How to write a business plan

A business plan can be a key tool to convince lenders and partners that your projects are serious. Here’s how to prepare a winning one

14-minute read

A business plan is a crucial document for every company. It tells bankers, investors and others who you are, how you do business and what your finances look like.

“A solid business plan can be an effective tool for companies at all stages from start-ups to mature firms,” says Chad Fryling, who coaches businesses on preparing business plans. Fryling is Entrepreneur-in-Residence at Futurpreneur Canada, a non-profit organization that provides advice and start-up financing to aspiring entrepreneurs, in partnership with BDC.

Bankers and investors, for instance, often ask for a clear, detailed business plan when deciding on a loan or investment for a company. The plan gives key information they need to decide if a business is a good risk or opportunity. A business plan can also be useful internally to align your team.

A solid business plan can be an essential tool for companies at all stages from start-ups to mature firms.

Fryling often sees business plans that lack key elements, sufficient detail or realistic financial assumptions. He recommends using a business plan template to create the plan.

“Using a template helps ensure that you cover all the bases and don’t forget essential details that bankers, investors and others expect to see in a business plan,” he says. “That helps establish your credibility and make a strong case for your company.”

What is a business plan?

A business plan explains how a company brings in money and is run day-to-day. There isn’t a single standard format, but most plans cover these four main areas:

  1. Company profile
  2. Sales and marketing
  3. Operations
  4. Financials

Many plans also include an executive summary with an overview of your project and a simple explanation of your activities.

Business plans can be written for different audiences, but they’re primarily prepared for lenders, investors or shareholders. It’s important to tailor your plan to the audience. Investors and shareholders often want to see an exciting potential return and ambitious business goals.

It’s common for people to try to convince the lender that they’re going to make a lot of money. That can actually have an adverse effect.

Meanwhile, lenders generally want to know how they’ll get repaid and that the business owner is prepared enough to leverage the money effectively. They like to see conservative assumptions about your sales forecasts and market, different scenarios (good, neutral and bad) and contingencies in case things don’t go as planned.

“It’s common for people to try to convince the lender that this is an amazing opportunity and that they’re going to make a lot of money,” Fryling says. “That actually can have an adverse effect on the people reading the plan. They might think the business owner is too optimistic and doesn’t know what they’re getting into.”

What’s in a business plan?

Business plans generally cover four key areas. The information may be arranged in a different order or format, but the basic details are usually the same.

1. Company profile

This section gives an overview of your current company or business idea. It typically includes:

  • A business description
    Briefly describe your company, what it does and where it’s located. Clarify whether it’s a new venture, an expansion of an existing company or an acquisition.
  • Products and services
    Provide a detailed description of your product or service. This should include unique features, how much it costs and how it’s delivered.

    “It’s important to show you really understand all the intricacies of your product or service,” Fryling says. “This is often glossed over by entrepreneurs. They’ll just say something like, ‘We’re a tutoring service and we charge $50 an hour.’ What goes into that? Do you offer in-class sessions? Where are they? Do you rent a facility? How many kids are in each class? Is it online? Do you have a curriculum?”
  • Value proposition
    Explain the main benefit that keeps your customers coming back. You may need to validate this through a customer survey or focus group. “Don’t just assume you know without finding out what your customers think,” Fryling says. “Asking them directly can be very enlightening.”
  • Ownership and management team and key employees
    Outline the education, skills, training, knowledge and experience you and your team bring to the company to achieve its goals. “This is very important for establishing your credibility,” Fryling says. “People often overlook qualities that could lend credibility to starting a business. Include any transferrable skills, qualities, business contacts, even relevant hobbies.”
  • Company history
    Explain the development stage of your company or business idea. Include how much time, effort and resources you’ve invested in the business so far. “You should get really detailed about what you’ve accomplished to date,” Fryling says. “Don’t gloss over it. People often don’t put in enough hard numbers here.”
  • Mission statement, vision statement and company values.
  • Legal structure and issues
    Give details on your legal structure, why it’s the right one for your business and any potential liability issues.
  • Regulatory and insurance issues
    List any needed permits, licences or the like. Also explain any insurance needs, costs and providers.
  • Your business goals
    Briefly list measurable short- and medium-term goals for the business and when you want to achieve them.

    Examples: $50,000 in sales by July 31; or launch website by October 6.
  • Project
    If you’re seeking financing for a specific project, include a section to describe the project and your financing needs for it.
  • Market research
    Outline your market, industry, competition and trends. This important section consists of a lot of elements and is often broken out into a separate section of its own in many business plans. It should cover:
    • A market overview—How the market works, who is serving it, what gap you’re filling and key challenges you face. Focus on the local market opportunity, not big-picture stats for the whole industry.
    • Target market—A detailed description of your customer. Again, be specific.

      “People say their product is good for anybody 18 to 65 years of age,” Fryling says. “That’s too general. You need to identify a niche customer or persona so you can figure out where you can make your first 10 or 100 sales.” He suggests creating a profile of a specific person (or business for B2B) with specific characteristics that can help you identify them as a group. This can help inform and narrow your marketing and sales strategies.
    • Competitors—Who currently serves this market in your area. Identify three to five companies you admire or see as competitors who are slightly ahead of you in maturity.

      “People make the mistake of thinking some massive well-known company is their competitor,” Fryling says. “That’s not super-helpful. Choose companies that would be getting your customers’ money if you weren’t around.”
    • SWOT analysis—Strengths and weaknesses of each competitor; opportunities for your business that you can do better or differently; and threats that each of the competitors could pose to you if they change something. Also do a SWOT analysis on your own company.

People say their product is good for anybody 18 to 65 years of age. That’s too general.

  • Executive summary
    The executive summary is a very brief, high-level summary of the business plan. It appears in many business plan templates, but Fryling says it’s optional. He suggests that companies leave it out unless the target audience specifically requires it. If you do include one, he recommends writing the executive summary last.

    Here is where you can also include your business model canvas, which is a one-page visualization of how your business works.

    You can download a business model canvas here.

A lot of people think their product is so good it’s going to sell itself. That’s just not good enough reasoning.

2. Sales and marketing

  • Sales and marketing plan
    Outline your activities to generate sales. Fryling recommends including an action plan that lists your top three marketing activities and the sales results you foresee. For each activity, include details such as:
    • what you will do
    • how often
    • cost or time involved
    • expected results
    • what campaign metrics you’ll track
    “A lot of people gloss over the marketing and sales part of the business plan because they don’t have marketing or sales experience and don’t know what to put,” Fryling says.

    If that sounds like you, he suggests you learn more about the basics of preparing a marketing plan.
  • Pricing strategy
    List your prices, what the competitors in your SWOT analysis charge, how you’re positioned (e.g. bargain-basement, industry-standard, premium) and how you came up with your prices. Explain your strategy behind this type of pricing.
  • Sales forecast assumptions and rationale
    Explain how you came up with the first three or four months of sales projections in your financial forecast.

    “It is really important to explain the numbers in this section,” Fryling says. “A lot of people think their product is so good it’s going to sell itself. That’s just not good enough reasoning.”

    He gives the example of a company that projects 15 sales in April. It has averaged 15 sales a month for the past six months and already has 10 committed orders with a deposit for April. The company also has a record of strong sales in recent years. “That sounds totally conservative and achievable,” he says. “. The reader now understands how you’ve put those sales projection numbers together and hopefully feels that they are a conservative estimate.”

    But it’s another story if the entrepreneur has no industry experience and projects 15 sales simply because they will have a good website and offer great service. “It would seem like the person doesn’t know what they’re getting into,” Fryling says.

3. Operations

  • Location
    Explain your company’s location and why it’s right for your business. Some businesses may need to give more information than others.

    For example, a work-from-home consultant could simply say they have a home office, why that makes sense and where they’re located relative to customers. A restaurant, on the other hand, needs to include a lot more detail—e.g. the layout, square footage, a neighbourhood description, parking availability, street visibility, number of tables, even photos.
  • Assets and production
    List your assets, including equipment, machinery, real estate and key technology. Walk the reader through the production process. Again, different businesses may need to give more extensive detail depending on how operationally heavy they are.

    A consultant could simply explain their quoting and work processes. Meanwhile, a manufacturer should explain all the steps of their production from materials to manufacturing and shipping.
  • Suppliers
    where they’re located, turnaround time and, if they’re overseas, any relevant trade agreements and border issues.
  • HR and organizational structure
    Give information on:
    • number of employees and contractors in different functions
    • an organizational chart explaining roles and responsibilities
    • how you recruit and retain employees and contractors
    • your pay cycle
  • Risk assessment
    Acknowledge any potential risks in all of your functions and contingency plans to mitigate the risks.

I won’t look at somebody’s business plan unless they’ve at least made an attempt at financial projections.

4. Financials

Include a cash flow forecast, usually broken down on a monthly basis and presented as a spreadsheet. Also add your financial statements (balance sheet, income statement, cash flow statement and statement of retained earnings). And if you’re a new business, list start-up costs.

The cash flow forecast is especially important. Fryling calls it the heart of the entire plan, but says many companies fail to include it or complete it as an afterthought. “I won’t look at somebody’s business plan unless they’ve at least made an attempt at financial projections,” Fryling says.

“The real story happens in the financials. In the written part, every section mainly serves to explain and justify those numbers. A big part of the education we do as advisors is getting businesses to do the numbers at the same time as they’re writing the plan so they’re aligned with each other. It’s also not a bad idea to start with the numbers and then complete the written part.”

3 common business plan mistakes to avoid

  1. Being overly ambitious—You should be able to justify any assumptions or projections.
  2. Masking financial difficulties—Inform your lender if your sales fluctuate, for example, and you may prefer a flexible payment schedule. A transparent business plan is one of your best assets in gaining the trust of bankers and investors.
  3. Providing insufficient detail on the management team, marketing plans and justification for your cash flow forecast.

How long should a business plan be?

There’s no standard length for a business plan. “It’s more about the quality than the quantity,” Fryling says. “Many people can write a lot and say very little.

“I’ve seen excellent business plans that have just a paragraph and point-form bullets for each element and a few charts. But then I’ve seen people with a 100-page business plan that was absolutely ineffective because they focus on writing a story and making it sound good, but there’s no substance to it.”

What’s the difference between a business plan and a strategic plan?

A business plan isn’t the same as a strategic plan. Companies should have both types of plan.

A strategic plan defines a future desired state for the company and prioritized initiatives to achieve it, including a detailed action plan. The audience is your team. The plan is usually developed through a collaborative process that aligns your team around goals, prioritizes projects to achieve them and defines an action plan to execute the projects.

A business plan, on the other hand, describes how a company currently brings in money and is run day-to-day. It’s often created for an external audience to justify a loan or investment request. Certain elements can also be useful for your management team—for example, information on your marketing and operating activities.

What’s the difference between a business plan and a pitch deck?

A pitch deck is a document that’s used to present your company to new business partners. A pitch deck should allow you to present your start-up and the solutions you offer to investors and lenders in around 10 minutes. 

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