Business Plan
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How to write a business plan
Writing a business plan encourages you to focus on effective ways to grow your business. Find out how to write a business plan – and how to use it to manage and grow your small business.
Your business plan acts as a road map for your start-up’s future growth. It helps you to clarify your objectives, identify strategic directions, and set targets. It can also assist you with growing your business and securing funding.
Planning your business strategy
Before you start working on your business plan, refine your goals.
- Involve your employees. Let them in on the planning process to get both their insights and their buy-in to the plan.
- Try to be realistic. Keep your business plan realistic. Unrealistic sales forecasts could result in a cash flow crisis.
- Be professional. Write and present your business plan as if it’s aimed at an outsider. Use a cover sheet and include a contents page, with page and section numbering.
Your business plan contents
Although there’s no set formula for writing a business plan, most business plans cover three broad areas:
- A synopsis of the business, its vision, and its objectives.
- Market analysis.
- Financial data and projections.
Highlight your target market and competitors
Outline your target market, your customers and the other businesses you’ll compete against in that market.
Your market
Define the market in which you plan to sell and then focus on the segments of the market in which you compete. How large is each market segment? What’s your market share?
Your customers
Describe the nature and distribution of your existing customers. Give a typical customer profile for each market segment you target. For example, you might target businesses with a turnover of more than £2 million.
Your competitors
Define your principal competition. What are the advantages and disadvantages of their products and services compared with yours? Cover issues such as price, quality and distribution. Then explain your competitive advantage.
Outline your marketing and sales plans
Summarize your proposed marketing and sales activities, such as positioning, pricing and promotion.
Positioning
Explain how you’ll position your products or services in the market place. For example, are they:
- High quality and high price?
- Good value and durable?
What unique selling features do your products or services have and which of these features will you concentrate on?
Pricing policy
Explain how price sensitive your products or services are. Look at each product or market segment in turn. Identify where you make your profits and where there is scope to increase margins or sales.
Promotion
How do you promote your products or services? Do you use direct marketing, advertising or online marketing?
Distribution channels
What channels do you plan to use to reach your potential customers? Compare your planned channels with your competitors. Outline any ideas you have to improve your distribution.
Sales methods
Analyse the cost efficiency of each of your selling methods, such as telesales, a direct sales force, agents, or the Internet. If you have a direct sales force, include all the hidden costs like management time.
Operations
Analyse the capacity and efficiency of your operations and your planned improvements. For instance:
- Do you own or lease your premises?
- What are the advantages and disadvantages of the present location?
- Should the business expand or move?
Management and personnel
Set out the structure and key skills of your management team and staff. Identify any skill shortages, such as IT skills, and your plans to cover these.
Financial promotions
Set out the historical financial information on your business for the last three to five years (if applicable). Break the sales figures down. For example, show sales of different types of products or to different types of customers and highlight the gross margins.
Emphasise any major capital expenditure made in the period and provide both an up-to-date balance sheet and profit and loss account. Explain the reasons for movements in profitability, working capital and cash flow and compare them with industry norms.
Forecasts
Provide forecasts for your next three years in business. Use the same format as for the historical information, to aid comparisons.
Clearly state the assumptions behind your forecasts. For example, if your plan states that the market is becoming more competitive, profit margins will probably be falling.
SWOT Analysis
Consider including a one-page analysis of strengths, weaknesses, opportunities and threats (SWOT) in your business plan. For example, your:
- Strengths might include brand name, quality of product, or management.
- Weaknesses might be lack of finance or dependency on a few customers.
- Opportunities might be increasing demand or a competitor going bust.
- Threats might be a downturn in the economy or a new competitor.
Future plans
Include your future business plans and how you intend to drive your small business forward. Define clear targets and timelines for these so that you know exactly what you want to achieve, by when.
Update your business plan
Review your plan at least once a year – revising and updating your plan will keep it relevant as a road map for your business.
Next steps
- Ask your accountant or business advisers to give you feedback on your business plan, to ensure your cost estimates are accurate.
- Download our business plan template to get you started.
- Keep your business plan up-to-date. Make a note in your diary to refresh your business plan at least once a year.
- Take a look at Clydesdale Bank’s small business solutions that can help your business succeed.
1 Business profile.
This section is where you introduce yourself, your business and your support team to the reader. Here, we have chosen
the standard order of cover sheet contact details first, followed by the Executive Summary, before touching on the
background of the business and your support team.
2 Executive summary.
An executive summary gives an overview of your plan while promoting the important points you need to focus on.
It is normally only a few short paragraphs, aimed at and written for those without technical or specialist knowledge
(laymen, in other words), and is presented at the beginning. However, as a summary, it’s best to leave writing it to the
very last.
The executive summary is used as much to sell an idea as summarise it. However, some argue that executive
summaries encourage the oversimplification of complex and detailed ideas, and many business people choose not
to use them at all to ensure their business plans are read in-depth.
3 Background.
This section gives a brief history and context to your business, if it is already an ongoing concern, or the business idea
you are promoting. This is also where you set out your objectives and expand on your own business track record if you
have one.
4 History.
For an existing business: Give a brief timeline containing major turning points and events that have shaped or
influenced the business. List successes, milestones and any challenges you have overcome.
For a business idea: Simply detail how the idea came about and expand on your own business background, listing all
the relevant skills and experiences you bring to your business.
5 Objectives.
List your short-term (12 months) and long-term (up to 5 years) objectives, with a timeline for expected milestones.
6 Products and services.
Clearly explain in plain language what you will be offering your customers. If possible, ask a friend with no technical
knowledge of your industry to read this section to make sure it can be understood by the layman. It is critical the
reader actually understands “what you do” at this stage – otherwise the rest of the plan might not make sense to
them.
7 Patents and trademarks.
Detail any copyright protection you hold on an original product or service concept. If you’re not sure if you should
have one, seek out advice from a patent attorney. Also detail here any existing contracts for work or additional legal
protection you may have.
8 Location.
This sounds like an invitation to give directions or draw a map but this section is actually for explaining the competitive
advantages of your location. Retailers need locations with great foot traffic or convenience for customers, for
example, while manufacturers are better located near freight transport links. Go online to www.statistics.gov.uk to
back up your argument with research on your existing or proposed business location.
9 Management, team and support.
List and describe your management team and any advisers supporting you. The latter can include anyone from a
business guru, accountant or lawyer, to a family member with a prominent reputation in your industry.
10 Vacant positions.
Detail any important posts that, once occupied, will have a significant positive impact on the running of your business.
For example: “Once I recruit two specialist machinists, I can double our output and significantly increase our rate of
growth”.
11 Business support networks.
These can include your Chamber of Commerce, any specific industry or trade associations, advisory bodies or any
business support group you can rely on. Don’t forget to include any specific services or roles they can play in assisting
your business viability.
12 SWOT analysis.
SWOT stands for STRENGTHS, WEAKNESSES, OPPORTUNITIES and THREATS. A SWOT analysis is a method of assessing your
business’s health or viability – depending on whether it’s an existing business or a start-up being analysed – by looking
at its internal and external influences.
List your business strengths, weaknesses, opportunities and threats below, before outlining how you will approach
them to the benefit of the business.
13 Strengths.
Strengths can include any internal positive influence on your business: design advantages, manufacturing efficiencies,
brand strength, superior product quality, or even specialist knowledge in the form of personnel. List any point of
different that sets you apart from the competition.
14 Weaknesses.
Weaknesses can include any internal negative influence: disadvantages in human resources, finance, intellectual
property or any other part of the business. It’s important you remain objective in listing your weaknesses, because if
you do omit anything, nine times out of 10 the reader will pick up on it. However, don’t list the competition, because
they are an external threat.
15 Opportunities.
List any external change affecting your business in a positive way: a growing market for your product (use
demographic information to back your argument if need be), increased demand, a new bulk purchase contract, or
even a less-crowded market.
16 Threats.
External threats can come from competitors (more in the marketplace, or the growing strength of one in particular) or
economic factors such as a recession or a sign-posted change in the tax regime that could negatively impact your
business.
17 Market overview.
This is where you place your findings from your market research. This section is where you detail the size and potential
of your target group of customers.
18 Market opportunity.
Detail the gap in the market you hope to fill. Is it completely unidentified in the market or are there other competitors
positioned to compete with or follow you? What is the revenue potential of this opportunity?
19 Market description.
Include demographic and geographical information if relevant. For example, 30- to 40-year-old singles with high
disposable income, living within the central city urban area. If your market is other businesses, describe the size and
activity of the industry you’re targeting, or even specific companies if the number of significant players is limited to a
few big operators.
20 Future markets.
This sounds straightforward but if you intend to add larger markets within a timeline, state it here.
21 Market structure.
Describe the supply chain of the market if relevant, including the relationship between producers, suppliers,
distributors and the end consumer. Say where you fit in or the potential your business has to usurp this structure by
doing things differently (by, for example, cutting out the middleman with direct imports).
22 Market size.
Include both volume and value statistics here, or any other relevant figures important to your business’s success. For
example, if you worked in a specialist field of HR, you’d include the number of people the market employs locally or
nationally.
23 Market outlook.
Detail your estimate of market growth based on your research. Don’t forget to justify your findings by naming the
influencing factors and quoting statistics where available. If you were planning to open a rest home, for example, you
would detail here the rise in the number of people over 60-years-old in the UK’s demographics.
24 Target market.
This is where you detail your target market based on your market research. Many start-ups are founded on the
assumption that “everyone” is their target market. These businesses typically find it harder to succeed because their
lack of market research means they haven’t identified their most valuable (highest spending and most frequent
spending) customers. Even businesses that look like general service industry operations from the outside usually have
a more specific target market in mind. A shoe shop, for example, could target trades people, school children or
parents on limited budgets, teenagers looking for the latest trainers or even wealthy socialites. It’s an important point
because the choice of target market defines a business, influencing many decisions such as its choice of product,
staff, branding, and rate of growth.
25 Target market description.
Describe the target customer types you have identified, including demographic statistics and your estimate of their
average spend.
26 Meeting its needs.
Describe how you will provide your product or service, including the processes involved and the advantages of
those processes. For example, “By offering a quote service from an online portal where customers can send me their
measurements, my curtain-making business incurs fewer overheads than my competitor’s.”
27 Factors influencing purchasing habits.
What does your target market care about most when buying your product? Convenience, quality, price,
environmental impact, the availability of a related product – list any influences you’ve discovered through market
research.
28 Competitors.
Competitor research is a vital task to carry out, but it’s not always easy. Gain an objective view of a competitor’s
strengths and weaknesses by being a mystery shopper. If you will be recognised by a competitor, do this on the phone
or send a friend as a walk-in customer in your place.
However you carry out your competitor research, you need to identify their points of difference, what they’re doing
well and what they’re failing on in their service processes. It’s tempting just to browse a competitor’s website and
focus on price differences to your product or service, but competitor research needs to be much more in-depth and
first-hand to be of significant use.
Important details – possibly game-changing factors – can often only be picked up by experiencing what your
competitor is offering for yourself. A restaurant chef, for example, could only judge the astuteness of a rival eatery’s
pricing by tasting the quality of the food themselves.
29 Financial plan.
This is where readers will find all the financial nitty-gritty for analysis. Financial records are typically presented in two
parts: Cash flow forecasts and Final accounts (containing the Trading, Profit and Loss accounts, and a Balance sheet).
Existing businesses can use their cash flow records to forecast cash flow and performance, but those planning a startup
have to rely on market research – including any publicly available financial records for other businesses of their
kind – to make their predictions.
30 Start-up costs summary.
Start-up costs can be wide and varied, so the two most important factors here are presenting the costs objectively
(don’t downplay these – you need to be realistic) and being as thorough as possible. You have to think beyond
premises, staff, machinery and vehicles and consider compliance and tax, professional services like accountants and
solicitors, and more – right down to the cash for incidentals. Any gaps in the costs will be highlighted by any smart
investor, so if you can, have an experienced business peer or your solicitor go through your projected costs with a finetooth
comb.
As a general rule, you start-up costs will include the initial start-up costs as well as six months’ operational costs to get
your business up and running.
31 Date you will break even.
Click on this link to use the Better Business Break-even Calculator.
32 Profit and loss forecast summary.
Predicting financial performance is a harder task without some records or comparisons to go on. However, any grey
areas can be mitigated by presenting three sets of predictions: pessimistic, realistic and best-case scenario. This way,
you can’t be accused of lacking objectivity.
Pick forecast timeframes relevant to your business; the periods below are only an example. Include as much detail as
appropriate. You will want to show your income and sales figures, cost of sales, operating expenses, gross profit or loss,
tax and other expenses and your net profit/loss forecasts.
If you prefer, you can summarise the information here and provide a detailed forecast as an appendix.
33 Cash flow forecast summary.
As with the profit and loss forecast, making a cash flow prediction is harder without having Cash flow records on hand.
To firm up your predictions, you should make sure you detail any predicted peaks or troughs in cash flow over the next
calendar year. Few businesses enjoy a consistent cash flow year-round, and unless you have good reason to support
a constant income, seeing it in a business plan can raise questions. Include detailed monthly forecasts for at least the
next 12 months, and less detailed information for up to three to five years ahead.
34 Balance sheet forecast summary.
A balance sheet is essential for both ongoing concerns and start-ups, because either way you will have assets of
some kind or be looking to purchase them. Balance sheets calculate the assets owned to present a net worth (assets
minus liabilities) and show how these assets are financed and the owners’ equity. In the case of a start-up business,
an estimate of future balance sheets – say a year or two years down the track – could be useful to show how the
business’s forecast cash flow will start to balance out the financial debts incurred getting it off the ground.
35 Marketing.
Marketing is often confused for sales or advertising, but it is actually a term encompassing the entire process of
matching product to consumer. The typical marketing strategy could be segmented into the “4 Ps”: PRODUCT, PRICE,
PLACE and PROMOTION.
Since the advent of the Internet, marketing strategies have become increasingly sophisticated, subtle and, in many cases,
highly cost effective. To find out more, read this Better Business article How to use social networks to boost your business.
36 Business structure.
A business in the UK can use four basic business structures: sole trader, partnership, private company or public limited
company. The choice has an impact on ownership liabilities, tax implications and a variety of other important areas,
such as how you keep your records.
Business structures also encompass other preferences that define how the business operates, like whether it runs as a
co-operative (with the customers taking equal ownership) or uses a franchise model.
37 Business owners.
List all the owners, plus their investments, liabilities and share of profits. If there is more than one owner, include a copy
of your Deed of Partnership.
38 Organisational structure.
Clearly defining roles is an essential part of inspiring confidence in a business. Be as detailed as you can in describing
the responsibilities of each member of your management team and who each of them reports to beyond yourself.
39 Recruitment policies.
If your plan involves recruiting staff, you need to detail your recruitment methods and policies here. If you are filling
specialist trade roles, for example, make sure you state you will be recruiting to at least the minimum national
standards. This isn’t stating the obvious, as the less detail mentioned here, the more the reader can assume you will
not follow standard recruitment practices.
40 Compliance.
Compliance is the term used to describe all the standards and processes businesses have to meet and follow to
operate legally in the UK. There are many boxes that need to be ticked before a business can begin trading, depending
on the type of operation it is, so check with HM Revenue & Customs to see if any of the below apply to you.’ to ‘to see
which apply to you.’
41 Insurance.
Detail the cover you have secured. Every business needs to be insured, but the type and number of policies can vary
dramatically between business categories. Consider if you need any of the following:
• Premises insurance
• Contents insurance
• Asset / Vehicle insurance
• Employer’s liability insurance (in case of workplace accidents)
• Public liabilities cover (third party injury or death)
• Professional indemnity insurance (cover against claims arising from your professional advice)
• Legal expenses insurance
• Stock insurance.
This is not a comprehensive list – there are many types of industry-specific specialist insurance offered to small
businesses in the UK.
42 Business premises.
State whether you have bought or lease property, and why.
There are short and long-term financial advantages to buying and leasing property that can affect your business’s
viability. Leasing premises doesn’t require the capital of buying a commercial property – freeing you up financially
to invest more in the development of your business. However, owning property opens up a wide range of lending
opportunities and gives you complete freedom to tailor the property to your business. In addition, property you own
has a good chance of accruing value over time.
43 Equipment requirements and solutions.
List the equipment you need to purchase or have purchased, whether you have bought or leased this, and why.
Depending on your business type, the advantages of buying can outweigh leasing and vice versa. Buying gives
you ownership – so the equipment becomes an asset – and it is normally less costly than leasing over the lifespan of
the item. Leasing doesn’t actually mean you have an asset and locks you into payments for a set term, regardless
of whether you need the equipment for that long. However, leasing requires less capital up front, is easier to source
finance for, and is a great option for companies using equipment that needs to be replaced frequently.
44 IT requirements.
Information technology equipment, such as computers and servers, depreciates quickly, can require significant
managing to keep updated and secure – as well as expertise to run – and becomes superseded by new industry
developments faster than most other types of equipment. With this in mind, explain your IT requirements and how you
plan to meet them, justifying any purchases as you do so.
45 IT solutions.
If you are beyond the start-up phase, detail the IT set-up you use, explaining its reliability, compliance standards and
ability to be expanded.
If you are seeking finance for an IT upgrade, explain here exactly what you need and the impact such an investment
would have on your business’s capabilities.
Please note that this is a guide only and should neither replace competent advice, nor be taken, or relied upon, as financial or
professional advice. Seek professional advice before making any decision that could affect your business.