business's P&L statement should show:
- Sales growing at (minimum) or above (better) inflation
- Stable (minimum) or expanding (better) profit margins
- A healthy level of net profitability
This will of course depend on the stage of your business: numbers for a startup will look different than for an established buy-to-let business.
The projected balance sheet of your buy-to-let business
The balance sheet for a buy-to-let business is a financial document that provides a snapshot of your business’s financial health at a given point in time.
It shows three main components: assets, liabilities and equity:
- Assets: are resources owned by the business, such as cash, equipment, and accounts receivable (money owed by clients).
- Liabilities: are debts owed to creditors and other entities, such as accounts payable (money owed to suppliers) and loans.
- Equity: includes the sums invested by the shareholders or business owners and the cumulative profits and losses of the business to date (called retained earnings). It is a proxy for the value of the owner's stake in the business.
Examining the balance sheet is important for lenders, investors, or other stakeholders who are interested in assessing your buy-to-let business's liquidity and solvency:
- Liquidity: assesses whether or not your business has sufficient cash and short-term assets to honour its liabilities due over the next 12 months. It is a short-term focus.
- Solvency: assesses whether or not your business has the capacity to repay its debt over the medium-term.
Looking at the balance sheet can also provide insights into your buy-to-let business's investment and financing policies.
In particular, stakeholders can compare the value of equity to the value of the outstanding financial debt to assess how the business is funded and what level of financial risk has been taken by the owners (financial debt is riskier because it has to be repaid, while equity doesn't need to be repaid).
The cash flow forecast
As we've seen earlier in this guide, monitoring future cash flows is the key to success and the only way of ensuring that your buy-to-let business has enough cash to operate.
As you can expect showing future cash flows is the main role of the cash flow forecast in your buy-to-let business business plan.
It is best practice to organise the cash flow statement by nature in order to show the cash impact of the following areas:
- Cash flow generated from operations: the operating cash flow shows how much cash is generated or consumed by the business's commercial activities
- Cash flow from investing activities: the investing cash flow shows how much cash is being invested in capital expenditure (equipment, real estate, etc.) either to maintain the business's equipment or to expand its capabilities
- Cash flow from financing activities: the financing cash flow shows how much cash is raised or distributed to financiers
Looking at the cash flow forecast helps you to make sure that your business has enough cash to keep running, and can help you anticipate potential cash shortfalls.
Your buy-to-let business business plan will normally include both yearly and monthly cash flow forecasts so that the readers can view the impact of seasonality on your business cash position and generation.
The initial financing plan
The initial financing plan, also known as a sources and uses table, is a valuable resource to have in your business plan when starting your buy-to-let business as it reveals the origins of the money needed to establish the business (sources) and how it will be allocated (uses).
Having this table helps show what costs are involved in setting up your buy-to-let business, how risks are shared between founders, investors and lenders, and what the starting cash position will be. This cash position needs to be sufficient to sustain operations until the business reaches a break-even point.
Now that you have a clear understanding of what goes into the financial forecast of your buy-to-let business business plan, let's shift our focus to the written part of the plan.
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The written part of a buy-to-let business business plan
The written part of a buy-to-let business business plan is composed of 7 main sections:
- The executive summary
- The presentation of the company
- The products and services
- The market analysis
- The strategy
- The operations
- The financial plan
Throughout these sections, you will seek to provide the reader with the details and context needed for them to form a view on whether or not your business plan is achievable and your forecast a realistic possibility.
Let's go through the content of each section in more detail!
1. The executive summary
The first section of your buy-to-let business's business plan is the executive summary which provides, as its name suggests, an enticing summary of your plan which should hook the reader and make them want to know more about your business.
When writing the executive summary, it is important to provide an overview of the business, the market, the key financials, and what you are asking from the reader.
Start with a brief introduction of the business, its name, concept, location, how long it has been in operation, and what makes it unique. Mention any services or products you plan to offer and who you sell to.
Then you should follow with an overview of the addressable market for your buy-to-let business, current trends, and potential growth opportunities.
You should then include a summary of your key financial figures such as projected revenues, profits, and cash flows.
Finally, you should detail any funding requirements in the ask section.
2. The presentation of the company
As you build your buy-to-let business business plan, the second section deserves attention as it delves into the structure and ownership, location, and management team of your company.
In the structure and ownership part, you'll provide valuable insights into the legal structure of the business, the identities of the owners, and their respective investments and ownership stakes. This level of transparency is vital, particularly if you're seeking financing, as it clarifies which legal entity will receive the funds and who holds the reins of the business.
Moving to the location part, you'll offer a comprehensive view of the company's premises and articulate why this specific location is strategic for the business, emphasizing factors like catchment area, accessibility, and nearby amenities.
When describing the location of your buy-to-let business to a third party financier, you could emphasize the potential for growth in the region. You may mention the local economy and how it could benefit your business. You could also discuss the advantages of the area in terms of access to amenities and infrastructure such as transportation, schools, and other services. Finally, you could highlight the potential for increased demand in the region due to the availability of housing and other resources.
Lastly, you should introduce your esteemed management team. Provide a thorough explanation of each member's role, background, and extensive experience.
It's equally important to highlight any past successes the management team has achieved and underscore the duration they've been working together. This information will instil trust in potential lenders or investors, showcasing the strength and expertise of your leadership team and their ability to deliver the business plan.
3. The products and services section
The products and services section of your buy-to-let business business plan should include a detailed description of what your company sells to its customers.
For example, in addition to letting properties, your buy-to-let business could offer a range of services to other landlords such as property management, advice on rental yields, and tenant referencing. Property management services would enable customers to easily manage their properties, from finding good tenants to carrying out maintenance and repairs. Advice on rental yields would help customers make informed decisions about their investments so that they can maximize their returns. Tenant referencing would help customers to make sure that they are renting their properties to reliable tenants.
The reader will want to understand what makes your buy-to-let business unique from other businesses in this competitive market.
When drafting this section, you should be precise about the categories of products or services you sell, the clients you are targeting and the channels that you are targeting them through.
4. The market analysis
When presenting your market analysis in your buy-to-let business business plan, you should detail the customers' demographics and segmentation, target market, competition, barriers to entry, and any regulations that may apply.
The goal of this section is to help the reader understand how big and attractive your market is, and demonstrate that you have a solid understanding of the industry.
You should start with the demographics and segmentation subsection, which gives an overview of the addressable market for your buy-to-let business, the main trends in the marketplace, and introduces the different customer segments and their preferences in terms of purchasing habits and budgets.
The target market section should follow and zoom on the customer segments your buy-to-let business is targeting, and explain how your products and services meet the specific needs of these customers.
For example, your target market might include young professionals. This segment is typically made up of individuals aged between 25 and 40 who have steady incomes and are looking for a long-term living arrangement. These individuals may not have the time or resources to invest in buying a property, but are willing to pay a premium for a rental that offers more amenities than a traditional rental.
Then comes the competition subsection, where you should introduce your main competitors and explain what differentiates you from them.
Finally, you should finish your market analysis by giving an overview of the main regulations applicable to your buy-to-let business.
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5. The strategy section
When writing the strategy section of a business plan for your buy-to-let business, it is essential to include information about your competitive edge, pricing strategy, sales & marketing plan, milestones, and risks and mitigants.
The competitive edge subsection should explain what sets your company apart from its competitors. This part is especially key if you are writing the business plan of a startup, as you have to make a name for yourself in the marketplace against established players.
The pricing strategy subsection should demonstrate how you intend to remain profitable while still offering competitive prices to your customers.
The sales & marketing plan should outline how you intend to reach out and acquire new customers, as well as retain existing ones with loyalty programs or special offers.
The milestones subsection should outline what your company has achieved to date, and its main objectives for the years to come - along with dates so that everyone involved has clear expectations of when progress can be expected.
The risks and mitigants subsection should list the main risks that jeopardize the execution of your plan and explain what measures you have taken to minimize these. This is essential in order for investors or lenders to feel secure in investing in your venture.
Your buy-to-let business faces numerous risks. First, you may experience a lack of tenants, which could lead to a loss of rental income. Second, you might find yourself dealing with difficult and unreliable tenants, which could result in costly legal proceedings. Therefore, it is important to manage your buy-to-let business carefully in order to reduce the likelihood of such risks.
6. The operations section
The operations of your buy-to-let business must be presented in detail in your business plan.
The first thing you should cover in this section is your staffing team, the main roles, and the overall recruitment plan to support the growth expected in your business plan. You should also outline the qualifications and experience necessary to fulfil each role, and how you intend to recruit (using job boards, referrals, or headhunters).
You should then state the operating hours of your buy-to-let business - so that the reader can check the adequacy of your staffing levels - and any plans for varying opening times during peak season. Additionally, the plan should include details on how you will handle customer queries outside of normal operating hours.
The next part of this section should focus on the key assets and IP required to operate your business. If you depend on any licenses or trademarks, physical structures (equipment or property) or lease agreements, these should all go in there.
You may have key assets such as rental properties or rental equipment that your business owns. These could be used as collateral in the event of a loan or other financing arrangement. Additionally, you might have intellectual property such as a trademark or logo that you use to identify your business. These key assets and IP can be valuable and should be protected.
Finally, you should include a list of suppliers that you plan to work with and a breakdown of their services and main commercial terms (price, payment terms, contract duration, etc.). Investors are always keen to know if there is a particular reason why you have chosen to work with a specific supplier (higher-quality products or past relationships for example).
7. The presentation of the financial plan
The financial plan section is where we will include the financial forecast we discussed earlier in this guide.
Now that you have a clear idea of what goes into a buy-to-let business business plan, let's look at some of the tools you can use to create yours efficiently.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
What tool should I use to write my buy-to-let business's business plan?
There are two main ways of creating your buy-to-let business business plan:
- Using specialized business planning software,
- Hiring a business plan writer.
Using an online business plan software for your buy-to-let business's business plan
Using online business planning software is the most efficient and modern way to write a buy-to-let business business plan.
There are several advantages to using specialized software:
- You can easily create your financial forecast by letting the software take care of the financial calculations for you without errors
- You are guided through the writing process by detailed instructions and examples for each part of the plan
- You can access a library of dozens of complete business plan samples and templates for inspiration
- You get a professional business plan, formatted and ready to be sent to your bank or investors
- You can easily track your actual financial performance against your financial forecast
- You can create scenarios to stress test your forecast's main assumptions
- You can easily update your forecast as time goes by to maintain visibility on future cash flows
- You have a friendly support team on standby to assist you when you are stuck
If you're interested in using this type of solution, you can try The Business Plan Shop for free by signing up here.
Hiring a business plan writer to write your buy-to-let business's business plan
Outsourcing your buy-to-let business business plan to a business plan writer can also be a viable option.
Business plan writers are experienced in writing business plans and adept at creating financial forecasts without errors. Furthermore, hiring a consultant can save you time and allow you to focus on the day-to-day operations of your business.
However, hiring business plan writers is expensive as you are paying for the software used by the consultant, plus their time, and their profit margin of course.
From experience, you need to budget at least £1.5k ($2.0k) excluding tax for a complete business plan, more if you need to make changes after the initial version (which happens frequently after the initial meetings with lenders or investors).
You also need to be careful when seeking investment. Investors want their money to be used to grow the business, not spent on consulting fees. Therefore, the amount you spend on business plan writing services (and other consulting services such as legal services) needs to be negligible relative to the amount raised.
The other drawback is that you usually don't own the business plan itself: you just get the output, while the actual document is saved in the consultant's business plan software - which makes it difficult to maintain the document up to date without hiring the consultant on a retainer.
For these reasons, outsourcing the buy-to-let business business plan to a business plan writer should be considered carefully, weighing both the advantages and disadvantages of hiring outside help.
Ultimately, it may be the right decision for some businesses, while others may find it beneficial to write their business plan using online software.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Why not create your buy-to-let business's business plan using Word or Excel?
Using Microsoft Excel and Word (or their Google, Apple, or open-source equivalents) to write a buy-to-let business business plan is a terrible idea.
Why?
For starters, creating an accurate and error-free financial forecast on Excel (or any spreadsheet) is very technical and requires both a strong grasp of accounting principles and solid skills in financial modelling.
As a result, it is unlikely anyone will trust your numbers unless - like us at The Business Plan Shop - you hold a degree in finance and accounting and have significant financial modelling experience in your past.
The second reason is that it is inefficient. Building forecasts on spreadsheets was the only option in the 1990s and early 2000s, nowadays technology has advanced and software can do it much faster and much more accurately.
And with the rise of AI, software is also becoming smarter at helping us detect mistakes in our forecasts and helping us analyse the numbers to make better decisions.
Also, using software makes it easy to compare actuals vs. forecasts and maintain our forecasts up to date to maintain visibility on future cash flows - as we discussed earlier in this guide - whereas this is a pain to do with a spreadsheet.
That's for the forecast, but what about the written part of my buy-to-let business business plan?
This part is less error-prone, but here also software brings tremendous gains in productivity:
- Word processors don't include instructions and examples for each part of your business plan
- Word processors don't update your numbers automatically when they change in your forecast
- Word processors don't handle the formatting for you
- ...
Overall, while Word or Excel may be viable options for creating a buy-to-let business business plan for some entrepreneurs, it is by far not the best or most efficient solution.
Takeaways
- Using business plan software is a modern and cost-effective way of writing and maintaining business plans.
- A business plan is not a one-shot exercise as maintaining it current is the only way to keep visibility on your future cash flows.
- A business plan has 2 main parts: a financial forecast outlining the funding requirements of your buy-to-let business and the expected growth, profits and cash flows for the next 3 to 5 years; and a written part which gives the reader the information needed to decide if they believe the forecast is achievable.
We hope that this in-depth guide met your expectations and that you now have a clear understanding of how to write your buy-to-let business business plan. Do not hesitate to contact our friendly team if you have questions additional questions we haven't addressed here.
Also on The Business Plan Shop
- How to write a business plan to secure a bank loan?
- Business plan to find a partner
- How to talk about the competition in a business plan?
- One-page business plan template
- Key steps to write a business plan?
- Top mistakes to avoid in your business plan
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