April 16

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Business Plan Outline

By Patrick Millerd


For most business owners the thought of completing a business plan outline conjures images of an unpleasant experience ... like a root canal treatment! 

Writing a business plan sounds complex and daunting, but really it's not! It is just getting down on paper what's in your mind. 

And once it is written down it can be reviewed by you and others. The planning process makes you think about assumptions, assess risks and flesh out any half-baked ideas.

More...

Introduction to Business Planning

What is a business plan outline and why is it needed?

A business plan is the product of a process which systematically evaluates the proposed business business or idea and should be seen as an essential ingredient for any proposed business venture.

A well considered plan is needed as;
"Out of every 100 ideas there is probably only 2 great business ideas!".
  • it confirms to management that they have a good business idea.
  • it is the document  the management team uses to sell its business or business idea to potential investors, i.e. venture capitalists and banks.
  • it is used by the potential financial backers to value the business
  • as a document in which the company`s future strategy is defined and quantified,
  •  it forms the basis for the financial backers to assess the management`s performance once the deal has been done.
Given the various purposes which the plan aims to achieve, it must contain the following key elements:
  • a thorough description of the company`s activities, the markets in which it operates, its strengths, weaknesses and critical success factors
  • an explanation of where the business is going and how it is going to get there
  • a description of the management team which will achieve it.

Who prepares the business plan?

There is often confusion in the minds of the business management about who should prepare the business plan.

The golden rule is that the plan should be an autobiography, not a biography. This means that the owner is accountable for preparing the plan with advice from advisors. This is their responsibility ... NOT the financial advisor's. 

The owner and management team are the people whom the financiers are backing and so they must "own" the document and the strategies and plans contained in it. Venture capitalists' are suspicious of business plans which appear too biographical, so it is better for the plan to reflect the businesses' style and character throughout. 

The role of the financial advisor is to advise the owner and management on the preparation of their plan.

The advisor can advise on the length, content and style of the plan, and on the likely reaction and expectations of the financier. In addition, during the preparation of the plan, the advisor should play a devil's advocate role, challenging the statements made, ensuring that all the relevant points are covered and that all the arguments put forward are supportable, fair, coherent and consistent. 

Style and length of the business plan

The document must be positive and punchy in style. It needs to capture the reader`s attention and then keep it! It must contain sufficient information to support the points made and at the same time not lose the reader`s interest. Technical subjects or issues need to be explained in simple laymen`s terms. 

Most businesses have positive points to be made about them, and the business plan is the place to make those points. Make sure the positive points are easy to find and never assume that the reader knows them, or will work them out for himself.

At the same time as making the points referred to above, bear in mind also that the strategy and projections contained in the business plan should be used as a performance measure. So it`s wise not to be too optimistic or over ambitious. 

The business plan is usually the first contact that a venture capitalist has with a company seeking finance. Unfortunately, it is all too often the last, as only a low percentage of businesses for which business plans are prepared actually receive funding. 

Given the high failure rate of business plans and the old adage that you only get one chance to make a first impression, it is vital that time and care is taken on the preparation of the business plan and that professional advice is sought.

Style and presentation 

The contents of your plan should be well-ordered, easy to read, clear, concise and accurate. Text should be neatly typed and of a legible size. Double spacing and wide margins help the reader. Wherever possible, use graphs to illustrate numeric trends. Finally, use appendices for detailed information to which only some readers may refer. 

Those interested in your business will want to be sure that you understand its critical success factors. You should aim for simplicity of written style and make your plan as practical as possible. 

Unless in a revolutionary market the plan should show consistency between the past and the future. It must draw together the different elements of the business in a logical way in order to present them as a whole.

Forecasts must be realistic and assumptions stated and tested. 

On Completion

After completing an initial detailed draft, the management team and the financial advisor should work together to complete a final version.

Once completed, the plan will be given to the short listed venture capitalists by the financial advisor, to set up any required meetings. 

... and fin​ally, some helpful hints

  • The business plan must hold the reader`s attention throughout so make it punchy and interesting 
  • It must be concise but at the same time cover all the significant points 
  • The business plan is a selling document but must remain credible
  • Write positively showing commitment to the business and a thorough understanding of the market
  • Don`t be over-optimistic
  • Avoid jargon and flowery language
  • Don`t underestimate the length of time required to prepare a business plan. It is a very important document, and it is quite normal for the process to take two to four weeks.

The Business Plan Content

The following is a business planning outline. A template any business owner can use for the step by step planning of their business. 

As a business owner, or potential business owner, much of the information will be scattered around on scrappy pieces of paper or in your head.

Remember ... this is a guide and not the 10 Commandments!

Business plans come in many forms depending on their objectives so the format and content should be crafted to fit these objectives. 

However, there is some critical information and that hinges on the market and customers and the financials and especially the cash flow.

At the start there will be missing information but this is no big deal ... it can be collected over time.

The plan will consist of the following sections:

  1. Title Page
  2. Table of Contents
  3. Executive Summary
  4. Business Overview
  5. Industry and Market analysis
  6. Situational Analysis and Business Strategy
  7. Marketing Plan
  8. Production and Operations
  9. Human resources
  10. Financial information
  11. Proposed Company Offering
  12. Implementation Plan
  13. Appendices

1. Title Page

The cover should carry the name of the company, address, telephone number, the date the plan was prepared and the name of a contact at your business so that the reader can ask questions as required.

  • Name and registration number of business 
  • Whether new or an existing business 
  • Type of business 
  • Amount of financing required 
  • Name(s) and address(es) of principals
  • Contact person and contact details 
  • Date of plan 
  • Statement of confidentiality of plan

2. Table of Contents 

The contents should be clearly laid out with each topic and page numbered. This will make it easier for the reader to locate the information required.

Use internal links to the various sections.

3. Executive Summary

A one or, maximum, two pages Executive Summary will be the most important part of the document. The executive summary should be done after the plan is completed.

It must be focussed, brief and compelling and include:

  • a brief description of the business e.g. products/services, target market 
  • the current situation of the business, including key financial data and factors driving success 
  • its aims and objectives over a stated time period, in particular growth plans (and assumptions underlying growth) 
  • finance required and a summary of how these funds will be used in the business
  • the benefits likely to accrue to an external investor (if relevant) and the company's exit strategy for the investors.

The summary should be compelling and engaging and summarise all the key positive points about the business. All the points made in this section should be explained and developed elsewhere.

Hint: Less is more ... but it must be complete. It’s a comprehensive summary of not more than two pages. 

4.Business Overview

As an introduction, briefly describe the background to the business and how it got to where it is now. 

This section needs to explain the “what”: what the company actually does, the products it makes or sells or the services it provides and who are the customers. 

It also should not be more than two pages and include the following topics:

  • When was the business first established? How did the idea for the business first develop and how was it launched? 
  • What is the current position of the company and how did it get there? (When describing the history concentrate on the last two or three years.) 
  • Where is it based and how does it operate? (Describe the sites that the company owns and/or from which it operates.) 
  • Achievements and major events in the business to date: highlight any major events in the history of the business which display your business skills to the full. 
  • How the business trades: as a sole trader, a partnership or limited liability company. 
  • Main products/services: a description of products/services you currently provide and details of those you propose. You should highlight the particular advantages your products/services have over others in the marketplace. This may, for example, include patented technology, the specialist skills you have (or may need) to manufacture the products, together with any guarantees and services you intend to offer to accompany the products.
  • In addition describe any cost advantages, however only having a cost advantage is generally not a good enough reason to justify a business.
  • If possible, cross-refer descriptions of the company's products to corporate literature in the appendices.
  • A short description of how your products have developed, which products have been introduced, which have been dropped and why. 
  • Target market: who buys the products/services? 
  • Who are its customers, where are they located, how are services and products delivered to them? 
  • What is the nature of the contractual relationships with customers? (Long-term contracts, one-off projects etc.) 
  • What is the nature of the relationship with the company`s suppliers? 
  • A summary of financial results giving a true and accurate picture of the growth and development of the business

5. Industry and Market Analysis

The Industry
  • What industry is the business in? 
  • Is the industry expanding or contracting?
  • Is the industry stable (few changes in technology) or unstable (short life cycle and changing technologies)?
The Market
  • What is the size of  the market in volume and value terms, and what are its prospects for future expansion? 
  • What is the market share and how dispersed is the competition? 
  • Are there any barriers to entry? How exposed is the business to major new competitors coming into the market? 
  • What other factors affect the market, for example changes in economic climate, trade barriers and government? How will these factors affect it? 
  • Are there any gaps in the market which offer opportunities? 
  • Overview of major customers, strengths, weaknesses, opportunities and threats

6. Situational Analysis and Business Strategy

Situational analysis                    
  • Revenue analysis and trends (breakdown market segments, product types, seasonal fluctuations and regions)
Business Mission and Vision statement
Strengths Weaknesses Opportunities Threats (SWOT)

Identify the Strengths and Weaknesses of the business then outline the Opportunities and Threats facing the business. What is required for pursuing those Opportunities or protecting against those Threats?

  • Outline the opportunities and threats facing the business. Then identify the strengths and weaknesses of the business in pursuing those opportunities or protecting against those threats.

Apply the "so what" test when drafting this section.

  • Does that strength really make a difference?
  • What impact does that weakness actually have? 
  • What plans will be applied to defend the threats or weaknesses and take advantage of the strengths or opportunities? 
Objectives

You won`t be able to pursue every opportunity or change every weakness overnight. Focus your effort to identify:

  • short term tactical objectives 
  • long term strategic objectives

Objectives should include qualitative and quantitative measures of performance, such as:

  • the opportunities you intend to exploit 
  • the threats you must defend against 
  • sales volume and value 
  • market share 
  • profit before tax and 
  • return on capital employed 

Explain the key success factors on which the achievement of the objectives depends - for example, that the target market segment continues to expand at a rate of 10% by volume and value each year or that interest rates will be unchanged. 

State the assumptions in respect of these key success factors. A prospective investor will then be able to evaluate whether these assumptions appear reasonable. 

The major assumptions should be included in the body of the text, but detailed analyses included in an appendix. Whenever possible all assumptions should be supported by market research or historical results and available industry benchmarks. 

Strategies

This section should explain where the growth in the business is going to come from and how it is going to be achieved. It should therefore address the following issues:

  • What is the strategy for achieving growth? 
  • What are the targets and objectives for the company in terms of market share, pricing and promotional policy, distribution channels etc.? 

In which new markets will the company operate and /or what new products will the company develop? 

  •  What are the plans for acquisition and expansion? 
  •  How will existing key accounts be retained?
  •  How will new customers be attracted? 

The main focus should be on the first year (important) and then the next two to three years (less important). 

Unless the business has long term projects (like contracts involving building power plants!) any plans beyond three years are just dreams.


7. Marketing Plan 

The Marketing Plan is critical as it will drive many of the company’s programs and will include:

  • Sales and marketing objectives
  • Market positioning
  • Product strategy (including product line, branding packaging and new product development
  • Proprietary issues
  • Communications strategy (including advertising, sales promotion, public relations, personal selling)
  • Distribution strategy
  • Warranty policies
  • Service quality strategy
  • Pricing strategy
  • Distribution strategy

Customers

  • What is the customer base and how dependent is the business on particular customers? 
  • How loyal are the customers? What factors affect their future loyalty? 
  • Is trade fairly constant or subject to seasonal fluctuations? Does this present any particular difficulties in estimating demand for the products/services? 
  • Why should the business appeal to new customers and how will you go about converting that appeal into new business? What are their key buying criteria? 

Competition

  •  What developments are taking place in the market at the moment and what will the effects be? 
  •  What is/will be the current market share of the company?
  •  Who are the major competitors, what are their market shares and what are their strengths and weaknesses? 
  •  What are their marketing strategies and how do they compare with yours? 
  •  What are the likely future developments in competition, for example new competitors and trends? 
  •  How vulnerable is the business to any particular competitor?
  •  What is the process by which new business is won?
  • How you are going to achieve your sales and marketing objectives through verifying your mix of:
  • products/services
  • pricing policy
  • promotional support, and
  • distribution?
    • How you will identify potential customers and how you will reach them? 
    • How you will attract customers away from competitors? 
    • How you will protect your key accounts? 

    8. Production and Operations

    Production process
    • How will the product be manufactured, is there a patented technology, and what are the problems anticipated in the production process? 
    • What is the actual and potential capacity of the business and how sensitive is it to breakdowns unanticipated short-term demand increases, collective labour practices etc? 
    • How secure is the source of supply for essential raw materials? Are there alternative sources of supply? 
    Premises and facilities
    • How suitable are the premises for the business
    • Current and future needs in terms of location, size and type? 
    • Are the premises owned or is the business exposed to increases in rents or termination of the lease? 
    • What is the present state of the machinery, when will it need replacing and what will the cost be? 
    • Is the present equipment sufficient to manufacture at the forecast levels and how much spare capacity exists? 
    Production and operations strategy

    Again, outline your plans to overcome weaknesses, to protect against threats and to enable the business to pursue its growth plans.
      

    9. Human Resources (better known as People!)

    Having explained what the company does and what it plans to do, this section needs to explain who is going to deliver the strategy. In particular it should include:

    Management
    • Who are they and what have they achieved to date? 
    • What are their motivations and aspirations and what are their ambitions for the entity? 
    • Why them? How do their skills contribute to the whole? 
    • To what extent are they committed to the success of the business, including financial commitments? What plans do you have for aiding their retention, for example share option schemes etc?
    • A description of the roles and responsibilities of the management team 
    • Consideration of succession issues and recruitment 
    • Human resource policy and strategy 
    Organisation Structure
    • Show the existing organisation structure and how this is likely to change, if at all, to meet the requirements of your business plan. 
    • How are responsibilities distributed? Are there any gaps? 
    • To what extent will the business be relying on outsiders, for example bankers, lawyers, accountants and non-executive directors? 
    • Looking to the future, how will anticipated growth affect the structure and the skills required? 
    Personnel requirements
    • What are the present and future employee requirements and are the relevant skills available in the business? 
    • Is productivity satisfactory and how much scope is there for improvement, bearing in mind the industrial relations environment? 
    • What are the current labour costs and how are they likely to change in the light of your plans for the business? 
    • How will effective succession be ensured by the structure?  
    People strategy
    • What is your strategy for overcoming any weaknesses identified, for protecting against threats and for enabling your growth plans to flourish? 
    • What changes, if any, to the organisational structure will be needed to realise your strategic objectives? 
    • What will be your strategy for attracting and retaining staff with appropriate skills and of sufficient motivation to grow with the company? 

    10. Financial Information

    Financial information should comprise both an analysis of historical performance and an explanation of how this relates to the financial projections. Projections should cover at least two years ahead and include: 

    • Monthly cash flow forecasts for the first year and quarterly thereafter
    • Profit and loss account 
    • Balance sheets at the end of each year
    • Returns (e.g  ROI, IRR, payback period, months to positive cash flow, breakeven point). 
    • A summary of the financial statements should be inserted in the main body of the text and details contained in an appendix. 
    • Include sensitivity analysis showing how the results would be affected by changes in major risk variables, for example demand, gross margin and any limiting factors. 
    • Financials should be prepared for at least two years and should be summarised here, and cross-referred to the detailed documents, assumptions and sensitivities in the appendices. 
    • The financial projections should comprise integrated profit and loss accounts, balance sheets and cash flows. In addition it should indicate 

    When preparing financial projections, it is best to avoid trying to invent deal structures with interest and dividends etc. and instead to assume that the whole funding requirement is met by overdraft. This way the actual cash requirements of the business are more apparent. In addition, it is also easier for advisors and venture capitalists to model various deal structures. Once a financing structure has been agreed it can easily be included in the projections.

    11. Proposed Company Offering

    • Desired financing
    • Offering
    • Capitalisation
    • Use of funds
    • Investor's return

    12. Implementation Plan

    • Timetable and implementation milestones 
    • Action plans

    13. Appendices

    All supporting information that is required for your assumptions should be attached as appendices to the business plan including:

    Business
    • Strengths, weaknesses, opportunities and threats (SWOT) and strategies to utilize (strengths and opportunities) or defend (threats and weaknesses)
    • Corporate literature. Remember that sometimes a picture is worth a thousand words. Include here any useful 'coffee table', glossy, promotional literature 
    • Any relevant extracts or press cuttings on the market in general, the company or its products from relevant press articles on the market or recent press cuttings
    • Floor plans
    • Copyright/patent information 
    • Maps
    • Leases and contracts
    • Technical data
    • Any analyses required to support point made in the text, e.g. analysis of customers or suppliers
    Financial
    • Most recent audited accounts 
    • Detailed financial projections (3 years) 
    • Assumptions underlying the financial projections. (Include here macro-economic assumptions, e.g. interest rates, VAT etc., and specific business assumptions) 
    • Sensitised financial projections. (Although the financial projections contained in the business plan are the central base projections, it is helpful if a downside/pessimistic case is also prepared. If, under this scenario, it can be shown that the business is profitable and investors can still make a good return, this is another plus point about the business and should be referred to in the main text of the document) 
    Human Resources
    • Corporate organogram
    • Job descriptions of staff
    • Full curricula vitae of the management team
    • CV's of principals
    • Employment policy details
    Marketing
    • Market research data 
    • Suppliers price lists or quotations 
    • Relevant letters (e.g. advance orders) 
    • Market or customer satisfaction research summaries
    • Published market information
    • List of major clients 

    Patrick Millerd

    About the author

    I help small and medium size business owners achieve success through managing the financial health of their business. By applying focussed goals for cash and profit and customer management.

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