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How to write an effective business plan

Updated time: 21 Dec, 2022, 16:49 (UTC+08:00)

What is a business plan?

A business plan is a formal, written document that outlines the mission, goals, and strategies of a business. A business plan is developed in a standardized layout that enables anybody to evaluate how a business stacks up against other businesses.

Why write a business plan?

Writing a business plan allows owners to determine three key factors: a company's goals, the resources required to achieve those goals and the steps that must be taken to accomplish those goals over the period of three to five years. Some of the reasons for writing a business plan are:

    • Writing a business plan to establish a company.
    • Writing a business plan to expand a business.
    • Writing a business plan to form a business partnership.

Writing a business plan is a must-have for all businesses

Writing a business plan is a must-have for all businesses

How to write a business plan and what is a business plan format?

The traditional business plan format is applicable to practically all company models and is meant to provide information about a business and its resources. A solid business plan format typically has between 30 and 50 pages and is written in basic, straight-forward language. To write a fundamental business plan, follow these step-by-step business plan formats.

Step 1: Executive Summary

This section informs readers of the key points of what will come next. It's generally recommended between 5 and 10% of the length of the rest of the business summary. An executive summary must have the following components:

  • Mission statement: a representation of the mission and key values of your business.
  • Company information: name of the business, headquarters, and the BOD.
  • Highlights: accomplishments your organization has previously made.
  • Products and services: what you offer in terms of a product or service.
  • Financial data: a brief description of any investors or financial sources that are already in place.
  • Future projections: Concrete, data-based forecasts of your company's future goals and development prospects.

Step 2: Overview of Business and Industry

A more thorough description of your greater industry and how your firm fits within it should be included in this section as following: 

  • Industry description: Give a succinct overview of the market, current sales patterns and other crucial financial data.
  • Business niche: Describe how your company will carve out a place in this broader industry landscape.
  • Competition overview: Give a thorough rundown of your competitors
  • Business improvements: Describe how you expect your company to surpass potential competitors and how you plan to enhance current services or products.

Step 3: Market Analysis

A market analysis is a more thorough examination of your company's business strategy and how you fit into the market and industry's competitive landscape, which should include the following:

  • Your target market: Describe the location, demographics, and strategy for interacting with your consumer base.
  • Market research and testing: Your market's size and activity statistics, consumer spending patterns, growth potential, and untapped market segments.
  • Barriers: List any entrance hurdles that could shield your company from the competition.
  • Competitive analysis: The market share, advantages, disadvantages, and challenges your major rivals pose to you. Compare your anticipated sales to those of your competition. 

Step 4: Sales and Marketing Plan

This section is about your tactics to expand your market share and customer base. It contains details regarding:

  • Products and services: Types of products, IP, customers’ need, and USP.
  • Marketing strategy: Pricing, advertising, marketing, and sales strategy.
  • Sales and distribution: a description of the personnel of your marketing and sales teams, how your supply chain will be set up and run.

Learn how to write a business plan

Learn how to write a business plan

Step 5: Ownership and Management

This part includes an overview of the owners and management team of the firm, their biographies and credentials, a breakdown of their specific responsibilities, and what they each bring to the table. An organizational chart for your business should be included in this section.

Step 6: Operating Plan

The sixth section outlines the business's physical operations, including staff, tools, supplies, procedures, organizational structure, and other items crucial to producing your good or service, such as:

  • Production: How long it takes to create and manufacture the products you offer, as well as other specifics.
  • Facilities: Land, buildings, plants, square footage, rent or mortgage payments, licenses & permits, upkeep, and expenses.
  • Employees: a summary of your key personnel, team members, staff, contractors, and areas for recruiting and training (full-time, part-time, and freelancers).
  • Equipment: depreciation, maintenance, and leasing or buying costs.
  • Supplies: the supply chain, inventory control, international or local sourcing, and delivery.
  • R&D: IP, time of new arrival, and the likelihood of innovation

Step 7: Financial Plan

All pertinent financial records describing your company's operations and financial estimates for its future earnings and revenues should be included in the financial plan. The following items should be in a financial plan:

  • Income statements: Your projected income, costs, and revenues over a number of quarters or years.
  • Cash flow projections: Your projected cash income and outgoing costs.
  • Balance sheet: your assets, obligations, and equity in brief.
  • Accounts receivable and accounts payable: The money that is still owing to you and the debts that need to be paid.
  • Debt obligations: what you owe to lenders in money.
  • Break-even analysis: a spreadsheet that illustrates the volume of sales necessary to pay all of your fixed and variable expenses.

Step 8: Appendix

All the documentation that back up the remainder of your business strategy is in the appendix. This can comprise a number of papers, such as confidential documents, auxiliary support documents, and other items, that are too lengthy to be included in the report's main body.

Some common mistakes in writing a business plan

Some common mistakes in writing a business plan

5 common mistakes in writing a business plan

  1. Leaving Cash Flow Out
  2. One out of 5 common mistakes in writing a business plan is forgetting Cash Flow.It is crucial to consider the cash conversion cycle, how to shorten it, and how to cover cash flow gaps even when a firm is successful.

  3. Failure To Conduct Market Research
  4. The target market should be properly researched. This entails figuring out what they want and need, comprehending their purchasing patterns, and knowing where to look for them.

  5. Not accounting for User Acquisition
  6. User acquisition is a common mistake in writing a business plan and is sometimes underrated by business owners. Finding channels that aren't already saturated with their target market and creating compounding loops within their product will help them spread the word about it to other users.

  7. Not backing up what you say
  8. Another common mistake in writing a business plan is you need to make sure you're utilizing evidence and references to back what you're asserting in addition to being realistic when describing your estimates and your market research.

  9. Ignoring the team and your leadership responsibilities
  10. It's important to quickly introduce your key team members, highlight their value to your business, and demonstrate how, as a whole, they are well-rounded and prepared to face the difficulties ahead.


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