Business Knowledge Hub

How to Create a Small Business Plan

Whether you’re looking to attract investors or provide direction, every business needs a written plan. But how should you go about writing it?

A business plan is a written document that describes your business. It covers strategies, objectives, marketing, sales and financial forecasts.

The best business plans guide users through each stage of both starting and running the company. It can be leveraged as a roadmap to structure, maintain and develop the business. Read on for what to include in your business plan.

Why do I need a small business plan?

A business plan will help you:

  • set out your goals
  • clarify your business idea
  • spot potential problems
  • measure your progress

A business plan will also be essential if you’re looking to secure a loan or other form of credit from a bank. It can also help convince suppliers, customers and employees to support you in your endeavour.

How should I format my small business plan?

There’s no right or wrong way to set out your business plan. What matters is that it suits your needs. That being said, most business plans can be categorised as either traditional or lean startup.

Traditional plans are more common. They focus on detail and entail more work upfront, as they can be dozens of pages long. Lean startup plans are less common, and focus on summarising only the key elements.

Let’s explore how to write both a traditional business plan and a lean startup business plan, as well as each format’s pros and cons.

Traditional business plan

A traditional business plan is comprehensive and detail-oriented. It is for these reasons that it is the format most commonly requested by lenders and investors.

Let’s go through the sections you’d expect to see in a traditional business plan—but remember, you don’t need to stick to an exact outline. Instead, use the sections that make the most sense to your business and its needs.

Executive summary

Outline briefly what your company is—and why it will be a success. Include your mission statement, your product or service and basic information about your location, workforce and leadership team. And if you’re seeking funding, layout your high-level growth plan and financial information.

Company description

In this section, you can elaborate on the points laid out in your executive summary. Explain the problems that your product or service solves, and list the specific organisations, businesses and consumers your company intends to serve.

Furthermore, lay out the competitive advantages that will see your business prosper. Perhaps you have industry experts on your team, or have sourced the perfect location for your store. There’s no need to hold back on your company’s strengths.

Don't be afraid to mention key risks to the business. Any lender or investor will likely identify them for themselves and will be reassured by the fact that you have identified them and have plans in place to protect the business from them.

Management and organisation

Who will be running your business? How will it be structured legally? Will it be a C or S corporation, a limited or general partnership, an LLC or sole proprietorship?

An organisational chart may help illustrate who will be in charge of what, and take the opportunity to describe how their credentials will contribute to your venture’s prosperity. You may wish to even include the CVs of key players.

Market analysis

You’ll need a solid comprehension of both your target market and your industry outlook. Competitive research will shed light on trends and themes, as well as what other businesses are doing well—and how you could do it better.

Marketing and sales

There is no single way to approach your marketing strategy, because it should evolve and adapt to your business’s individual needs as they arise. The goal in this section is to lay out how you will attract—and retain—a customer base. You’ll also need to describe how sales will actually happen.

You’ll likely need to refer to this section later when you lay out your financial projections, so make sure your marketing and sales strategies are described in thorough detail.

Read our guide on how to promote your small business online for more information.

Service or product line

Describe what you’re selling or what service you’re offering, as well as how it will benefit customers and what its life cycle will look like. If you have plans for intellectual property, such as patent filings or copyright, make sure to share them. And if you’re conducting research and development for your product or service, explain it in detail.

Funding request

If you’re looking for funding as part of your small business plan, you’ll need to outline your requirements, preferably with a five-year projection and your future strategic financial plans, such as selling the business or paying off debt.

You’ll need to specify whether you require equity or debt, the terms you wish to be applied and the length of time your request will cover. Describe what your funds will go towards, such as paying salaries, purchasing materials and equipment or covering bills until such time as revenue increases.

Financial projections

It’s a great idea to supplement your funding request with financial projections in order to convince readers that your business will be stable and successful.

If your business is already established then include balance sheets, income statements and cash flow statements, preferably from at least the last three years, if not the last five. Be sure to list any other collateral you could secure against a business loan.

Provide a prospective financial outlook for the next five years, including forecast income statements, capital expenditure budgets and cash flow statements. For the first year, be even more specific, and break it down to quarterly—or even monthly—projections. Explain these clearly, and ensure they match your funding requests.

Appendix

Your appendix can be filled with supporting documents and any other materials that have been specially requested. Items commonly included in the appendix include product pictures, credit histories, resumes, licences, letters of reference, patents, permits, legal documents and contracts.

Lean startup business plan

This less traditional business plan format has a solely high-level focus. It is quick to write and contains only key elements. For these reasons, you may prefer a lean startup business plan if you wish to explain—or start—your business in a short timeframe, or if your business is relatively simple.

It may also be a good format to use if you envisage regular change for your business or your business plan being regularly redefined.

These kinds of business plans are most applicable where you are building a business based on a new concept or product and people can understand that it is impossible to project exactly how it will develop at a more granular level of detail. Many lenders will not consider such a high level plan sufficient for the approval of a loan.

A lean startup business plan is a useful summary of your infrastructure, value proposition, finances and customer base. As with the traditional business plan, it has commonly used elements, but they are not essential; you should mould your plan to your business’s particular needs.

Value proposition

You need to make a concise and compelling statement regarding the unique value that your company will bring to the market.

Key partnerships

Make note of the other companies you’ll work alongside in bringing your business to fruition, be they suppliers, manufacturers, subcontractors or other strategic partners.

Key activities

List the ways your business will gain a competitive advantage in the market, highlighting such factors as selling direct to consumers or leveraging tech to tap into the sharing economy.

Key resources

List any resource you’ll leverage in creating value for your customers. Your key assets may include capital, staff and intellectual property.

Customer segments

Specify your target market, and remember: your business won’t be for everyone, so enter into your small business plan with a clear sense of whom you will actually serve.

Customer relationships

Lay out how your customer base will interact with your business. Will it be automated or personal, face-to-face or online? Consider the customer experience from start to finish.

Cost structure

Will your company focus more on maximising value or reducing cost? Define your strategy, then list the most significant costs you’ll face in its pursual.

Channels

How do you intend to talk to and communicate with your customers? Most businesses leverage some combination of channels and optimise them over time.

Revenue streams

How will your company make money? Will it be through direct sales, advertising space or membership fees? If you envisage multiple revenue streams, be sure to list them all. Read our guide on how to create a small business budget for more information.

Get your small business off to a great start

A well-structured small business plan can be critical in helping secure funding and bring on new business partners. Remember, investors need to feel confident that they will see returns. Your small business plan is the perfect tool to convince people to work with you, so put in the time, research and effort that your business deserves.

The UK is a nation of entrepreneurs, and a small business plan is the first step in becoming one of them yourself. Your business plan will not only help you be taken more seriously if you’re just starting up and have little funding, but will also help you understand every element of your business, readying for you for the market.

Visit our business hub for more business-related articles and guides to help you launch your business.

Written by Nic Redfern

    Published on 15-06-2020

Finance Director at KnowYourMoney.co.uk and business adviser to SME's Nic is spokesperson for small and growing businesses with a strong understanding of the financial needs of business

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