Your business plan is going to be the most important document to us, as it should tell us everything we need to know about your business, thus enabling us to make the decision to invest in your company. Here are the guidelines on what your business plan should include.
This summarises your business plan and is placed at the front of the document. Usually it is written last. It needs to be convincing in conveying your company’s growth and profit potential and management’s prior relevant experience. It needs to clearly encapsulate your company’s unique selling point, so why people should buy your product or service as distinct from your competitors.
The summary should be limited to between 1,000 to 1,500 words and include the main points from the key elements below:
Other aspects that should be included in the Executive Summary are your company’s “mission statement” – a few sentences encapsulating what the business does for what type of clients, the management’s aims for the company and what gives it its competitive edge. The mission statement should combine the current situation with your aspirations. You should also explain the current legal status of your business in this section.
You should include an overall “SWOT” (strengths, weaknesses, opportunities and threats) analysis that summarises the key strengths of your proposition and its weaknesses and the opportunities for your business in the marketplace and its competitive threats.
Explain the company’s product or service in plain English. If the product or service is technically orientated this is essential, as it has to be readily understood by non-specialists.
Emphasise the product or service’s competitive edge or USP (unique selling point), such as is it a new product, available at a lower price, of higher quality etc. If relevant, explain what legal protection you have on the product, such as patents attained, pending or required. Assess the impact of legal protection on the marketability of the product.
You also need to cover the price and cost of the product or service. If the product is still under development, the plan should list all the major achievements to date as well as remaining milestones, to demonstrate how you have tackled various hurdles and that you are aware of remaining hurdles and how to surmount them.
Specific mention should be made of the results of alpha (internal) and beta (external) product testing.
If you are a single product company, it’s beneficial to include ideas and plans for a “second generation” product or even other viable products or services to demonstrate the opportunities for business growth.
You need to do a careful analysis of the market potential for your products or services and how you plan to develop and penetrate the market.
This requires thorough analysis of your company’s industry and potential customers. Include data on the size of the market, growth rates, recent technical advances, and government regulations and trends. Is the market as a whole developing, growing, mature, or declining? Include details on the number of potential customers, the purchase rate per customer, and a profile of the typical decision-maker who will decide whether to purchase your product or service. This information drives the sales forecast and pricing strategy in your plan. Finally, comment on the percentage of the target market your company plans to capture, with justification in the marketing section of the plan.
The sales projections that you make will drive the rest of the business plan by estimating the rate of growth of operations and the financing required. Explain your plans for the development of the business and how you are going to achieve those goals. The plan should include an outline of plans for pricing, distribution channels, promotion and competition.
Explain the key components of the pricing decision, i.e. image, competitive issues, gross margins, and the discount structure for each distribution channel. Pricing strategy should also involve consideration of future product releases.
If you are a manufacturer, you should clearly identify the distribution channels that will get the product to the end-user.
If you are a service provider, the distribution channels are not as important as are the means of promotion.
Fully explain the reasons for selecting the distribution approaches and the financial benefits they will provide. This should include a schedule of projected prices, with appropriate discounts and commissions as part of the projected sales estimates. These estimates of profit margin and pricing policy will provide support for the investment decision.
The marketing promotion section of the business plan should include plans for product sheets, potential advertising plans, internet strategy, trade show schedules, and any other promotional materials. We must be convinced that you have the expertise to move the product to market.
A well thought out promotional approach will help to set your business plan apart from your competitors.
The business plan should analyse the competition (who are they, how many are there, what proportion of the market do they account for?). Give their strengths and weaknesses relative to your product.
Attempt to anticipate likely competitive responses to your product. Include, if possible, a direct product comparison based on price, quality, warranties, product updates, features, distribution strategies, and other means of comparison. Document the sources used in this analysis.
All the aspects included in the market section of your business plan must be rigorously supported by as much verifiable evidence as possible.
This section of the plan should introduce the management team and what you all bring to the business. Include your experience, and success, in running businesses before and how you have learned from not so successful businesses. You need to demonstrate that the company has the quality of management to be able to execute the business plan and make it a reality.
The special abilities each member brings to the venture should be explained. This is particularly the case with technology companies, where it will be the combination of technological and business skills that will be important to the backers.
A concise curriculum vitae should be included for each team member, highlighting their previous track records in running, or being involved with successful businesses.
Identify the current and potential skills’ gaps and explain how you aim to fill them. Explain what controls and performance measures exist for management, employees and others. List your auditors and other advisers.
This section of the business plan should explain how your business operates, including how you make the products or provide the service.
It should also outline your company’s approach to research and development, including
details on the location and size of your facilities. Factors such as the availability of labour, accessibility of materials, proximity to distribution channels, and the availability of Government grants and tax incentives should be mentioned. Describe the equipment used or planned. If more equipment is required in response to production demands, include plans for financing.
If your company needs international distribution, mention whether the operations facility will provide adequate support. If work will be outsourced to subcontractors, thus eliminating the need to expand facilities, state that too. If a prototype has not been developed or there is other uncertainty concerning production, include a budget and timetable for product development.
The investor will be looking to see how flexible and efficient the facility plans are.
Please note the major assumptions used to develop the revenue and expense items and explain the research you have undertaken to support these assumptions. Don’t forget to assess the value of the company’s net tangible assets. State the level of gearing (i.e. debt to shareholders’ funds ratio) and how much debt is secured on what assets and the current value of those assets.
What are the sale prices or fee charging structures?
Provide budgets for each area of your company’s activities. What are you doing to ensure that you and your management keep within these or improve on these budgets? Present different scenarios for the financial projections of sales, costs and cash flow for both the short and long term, to cover such eventualities as declining sales or increasing costs.
Keep the plan feasible. Avoid being over optimistic. Highlight challenges and show how they will be met.
Determine how much finance is required by your venture as detailed in your cash flow projections. This needs to be the total financing requirement, including fixed asset and working capital requirements and the costs of doing the deal.
Ascertain how much of this can be taken as debt as this is a cheaper form of finance than equity. Then determine how much management can invest in the venture from their own resources and those of family and friends. Include any government sources of finance available to you also. The balance is then the amount you are seeking from the investor.
In this section of the business plan you need to:
State how much finance is required by your business and from what sources. Explain what it will be used for and include an implementation schedule. Consider how the investor will make a return on their investment.