How to write a business plan for a house flipping business?
Putting together a business plan for a house flipping 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 house flipping 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 house flipping business?
Understanding the document's scope and goals will help you easily grasp its structure and content. Before diving into the specifics of the plan, let's take a moment to explore the key reasons why having a house flipping business business plan is so crucial.
To have a clear roadmap to grow the business
Running a small business is tough! Economic cycles bring growth and recessions, while the business landscape is ever-changing with new technologies, regulations, competitors, and consumer behaviours emerging constantly.
In such a dynamic context, operating a business without a clear roadmap is akin to driving blindfolded: it's risky, to say the least. That's why crafting a business plan for your house flipping business is vital to establish a successful and sustainable venture.
To create an effective business plan, you'll need to assess your current position (if you're already in business) and define where you want the business to be in the next three to five years.
Once you have a clear destination for your house flipping business, you'll have to:
- Identify the necessary resources (human, equipment, and capital) needed to reach your goals,
- Determine the pace at which the business needs to progress to meet its objectives as scheduled,
- Recognize and address the potential risks you may encounter along the way.
Engaging in this process regularly proves advantageous for both startups and established companies. It empowers you to make informed decisions about resource allocation, ensuring the long-term success of your business.
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 house flipping 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 house flipping 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 house flipping 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
Whether you are a startup or an existing business, writing a detailed house flipping business business plan is essential when seeking financing from banks or investors.
This makes sense given what we've just seen: financiers want to ensure you have a clear roadmap and visibility on your future cash flows.
Banks will use the information included in the plan to assess your borrowing capacity (how much debt your business can support) and your ability to repay the loan before deciding whether they will extend credit to your business and on what terms.
Similarly, investors will review your plan carefully to assess if their investment can generate an attractive return on investment.
To do so, they will be looking for evidence that your house flipping business has the potential for healthy growth, profitability, and cash flow generation over time.
Now that you understand why it is important to create a business plan for a house flipping business, let's take a look at what information is needed to create one.
Information needed to create a business plan for a house flipping business
You need the right data in order to project sales, investments and costs accurately in the financial forecast of your house flipping 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 house flipping business
Before you begin writing your business plan for a house flipping business, conducting market research is a critical step in ensuring precise and realistic financial projections.
Market research grants you valuable insights into your target customer base, competitors, pricing strategies, and other crucial factors that can impact the success of your business.
In the course of this research, you may stumble upon trends that could impact your house flipping business.
Your market research may reveal that there could be a trend towards buyers preferring houses with larger outdoor spaces, such as those with a pool or a large backyard. Additionally, your research might indicate that there may be a trend towards buyers seeking out modern features, like open floorplans and updated appliances.
Such market trends play a pivotal role in revenue forecasting, as they provide essential data regarding potential customers' spending habits and preferences.
By integrating these findings into your financial projections, you can provide investors with more accurate information, enabling them to make well-informed decisions about investing in your house flipping business.
Developing the sales and marketing plan for a house flipping business
Budgeting sales and marketing expenses is essential before creating a house flipping 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 capital expenditure requirements of a house flipping business
Whether you are starting or expanding a house flipping business, it is important to have a clear plan for recruitment and capital expenditures (investment in equipment and real estate) in order to ensure the success of the business.
Both the recruitment and investment plans need to be coherent with the timing and level of growth planned in your forecast, and require appropriate funding.
One example of possible staffing and equipment costs that a house flipping business might incur is hiring a contractor to handle the actual renovation work. This might include paying for labor, equipment, and materials, as well as any subcontractors who are required to complete the job. Similarly, the business might need to hire a real estate agent to help market the property and broker the sale. Additionally, the business might need to invest in equipment such as ladders, power tools, and other items that are necessary to complete the renovations.
In order to create a realistic financial forecast, you will also need to consider the other operating expenses associated with running the business on a day-to-day basis (insurance, bookkeeping, etc.).
Once you have all the necessary information to create a business plan for your house flipping business, it is time to start creating your financial forecast.
What goes into your house flipping business's financial forecast?
The financial forecast of your house flipping business will enable you to assess the profitability potential of your business in the coming years and how much capital is required to fund the actions planned in the business plan.
The four key outputs of a financial forecast for a house flipping 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 take a closer look at each of these.
The projected P&L statement
The projected P&L statement for a house flipping business shows how much revenue and profits your business is expected to generate in the future.
Ideally, your house flipping business's P&L statement should show:
- Healthy growth - above inflation level
- Improving or stable profit margins
- Positive net profit
Expectations will vary based on the stage of your business. A startup will be expected to grow faster than an established house flipping business. And similarly, an established company should showcase a higher level of profitability than a new venture.
The projected balance sheet of your house flipping business
The balance sheet for a house flipping 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 house flipping 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 house flipping 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
A projected cash flow statement for a house flipping business is used to show how much cash the business is generating or consuming.
The cash flow forecast is usually organized by nature to show three key metrics:
- The operating cash flow: do the core business activities generate or consume cash?
- The investing cash flow: how much is the business investing in long-term assets (this is usually compared to the level of fixed assets on the balance sheet to assess whether the business is regularly maintaining and renewing its equipment)?
- The financing cash flow: is the business raising new financing or repaying financiers (debt repayment, dividends)?
As we discussed earlier, cash is king and keeping an eye on future cash flows an imperative for running a successful business. Therefore, you can expect the reader of your house flipping business business plan to pay close attention to your cash flow forecast.
Also, note that it is customary to provide both yearly and monthly cash flow forecasts in a business plan - so that the reader can analyze seasonal variation and ensure the house flipping business is appropriately funded.
The initial financing plan
The initial financing plan - also called a sources and uses table - is an important tool when starting a house flipping business.
It shows where the money needed to set up the business will come from (sources) and how it will be allocated (uses).
Having this table helps understand what costs are involved in setting up the house flipping business, how the risks are distributed between the shareholders and the lenders, and what will be the starting cash position (which needs to be sufficient to sustain operations until the business breaks even).
Now that the financial forecast of a house flipping business business plan is understood, let's focus on what goes into the written part of the plan.
The written part of a house flipping business business plan
The written part of a house flipping business business plan plays a key role: it lays out the plan of action you intend to execute to seize the commercial opportunity you've identified on the market and provides the context needed for the reader to decide if they believe your plan to be achievable and your financial forecast to be realistic.
The written part of a house flipping 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
Let's go through the content of each section in more detail!
1. The executive summary
The first section of your house flipping 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 house flipping 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
In your house flipping business business plan, the second section should focus on the structure and ownership, location, and management team of your company.
In the structure and ownership part, you'll provide an overview of the business's legal structure, details about the owners, and their respective investments and ownership shares. This clarity is crucial, especially if you're seeking financing, as it helps the reader understand which legal entity will receive the funds and who controls the business.
Moving on to the location part, you'll offer an overview of the company's premises and their surroundings. Explain why this particular location is of interest, highlighting factors like catchment area, accessibility, and nearby amenities.
When describing the location of your house flipping business, you may want to focus on the potential of the area. You could highlight the area's potential for growth, noting that the area may be attractive to new and growing businesses. You might emphasize the local amenities, such as access to transportation, shopping, and entertainment, which could make the area an attractive investment destination. You could also emphasize the potential for increased property value, as the area may be well-positioned to benefit from potential development projects. Finally, you could point out that the area may be a desirable destination for potential buyers, which could make your house flipping business an attractive proposition for a third party financier.
Finally, you should introduce your management team. Describe each member's role, background, and experience.
Don't forget to emphasize any past successes achieved by the management team and how long they've been working together. Demonstrating their track record and teamwork will help potential lenders or investors gain confidence in their leadership and ability to execute the business plan.
3. The products and services section
The products and services section of your business plan should include a detailed description of what your company offers, who are the target customers, and what distribution channels are part of your go-to-market.
For example, your house flipping business might offer renovation services such as painting, tiling, and carpentry; staging services to make the property more attractive to potential buyers; and real estate sales services to assist with marketing and completing the sale of the property. These services would be beneficial to customers as they would enable them to maximize their investment in the property by transforming it into a more attractive and marketable asset.
4. The market analysis
When presenting your market analysis in your house flipping 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 house flipping 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 house flipping business is targeting, and explain how your products and services meet the specific needs of these customers.
For example, your target market might include investors who are interested in house flipping as a business and are looking to make a profit. They will likely be well-informed about the housing market and have knowledge of the local area. They may also have experience in renovating and maintaining properties.
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 house flipping business.
5. The strategy section
When you write the strategy section of your house flipping business business plan, remember to cover key elements such as your competitive edge, pricing strategy, sales & marketing plan, milestones, and risks and mitigants.
In the competitive edge subsection, elaborate on what makes your company stand out from competitors. This becomes especially important if you're a startup, aiming to carve a place for yourself amidst established players in the marketplace.
The pricing strategy subsection should demonstrate how you plan to maintain profitability while offering competitive prices to attract customers.
Outline your sales & marketing plan, detailing how you'll reach out to new customers and retain existing ones through loyalty programs or special offers.
For the milestones subsection, outline your company's achievements to date and your main objectives for the future, complete with specific dates to set clear expectations for progress.
Lastly, the risks and mitigants subsection should address the main risks that could affect your plan's execution. Explain the measures you've put in place to minimize these risks, assuring potential investors or lenders.
Your house flipping business faces a variety of risks. One risk you may face is difficulties in the sale process. Issues with potential buyers could arise, such as not meeting their financial commitments or having difficulty obtaining a mortgage. Additionally, unexpected problems could arise during the renovation process. You may encounter structural issues that require costly repairs, or find that you have underestimated the cost of materials and labour. These unexpected costs could lead to delays in the renovation process and put your timeline and budget at risk.
6. The operations section
In your business plan, it's also essential to provide a detailed overview of the operations of your house flipping business.
Start by covering your team, highlighting key roles and your recruitment plan to support the expected growth. Outline the qualifications and experience required for each role and your intended recruitment methods, whether through job boards, referrals, or headhunters.
Next, clearly state your house flipping business's operating hours, allowing the reader to assess staffing levels adequately. Additionally, mention any plans for varying opening times during peak seasons and how you'll handle customer queries outside normal operating hours.
Then, shift your focus to the key assets and intellectual property (IP) necessary for your business. If you rely on licenses, trademarks, physical structures like equipment or property, or lease agreements, make sure to include them in this section.
You might have key assets in the form of real estate and IP. For example, the real estate could include the properties you buy and flip, as well as the tools and materials used in the process. You could also have intellectual property in the form of ideas, processes, and designs related to the business. These could include designs for the interior or exterior of the property, processes related to flipping houses, and ideas for improving the value of the property.
Lastly, include a list of suppliers you plan to work with, detailing their services and main commercial terms, such as price, payment terms, and contract duration. Investors are interested in understanding why you've chosen specific suppliers, which may be due to higher-quality products or established relationships from previous ventures.
7. The presentation of the financial plan
The financial plan section is where we will include the financial forecast we talked about earlier in this guide.
Now that you have a clear idea of the content of a house flipping business business plan, let's look at some of the tools you can use to create yours.
What tool should I use to write my house flipping business's business plan?
In this section, we will be reviewing the two main options for writing a house flipping business business plan efficiently:
- Using specialized software,
- Outsourcing the drafting to the business plan writer.
Using an online business plan software for your house flipping business's business plan
Using online business planning software is the most efficient and modern way to write a house flipping 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 house flipping business's business plan
Outsourcing your house flipping 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 house flipping 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.
Why not create your house flipping business's business plan using Word or Excel?
Using Microsoft Excel and Word (or their Google, Apple, or open-source equivalents) to write a house flipping business business plan is not advisable. Allow me to explain the reasons.
Firstly, creating an accurate and error-free financial forecast on Excel or any spreadsheet demands technical expertise in accounting principles and financial modelling. Without a degree in finance and accounting and significant financial modelling experience, it's unlikely that the reader will fully trust your numbers.
Secondly, relying on spreadsheets is inefficient. While it may have been the go-to option in the past, technology has evolved, and software now performs such tasks much faster and more accurately.
The second reason is that it is inefficient. Building forecasts on spreadsheets was the only option in the 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.
Moreover, software offers ease in comparing actuals versus forecasts and maintaining up-to-date forecasts for clear visibility on future cash flows, as we discussed earlier in this guide. Such tasks are cumbersome when using spreadsheets.
Now, let's address the written part of your house flipping business business plan. While it may be less prone to errors, using software can significantly boost productivity. Word processors lack instructions and examples for each section of your business plan. They also won't automatically update your numbers when changes occur in your forecast, and they lack automated formatting capabilities.
In summary, while some entrepreneurs may consider Word or Excel for their business plan, it's far from the best or most efficient solution when compared to specialized software.
- Having an up-to-date business plan is key to maintaining visibility on your future cash flows.
- A business plan has 2 parts: a financial forecast highlighting the expected growth, profitability and cash generation of the business; and a written part which provides the context needed to interpret and assess the quality of the forecast.
- Using business plan software is the modern way of writing and maintaining business plans.
We hope that this guide helped you to better understand how to write the business plan for a house flipping business. If you still have questions, do not hesitate to contact us.
Also on The Business Plan Shop
Know someone who owns or wants to start a house flipping business? Share this article with them!