How to Write a Business Plan

The purpose of a business plan is to recognize and define a business opportunity, describe how that opportunity will be seized by the management team, and to demonstrate that the business is feasible and worth the effort.  The use of business plan services can of course greatly help with this. Where implementation of the business plan requires participation of lenders and/or investors, the plan must also clearly and convincingly communicate the financial proposal to the prospective stakeholders: how much you need from them, what kind of return they can expect, and how they can be paid back.

Many entrepreneurs insist that their business concept is so clear in their heads that the written plan can be produced after start-up; this attitude "short-circuits" one of the major benefits of producing  the plan.  "A realistic business plan might save you from yourself by persuading you to abandon a bad idea while your mistakes are still on paper," says Ben Botes from Caban Investments in the UK

Do many people need to be saved from themselves?  Are many entrepreneurs so determined to go into business that they overlook or underestimate the potential pitfalls?  Is that all bad?  Can many business proposals stand the harsh light of skepticism?

Let us say we worked out the numbers on paper, and are convinced that we do not need to be saved from ourselves.  Do we still need to write the plan?  The discipline of writing a plan forces us to think through the steps we must take to get the business started, and, to "flesh out ideas, to look for weak spots and vulnerabilities," according to business consultant Eric Siegel.  A well-conceived business plan can serve as a management tool to settle major policy issues, identify "keys to success," establish goals and check-points, and consider long-term prospects.

Who is the audience for it?  Certainly, the plan is very useful if we are looking for investors or lenders.  It is the primary tool used to convince prospective stakeholders that the idea is promising, the market is accessible, the firm's management is capable, serious and disciplined, and that the return on investment is attractive.  But even if we can finance the venture ourselves, these are useful issues to address.

What are the elements of a good business plan, and how does it differ from a bad one? The appearance of the plan says something about its preparers.  It should be professional, though not lavish, so as not to distract from its contents.

While the formats of business plans can be as varied as the businesses themselves, there are components that should appear in all plans.  These include an executive summary, elements which describe the opportunity, elements which specify how the business will operate, an analysis of financial expectations, a closing summary, and any supporting documentation.

Let us discuss each of these in a little more detail, with an audience assumed to be a reader who might be a prospective investor or lender, a trusted professional advisor, or a friend whose business judgment we value.

The cover and title page should contain company name, address, phone number, primary contacts, and the month and year of issue.  Often, the issuers include a copy number to control circulation.

The executive summary introduces the opportunity, and contains highlights of the substantive sections.  It should concisely explain the current status of the company, its products and/or services, benefits to customers, and summary financial performance data.  Where investment is being solicited, it should also include the amount of financing needed, and how investors will benefit and harvest their gains.  With all this information, this summary should still be held to two pages, to insure its being read, and must generate enthusiasm about the proposal to entice the reader to consider the entire plan.

The business plan conclusion is a shorter summary, more directed to what is being asked of the reader.  Supporting documentation includes relevant marketing research, and financial details and statements behind the financial proposal.