How to draft a business plan: the ultimate guide
If you are thinking of starting a startup you have two distinct options in front of you: you can either jump headlong into this new venture, counting on learning how to get going without committing missteps along the way, or you can take some time and draw up a comprehensive and detailed business plan, where you define your goals and the precise way in which you will achieve them.
The answer is by no means as obvious as it may seem to you at first reading: several startuppers, in fact, prefer to let their instincts guide them and go “all in” on their initial hunch, confident that their business idea will prove successful no matter what and in spite of everything. Don’t make the same mistake they did.
Enthusiasm is very important when it comes to starting a new business, but to maximize the chances of success, it is also essential to maintain the right rationality. In other words, it is essential to know how to make a business plan. Dreams, after all, must also be built meticulously, step by step. And pay close attention: as Indian entrepreneur Dhirubhai Ambani, founder of the Reliance company (among the most important in the Asian country and the world), said,
“if you don’t build your dream, someone else will hire you to help them build theirs”.
Before we dwell on the best tips for compiling an effective business plan, it is necessary to learn more about this tool: as already pointed out, you can imagine your startup’s business plan as a kind of map that can guide you to success. This strategic document, however, is also a valuable tool for obtaining loans and finding investors, a decisive aspect for the growth and development of your startup.
Summarizing in these few lines what the business plan is and what it is for, however, is not enough and, to quote the metaphor already used, risks leading you astray; therefore, a more in-depth analysis is needed, useful for grasping every minute (but fundamental) detail of this articulate document.
What is the business plan and what is it for
The business plan is a strategic document that, at its core, includes general information about the business project and the company’s operational and financial objectives, as well as market analyses and economic forecasts and projections useful for defining how they can be achieved and in how long.
There are many reasons why you should take special care in creating your Business Plan. It is a very valuable tool because, first of all, it allows you to flesh out your entrepreneurial vision. Do not underestimate this aspect: by putting your aspirations down on paper, you will find it easier to identify the critical points of your business plan (you will not be surprised to learn that the perfect plan does not exist).
Having a document where your business vision and the planning to make it work best are explained in detail also gives you the opportunity to share the text with other people, whether friends or business professionals, and get valuable feedback on inconsistencies, gaps, and problems in general. Not only that, sharing the Business Plan with your internal business team is equally important, because it allows you to motivate and inspire the team to achieve business goals more effectively.
By focusing on precise numerical data and detailed budgets, the business plan also gives you a better understanding of your target market and a more informed assessment of the feasibility margins of your venture. This should also be kept well in mind: many startuppers have a vision of the industry they are about to enter based on preconceived ideas and assumptions, which only proper research work can verify, confirming them or, conversely, disproving them.
The business plan lines up the major decisions to be made and translated into practice with concrete actions to achieve success. All of this, in addition to pointing you in the right direction to avoid mistakes and missteps (or rather, to be able to possibly respond in a timely and effective manner should they arise), also allows you to better manage your time and energy and understand what resources you need, as well as how to make the best use of them.
Ultimately, as already pointed out, with a properly and completely drafted business plan you have the opportunity to communicate your vision more effectively and thereby attract investors and lenders, who precisely by consulting your business plan can get a clearer idea of the opportunities (and risks) of your business idea. Remember: as persuasive as you can be, specific information and accurate data are more effective than any speech.
The requirements of a good business plan
For your startup’s business plan to be truly effective, you must take care that the strategy document is as clear and readable and as complete and detailed as possible.
Be careful: this does not mean that it necessarily has to be very long. We could tell you that the average length of a Business Plan ranges between 50 pages and 100 pages (including market analysis), but you must not forget that this is a purely indicative reference, both because the length of this text inevitably depends on the business model and the type and size of the company and because, more than the length, what really makes the difference is the content of your Business Plan.
Take care, then, to spend the right amount of time on market research and analysis of your business and enrich your proposal with relevant statistics and accurate projections, but above all strive to make what you want to communicate as interesting as possible (while maintaining a professional writing style).
A key step, in this regard, turns out to be, in addition to the table of contents, the section called “Executive Summary”. You will get to know it in detail in a moment: now suffice it to know that, often, it is the only section of the Business Plan that investors actually read and, therefore, you need to concentrate within it the most important information and put it down on paper in the most compelling way possible. As mentioned, before understanding in detail what the Executive Summary is and what data and information it must necessarily contain within it, it is useful to analyze another key section of the Business Plan: the table of contents.
Table of contents
Any book you will have happened to read will most likely have had within it a “Table of Contents“, a useful tool to give the reader a general overview of what the book contains and to give him or her the opportunity to explore, thus, quickly the topics covered. Even in the case of a Business Plan, the table of contents has the great utility of summarizing the structure of the text, presenting in a few lines all the sections and indicating, for each, the page number where it can be found. The first and most important section, as mentioned, is the one called “Executive Summary.”
Like the table of contents, the Executive Summary is intended to briefly summarize the highlights of the Business Plan. A very useful tip is to take care of filling in these two sections at the end, that is, once you have completed the rest of the document, so that you can have a clearer idea of what is most important to communicate to those who will be asked to read the business plan.
While reiterating the validity of what has been said above regarding guidance on the length of the Business Plan (i.e., that any guidance is purely theoretical and related to the specific type of company and its precise needs), it may be helpful for you to know that the Executive Summary can also result in a few pages of text, in which you need to summarize why you decided to write your business plan.
To be more clear, your Executive Summary is the sublimation of your startup’s pitch deck; in fact, it cannot and should not lack the idea that prompted you to start a new business (i.e., your business plan), the problem you propose to solve and how you promise to do so, your value proposition, business model, your differentiator within your target industry and operating environment, strategy and development plan, as well as some conservative estimates that can clarify the economic goals your startup is capable of achieving.
Having said that in the Executive Summary you must, as the first thing, summarize your business project in a few lines, it is worth noting that you must also reserve a specific section of the plan for it. Like the Executive Summary, the one on “Project Description” is another key part of the Business Plan structure. Not only that, it is also the section of the business plan to which you need to allocate the most space. Knowing what to write and how to write it is, therefore, very important.
The specific advice for this particular section is to start with a brief introduction that gets straight to the point. What is the point? Your winning idea! Emphasize the benefits that consumers will get from your product or service and explain, in detail, how you can help them solve a problem they have (or satisfy a desire they have).
It is also important that you are able to explain why the solution you propose is better than those already on the market, leveraging what makes your product or service unique. In this section of the Business Plan you must list the technical characteristics of what you propose, describe how it works, and state its price.
Keep in mind that, to do this, you do not have only the textual tool at your disposal: in fact, to describe your project, you can also make use of graphics, diagrams, images and multimedia resources that can make your narrative even clearer, more incisive and engaging.
A project, no matter how potentially successful it is, will not prove to be so if it is not adequately supported by a solid structure behind it. For this reason, in your Business Plan, the section devoted to the presentation of the startup cannot be missing.
But what does it mean, specifically, to present a company? A complete and comprehensive presentation includes telling the story of how it came into being and its key players (who they are and their roles but also, if particularly relevant, their professional experiences and certifications obtained), details of the location and technological equipment at its disposal, a description of its mission, vision, and short, medium, and long-term business goals, as well as a forecast of the timeline related to the company’s development phases.
As we pointed out at the beginning of our in-depth look at how to make a Business Plan, enthusiasm is important when starting a new business, but keeping your feet on the ground is also crucial. This also means that you need to be as objective as possible when you make and share your analyses and forecasts: promising mind-blowing results that, in reality, you will have no chance of achieving results in a dangerous boomerang, capable of decisively cracking your credibility and investors’ confidence in your business project.
There is one particular analysis tool that, in all likelihood, you will already be familiar with (or, rather, should absolutely already be familiar with): it is the SWOT analysis, that is, that particular analysis that allows you to identify the strengths and weaknesses, opportunities and threats of a business plan. This analysis is very important, but it is only one of many that allow you to actually know your target market (other analyses include, for example, Porter’s Five Forces analysis and the Pestel analysis).
Properly knowing the market (and its profitable niches) in which your project fits means being clear about the current situation it is in but also about what has led it to be in that state and its future prospects, old and new trends, technologies that have been developed over the years and the characteristics of the products offered by competitors (including prices), as well as the main challenges and potential risks in the industry.
Special attention must be paid to defining your startup’s typical customer(s), based on precise demographic and psychographic characteristics. The questions you need to answer are several. Prominent among them are: how old are your typical customers? What is their level of education? What job do they have and what is their income? What are their interests? What might motivate them to buy your products or services (at the prices you quoted)? You will not be surprised to learn that in order to answer all these questions, it is essential that you know how to construct your Buyer Personas, i.e., imaginary and generalized representations (but with very specific characteristics) of your startup’s ideal customers.
The analysis of the market, competitors and target customers must be followed by the definition of your marketing and communication strategy. Among the points to be clarified in this regard are the marketing mix, the methods and channels chosen to promote your products or services, and, more generally, how you plan to intercept your target customers.
In light of the previous analyses, what will your company do and when will it do it? These questions must be answered in the section of the Business Plan devoted to your operating plan: if you have previously limited yourself to presenting the team, in this section you must describe in more detail the corporate organizational structure and define, specifically, roles, skills and responsibilities. Not only that: you need to describe in detail your production processes and the machinery and resources needed to carry them out successfully, but also your planned distribution channels and customer support services.
As you will be clear by now, the structure of a business plan includes a descriptive part and a numerical part: in the last section of your business plan, i.e., the one called “Financial Plan“, you must include your startup’s budget, taking care to indicate precisely what you expect to spend in the short term (generally over a year, but the analysis can be extended to 3 or 5 years), as well as an estimate of profit and cash flow.
Earlier we referred to the “Financial Plan” section as the last one in the Business Plan; there is, in fact, another section to consider and it is the one intended for attachments to the text. In this part of the business plan you can possibly include other documents that are useful in clarifying what you illustrated earlier within the Business Plan, such as, for example, the resumes of the members of your business team, the data sheets of the products or services you offer, and the detailed data of the market analyses you mention in the Business Plan.
The B-PlanNow® Business Plan
Having reached this point, you are probably wondering how much it costs to make a Business Plan.
To answer this question, it is important to stress once again that providing a precise figure is difficult, because the expense inevitably depends on the type of your startup and its strategic needs. At a purely indicative level, however, it is possible to say that the initial expense expected for an initial series of meetings and consultations on the development of the Business Plan can range between 2000 and 2500 euros, but you must consider that this figure can also double or even triple if a more articulated mentoring path is needed.
In this regard, you should know that a quick search on the web will certainly give you the opportunity to find plenty of examples of “winning” Business Plans and a wide variety of standardized canvas Business Plans that you can also download for free and fill out yourself; be careful, however, because the fate of your business project may depend on the compilation of this text, which means that any slightest mistake could spell the end of your dreams of glory.
After reading this in-depth study, you will certainly have a clearer idea of the salient parts that make up the structure of a Business Plan and the information that cannot be missing within this valuable strategic document, but you should not be afraid to seek the help of a team of experts who can explain to you in even greater detail how to write a Business Plan effectively and, above all, assist you on a practical level in writing it.
It is worth reminding you in this regard that B-PlanNow®, in addition to offering a free initial consultation, has developed a unique service of a 5-year minimum forecast Business Plan, divided into a qualitative part (graphical-descriptive) and a quantitative part (financial, patrimonial and economic).
The qualitative part of the B-PlanNow® Business Plan includes some of the details already mentioned extensively in this analysis but also very useful additional specific insights, such as a glossary of your startup world and a report on your startup in a nutshell (this is a section that includes an overview of the company, its human resources, advisors, and contacts). This is complemented by the Executive Summary, a company presentation, market analysis, and your startup’s business model.
The quantitative part, on the other hand, includes the following key points:
- forecasted balance sheet
- forecasted revenue account
- forecasted cash flow analysis
- current and forecasted analysis by financial statement indices
- analysis of the evolution of the forecasted net financial position
- rating according to the methods of Standard & Poor’s, Altman and Prof. Damodaran
- Medio Credito Centrale rating (access to the SME Guarantee Fund Law 662/96) and bankability
- financial analysis on the sustainability of the investment and on the financial needs
- analysis of the forecasted monthly treasury budget.
There is one more aspect to consider in your evaluation of how to make a Business Plan and, more precisely, the costs you have to incur in order to proceed with the compilation of this document in the most correct way. You need to know that you have the possibility of resorting to a new alternative form of payment available in Italy, namely the so-called Work for Equity: this is a particular payment method regulated by a law in favor of innovative startups, which allows you to pay employees and collaborators, but also external consultants, through the sale of shares or stock in your company.