Writing a Formal Business Plan

A business plan helps to see your ideas and dreams through the lens of practical objectives, goals, strategies to start, grow and succeed, potential problems ahead and how to overcome them.

Until very recently, business planning has been seen as a necessary (and boring) chore for a new business founder to do before getting the business off the ground.

Mostly, this attitude is because Business Plans have always been viewed as obligations, something the banks or authorities or investors insisted on having. But planning is a necessary tool to help clear your vision, develop your skills as an entrepreneur and attract funding.

So instead of seeing planning as an old-school boring process, view it rather as an opportunity to generate new information and insights into your business. And it’s not something you do once and leave.

On-going planning can help you evaluate your own views and biases of your business, your competition, your skills and competence.

You will need a formal business plan if you are looking for investment into your company.

Every business plan should comprise the following 10 sections:

1. A cover or title page

2. Executive summary

3. Business overview

business profile
the product or service

4. Management

the people
the management structure
franchise information

5. The Market

industry analysis
market analysis

6. Sales and Marketing strategy

7. Financial statements and projections

8. Legal and regulatory environment

9. SWOT analysis and risk/reward assessment (click here to see a SWOT analysis)

10. Appendices and supporting documentation.

Cover or Title Page

You want to present your business plan in as professional a way as possible. Avoid unnecessary decorations and borders and put forward your idea as clearly as possible.

Executive Summary

The executive summary is the MOST important part of the business plan — it has to sell your strategy for success to the investor.

The summary is an overview of the entire plan and must contain the highlights of the business plan and summaries of each section. Therefore, although it is at the beginning of the document, it is usually written last to capture the essence of the plan. The executive summary stands alone and should not refer to other parts of your document.

Business Overview

1. Write a business profile, including the following:

Information on the background and history of the business
The business type (proprietorship, Close Corporation, Company)
Is it a new business, take over, expansion, franchise?
The mission, and the company’s long and short term objectives in terms of business growth and development, as well possible exit strategies (for example: buy out investors, sell to larger company, go public, etc)

2. The product or service

Describe in full the product or services offered by the business and the innovative features of these products and services and the competitive edge they afford the business over rivals in the market.
the expected product life cycle where applicable.
Include descriptions of key technologies employed and current and future research and development

3. Describe the location, premises and — where applicable — production facilities

4. Production and technology

Describe production processes and capacity, identifying any existing constraints and possible problem areas.
Include a detailed analysis of the process of installing and commissioning any new technologies and production processes.
Include information on quality assurance systems and procedures, and certification
details of suppliers and sub-contractors, and any contractual arrangements governing the supply of key inputs

5. Elaborate on the business’s past achievements and strengths. Include past problems and weaknesses, as well as critical success factors.

Company Management

1. The People/Entrepreneurs

Include a description of the skills and experience of the entrepreneurs. Include the key areas of technology and product development, production, sales, marketing, finance and administration.
Describe the position and the specific functions and responsibilities of each entrepreneur and/or manager
Attach a detailed curriculum vitae of each entrepreneur
Indicate the financial contribution of each entrepreneur to the business, and the current shareholding structure.

2. The management structure of the business

Show company ownership structure, business units and subsidiaries where applicable.
Attach an organisation chart showing the functions and responsibilities of directors, key management and staff.
Include remuneration, incentives, share options, and conditions of employment of key management and directors
Include an analysis of any deficiencies in management and how these positions are to be filled.
Comment on current and future employment levels, labour relations and union membership (if applicable)
Include details of systems to be implemented: information technology, accounting, administration, management information and stock control systems.
Include details of auditors, attorneys, bankers and professional advisers

3. Franchise information (where applicable)

If the business is a franchise, include what is covered in the management package the franchisor provides in this section

The Market

1. Industry analysis

Summarise the industry in which you do or will compete. You can find most of the facts from government statistics and trade organisations. Discuss topics such as:

current trends and developments in the industry
large and important players in the industry
how the industry is segmented
problems the industry might be experiencing
national or global events influencing the industry
national and global growth forecasts
how legislation affects the industry (for example, how the law limiting smoking in a restaurant affects the industry)

2. Market analysis

Describe the existing market and its potential for growth.
Include a detailed analysis of the size and maturity of the market, trends and seasonality exhibited by the market, and the business’s current and expected market share together with an analysis of the time, resources and actions required to achieve this desired market share.
List existing and potential customers, supported by letters of intent, orders on hand, contracts, where applicable.
Include a detailed analysis of competitors, the price and quality of their products, service, delivery, and their expected reaction to your activities.
Highlight and discuss your competitive advantage

Sales and Marketing Strategy

Elaborate on current and planned sales and marketing strategies and promotional activities (advertising, exhibitions, promotions, public relations, etc.)
Describe your distribution strategy and channels
Formulate sales staffing, recruitment, remuneration and commission structures
Include a detailed motivation and substantiation of sales projections (in monetary and physical terms) with a comprehensive analysis of the lead time expected to reach sales targets and milestones (e.g. break-even point)
Elaborate on your pricing strategy and how it compares with your competition
where the business is a franchise, include the full marketing strategy of the franchisor

Financial Statements and Projections

Include only a summary of the financial statements and projections in the body of the business plan — attach a detailed analysis as an appendix
Include operating budgets, cash flow projections, income statements and pro forma balance sheets for at least three years (recommended five years). Provide monthly projected figures for the first and second year, quarterly figures for years three and four and annual projections thereafter.

Where applicable, provide:

Historical financial performance as shown by at least the last three sets of audited annual financial statements and up to date management accounts comprising income statements (monthly and year-to-date), balance sheets, and debtors and creditors age analysis.
Costing methodology employed, or to be employed, and detailed costings giving a full analysis of cost of sales.
Pricing policies giving a full analysis of theoretical and actual mark up and gross profit percentages.
Rebates, discount structures and terms offered to and received from customers and suppliers respectively.
Break-even and sensitivity analysis.
Details of overdraft and factoring facilities (bank, limit, security and interest rate) and medium and long-term loans.
Ensure that your financial projections agree with any other statements in the business plan (for example, costs involved in your proposed marketing strategy)
Formulate and motivate your capital requirements

Legal and Regulatory Environment

Include:

Details of any licenses, copyrights, trademarks and patents registered (or in the process of being registered)
Details of any legislation and regulations governing the industry, product and production processes
proof of compliance with tax and labour legislation (VAT, PAYE, RSC, UIF, COIDA, Employment Equity Act, Skills Development Act, etc) where applicable
Details of duties and tariffs to which inputs or products are subject if the business is a regular importer or exporter
SWOT Analysis and Risk/Reward Assessment
Discuss definite and possible strengths, weaknesses, opportunities and threats
Give an honest assessment of the risks faced by the business, entrepreneurs and investors in relation to the potential for growth, profitability, and capital appreciation
Discuss strategies that can be implemented to address the risk factors highlighted

Appendices and Supporting Documentation

The following supporting documentation should be included where applicable:

Newspaper clippings, promotional literature, product brochures, market research, trade and industry publications
Partnership, association or shareholders’ agreements
Offers to purchase, purchase and sale agreements
Contracts, orders, letters of intent
Memoranda of understanding, lease, franchise, agency or distribution agreements
Documentation relating to licences, copyrights, trademarks and patents
Quotations or pro-forma invoices for capital items to be purchased
Detailed personal balance sheets of the entrepreneurs
Copies of identity documents and marriage certificates of the entrepreneurs
Schedules of life assurance and endowment policies of the entrepreneurs
Copies of company or close corporation certificates and registration documents
Drawings, work flow charts, plans, factory layouts, maps, etc
A list of persons to whom reference can be made regarding creditworthiness, product and service quality, and the skills, abilities and integrity of the entrepreneurs.