A business plan can be extremely useful in convincing lending institutions and partners that your plans are serious. Here’s how to prepare a winning plan.
The business plan is an essential document for any business. It describes to banks, investors and other stakeholders what your business is, how it operates and its financial situation.
“A solid business plan can be an effective tool for businesses at all stages of their development, from start-up to maturity,” says Chad Fryling, who coaches entrepreneurs in preparing their business plan. Chad Fryling is Entrepreneur-in-Residence at Futurpreneur Canada, a not-for-profit organization that, in partnership with BDC, offers advice and start-up financing to people attracted to entrepreneurship.
Banks and investors often require a clear and detailed business plan before deciding to grant a loan or invest in a business. The plan provides the key information they need to determine whether a business is a good risk or a good opportunity. You can also use an internal business plan to coordinate the work of your team.
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A solid business plan can be an essential tool for businesses at all stages of development, from start-up to maturity.
Chad Fryling often sees business plans that lack key information, contain unrealistic financial assumptions, or lack sufficient detail. He therefore recommends that business owners use a business plan template.
“Using a template helps you ensure that you’re addressing all the necessary questions and not missing key details that banks, investors, and other stakeholders expect to read in it,” says the entrepreneur in residence at Futurpreneur Canada. It helps you establish your credibility and make a compelling case.”
What is a business plan?
A business plan describes how a business generates revenue and is operated on a day-to-day basis. There is no standard format, but most plans address the following four main areas:
- Company Profile
- Sales and Marketing
- Financial information
Many plans also include an executive summary that provides an overview of the project and a simple explanation of the business activities.
The business plan can be written for different audiences, but it is mainly intended for financial institutions, investors or shareholders. It is important to personalize your plan according to its recipient. Investors and shareholders are more interested in potentially promising returns and ambitious business goals.
Often the business plan aims to convince lending institutions that the business will make a lot of money. However, this can actually have a negative effect.
On the other hand, lending institutions generally want to know how the loan will be repaid and whether the person will be able to spend the borrowed funds wisely. Careful assumptions about your sales forecast and your market, various relevant scenarios (good, neutral and bad) and plans if things don’t go as planned will interest them more.
“Often the business plan is to convince the lending institution that the business will make a lot of money,” says Chad Fryling. This can actually have a negative effect on people reading the plan. Instead, they might think the plan is too optimistic and the owner is unrealistic.”
What does a business plan contain?
The business plan generally addresses four key areas. The format or order of presentation of information may vary, but the basic details are usually the same.
1. Company Profile
This section provides an overview of your current business or business project. It usually includes:
- A business description. Briefly describe your business, what it does and where it is located. Specify whether this is a new business, an expansion of an existing business, or an acquisition.
- Products and Services. Provide a detailed description of your product or service. It should include listing unique features and costs and explaining how the project will be carried out.
“It’s important to show that you really understand all the intricacies of your product or service, advises Chad Fryling. This point is often overlooked. It will read, for example: “Our company offers a tutoring service and we charge $50 per hour.” But what does that mean? Do you offer in-class sessions? Where are they given? Do you rent premises? How many children are there in each class? Are the sessions given online? Do you have a study program? These are questions that need to be answered.”
- Value Proposition. Explain what makes your customers want to use your business again. You may need to validate your argument through a customer survey or focus group. “Don’t just assume you know the answer,” says the entrepreneur. It can be very instructive to ask the question directly.”
- Owners, management team and key personnel. Describe the education, skills, training, knowledge and experience that you and your team bring to the service of the company to achieve its objectives. “These are very important aspects to establish your credibility, emphasizes Chad Fryling. Often, people don’t mention certain qualities that could give credibility to starting a business. Mention transferable skills, qualities, business contacts, and even relevant hobbies.”
- History of the business Describe the stage in its development of the business or your business project. Quantify the time, effort and resources you have invested in the business so far. “You should provide a lot of detail on what you’ve accomplished to date,” says Chad Fryling. Provide lots of information. Often people don’t give enough specific numbers.
- Mission statement, vision statement and company values.
- Legal Structure and Issues Provide details of your business’s legal structure, why it is appropriate, and any potential liability issues.
- Regulatory and Insurance Matters List any permits, licenses or other similar requirements. Also specify insurance needs, along with their costs and providers.
- Your business goals Briefly list the measurable short- and medium-term goals of the business and when you want to achieve them.
Examples : $50,000 in sales by July 31; website launch by October 6.
- Project If you are seeking funding for a specific project, write a section describing the project and your financial needs for it.
- Market Research Describe your market, industry, competition and trends. This important section includes many elements and a section of the business plan is often entirely reserved for it. You should find there:
- Market Overview – Describe how the market works, who serves it, what gap your company fills in that market, and the main challenges you face. Focus on exploiting opportunities in the local market and not on general statistics for the entire industry.
- Target Market – Provide a detailed description of your customers. Here too, precision is essential.
“We often see in the description of a product that it is suitable for all people aged 18 to 65,” says Chad Fryling. It’s too general. You need to target a specific customer or group of people, which will allow you to more clearly define an area in which you can make your first 10 or 100 sales.” He suggests creating a profile for a specific person (or a company profile for B2B) with specific characteristics that can help you define a specific group. It can help you inform and refine your marketing and sales strategies.
- Competition – Who currently serves this market in your area? Identify three to five companies that you admire or consider competitors that are a little ahead of you in maturity.
“People make the mistake of thinking that a huge, well-known company is their competition,” says Chad Fryling. It’s not very helpful. Pick businesses that people would likely turn to if your business didn’t exist.”
- SWOT Analysis – Indicate the strengths and weaknesses of each competing company, the possibilities for your company to do things better or differently, and the threat each competing company would pose if it changed anything in its ways. Also do a SWOT analysis of your own business.
People say that their product is suitable for everyone between the ages of 18 and 65. It’s too general.
Summary The summary is a general summary of the business plan. You see it in many business plan templates, but according to Chad Fryling, it’s optional. He suggests companies ignore it unless the target audience demands it. If you decide to include one, he recommends writing it at the very end.
Here are some things your business model canvas might contain, which is a one-page visualization of how your business works.
You can download a business model canvas here.
Many people think their product is so good that it will sell easily. It’s just not good reasoning.
2. Sales and Marketing
- Sales and Marketing Describe your activities to generate sales. Chad Fryling recommends including an action plan listing your top three marketing activities and outlining the sales results you expect. For each activity, provide details like:
- what you are going to do and how often;
- the costs or time required;
- the expected results;
- the campaign metrics you will be tracking.
“It often happens that the marketing and sales aspect is omitted from the business plan because the person has no marketing or sales experience and does not know what needs to be presented,” points out Chad Fryling.
If that sounds like you, he suggests learning more about the basics of preparing a marketing plan.
- Pricing Strategy List your prices, what your SWOT analysis competition is charging, your positioning (e.g., bargain prices, normal industry prices, high-end), and how you have established your price. Explain your pricing strategy.
- Sales Forecast Assumptions and Rationale Explain how you established the sales forecast for the first three or four months.
“It is essential to explain your figures in this section, insists the entrepreneur in residence at Futurpreneur Canada. Many people think their product is so good that it will sell easily. It’s just not good reasoning.”
He gives the example of a company that forecasts 15 sales in April. It has averaged 15 sales per month over the past six months and already has 10 deposit order commitments for April. The company has also posted strong sales over the past few years. “It seems quite prudent and achievable,” says Chad Fryling. The person reading the plan now understands how you compiled these sales projections and hopefully agrees that this is a conservative estimate.”
But it’s a different story if the entrepreneur is inexperienced in the industry and projects 15 sales just because their website is good and their service will be great. “It could give the impression that the person has no idea what they are getting into,” warns Chad Fryling.
Describe your business location and why it is a good fit for your business. Some companies may need to provide more information than others.
For example, a consultant who operates from home could simply mention their home office, explain why, and specify their location in relation to their clientele. A restaurant, on the other hand, needs to provide a lot more details – e.g. eg, space layout, square footage, a description of the neighborhood, parking availability, street visibility, number of tables, and even photos.
- Assets and production
List your assets, including equipment, machinery, real estate and major technologies. Explain the various aspects of the production process. Again, some companies may need to provide more detail depending on the complexity of their operation.
A consultant may simply explain their quoting process and work processes, while a manufacturing company will need to explain all stages of their production, from materials to manufacturing, not to mention shipping.
- Suppliers List key suppliers, explain why you selected them, and provide important details, such as costs, location, processing time, and whether they are abroad, any problem relating to trade agreements as well as cross-border issues.
- HR and organizational structure Provide information on:
- the number of staff and business owners performing different functions;
- organizational chart explaining roles and responsibilities;
- how you recruit and retain staff and business owners;
- your pay cycle.
- Risk Assessment Identify any risks that are present across all of your functions and describe the contingency plans in place to mitigate them.
I do not pay attention to a company’s business plan if it has not made the effort to formulate financial projections.
4. Financial information
Add cash flow forecasts, usually presented on a monthly basis and in spreadsheet format. Also add your financial statements (balance sheet, income statement, cash flow statement, and statement of retained earnings). And if your business is a start-up, list the costs associated with this step.
Cash flow forecasts are particularly important. According to Chad Fryling, this is the basis of the business plan. He adds that too many companies do not provide them or do so after the fact. “I don’t pay attention to a company’s business plan if it hasn’t made the effort to make financial projections,” says Chad Fryling.
“It is in the financial statements that we can understand the reality of the company, adds the entrepreneur. In the written part, each section serves mainly to explain and justify the figures. Much of the training we provide involves having business owners do the calculations concurrently with writing the plan so that they are aligned with each other. It’s also not a bad idea to start with the numbers and then move on to the written part.”
Three common mistakes to avoid in your business plan
- Display inflated ambitions – You should be able to justify all of your assumptions and projections.
- Hide your financial difficulties – Let your lending institution know that your sales fluctuate, for example, and if you prefer a flexible payment schedule. A transparent business plan is one of your best assets for gaining the trust of banks and investors.
- Not giving enough details about the management team, marketing plans and the rationale for your cash flow forecasts.
How long should a business plan be?
There is no standard length for a business plan. “It’s more a question of quality than quantity,” says Chad Fryling. Many people write a very long business plan that says very little about the business.
I’ve seen great business plans that only had one paragraph, bullet points for each item, and a few tables. But I’ve also seen 100-page business plans that were completely ineffective because, even though they were well-written and told a great story, the concrete content was missing.
What is the difference between a business plan and a strategic plan?
The business plan is different from the strategic plan. A business should have both types of plans.
A strategic plan defines the desired future state for the business and the priority initiatives to achieve it, including a detailed action plan. The audience for the strategic plan is your team. The plan is usually developed through a collaborative process that aims to rally your team around defined goals, prioritize projects to achieve them, and define an action plan for completing the projects.
In contrast, a business plan describes how a business generates revenue and is operated on a daily basis. It is often designed for an external audience to support a loan or investment request. Some items may also be useful for your management team, such as information about your marketing and operations activities.
What is the difference between a business plan and a presentation?
A presentation is a document used to introduce your company to new business partners. A pitch can be a great way to introduce your start-up business and the solutions you offer to investors and financial institutions in about 10 minutes.