Reference Corner

Secondary School Division

Business Plan Writing Guide Module

Chapter 1: Introduction - What is a Business Plan?

The basic role of a business plan is to produce an outline that evaluates all aspects of the economic feasibility of the business project including an explanation and analysis of the business prospects.

Functions of a Business Plan:

  • It can focus on your business objective.
  • It can be used as a selling tool to seek for finance.
  • It can show weaknesses in the planning process.
  • It can be used to get opinions and advice from experts about your business.

In order to write a successful business plan, the following steps are important to notice before you start:

  • Write out the prime business concept.
  • Collect all the necessary information on the feasibility and the specifics of your business concept.
  • Focus and perfect your concept based on the data you have collected.
  • Draft the particulars of your business.
  • Put your plan into a convincing form.

The course starting from the next chapter will help you create a business plan, which is divided into seven key elements through chapter two to chapter eight, including descriptions, guidelines for creation and tips for avoiding common mistakes, together with a business plan sample and financial statements formats in the appendices.

Chapter 2: Introductory Elements

The first part of your business plan includes the introductory elements, which is the cover page, executive summary, and table of contents. It gives first impression to your readers. In such case, the introductory elements, especially the executive summary, decide whether your readers will read the rest of your plan or not. Furthermore, the table of contents indicates your organization. Therefore, all of your introductory elements must be of good quality.

A) Cover Page

The cover page should be a simple page that contains the project name and the presenting team's name. Don't forget to write the words "Business Plan" on the page.

B) Executive Summary

The executive summary is an introduction to your project. Most readers will go through this section first. Investors will read it first to get a picture of your project and to assess whether you are professional or not. Also, they will test the feasibility of your business through reading this section.

As the executive summary is the most important part in your business plan, prepare it when you have finished the whole plan. When you write on other sections of your plan, write a few sentences in summary to put into this section. The executive summary should be kept in short, to the point and interesting, and should consist of the followings in brief:

  • A description of your company, including your products or services
  • Your mission statement
  • Your business's management team
  • The market and your prospect customers
  • Marketing and sales strategy
  • Financial plans

The executive summary will end with a summary statement, usually a persuasive sentence, which are designed to convince the readers that your business is a winner.

It is very important to know that the executive summary is the first thing all readers will examine. If your executive summary is written badly, then it will be the last thing these people will read.

C) Table of Contents

The purpose of the table of contents is to provide readers a quick and easy reference to find different sections of the plan. Number all pages of your business plan. Then, the table of contents should include page numbers. After you have finished your plan and numbered your pages, go back to the table of contents and fill in the page numbers. Make sure you have created headings for all major sections and subsections.

Chapter 3: Business Description

Your business plan must be able to project a clear picture of your business. The business description is your company vision: what industry you are in, what products or services you can sell, what is your position in the market, and how much are you going to sell your products or services.

A) Industry Overview

This section is a summary of the industry for your business. To impress readers, you will need to show that you are in a hot industry with a good future.

The following points will help you gather information on describing the industry situation:

  • What is the size of your industry?
  • Who are the leaders in this industry?
  • What are the markets for this industry?
  • What economic trends will affect this industry?
  • What is the long-term view for this industry?
  • What are the barriers to entry in this industry?

For more statistics and information regarding different industrial sectors, you can visit the government trade department website in your own country. You can collect more information about industries and trade statistics from your government statistics department, local chamber of commerce or economic development center, etc. Try to collect the newest information.

The followings are some skills for writing on this section:

  • Don't just put assumptions for your plan. Back up with good research work and real statistics. This will make your plan look more reliable. Write down all the sources of these data.
  • Collect industry and seasonal trends from business newspapers and magazines.
  • List out your company's possible risks. This shows that you have done your research work. Make sure to tell how your company will overcome these risks.

B) Company Summary

The purpose of this section is to give the readers a clear point of view about your company. Start with a mission statement on who do you want to sell your product or service to. Then write more on the technical points of your company. Keep your writing in a story telling form to keep it interesting. Good points for discussion are:

  • What kind of role is the company playing? Wholesaler? Retailer? Manufacturer? Service Provider?
  • What is the legal structure for the business? Sole proprietorship? Corporation? Partnership?
  • Who are the company's principal owners and what experience do they bring to benefit the company?
  • What market needs will you meet? Who will you sell to? How will your products or services be sold?
  • What kind of support systems will be used? Customer service? Advertising? Promotion?

Overall, this section of your business plan should give the readers a better idea of what your company is about. Again, keep it brief and avoid unrelated personal information.

C) Products or Services

In this section, provide in details of each of your products or services. Describe who are the end users. Highlight the special features or functions of your products.

Here, you have to emphasize your USP, "Unique Selling Point". This is very important to investors. Without a Unique Selling Point, your products or services will not be interesting and you will not be able to get people to buy them.

Examples of USP for several different products:

  • Head and Shoulders: "You get rid of dandruff"
  • Olay: "You get younger-looking skin"
  • Red Bull: "Gives you wings"
  • Domino's Pizza: "You get fresh, hot pizza delivered to your door in 30 minutes or less - or it's free."
  • FedEx: "When your package absolutely, positively has to get there overnight"
  • M&M's: "The milk chocolate only melts in your mouth, not in your hand"

Also, compare your products or services with your competitors. Show how your products can win in this market. Think of a number of reasons for this - it is a new technology to the market, the location is excellent, the market is ready for your product, the product has a low production cost so that it can be sold at a lower price, etc.

D) Positioning

Your position is where you are standing in the market. It is about where your products and your competitors' product will be placed in the market. As you cannot sell your products to all customers within the market, your positioning is based on how much you will sell and which group of customers you are selling to. The following factors can help you find your position in the market:

  • What specialty does your product or service have?
  • How does your product satisfy your customers?
  • How do you want people to think of your products or services? Hi-tech and expensive products with better design or cheaper products with fewer functions?
  • How do your competitors place themselves in the market?

After considering the above factors yon can now clearly know where you can position yourself, and show the readers a clear picture of which part of the market your products will be sold.

E) Pricing Strategy

Your pricing strategy shows how you will make a profit when facing competition. When calculating the price, spot out fixed costs and variable costs. Find out a breakeven point, that is, how many products do you have to sell in order to cover your fixed costs. These can be derived from the financial section later in the plan. You may have to consider constructing your financial section before completing this topic.

Tell the readers whether your price will be lower or higher than your competitors. Explain why you can maintain your market share in the competition. For example, a souvenir shop sets higher prices since it thinks its products are luxury items. A cafe in an expensive location can sell more expansive coffee than other restaurants.

However, investors will not believe some business plans if the products or services are higher in quality and lower in price than those of their competitors. They think this is simply not real. If your product really has a better quality, it is more likely that you will sell in a higher price.

Chapter 4: Market Analysis

This section is to provide facts to persuade readers that your business has enough customers in an industry. It is one of the most important parts of the plan. Before writing on this section, you have to carry out a lot of research work. Many information like manufacturing and marketing costs, and the amount of capital that you need, will be based on your sales estimation here.

A) Customer Analysis

This is about the characteristics of your customers. In here you will describe whether your customers are sensitive to price or quality of the product.

Before analyzing your customers, research work is necessary. Use the following questions to start with your analysis:

  • How old are they?
  • What gender are they?
  • Where do they live?
  • What is their family structure? (Married? Number of kids?)
  • How much do they earn?
  • What do they do for a living?
  • What is their lifestyle like?
  • What will they do during their spare time?

When writing on this section, don't just simply put in "all people who want to buy cars" or "anyone who needs a mobile phone". You may also need to include details of what geographic region you plan to sell in. Is your market national, regional, international, or local?

B) Market Size and Trends

This section describes the total market size and the part of the market your business will target. You may use numbers as well as trend information to show its potential growth.

Follow these questions to find out the size of the market:

  • What percentage in the market has already bought on a similar product to yours before?
  • How much of your product or service might your target market buy? (In terms of sales amount and/or in units of products sold.)
  • What proportion of your target market will buy again?
  • How might your target market be affected by economic events (e.g. during stock market crash)?
  • How might your target market be affected by government policies (e.g. changes in tax rates)?

Once you have all this information, you can start writing on this section in short paragraphs. Describe whether these events will have a positive or negative impact on your business. If you have several target markets for different products, you will have to divide them into sub-sections. Again, remember to quote your sources of information within the section.

C) Competition

No one can avoid competition. Presenting your business with competition proves that you understand your market. New invented technology can force another company to fall down in a night's time. Because of this uncertainty, it is important to know your competitors well.

Questions like these can help you identify your competitors:

  • Who are your nearest direct competitors?
  • Who are your indirect competitors (e.g. substitute products)?
  • How are their businesses? Stable? Increasing? Decreasing?
  • What are their strong point and weak point?
  • How are their products different from yours?
  • Who is the price leader in the market?
  • Who is the quality leader?
  • Who has the largest market share?

Furthermore, pay attention to your competitors' sales and promotion strategies. When did they reduce prices for sales? Using this technique can help you understand your competitors better on how they operate their businesses.

When writing on this section, begin with a short discussion for each of your main competitors. If possible, include their annual sales and their market shares. Explain why you can obtain a share from their business.

Even if your product or service is truly innovative, you need to look at what else your customers could buy instead (substitute products). Remember, the first personal computer competed with calculators and typewriters; the first calculator competed with abacuses.

Use a table to show your analysis so that readers can read easily. Columns are the names of your competitors and rows are their market share, annual sales (if available), strengths, weaknesses, and comments, etc.

D) Sales Forecast

The sales forecast is based on the estimation of the size of your market and your market share. This should include sales in units and dollars for the first five years. Break down the first year into months, and the second year into quarters, if applicable. These numbers are very important to the financial sections later in the plan.

For projecting a sales forecast, you may have to find out answers like:

  • How many customers will buy the same kind of product as yours?
  • How much will the customer spend on these items annually?
  • What percentage of their spending will you get, comparing to competitors?

Generate the forecast into three different figures: pessimistic, optimistic, and realistic. Then put the figures in by months, as depending on your business, there could be big difference by seasons. In fact, a good method to do forecasting is to obtain the average sale per customer from trade associations.

Once you have made assumptions on the inflation rates and your annual growth rates, you will be able to forecast the sales from the second year to the fifth year by multiplying your first year sales with these factors. Besides using tables or graphs to show your annual sales at a glance, write in short paragraphs describing the market trends and seasonal trends on the three different situations.

All these can be a lot of work, but they have to be done to make your business plan convincing. Lastly, don't forget to quote all your sources of information in this section. All readers will want to know where you get these statistics or opinions from.

Chapter 5: Start-up Summary

This section will describe the start-up plan for your product's development. It gives details of how your product is being developed and what resources are required to get it produced. You should include details of development costs, location and labor requirements.

A) Start-up Process

Before launching your product into the market, your product has to be developed and produced. Demonstrate with a schedule showing when this work will be completed. Include time necessary for obtaining a patent or a trademark where applicable.

In detail, also project a timeline you will need to set up factories and offices. This may include renovations, purchasing necessary machinery and furniture, and other important stages in this development cycle. Then describe in small paragraphs for the whole development process.

B) Start-up Cost

For every item described in (A) above, construct a simple budget table and put in numbers for the amount of capital that will be required for these expenses. This budget may include rent (if factory and/or office are hired), insurance, labor, materials, patents, and the cost of professionals such as accountants and lawyers, etc. It should also include the cost of the design of sample products as well as the expense to produce the samples.

C) Operating Requirements

In day-to-day operations, you may have to explain about the industry's standards and regulations for your product. Then describe which industry organizations or associations you will prepare to join, and what you should do to fulfill with the laws and regulations in your industry.

Secondly, give details of your suppliers and their prices, terms, and conditions. Describe if there are any other arrangements you have to make if these suppliers are not delivering the material. Also explain the quality control system that you are going to set up on your suppliers' material and your own finished products.

The aim for writing this section of the business plan is to show your understanding of the manufacturing and operating process of your business. Therefore you should carefully plan every part of the operation on a step-to-step basis.

Chapter 6: Marketing Plan

This section explains how you are going to get your customers to buy your products and/or services. Strong marketing plans can show readers that you have good ideas for promoting and selling your products.

A) Marketing Strategy

The marketing strategy defines what customers you want to sell to and how you are going to approach them. This includes the method of educating them about your product. Refer again to your "Unique Selling Point" and explain that you will get your customers to notice about this.

Describe if you have any new sales technique, such as online sales ordering system through the Internet while your competitors are still using ordinary retail methods.

Remember, the theme of your marketing strategy is the message you want your customers to receive about your products or services. The marketing plan is all about sending this important message to your customers. So you aim here is to explain to readers on how you can emphasize your selling point to your customers.

B) Distribution Plan

In this section you will describe how you get the products to the end users.

Explain what kind of salespersons and how many of them you will employ. Are they on commission basis? Are they product promoters? Are they telemarketing personnel? Describe how helpful do you expect from these salespeople.

You may also expand on the management system of your sales team such as whether a sales training program is needed, any incentives they will get to encourage their work, as well as any reviewing method for their results.

If you are use another party such as sales agents or a sole distributor to do the sales for you, describe the benefits of using these parties and the special knowledge that they can bring to your business.

C) Advertising and Promotion

This section describes how you're going to deliver the message of your "Unique Selling Point" to your target customers. This involves both advertising and sales promotion plans.

For advertising, describe which media will be the most effective in reaching your target market and how much you have prepared for your annual advertising budget on each medium such as the Internet, television, radio, newspapers, magazines, subway banners, direct mails, etc. Also, put down how much sales you will expect to make from this advertising.

As for sales promotion, you may want to include marketing materials into your plan, such as free samples, coupons, displays, brochures and pamphlets, etc. Any publicity activities like press releases, product launches and trade shows can also be introduced in this area.

Chapter 7: The Management Plan

The Management Plan describes your management team and staff and how your business is structured. Readers will expect to see not only who is in your management team but also how their skills will input into the business.

A) Ownership Structure

This section describes the legal structure of your business. You have to explain whether your business is a sole proprietorship, a partnership or a limited liability company. For partnership and limited liability company, you have to show who will hold what percentage of ownership in the entity.

B) Internal Management Team

The Internal Management Team section will describe the key positions required to manage the core business within the organization, identify who are responsible for these positions, and explain their special skills. These people may include the board of directors, the chief executive officer, the chief financial officer, and controllers for different departments.

Most businesses have different departments to carry out different functions such as sales, marketing, administration, production and accounting, etc. Some companies may need extra departments such as research and development as well as human resources. In fact, some key management people, especially directors, may fill up more than one of these roles as department heads. In this section therefore, you will have to identify these key people and explain which role each of them will fill. Sometimes you may wish to present this by using an organizational chart. You can also attach complete resumes for each member of the management team as appendices to your business plan.

Furthermore, You can talk about how much salaries your management team will be paid. Do they have any profit sharing or any other benefits? Indicate if there is any work contract the business may offer to any of these key members.

C) External Management Team

Apart from your internal management team, your business may use external management resources. These resources somehow act as your internal management team's backup. Usually there are two main types of external resources you will use, which are Professional Services and an Advisory Board.

The Professional Services represent external expertise that most businesses will use such as accountants, bankers, lawyers, IT consultants, business consultants, management trainers, etc.

An Advisory Board is like a brain to the management. The members of this board will provide your organization advice to run the business effectively. They may be some senior or retired executives or entrepreneurs who have run this type of business for years and are only helping your company in part-time or ad-hoc basis. Their function is simply to provide skills that your internal management team doesn't have. List out their names, titles and experience, and explain how each advisor will input to assist you to run a profitable business.

Chapter 8: Financial Plan

This is the last part of your business plan. The financial plan is the section that determines whether or not your business is feasible, and is an important element to show whether your business will attract any investor.

The financial plan will contain three financial statements: the cash flow statement, the profit and loss statement and the balance sheet. You will also indicate in this section that you have considered the risks related to your business and the funding capital that you require.

Before creating the three financial statements, mention about the risks that your organization will face during the course of your business as an opening scene.

A) Risks

All businesses contain their own risks. The way to determine these risks in your plan shows that you have carried out a lot of market research work and this will make your plan look real and attractive to the readers.

Things listed below are possible risks that a business would face typically:

  • A large cut or promotion by a competitor
  • An important customer leaves you
  • The economy goes bad
  • Your suppliers increase their prices
  • Your suppliers fail to deliver on time
  • A better product launched by your competitor
  • Lack of qualified labor

Put in all assumptions about the risks that you may face during the course of business. List out the actions that you are prepared to take in order to handle these risks. This will increase your credibility in front of the readers since you have shown that you are aware to these issues and be able to treat them.

B) Profit and Loss Statement

The Profit and Loss Statement is the very first statement you have to create out of the three financial statements in the Financial Plan section. This statement records revenues, expenses and cost of goods sold. The result is how much profit or loss your business will make at the end of the accounting period.

First, input your revenue from which you have done in the Sales Forecast section earlier in the business plan. If you are in a manufacturing business, the revenue will be called sales, and cost of goods sold will need to be calculated. Next, you will need to gather the financial data on all expenses, including your start-up cost and your operating expenses. When you subtract the revenues by the expenses you will get the gross profit before taxation. Net profit will be the result after subtracting taxation and/or dividends from the gross profit.

Appendix 1 is a worksheet of a standard Profit and Loss Statement structure.

C) Cash Flow Statement

A cash flow statement shows how much cash will come into the business and how much cash will be used during the financial period. In another sense, it shows readers how much cash you will need and when you will need it during the course of business.

Generally, only cash items will be included in the correct accounting period. For example, Sales made last month in credit (account receivables) may be collected this month and the statement will only record an inflow for such when it is received.

The cash flow projection is an important tool for cash flow management, letting you know when you might want to borrow some short-term loans as well as to look for long-term capital injections.

There are three elements included in the cash flow statement: the cash revenues, the cash disbursements, and the reconciliation of cash revenues to cash disbursements. The reconciled balance will be exactly equal to the cash balance recorded in the balance sheet at the end of the financial period.

See Appendix 2 for a worksheet of the Cash Flow Statement Outline.

D) Balance Sheet

The balance sheet is created only once a year to determine the net worth of a business. It is the last part of the three statements in the Financial Plan section. The balance sheet represents the business's financial position at a particular point of time. It is divided into three main categories: the assets, the liabilities, and owner's equity. Assets are tangible and intangible objects that are in the ownership of the company. Liabilities are debts owed to creditors and suppliers. Owner's equity is the net difference when the total liabilities are subtracted from the total assets.

Once you have your balance sheet completed, you can write a brief analysis for each of the three financial statements. Keep them concise and cover the highlights. The financial statements themselves can be either displayed in this section or in the appendices.

Appendix 3 is a worksheet of a Balance Sheet outline.

E) Funding Request and Return

This comes to the last part of the business plan. In this section you will clearly state the amount of funding for the investment you will need, and how do want these funds to come in as, e.g. loans or capital. Indicate when the money is needed in different phases, and tell the investors what they will receive in return for their capital.

Lastly, suggest an attractive exit strategy that you will apply, that is, how investors will get their money back. Often, it can be achieved either by a cash-out option in five years or an IPO (Initial Public Offer) plan to get it listed in the stock exchange.

As you can see, writing a business planning is not easy at all. However, by following these important steps provided from all of the chapters above, you will ensure your business has a fine chance at seeking funds from investors and success in the future.

Appendix:

Disclaimer:

This content is provided and written by Di & Cooke Company Limited who has granted permission to the Hong Kong Polytechnic University for the use of this material to support the learning and development of all the participants who have entered the PolyU Innovation and Entrepreneurship Student Challenge. Participants should take such materials and sample plan as reference only.

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