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Business Plan 101 – Everything you Need to Know Before Jumping on the Business Bandwagon

Siften Halwai
business plan

What is a Business Plan?

A business plan is a well-written document that tells you how a business defines its objectives and would achieve its goals. It plays a crucial role in the success of any mobile app development company. The business plan lays out a written roadmap for the firm from marketing, operational, and financial standpoints.

Business plans are essential documents that attract investment before a company has established a proven track record. They help companies to keep themselves on target going forward.

Although business plans are beneficial for new businesses, each company must have a business plan. You must review and update the plan periodically to see if you have met your goals or have changed and evolved. Sometimes, you can create a new business plan for an established business if you have decided to move in a new direction.

Why is a Business Plan Important?

Here are some of the reasons why you need a business plan:

What do Lenders and Investors Look for in a Business Plan

A business plan is an invaluable tool when it comes to applying for a business loan. What the investors look for in a business plan may surprise you, but knowing what they want will dramatically improve your chances of getting the money you need to drive your business forward.

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When the investors ask for a business plan, they look for the following items:

History of the Business

Where did your business start from, and how did it grow? Note the unique challenges you faced and how you addressed them, as it will demonstrate your business acumen and the ability to adjust to changing market needs.

How the Revenues are Generated

Lenders expect fast returns, so they are especially interested in knowing how you make yours. Explain how you serve your customers, how the product or service is delivered, and the money is collected.

Management

Let your investors know who is at the helm and what relevant skills, knowledge, and experience they bring to the table. Here, the word “relevant” is critical as lenders want to see how adept your management team is at growing and leading your specific business.

Market

Your investors want to know who you serve, how large the population is, and how viable the market is (e.g., room for growth, affluence, etc.). They also want to know about your competitors and how you set yourself apart. Make a note of all the marketing and publicity you are doing (regular social media, presentations, strategic partnerships, broadcast advertising, etc.) so that you can demonstrate your activity towards continual revenue creation and growth.

History Financials with Debt Coverage Ratios

Detailed financials that show all revenues, assets, liabilities, and repayment structures are essential to give a clear snapshot of your business’s financial health to the lenders. Many business loans are killed either due to inadequate or inaccurate business accounting or insufficient cash flow and debt service coverage ratios. In short, not having enough cash on hand to make the loan payments.

Projections

Investors want to see what you expect to happen financially, looking forward. Discuss both – what will occur without funding and what projected growth you expect if you receive funding. Include projections regarding job creation, market growth, product development, and anything impacted. Also, consider seasonal or cyclical changes to the business and what financial impacts those changes may have.

Collateral

What assets does your company currently own? Include the patents, real property, or other collateral that you can leverage against your debt. Personal property like rental properties, ranch land, etc., can also provide additional collateral for underwriting consideration.

Purpose of the Project

You need to mention why you are asking for the loan. What need does it serve? Is it to open a new location, expand, move to a better location, install new equipment, or other business goals? Be as specific as possible, especially if you are looking to get an SBA loan or economic incentive tied to particular policy directives. They want to be sure about where their money is going.

Lenders also look for items beyond the business plan like secondary repayment sources (for certain loans), residency, criminal record, etc. Be responsive to all the investor requests, no matter how daunting or seemingly unnecessary it may be, as it will keep things moving. The key is being as prepared as possible so that you can demonstrate that your company is “good for it.” Do everything you can to improve your chances, and don’t let your business plan keep you down.

Further Reading → What lenders look for in a business plan

Exit Strategy for Your Business Plan

Exit strategies are plans executed by business owners, traders, investors, or venture capitalists to liquidate their financial asset position upon meeting specific criteria. It’s how an investor plans to get out of an investment.

When do you Use Exit Strategies?

You can use an exit plan to:

Which Exit Strategy is Right for my Business?

The below list will give you an idea of common types of exit strategies. The kind of strategy you adopt depends on your company and your strategic and financial goals.

The following are some of the most common strategies:

Acquisition

The acquisition is more often known as a “merger and acquisition.” It’s because when a company decides to sell itself to another company, the buyer often incorporates or merges the services of that company into their product or service offerings.

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It happened when Google bought YouTube, seamlessly integrating the video platform into their search product. When you google a topic, you will notice videos appearing on your search result page.

On a smaller scale, it happens when a coffee chain decides to buy a bakery business to add a line of pastries and tarts to its menu. A merger or an acquisition can be an appropriate approach for businesses of all sizes, including startups.

The best part about acquisition is that if you get “strategic alignment right, you will stand to sell the company for more than its worth. In case there are multiple companies interested in your product, you may raise the price further or begin a bidding war.

The reasons why an outside company might seek to acquire or merge with another company ranges from letting them break into a new market to giving them a competitive edge or a strong in-built customer base. Also, they might be interested in eliminating you as a competitor from the current market.

If being acquired is your exit strategy right from the start, it gives you room to make yourself appear attractive to the companies interested in purchasing you. Those particular companies may decide not to buy you or were never interested in doing so. If you create a niche product only one specific company will be interested in, you also stand to lose if they don’t take the bait.

Initial Public Offering (IPO)

It’s right for a small number of startups and larger corporations. Still, it is not suitable for most small businesses to convince both the investors and the Wall Street analysts that the stock in your business is worth something to the general public.

For smaller companies that have already started expanding – like restaurants that have franchised – an IPO is the right way for the owner to recoup the money spent. It is worth noting that they are not allowed to sell the stock until the lock-up period passes.

Some well-known examples of restaurants on the stock exchange include Buffalo Wild Wings and BJ’s.

If you think it’s the right strategy for you or want to have the option to go public later, the easiest way to get listed is to seek investors who did so before with other companies. They know the ins and outs and can better prepare you for the process.

The process is long and hard. If you can win over the hearts and data-centric minds of Wall Street analysts, you still have to conform to the standards set by the Sarbanes-Oxley Act. You will have underwriting fees to pay, a potential “lock-up period” to prevent you from selling your shares, and the risk of seeing the stock market crash.

An IPO can be a suitable route for a company like Twitter or Macy’s. Consider if you want to weather the headache of tailoring business decisions to the market or not and to what analysts believe will do well.

Management Buyout

If you have a business and want to continue its legacy after you are gone, you need to turn to your employees.

The employees have a good idea of running and having intimate knowledge regarding corporate goals, company culture, and a pre-existing determination to make it work.

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You will have to do a lot less due diligence. It’s a good idea to have management or employees buy your business if legacy matters most to you. You can always consider passing the business on to family, but there is still a risk of not understanding the business. Plus, they won’t have the determination to make it successful, and in the case of splitting the business between family members, there is a possibility of family rivalry.

Family Succession

If your family is brought up with an intimate knowledge and understanding of your business, they are the best people to pass things on to.

It is what happened at Palo Alto Software. Tim Berry founded the company in 1988, and his daughter Sabrina Parsons was made CEO and her husband Noah the COO just before the recession hit.

It was a strategic decision and allowed Tim to pursue other interests, including focusing on writing. Then, Sabrina and Noah have adopted the flagship desktop-based business planning product, Business Plan Pro, into a SaaS tool named LivePlan.

Passing the Palo Alto Software on to family was luckier than carefully planned. Tim always encouraged his children to follow their path. No one got degrees in business. It was just that Sabrina and Noah entered the internet world early in their careers and had an excellent experience to join and build out Palo Alto Software’s product offerings.

If you are looking to pass on your business to your children or other family members, there are many things worth thinking about and planning for. It includes ensuring that whoever is set to take over the business has the relevant skillset, is competent, and is committed to its future and success. That makes it a lot easier to retire.

Liquidation

Liquidation is a common exit strategy for all small businesses. It’s one of the quickest ways to close a business and is the only option in cases where the business’s operation is solely dependent on one individual. Especially when the family members are not interested in or capable of taking over, and bankruptcy is close at hand.

It’s important to note that any profits made from selling assets must be used to pay creditors first. To make any money using liquidation, you must have valuable assets that you can sell – like land, equipment, and so on.

If there is not much hassle and your decision to liquidate is not related to finances, you can think about selling it to the public.

If it isn’t an option and is better to close the doors before you lose money, then liquidating your assets is the best bet.

Further Reading → Exit Strategy for Small Business and Startups

Developing Financial Assumptions in a Business Plan

Financial assumptions and projections are critical components for any business plan. There are three universal financial presentations expected in all the business plans.

You must include a projected balance sheet, income statement, and cash flow statement for the coming three to five years. Along with the numbers, have a narrative explaining your assumptions and how the line items were computed.

The financial assumptions and projections include income and expense assumptions and the inventory and accounts receivable in the balance sheet. The assumptions for balance sheet presentations must be conservative and based on reasonable asset acquisition expectations in the next five years. It will help to construct the assumptions in the cash flow statement.

Construct an Income Statement

Construct your income statement every month for the first one or two years. Then, you can switch to quarterly projections for three to five years. Base your expense and income assumptions on factual, verifiable information.

If you are competitively selling the product for $25 to $40, refrain from using a $60 selling price to craft your sales projections. Also, base the sales volume assumptions on realistic statistics that a quick market analysis can easily verify.

Further Reading → How to construct your income statement

Balance Sheet Presentations

The assumptions for balance sheet presentations should be conservative and based on asset acquisitions’ reasonable expectations in the next five years. The particular concern to investors and lenders are accounts receivable and inventory. So, match your inventory assumptions with your gross income projections carefully.

Unless the accounts receivable are large in your industry, do not project high balances. As cash is usually in short supply for small businesses, typing up this precious resource in excessive inventory or accounts receivable is damaging.

Cash Flow Statement

If you are having a new small business or some modest company needing financing or investment, the projected cash flow statement is an essential financial assumption you make. Both lenders and investors want your small business to generate substantial net income and have a strong balance sheet, but cash flow is critical. It is from cash flow that you repay loans or distribute cash to investors from profits.

Further Reading → Cash Flow Statements

Warning While Making Assumptions

Making financial projections based on factual assumptions is excellent, but you must explain the calculations and derivation to give business plan readers confidence in your data. Do not commit newer entrepreneur mistakes. Many of them spend hours pouring over data and create reasonable financial projections.

Newbies often tend to forget or feel inadequate to explain their assumptions in text format. Assuming that loan officers are good at reading business plans is smart. But, assuming they are experts in your industry, too, is a mistake. Write a detailed narrative for your financial assumptions, with references that your loan officer can verify.

Diligent Research and Expert Insight

Making valid financial assumptions and explaining them clearly makes the difference in receiving the funds you need or suffering rejection by lenders or investors. Mostly, the primary reason for approval or rejection relates to your display of expertise in the industry. Perform the industry and competition research diligently and with a total focus on becoming an expert. You must then make financial assumptions based on this expertise – and communicate it in your business plan. It will challenge your financial assumptions, so have knowledgeable answers ready for such challenges.

How to Write a Business Plan – Step by Step Guide

Business plans are vital when money is raised, whether from a finance house, a bank, or an equity capital provider. Your business is of utmost interest and importance to you, but to the bank or a fund manager, your plan is just one of many that are received. So, you must win their approval and keep their interest in mind.

The following points are essential to know how to create a business plan:

Clarity

The person reading your business plan is busy, has other problems to deal with, and is consciously or unconsciously judging you the way you have expressed. Therefore:

Brevity

If the banker or manager is bored while reading your stuff, you are unlikely to get the sympathetic hearing you deserve. Hence, prune and prune again, keeping only the essentials of what your reader needs to be told. Avoid in-depth descriptions.

Logic

The facts and ideas you present are easier to take in and impact if they follow one another in a logical sequence. Avoid a series of inconsequential paragraphs, even if well-phrased. Also, ensure that whatever you say under one heading chimes in with all you said elsewhere.

Truth

Don’t overstate your case.

Figures

The investor or banker reading your plan is numerate, thinking in terms of numbers. Words will never impress a banker unless backed by figures that you make as precise as possible. So, quantify wherever you can.

Further Reading – Books for writing business plans

Cover-Sheet – What to Include in a Business Plan

The cover-sheet of the business plan is like the cover of a book. It provides the first impression to the reader about your business plan. The cover-sheet should be neat and attractive and should contain information that grabs the reader’s attention.

What to Include on a Cover-Sheet

The first page of the business plan is the cover sheet. It works as the title page and contains the following information:

Outline of a Business Plan

The business plan outline is the first step in organizing your thoughts. So, when you follow the outline below, you ensure your business plan is in the format that will prompt the investors and lenders to take action.

Below is the business plan template that will allow you to quickly and easily complete all the sections of your business plan:

Executive Summary for the Business Plan

The executive summary is the most essential part of the business plan. If it doesn’t interest the readers, they will never even get to the rest of the plan.

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Begin your Executive Summary with a brief and concise explanation of what the company does. Then, explain why your company is uniquely qualified to succeed. For instance, does your management team have unique competencies, and do you have any patents? Are you the first mover in the market? Does a vast, unmet market opportunity exist?

Have a synopsis of your financial projections in the Executive Summary. Especially, include your expected revenues, expenses, and profits for the next five years, how much funding you seek, and the funds’ key uses.

Company Overview

It provides a brief history of the company. Here, answer questions like when and how your organization was formed, what kind of legal entity you are, and accomplishments to date.

The past accomplishments are the best indicator of your potential future success, so identify and include all the key milestones your company has achieved to date.

Industry Analysis

The Industry Analysis has two sub-sections as follows:

Market Overview

This section discusses the size and characteristics of your market. For instance, if you have a restaurant, you would include the restaurant market’s size, a brief discussion of sectors, and the market trends.

Relevant Market Size

It is a much more specific calculation of market size and the annual revenue that your company can attain if it covered 100% market share. The relevant market size is calculated by multiplying :

  1. The number of customers interested in purchasing your products and/or services each year and
  2. The amount these customers are willing to spend on an annual basis on your products and /or services.

Customer Analysis in the Business Plan

The Customer Analysis section has two sub-sections as follows:

Target Customers

This section identifies your current and/or intended customers. So, include as much demographic data about your target customers as possible, like gender, age, salary, marital status, geography, and education.

Customer Needs

Specify why the customers want or need your products and/or services. For instance, customers care the most about speed, quality, location, reliability, comfort, price, value, etc.

Competitive Analysis in the Business Plan

The Competitive Analysis has three sub-sections as follows:

Direct Competitors

These are the companies that fill the same customer need with the same solution. That means, if you operate an Italian restaurant, then other Italian restaurants are the direct competitors.

Outline who your direct competitors are along with their strengths and weaknesses.

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Indirect Competitors

These are the companies that fill the same customer need with a different solution. For instance, if you are operating an Italian restaurant, then a French restaurant would be your indirect competitor.

Outline who your indirect competitors are along with their strengths and weaknesses.

Competitive Advantages

Identify the Competitive Advantages in this section. State what it is about the company that allows you to compete against direct and indirect competitors effectively.

Marketing Plan

The Marketing Plan section has four sub-section as follows:

Products & Services

It’s where you give the details of the products and/or services that your company offers.

Pricing

Give details about your pricing here. Discuss how your pricing relates to the competition. For example, are you a premium brand? Or the low-cost brand?

Discuss the expected branding based on your chosen pricing model.

Promotion Plan

The Promotions Plan details the tactics you will use to attract new customers. For instance, you may choose radio advertising, or press releases, or online pay-per-click ads, and so on. So, detail each form of promotion that you will use here.

Distribution Plan

The Distribution Plan outlines how the customers can buy from you at your physical location or web address. You might also have distributors or partners who sell your products or services. In such cases, detail the structure.

Operations Plan

The Operations Plan section has two sub-sections as follows:

Key Operational Process

The key Operational Processes are the daily functions that your business must conduct. Here, you need to detail these functions. For example, would you maintain a customer service department? If so, then what specific role will it fill?

This section will provide you great clarity on the organization you hope to build.

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Milestones

List the key milestones you hope to achieve in the future and the target dates to reach them.

It’s where you set goals for specific and critical undertakings, like when will a new product be created and launched, by when you are planning to execute new partnerships, etc.

Management Team in the Business Plan

The Management Team section has three sub-sections as follows:

Management Team Members

It details the current members of your management team and their backgrounds.

Management Team Gap

If you are a startup venture, you will have holes in your team, which you would want to fill later. Identify those roles here and the qualifications of the people you will seek later to fill them.

Board Members

If you have a Board of Advisors or Board of Directors, detail the Board members and their bios in this section.

Financial Plan

The Financial Plan section has four sub-sections as follows:

Revenue Model

It gives clarity on how you generate the revenues. Do you sell products? or any advertising space? Do you sell any by-products like data? Do you sell all the mentioned above?

Financial Highlights

The full financial model(income statement, balance sheet, and cash flow statement) belong in the Appendix, but you need to include the highlights in this section. For example, have your revenues, projected net income, and key expenses for the next five years.

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Funding Requirements

If you seek funds for your company, then detail the amount here and for what you will use the funds.

Exit Strategy

If you are seeking equity funds, then detail your expected exit strategy. Selling your company to a larger firm is the most likely exit strategy. Detail the types of firms that could be interested in buying you and why. List the names of the potential acquirers if applicable.

Appendix for the Business Plan

Supporting Documentation

As discussed earlier, your full financial model (income statement, cash flow statement, and balance sheet) belong in the AppendixAppendix.

Include any supporting documentation that will help to convince the readers of your company’s success. For instance, include customer lists, awards, and patents received.

How to Expand Your Business Using a Business Plan

Roland Frasier, who builds and scales seven, eight, and nine-figure businesses, says that there are many ways to quickly grow a business. But, there are only 15 core strategies that will make a real impact on the bottom line. Some of them are time intensive at the outset and is expected. But, the benefits will ultimately make them worthwhile.

You have to put in your time if you are looking to reap the benefits. Don’t just focus on the short-term outcome of your work, but long term. Look to help and care for your customers. That’s the foundation. Later on, it’s merely a matter of taking action and putting in the work to scale.

How to Maintain Your Business Plan

Maintaining a business plan is as important as making a business plan and executing it. Where a plan is likely to make your business better is by allowing you to:

  1. Set priorities properly
  2. Track the plan vs Actual results and make course corrections
  3. Plan and manage critical numbers that are unintuitive. They need not just profit and loss but also the relationship to balance sheet, cash flow, and ratios.
  4. Communicate your plan to others: partners, lenders, investors, and employees. You may have a great plan in the head, but you need to write it down while explaining it to others.

Reviewing Your Business Plan

You need to understand that without regular review – monthly or at least quarterly review of your planned vs actual results, with a practical analysis of the reasons to variance – planning is a waste of time.

Planning requires regular reviews as much as navigation requires knowing where you are, were, and wanted to go.

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Your plan should be full of specific dates, budgets, forecasts, and management responsibilities. The people involved need to know about tracking and following up on specifics. It should then be reviewed against the results, and those reviews must produce course corrections and fine-tuning.

A business hopes for a consistent and long-term strategy built on short-step incremental changes and not significant revisions. Consistency is vital in strategy, and the business should avoid the temptation to jump from one strategy to another very quickly. A mediocre strategy that is well and consistently implemented is better than a brilliant strategy that wasn’t implemented.

However, the businesses do come to crossroads and demand significant revisions in the business plan. It’s an indication that you need to review your plan.

Significant Changes in the Market

Look for changing market factors and market behavior.

Significant Changes in the Internal Situation

The changes in ownership are the most apparent significant changes and are frequently due to changing partnerships, divorces, deaths, and investments. The company takes on the new partners or sells out to a larger company and suffers significant declines in profits, sales, and financial health.

Keep the revision in perspective. You do not want to review and correct constantly and don’t want to change a strategy unless working for you.

Maintaining the Business Plan

The purpose of maintaining the plan is to use business results to guide future decisions. The plan has no value if it doesn’t improve your business. It’s regardless of how good or bad, how brilliant the writing, ideas, or how elaborate the tables and charts are.

To make a plan worth the effort to develop, you need to follow it up. Whether it’s every month or quarter, you need to track the results, analyze the difference between the plan and the actual results, and manage. Change the things that need to be changed. Compare what you had planned to what happened in reality. Ask the following questions:

After answering all the questions, update your plan accordingly, set new budgets and milestones, adjust the financials, and repeat the process with another plan review again with the next month or quarter. Update the plan accordingly again and keep repeating it. You will realize that maintaining your business plan gives you a better grasp of your business, market, and everything that happens with your company.

How to not Write a Business Plan (Business Plan Tips)

You all know what to include in a business plan. While writing a business plan, one golden rule dwarfs all others – your business plan must address all the potential backer’s critical concerns.

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If you fail on the first point, all the other things you should and should not do pale into insignificance, and the greatest of the business idea may fail to get the backing it needs. A good business plan keeps the investors happy, so follow these five don’ts to ratchet up your chances of success:

Don’t Ignore the Fact That the Competitors Will Respond

Backers are always aware of the changing markets, so try considering the competitors’ response if you follow the strategy set out in the business plan.

Can your competitors’ response threaten the achievement of your targets? Be honest and show the backer you have thought through implications thoroughly.

Don’t Forget Whom You are Writing for

Every paragraph of the business plan must be geared towards your target audience. It could be your board, a banker, or an investor.

Identify the concern that potential backers may have and tackle it head on.

Don’t think about what you want to write and focus on what your backer needs to read. You may be proud of what you have achieved in the business to date and may have great ideas about what you will achieve, but if the information is irrelevant to your backer’s decision, then you must leave it.

Don’t Underestimate the Resources That you may Need

You could be operating out of your loft or the garage now, but you will need help and some resources if you have big plans sooner.

Set out what resources and partnerships you may need to achieve the forecast growth rates, including:

Don’t Dismiss the Competition

While writing a business plan, it’s easy to fall into the trap of doing insufficient justice to the competition. Your idea could be useful, but your backer will always be savvy to know that the customers will ever tempt alternative offerings. So, don’t shy away from that fact.

Examine what your competitors do good, where they are weak, and what they will do, which could affect competition levels.

Don’t Think That Your Backer was Born Yesterday

If they are ready to back your business, the investors will do their due diligence and talk to customers, staff, and competitors. It will inevitably uncover the bad news, so don’t be tempted to brush it under the carpet.

If they find anything fishy, then all the trust that you have built will evaporate, and they will walk away.

The same thing goes for forecasting. Don’t exaggerate anything, or you may lose your backer. You must be upbeat, but be realistic, or your backer will quickly see through you.

Conclusion – Business Plan

You may use the business plan to attract investors, suppliers, partners, etc. but never forget that the business plan’s goal is to convince yourself that your idea makes sense. Ultimately, it’s your time, your effort, and your money on the line.

Are you looking for mobile app developers for your business? Then, Openxcell has a team of highly professional and dedicated developers in the market.

FAQs about Business Plan

The seven sections of the business plan are Executive Summary, Company Description, Products and Services, Market Analysis, Strategy and Implementation, Organization and Management Team, and Financial Plan and Projections.

Your business plan may fail due to: Lack of planning, leadership failure, ignoring customer needs, poor management, lack of capital, premature scaling, etc.

On average, the most successful entrepreneurs were the ones who wrote their business plan between six to twelve months after planning to start a business. Writing a plan in this particular timeframe increased the probability of venture viability success by 8%.

For startups: Make sure your company has a clear objective, identify your target market, analyze the competition, budget accordingly, determine the goals and financial projections, discuss your marketing plan, and keep it short and professional.

Writing the business plan is difficult but necessary. A business plan is used for many tasks like establishing business focus, secure funding, and acquire new investors.

Ask acquaintances, colleagues, and professionals like bankers, accountants, and lawyers for the names of business plan consultants they recommend.

A professional business plan consultant generally charges between $5,000 and $20,000 for a complete business plan. However, there are cases where $50,000 is justified. The low end would apply for “simple businesses” like a pizza shop, a hairdressing salon, a retail shop, etc.

A business plan’s disadvantages include not involving the right people, low accountability and implementation, spending too much time on non-essential issues, etc.

The Executive Summary is the most important part of the business plan and the only one that may get read. Thus, make it perfect.

Whether you want to start a new company or grow an existing one, hiring the right consultant is a cost-effective way for your small business to leverage specialized knowledge. On the contrary, hiring the wrong consultant can cost you much more than money – it can cost you wasted time and energy.

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