How to write a business plan for a supplier

A business plan is an important and comprehensive document that is useful throughout the business life cycle.

The document contains both strategic and financial details about the business and can be used for numerous purposes, such as securing investments or providing details to suppliers.

Creating a business plan for suppliers can be difficult without knowing what information to include in the document which is why we created this practical guide.

In this guide, we’ll focus on what a business plan for a supplier is and what it’s not. Reading this guide will help you understand why some suppliers require a business plan and help you figure out what tools you can use to create a business plan for a supplier.

So, let’s get started.

What is a business plan?

A business plan is a document that defines a company's objectives and how it plans to achieve them. It can be used to secure funding, find a business partner, or provide business details to suppliers.

It can be divided into two sections: a financial forecast and a written presentation.

The financial forecast, which includes a Profit and Loss (P&L) statement, balance sheet, and cash flow statement, contains valuable information used to determine the current and expected profitability and financial position.

Whereas the written section, which includes an executive summary, strategic details, competitor analysis, and more, conveys the context required to assess the relevance and credibility of the forecast.

Why do suppliers often ask for a business plan?

Supplier relations are highly important to the success of a business. Companies evaluate their suppliers based on the quality of materials they provide. Similarly, suppliers also evaluate their potential clients based on different factors.

Counterparty risk is the biggest concern suppliers have. The main risk suppliers face is not getting paid in time, and this is, therefore, where most of the counterparty risk lies, and why some suppliers will ask for a financial forecast to be included in your business plan.

Other important factors such as reputation (are you doing business ethically and sustainably? Is there a risk of being associated with you in terms of image?) also come into play when assessing counterparty risk.

A supplier will also want to assess their revenue potential with your business. This will help them determine whether you will be a small-time client or a major customer, and which terms of business they should offer as a result.

Assessing these details will help suppliers determine various factors about your business relationship with them, including:

Price charged for the material.
Amount of material they are willing to provide.
Payment terms.

Now that we know why suppliers ask for business plans, let’s have a look at the difference between the content of a traditional business plan and one written for a supplier.

How does a business plan for a supplier differ from a traditional business plan (i.e., for a bank or investor)?

The main difference between a traditional business plan, for a bank or investor, and one for a supplier is the level of risk.

You see, financiers take a significant level of risk when they agree to finance your business as it might take them years to get their money back.

Though suppliers are also interested in the profitability and cash generation of your business because they want to know that you’ll be able to pay them in time, the “ask” is less risky as the time they have to wait to be paid is much shorter.

As a result, a business plan for a supplier doesn’t have to emphasize your funding requirements and will require less convincing and, therefore details in your plan, to get them on board.

The aim here is to secure a long-term professional relationship. So this document should reflect the fact that your business is stable and is expected to grow so that suppliers can determine how much revenue they can hope to generate with you.

What does the financial forecast of a business plan for a supplier look like?

Though you’re not asking the supplier for funding, the financial forecast remains a key part of a business plan for a supplier.

Suppliers use the information provided in the section to determine whether you can pay them on time and if your business is expected to grow. Both these factors are critical to the supplier as they help determine the potential revenue they can generate from you.

The financial forecast section of a business plan for a supplier should include the following financial tables.

The P&L statement

The P&L statement of the financial forecasts provides the supplier with information about your business’s revenue, expenses, and costs. Your supplier can use this information to determine key financial metrics, which include:

Profitability - the expected profits your business can generate.
Growth rate - the rate at which your business is expected to grow.
Cost structure - how expenses are structured within your business.

The balance sheet

A balance sheet is basically another type of financial statement that contains details of your business’s assets and liabilities. It’s one of the most essential financial statements your supplier may use to measure the solvability of your business.

When looking at your balance sheet, suppliers will most likely focus on liquidity. Liquidity is the ability of your business to repay its short term debt (such as accounts payable with the supplier).

It is assessed by comparing the cash position of your business, and other liquid assets (such as money you’re expected to recover from what clients owe you), with the short term liabilities (trade payables, taxes due, financial debt due in the next 12 months, etc.).

The cash flow forecast

The cash flow forecast shows how money comes in and goes out of the business. It is a critical part of the financial forecast section of a business plan for a supplier. It helps determine how capital is managed and allocated.

This information can help your supplier understand your business's operational and financing activities. Your supplier can use the information available in these statements to figure out when they are likely to be paid. This can help the supplier create:

Payment terms that are more feasible.
Delivery milestones that meet your business’s requirements.

Now that you know what the financial forecast section of a business plan for a supplier should include, let’s look at the written part of the document.

What does the written part of a business plan for a supplier look like?

When creating a business plan for a supplier, you shouldn’t overlook the written part of the document. It’s just as important, if not more. This section of the business plan is what will help your supplier understand the context behind your financials.

It’ll help them learn more about your business, industry, and customers. This will allow the supplier to source and provide you with materials that match industry standards and are suitable for your customers with regard to quality.

However, it’s important to remember that the business plan for a supplier doesn’t have to be as detailed as the document needed for a bank or an investor.

The written section of a business plan for a supplier will include the following sections.

Executive summary

The executive summary of a business plan for a supplier serves as an overview of the entire document. It lets readers know what they can expect.

When writing this section, you should know that the aim here is to present your business in a clear, comprehensive, and concise manner. This will help capture the supplier’s attention and encourage them to read on.

Company details

This section will contain details about your business. When writing this section, you should make sure that you provide information about your partners, team members, and how capital is distributed.

When writing about your management team, it’s also important to mention their skills and qualifications. This will help the supplier better understand your business and its structure.

Product and service details

This is the most important section of a business plan for a supplier. In this section, you will include details about the products or services you offer.

It’s important to know that these details may include the features and functionalities. Providing these details will help your supplier source and deliver materials that improve the quality of your products or services.

entrepreneur contacting their supplier after writing a business plan in order to collaborate

Market research

This section will contain the findings of your market research and analysis. It can include details about your competitors, technological innovation in the industry, and overall market attributes.

The goal here is to show that there is a viable opportunity for your business. This information will help your supplier determine whether you will be a major customer for them.

Strategic details

In this section, you will include information about three key aspects of your business: pricing, marketing, and risk management.

Providing this information will help your supplier determine the profitability and positioning of the business. This will help the supplier meet your requirements and will help them determine the revenues they can generate from your business.

Operational plan

In this section, you should include information about how your daily business operations are conducted.

This might detail your production or service production and distribution plans. Your supplier can use this information to better understand business practices and tailor their delivery dates accordingly.

Now that you know what a business plan for a supplier should include, let’s look at some tools you can use to create this document.

What tool should I use to write a business plan for a supplier?

The options for tools used to write a business plan for a supplier are limited, and some of them aren’t very effective. Let’s take a look.

Writing your business plan using Word or Excel

Using these tools to write your business plan is a very cheap approach. However, you need to know that it requires manual effort and is an outdated method.

This approach is also error-prone if you’re not an expert in finance. You might also face difficulties when structuring and formatting your business plan.

Using online software to create a business plan for a supplier

This is by far the most effective approach to creating the document. Using online software to write a business plan for a supplier has numerous advantages, such as:

Having access to instructions and examples throughout the process.
Being able to use downloadable templates to create a business plan for a supplier.
Integrating financial forecasts into your business plan with just a few clicks.
Identifying errors in your existing financial forecast.
Converting your business plan for a supplier to one used for banks and investors.

Don’t wait. Start a free trial now and learn how we help you create a business plan for a supplier.

Conclusion

A business plan is an important document that contains strategic and financial details. A business plan for a supplier helps you communicate your current and expected requirements with ease. Suppliers can use this document to determine if you will be able to pay them and whether or not you will be a major customer for them.

Using online software to create a business plan for a supplier is by far the best approach, as it helps you create the document with ease.

Also on The Business Plan Shop

Know someone who needs to create a business plan for a supplier. Share this guide with them!