Want to learn how to write a winning business plan?
In this post, we’ll cover the most important sections of a business plan and how to address them properly.
We’ll also cover some detailed steps and insights learned the hard way through trial and error that will help you avoid massive financial losses and make sure your business achieves profitability as fast as possible. This post will help you write a business plan that will be more effective in helping you get a commercial loan or raise money from private investors.
But even more than that, following the steps in this post will help you ask crucial questions about your business and dig deep to find the answers, so you can learn what you must do to make your business work (and the big mistakes you must avoid so your business doesn’t fail).
If you’re still wondering why you should write a business plan, then feel free to read our article on why you must write a business plan.
Tips on Writing a Business Plan
Before we get into the details of writing your business plan, here are some key ideas you should keep in mind while you go through this process.
There’s an old saying in business that it’s not what you do that counts, it’s how you do what you do. Many people write business plans and still fail miserably in business. Writing a business plan alone won’t help you succeed.
What really matters in business is how you go about the process.
Lots of people sell hamburgers. McDonald’s does so in a way that allows them to earn billions of dollars in profit each year, while millions of other business owners have tried to sell hamburgers and failed miserably.
So what made the difference?
Was it the quality and taste of McDonald’s hamburgers that made them successful? Of course not! Anyone with a grill and some meat from a local grocer or butcher could make a better tasting hamburger.
What made the difference for the McDonald’s business is how they went about the business:
- Cutting costs by working directly with suppliers
- Producing a standardized product so customers always knew what to expect
- Systematizing the entire process so that teenagers could be hired to run the business efficiently and profitably
- Creating a very fast turnaround time on orders so customers don’t have to wait
- Creating a simplified menu that optimized the company’s gross margins
- Using a franchising model so anyone could open a new location and make it profitable by following the system
- And much more!
Of course, none of this stuff sounds all that exciting, but these small changes are what made the difference between the company earning billions in profits or going bankrupt.
So as you go about the process of writing a business plan, keep these 5 key ideas in mind:
1. Keep it short
Try not to exceed 25-30 pages for your business plan.
For the first draft of your plan, you’re welcome to write as many pages as you want. Your goal should be to simplify the business plan so that you only include the most important key elements that will make your business successful.
Remember the Pareto principle or 80/20 rule: 20% of what you do will produce 80% of the results. Keep your business plan to the 20% of action steps and items that will make the biggest difference.
If you write a super long business plan, readers will get bored and either skim through it or throw it away. You will get better results with a shorter business plan (assuming it is well-written and includes the most essential information about your business).
2. Keep it Professional
Keep your writing professional. Make sure to check for any typographical or grammatical errors. Most investors or bankers will say “no” immediately if they see your business plan is not written professionally.
Chances are if you can’t be bothered to fix typos in your business plan, you’ll likely gloss over important issues once the business is running, and that lack of attention to detail could cause your business to fail.
How you do anything is how you do everything. If you’re not acting professionally when you create your business plan, you likely won’t act professionally when you run your business.
3. Always be Improving
Your business plan should be a living document. You should constantly be thinking of ways to improve it and revise it accordingly, especially when you get the same feedback about the business plan from multiple sources.
Once your business is running, you must always be improving the business and your current plans for the business. If done properly, your business plan will morph into a living document that will help you run your business better.
4. Be Meticulous in Citing Sources
Always cite sources for your statistics and figures (use footnotes). This will show investors that you did your research seriously and thoroughly.
Furthermore, by citing your sources you will look professional, you will be able to refer back to those sources for more information later on, and your investors will be able to look at those sources and verify your figures so they can learn more about the industry.
5. Use it Regularly
Your business plan is a marketing tool. You should be using it on a regular basis!
If you are working on a new start-up business, you should be sending that business plan to at least 100 people in the first year. Don’t spam random people. Instead, make a concerted effort to send your plan to those people who may be able to help turn your dream into a reality by offering feedback, guidance, mentorship, introductions, or financial support.
The Key Sections in a Winning Business Plan
There are the key sections that are universal to almost all business plans.
Some sections may not apply to your particular business, so if it doesn’t make sense for you to include it, feel free to leave it out. Only include the sections necessary for your specific business.
1. Executive Summary
The Executive Summary is an overview. It should include all the high level / big picture details a potential investor would need to know to see if they’re interested. It should highlight only the most important aspects of the business plan. The Executive Summary should never exceed two pages!
I’ve seen some executive summaries that were more than 10 pages, which is the sign of an amateur. No one wants to read that much.
As Mark Twain said, “I would have written a shorter letter if I had more time.” Take the time to make your executive summary (and every section of your business plan) as concise and useful as possible.
You executive summary should include:
- A description of your business and industry
- A description of the management team
- Your operational strategy
- What makes the business unique (your competitive advantage)
- What the business needs to move to the next step (for example, if you’re looking to raise $100,000 in exchange for 10% ownership of the business, you should include that in the executive summary so that potential investors know right away what you’re looking for).
2. Business Description
The business description should include:
- Name of the business
- Nature of the business. What industry are you in?
- History of the business
- Stage of Development (If the business is a concept or a brand new start-up, let it be known here).
- Unique Features of the Business. List any patents, trademarks, intellectual property, or any other unique advantages or assets your business has.
Your marketing segment is crucial. You must be able to show readers of your business plan that a large market exists, that your company can attain market share in that business, and that you will be profitable in doing so.
Your marketing section must include:
- Market Size
- Projected Market Share
- Projected Sales for one to three years
- Your Market Niche
- Target Market or Target Customers
- List of Potential Customers (if B2B)
- Market Trends (socioeconomic trends, demographic trends, sales trends, industry trends, etc.)
- Projected Industry and Company growth rates
- Pricing Strategy
- Marketing Strategies
- Advertising Plan
4. Competitive Analysis
You must objectively look at the industry and your competitors and be able to identify their strengths and weaknesses and where the opportunities in the industry lie. You must also show that your company will be able to take advantage of these opportunities.
You should compare competing products or services based on prices, performance, service, warranties, availability, and other pertinent features. You should especially note how competitors may not be meeting the current needs of the market and how you plan to meet those needs and capture market share.
You should also focus on the profitability of your competitors and the trends of their profits and of the industry. If you can show that competitors that focus on one niche are trending to be more profitable and that you can join in on that market and create your own niche there, that will show that you are aware of these trends and able to take advantage of them. If, however, the industry you’re entering into is in a long-term trend of declining profitability, you must be able to justify why it would be wise to enter that industry and how your business will be uniquely profitable.
Note the location of your business and, if applicable, explain how that location is favorable in terms of wages, availability of labor, taxes, zoning requirements, and proximity to suppliers and potential customers.
You should also list all the needs of your business including storage space, real estate needs, equipment, supplies, machinery, and any other operational or logistical details. You should also detail the costs of all operational expenses including shipping, production, purchasing, delivery, and other expenses.
Make sure to include the name of the person who will be managing the operations, or that you plan to hire someone with a certain type of background for that position.
Optional: If the business is a start-up, you may prefer to list your “milestone schedule” or operational plan in this section which will detail the necessary steps for starting the business and achieving profitability.
Management is one of the most important and often overlooked sections of the business plan. You must be able to show how the management team will be able to take advantage of the opportunities in your industry.
If there are glaring holes in the skills and abilities of the management team, potential investors will be unwilling to lend money as this will be a huge risk. For example, if you’re starting an internet company and no one on the management team has experience in that industry, it’s unlikely you will be successful. To overcome this, you must either recruit an experienced person in that industry or hire a consultant who has experience in that industry so that you have the expertise required to overcome the inevitable hurdles that all businesses present entrepreneurs with.
It is absolutely unnecessary to provide complete resumes for each member of the management team. Simply provide a brief summary of their experience and how that relates to their functions in the business. One to three short paragraphs should be sufficient to explain each member’s background and skills as it relates to this business venture.
The key here is to let investors know
- Who the management team is
- What their experience is
- What their role will be in the business
- That they have the skills to perform that role well
- Any management positions you plan to hire or recruit for in the next one to three years
Your financial section must display the financial viability of the business. Show your business can make a healthy profit and can afford to pay interest or profits to investors or lenders.
Most business plans should include a full pro forma balance sheet, income statement, and statement of cash flows. Generally, creating projections for three years is acceptable. Don’t go over three years as it will take up too much space and it will be unbelievable (Who can accurately predict such things as the profitability of a start-up business 5 years from now?)
If you are unsure how to create the financial statements, you can find templates online that are useful. However, it would be best to hire an accountant to compile the statements and projections with you if you are unfamiliar with accounting and financial statements. Your statements should be flawless. Any mistakes will be noticed by experienced investors and will force them to conclude that you don’t know what you’re doing. Better be safe than sorry. Hire an experienced business accountant to help you with your financial projections and financial statements, or be prepared to do some serious homework to study accounting and do it on your own or with the help of a mentor, advisor, or experienced friend.
In addition to financial statements, you should include some sort of assumptions section that lists all the major assumptions you have made about expenses, sales, and profits. For example, if the industry is growing at 20% per year and you expect your business to grow that fast, simply list that assumption as well as a reliable source for the industry growth rate.
8. Critical Risks
This section is optional, but it should include the main risks involved in the business. This section is especially important for you as an entrepreneur to prepare, if not in your final business plan, at least for yourself to understand the risks of the business.
This section will force you to think about the industry trends, cost projections, sales projections, macroeconomic trends, and other risk factors which could affect your business. It will force you to plan the “What ifs” of the business and to come up with potential problems ahead of time and strategies to overcome those problems before they come up. Critical thinking about the critical risks is key to growing and sustaining a business.
Most entrepreneurs don’t include this section, and that’s a huge mistake. It’s often the #1 section investors want to see because they need to know you understand what the risks are and have a plan in place to mitigate them.
9. Exit Strategy
This section is primarily for investors to let them know how they will be paid.
- Do you plan to go public?
- Do you expect to be acquired by a larger company?
- Or do you want to just grow the business and benefit from the future cash flows?
- What’s the plan for the business 3 years, 5 years, and 10 years down the road?
In other words, when and how will your investors earn back their profits?
You should also include management succession strategies and other business issues related to liquidity events and long-term company plans in this section.
For example, if your plan is to keep the company private and grow it steadily over the next twenty years, don’t say you’re planning to go public in 5-10 years. Be honest. Nothing will make you more miserable in that situation than having an investor constantly working to help the company go public or achieve a milestone that directly conflicts with your goals for the company.
10. Milestone Schedule
Include a timeline of the business operations plan and profitability. If you’re starting a restaurant, you’ll want create at timeline that lists projected dates for initial funding, property selection, remodeling of the location, opening day, break-even, and so forth.
This section lets investors know the operational plan of the business in detail and helps them (and you) keep track of your progress. If you fail to meet your milestones, investors should be concerned unless you give them fair warning ahead of time as soon as you notice there are issues, delays, or unexpected problems that come up. You should set reasonable milestones that you are reasonably confident you can hit.
If you fail to meet a milestone always remember to explain to investors what happened and how you’re taking the proper steps to get back on track to reaching profitability and moving the business forward.
This section is optional. Personally, I rarely use an appendix because I find it simply adds too many pages to the plan and is unnecessary. I put all my sources in footnotes and let investors know that if they wish to see more information, I can provide it to them (you can include all your additional research and cut material from the business plan in an additional document just in case).
However, if there are specific resources, charts, graphs, or documents that are necessary for investors to understand your business, you should include them in the appendix.
Create Your Business Plan
There you go! You now know the key sections you must include when you write your business plan.
Your job now is to continue researching and writing your business plan.
Got any questions? Post your comment below with any questions, suggestions, or ideas about writing a winning business plan.