A guide to a simple business plan for entrepreneurs starting a new business
Sometimes investors and banks will ask you for a business plan of your business idea before they will lend you money. This document is actually more important for you the entrepreneur than it is for the money lenders because while you write it out, you will be figuring out how exactly your business will run and how it will make money. It will help you find possible problems with your business model and it will make you do calculations to give you a better idea if you really can make money or not.
There are many different formats for writing a business plan, but if you are approaching lenders you want to have something looking at least a little professional. If you are creating it for yourself, you will want to at least be sure that you have considered as many factors as possible. So here follows our quick guide that will hopefully be comprehensive without being too complicated to produce.
Step 1 of the business plan: Cover Page
The first page of your document should contain the following bits of information:
- In large font, the title of your business plan. It will be something like this: “Business plan for the manufacture and supply of glass shoes”. If you have a company name already or have one in mind you can add it in to the title.
- In normal font underneath write who the plan has been written by. Normally this is you the entrepreneur, but if there are a few of you, you would list all the names.
- Date the document so that the reader has an idea how up to date the information is.
You can spruce it up a bit with a logo if you have one, but this is not the time to spend time and money or niceties such as that. Lets get the words down first. Cover page is done.
Step 2 of the business plan: Business profile and idea
On page two of your document, under the heading “Business profile” you will give a brief description of what your product or service is and what it will do. Keep this summary brief – around 5 to 10 lines. In the second paragraph mention briefly how far the business idea has progressed so far and what your next step is in starting the business.
In a second section, labelled “Business Team” if there is more than one person involved or ” Business Owner” if it is just you, spend a few lines letting the reader know who you are, how you came across this idea and what skills you have to make it work.
Step 3 of the business plan: Customers, target market and marketing.
Your next section is going to be placed under a heading of either “Customers” or “Target Market”. Here you explain in detail what type of customers you plan to sell your product or service to. You have to be very specific. “Everyone” is not a good enough answer. Is you main group of customers going to be businesses or individuals? Where are they situated? What income bracket? What do they do? What makes them want your product or service? Are they likely to buy once or be repeat buyers?
Explain why these customers will want to buy your product or service. Clarify that the customers do in fact have the ability to pay for your product.
Next, under a section called “Marketing”, explain how you intend to let prospective customers know about your product. If it is a new product, how do you intend to educate and explain to people what it is and how it can benefit them? This is where you will explain whether you will be using sales and marketing techniques such as cold calling, social media, SEO, public advertising, newsletters, word of mouth or if you have a distribution channel already set up, perhaps through a distributor. If its the latter, explain how this distributor is equipped to sell your product.
Step 4 of the business plan: Competitors
The next section of your business plan will be under a heading of “competitors”. In this section you will explain who the existing competitors are in your market and if there are any new entrants expected. How will your business differ from these existing competitors and why will some customers rather spend their money with you when you start instead of where they are spending it now? If there are no competitors, you will need to explain why there aren’t any. This is not as much a positive as many entrepreneurs might think. There is usually a very good reason why no businesses are in a particular market – usually because it is not a profitable market. Being the first business to enter a market is very risky and can be expensive.
If you have indeed identified a profitable market and your business starts off successfully, how will the competitors react and will this cause you problems? In addition, how easy is it for other new competitors to start up and compete against you?
Step 5 of the business plan: Setup requirements.
Here your heading will be “Setup requirements”. In this section you will explain what still needs to be done before your business can start. If your business is already running you can skip this section.
Some examples of setup tasks would be:
- Register company
- Rent business property.
- Final design of product to be sold.
- Produce a prototype of product.
- Purchase or hire equipment.
- Employ a technician / office worker / packer …
- Create a website.
- Design software to be used to provide a service.
- Negotiate supply contract with manufacturer.
- Obtain a food business licence.
- Purchase and install accounting software.
- Hire a chemist to design formula.
Anything that has to be done before you can make your first sale should be listed here.
Step 6 of the business plan: Operations summary
This section will have the heading “Operations Summary” and here you will explain in some detail how the business will run on a daily and monthly basis. How will you make or supply your product? How will you provide your service and who will do the work? How will you receive payments from customers and what paper work will be done?
Step 7 of the business plan: SWOT analysis
SWOT stands for strengths, weaknesses, opportunities and threats. This section can be left out if the contents are covered in other parts of the business plan. In many cases however, it is a useful section to have as it gives an overview of the business prospects.
Have a subsection for each of the four words and then elaborate on each one.
Strengths: What makes your business better than your competitors?
Weaknesses: What parts of your business might be a bit weak and possibly require you to look for help and skills from someone else?
Opportunities: Are there other opportunities if your business starts off successfully? Are there other markets, additional products or ways to up sell to customers.
Threats: What possible threats might exist for your business? New competitors, law changes, big business shutting you out, suppliers going out of business and better products entering the market are all common threats that might face a business. Consider each one carefully.
Step 8 of the business plan: Financial plan
This final section is possibly the most important, much to the disappointment of those who don’t like numbers. If you are approaching an investor they will want to know what you will spend their money on and how long before you will pay it back and how much profit they can make. The business owner is also an investor. Even if they are not putting their own money in, they will be investing plenty of time and effort.
For businesses that have not yet started, refer to your section in step 5 and calculate the costs of getting your business ready to make the first sale. A simple list of all these costs, with a total is sufficient. Place this information under a heading of “Setup Costs”.
Next you are going to produce some income statements. For a simple business plan this should be sufficient, as it will largely mirror cash flow. An income statement has three sections:
- Profits or losses
You will be budgeting or rather doing some educated guessing for the figures. You can produce an income statement for each month, or you can do them at various intervals. Sometimes it may be sufficient to just do an income statement for the first year, but in most cases an investor will want more detail. Our suggestion is to do the following income statements:
- First month
- Sixth month
- Twelfth month
- First year.
- Second year.
This gives the investor an idea of how your business should progress and they will also be able to see how much thought have given to the document. You will need to be able to justify any figures you put on the report. The investor will in particular want to know how you came up with your projected sales figures.
So a very simple example would look something like this:
Income statement for the first twelve months of business.
|Income from sales (note 1)||R560’000|
|Income from maintenance contracts (note 2)||R320’000|
|Cost of purchasing products for sale||R280’000|
|Salary of maintenance technician||R80’000|
|Motor vehicle running costs||R22’000|
|Motor vehicle finance costs||R48’000|
|Rental of business premises||R96’000|
|Management salary (owner)||R120’000|
|Interest on business loan||R36’000|
|Book keeping fees||R10’000|
|Profit (before tax)||R137’000|
Note 1: Sales are calculated on the sale of 100 items at an average cost of R5600 each.
Note 2: Maintenance fees are calculated from the estimated 50% of customers who will pay for the annual maintenance fee of R6400.