10 step complete guide for starting a consulting business from scratch.
How to Write a Business Plan (2020)
Entrepreneurs who take the time to write a business plan are 2.5 times more likely to follow through and get their business off the ground.
In this step-by-step guide, we’ll show you how to quickly and easily write a strong business plan that will help you launch a successful business.
Among other things, you’ll learn about each section of the business plan, from the executive summary, to the financial plan and financial statements, to the appendix, and you’ll be able to download free business plan templates for a simple one page business plan and a traditional plan, and other important templates, including a SWOT analysis template, sales forecast template, profit and loss template, cash flow template, and a balance sheet template. This guide and the free resources below can help you to launch a sustainable, profitable new business. Read on or click the drop-down below to read a specific section.
Introduction to business plans
There are two types of business plans: a traditional business plan and a one page business plan (also called a lean business plan).
What is a business plan?
A business plan is a document that outlines operational business goals, strategies to achieve those goals, and financial projections.
Do you need a business plan?
One-page business plans are great for self-funded companies to gain clarity on the problem their company solves and their competitive advantage.
Banks and most investors typically require that you have a traditional business plan. They do this because they are risk averse and want to evaluate your business based on a standardized template that has lots of supporting detail.
We will examine in detail what goes into a traditional business plan and also what you need to include in a one page business plan.
With this comprehensive and frustration-free step-by-step guide and our actionable insights for how to write a business plan, you’ll have everything you need to know to write a thorough business plan that will help you start, fund, and launch a successful, profitable business.
We’ve covered each of the required steps in great detail, with insights, tips, free actionable resources and templates, and step-by-step guides.
How can a business plan help you build a sustainable business?
Business owners make many mistakes when they have a business idea, start a new business, and rush into things before considering the important aspects of their business. A good business plan can help you plan so that you can anticipate important issues and possible challenges before you start your business.
A business plan a vital part of any new venture. Your business plan doesn’t need to be 100 pages long. Keep it short and concise and focus on the key details.
Studies show that entrepreneurs who take the time to write a business plan are 2.5 times more likely to follow through and get their business off the ground. The work that goes into creating a good business plan also helps new entrepreneurs build skills that will be invaluable later.
One page business plan
What is a one page business plan?
A one page business plan is like an elevator pitch for your business. It aims to succinctly articulate the problem your business solves, your competitive advantage, and the high level details of starting and growing your business.
A one page business plan differs from a lean business plan
There are not many differences between a one page business plan or a single-page business plan, a lean business plan, or a good executive summary in a traditional business plan. The only practical difference is that the one page business plan must fit on a single page, using a font that most people can read comfortably (typically, 11 pt type or larger).
Think of your one page business plan as your elevator pitch - the opportunity to present your business idea quickly and succinctly. And, if the investor or lender likes what they read on your one page business plan and thinks your business strategy and value proposition are strong, they can ask you for more information, including for information showing how you will make money, or a copy of a traditional business plan.
A lean business plan is typically 3 pages and still includes an executive summary and quick bullet points.
An executive summary in a traditional business plan can be anywhere from one page to three pages in length and usually will include complete sentences and not bullet points, or a combination of complete sentences and bulllets.
The benefits of a one page business plan
As we emphasized above, a business plan is important. But the length of the business plan is less important. Just going through the process of writing a business plan will help you evaluate your strategies, assess tactics, and to think deeply about your business.
A one page business plan is a crisp, clear, quick read that presents your business to investors who typically don’t have a lot of time to read a traditional business plan. The one page business plan must communicate your ideas and research quickly, succinctly, and confidently.
A one page business plan also makes it easier to distribute your business plan via email or in printed form. Traditional business plans can be over 100 pages long and they’re not easy to share via email or printed form. And, importantly, a single-page business plan can be easily added to a slide deck for a presentation.
Finally, a one page business plan forces you to focus on the most important and core aspects of your business. Because you must present your plan on a single page, your goal is to trim your business plan down to the absolute minimum and eliminate the clutter that’s often introduced in a traditional business plan. For example, you can mention your product or service but there’s not enough space in a one page business plan to provide many details about the products or services you offer. You have space only to provide a business overview - and not much else.
Think of your one page business plan as your pitch document and your opportunity to explain your business to anyone in 60 seconds.
The disadvantages of a one page business plan
If you’re planning to hire employees or will be looking for debt financing or equity financing, a one-page plan will not be sufficient. Financial institutions, including banks, and other types of lenders will require you to provide more in-depth information than what you would typically include in a one page business plan. They ultimately want to know your business strategy and that your business will make money and be profitable so that you can pay back your debt.
For example, you don’t have space in a one page plan to include your industry background and management experience, a deep description of your target market including market research, product offerings, target customers, demonstration that there is demand in the market for your product or service, a marketing and sales plan showing how you will meet that demand and create a profitable business, or your business model and revenue model.
You also won’t have enough space in a one page business plan to thoroughly assess the competition and show how you will compete against established companies. Nor will you be able to include in your one page plan detailed financial projects, including income statements, cash flow projections, a breakeven analysis, or any other financial documents.
Finally, there’s not enough space in a one page business plan to include detailed operating information about leases, equipment, staffing, facilities, etc.
What to include in your one page business plan
People often refer to the one page business plan as a 'business model canvas' or a 'lean canvas' or an 'idea plan', which are specific ways to define your plan using a single page. Those are all examples of a one page plan and you can easily find a business plan template or business planning template for each of those variations of a one page business plan. In many ways, a more traditional one page business plan is similar. There are many different one page business plan templates and approaches, but they are all similar. Ultimately, there are 8 simple questions business owners should answer in a one page business plan:
- Problem. What problem are you going to solve? What solution do you offer?
- Competitors. What are the primary and secondary ways to solve this problem?
- Value proposition. How are you different from your competitors? This becomes the core of your brand.
- Target market. Be as specific as possible in your market analysis, including demographic and behavioral information.
- Expenses. What start-up costs are needed? What will your recurring expenses be?
- Sources of revenue. How many sources of revenue will you have? What are they?
- Marketing activities. How will people learn about your business?
- Potential partners. How can you add value to someone else’s target market?
- Timeline and new product roadmap. What new products and services will you create?
How to write a simple one page business plan
If you’re not sure where to start, download the free one page business plan template you see below and use it as a starting point to create your business plan.
At this point, don’t stress about design or the look of your one page business plan. Focus on the content of the plan and what you must communicate to investors and lenders. Many entrepreneurs and business owners spend a lot of time focusing on presentation and visual design of their one page business plan but underwhelm with the content, especially details focusing on your business strategy.
In many ways, the single page business plan acts as the executive summary. It must be crisp, concise, and well written so that investors or lenders understand it and start asking follow-up questions about your business.
And if you find that the one page business plan simply doesn’t meet your goals or it’s impossible to summarize your business plan on a single page, read below about a detail business plan, also called a traditional business plan. And, you can also download a free copy of the traditional business plan template plus templates for many exhibits, including financial documents, that are needed in a traditional business plan. All of the templates are free and will give you a quick head start.
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Traditional business plan
What is a traditional business plan?
A traditional business plan covers a variety of topics that help a company define its target market, including the opportunities for investors or lenders, financing needs, future sales projections, and a detailed marketing strategy. A traditional business plan is typically 20 to 100 pages in length.
What are the sections in a traditional business plan?
A traditional business plan has 6 sections. You can add other sections to your business plan, depending on your business and industry, but be sure you include at least the 6 sections we list below:
- Executive Summary
- The opportunity
- Marketing and sales plan
- The management team and company
- Financial plan
Below, we’ll examine in detail what goes into each of these sections.
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What is an executive summary?
The executive summary of a business plan is designed to capture the reader’s attention and briefly explain your business, the problem you are solving, the target market and key financial projections. You can also include a brief mission statement in the summary.
If the executive summary lacks specific information or does not capture the attention of the reader the rest of the plan might not be read.
- Write the executive summary after you have written the rest of the business plan. This will allow you to easily summarize the larger details.
- Keep it short. Include the essential steps with as little extra language as possible. Your goal is to get the reader excited to read all the specific details found in your business plan.
- Organize the executive summary based on the strongest points.
- Don’t talk about your management team’s passion for hard work. These qualities are the minimum shared by all entrepreneurs.
- Don’t say you will be the next Facebook, Uber or Amazon. Amateurs make this comparison to try and show how valuable their company could be. Instead focus on providing the actual facts that you believe prove you have a strong company. It’s better if the investor gives you this accolade because they see the opportunity.
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How long is an executive summary?
An executive summary in a business plan should be as short as possible to grab the reader’s attention and explain what your company does, your strategic advantage and your financial request. This should be no more than 1-2 pages.
How to write an executive summary
The executive summary in a business plan should answer these 6 questions as succinctly as possible:
- What is your product or service and what problem are you trying to solve?
- Who is your target audience?
- Who is on the management team?
- Who are your competitors?
- What are your current financial details and financial projections?
- What are your funding requirements?
Let’s look at each of these questions in some detail.
What is your product and service and what problem are you trying to solve?
This is your elevator pitch to explain why your company should exist. This should just be a couple sentences that are clearly articulated. Explain the pain that a specific group of people are experiencing and how your company will fix the problem.
Who is your target audience?
Explain who you expect to buy your product or service. Be as detailed as possible. You could include demographic information like gender, age, location, job title, economic status and/or behavioral information like beliefs, hobbies and routines.
Quickly summarize how large this target market is. The reader may not realize this is a big enough market for a business.
Who is on the team?
Ideas are worthless. It’s the proper execution of those ideas and your business concept that creates value. Build confidence in your company by explaining who is behind it (especially the management team) and what makes them qualified to run the company. Share the management team members successes, expertise and core motivations for running the company.
Who are your competitors?
Identify your competitors and how you will differentiate. Are you competing on price, customer service, quality, more convenient location or something else?
What are your current financial details?
For existing businesses provide your current sales. For new businesses provide financial projections and aspirational sales targets.
What are your funding requirements?
Assuming your business plan is to raise funding you need to quickly summarize the amount of funds you need and what the money will be used for.
How to write an executive summary for a bank loan
A business plan executive summary for a bank loan differs slightly from a typical executive summary in a business plan. Where investors want to see opportunity banks want to minimize risk.
Banks don’t take risks when it comes to new business funding.
It’s against banking regulation to loan money to a business that does not have the capital to cover the cost of the loan.
An executive summary given to a bank should reduce risk by focusing on 3 key areas:
- The assets of the owner and company. Show the bank that you have the ability to pay the loan in full.
- The financial history of the owner and company. Show the bank you have a strong history creating wealth and repaying debts.
- A financial forecast (financial projections) that shows a stable business model. When looking at business plans, banks want to see that you can be a long term customer with future borrowing after this loan. Provide a forecast that illustrates your cash flow over the next couple of years.
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Executive summary example
Fictional Company: On Site Gym
On Site Gym is a fitness instructor that comes to your home or place of business with all the equipment you need to meet your strength or cardio fitness goals.
Our target market are people making $80,000+ per year who do not have a full gym at their home or office. We schedule appointments from 5am to 10pm to meet the needs of busy professionals at a time that is convenient to them.
We offer text based reminders, tips and encouragement to shape a healthy lifestyle before the workout and on off days.
We have 20 clients paying monthly for the past 3 months.
We have 2 effective marketing strategies that have led to a growth loop in additional customers:
1. A reduced plan if a neighbor or coworker signs up for a class before or after the client’s scheduled time at their home or business. This reduces our drive time to the next appointment and allows us to reach more people at a business or neighborhood.
2. A reduced plan if another family member works out at the same time as the client. This allows us to effectively increase our per session price for the same time and equipment.
50 percent of our clients either add a spouse or refer a neighbor/coworker who signs up for a session adjacent to their time.
The business is owned and operated by Rob Swalling who was a Crossfit gym instructor for 5 years.
The owner has personally invested $50,000 to purchase the vehicle and gym equipment.
We are seeking an additional $50,000 to purchase an additional vehicle and gym equipment to offer multiple appointments at the same time. We have turned away clients who only have availability that conflicts with an existing client’s appointment.
The Opportunity section is the main part of the business plan. Your executive summary gave a little information to the reader about what to expect. This is the section where you can go into more detail.
The opportunity section of a business plan includes:
- The problem and current solutions
- The size of the target market - TAM, SAM and SOM (defined below)
- Competitive analysis
- Milestones and traction
- Key assumptions and risk
The problem and current solutions
In your market analysis, you should first explain the problem your target market is experiencing today.
People only pay for solutions to problems. And the amount you can charge is directly related to the size of the problem and lack of available solutions.
If you’re not solving a problem you are just requesting a donation, not running a business.
Next, explain how your target market is currently solving this problem.
If you can’t clearly identify the problem and how users are solving it you might not have a strong business concept and should give this more thought.
Before you launch is a perfect time to talk with potential customers and ask how they are solving the problem you have identified.
This part of the business plan is a great place to share interviews you’ve had with potential customers to emphasize the strengths and weaknesses of your idea. This shows you did the research and are solving a real problem.
After identifying the problem and current solutions you should now explain how your product or service solves the identified problem and why it is a better option for clients.
The size of the target market - TAM, SAM, and SOM
Now it’s time to show the size of the target market for your new products and services and each relevant market segment in that target market. Business plans that carefully lay out this information in a detailed market analysis appear more credible and will better prepare you for success with your new business. ANd, potential investors and banks tend to trust business owners more when they see a detailed market analysis in a business plan.
There are multiple methods for conveying this data referred to as TAM, SAM and SOM.
TAM is the Total Addressable Market. This shows investors the total yearly revenue opportunity or units sold for your product or service if you achieved 100% of the available market. It’s a quick way to address the potential size of the space you are operating in.
SAM is the Serviceable Addressable Market. This is the subset of TAM (Total Addressable Market) that you intend to serve with your service or product.
SOM is the Serviceable Obtainable Market. This is the subset of SAM (Serviceable Addressable Market) that is realistic to achieve.
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Why is it important to understand your TAM, SAM and SOM?
TAM, SAM, and SOM help to understand a different part of the opportunity.
SOM shows your short term sales opportunity.
SOM and SAM show that target market size.
TAM shows the opportunity at scale.
In your market analysis, you want to understand your potential for growth but you want to target your marketing at your SOM. Otherwise, targeting everyone would be a waste of resources and will reflect a poorly constructed marketing plan.
What are examples of TAM, SAM, and SOM?
You’re starting a lawn care company in Chicago.
Your TAM is every home or business in the city with some form of landscaping need. Let’s say this represents 500,000 potential clients.
Your SAM are perhaps residential yards of at least 1,000 square feet. Let’s say this is 25,000 potential clients. This means your SAM is 5% of your TAM.
But your company is just 3 people with 2 trucks. You figure you can cut 250 unique yards a month. So your SOM is 1% of your SAM.
Every business has competitors and it’s important to assess your competition in your business plan. What are the current options for your target market and how do those options not solve the problem you identified?
Think about competitors in two categories.
1. Direct or Primary competitors. These are businesses who solve the problem in a very similar way. For example, McDonald’s and Burger King both sell similar styles of food fast and cheap.
2. Secondary competitors. These are competitors who solve the problem but in a different way. For example, Pizza Hut and Mcdonald’s both solve the customer’s hunger. But one does it with pizza and the other with burgers.
Investors will want to know what competitive advantage you have with your new products and services over these existing ways of solving the customer’s needs.
You can easily show this information in a competitor matrix where you list out multiple competitors on one side of the graph and then each column becomes a separate feature or distinguishing way of doing business. Now make a check mark in each intersecting box for each company that incorporates that option.
Or use a 2x2 square grid where you plot competitors on an X and Y axis to show the whitespace your company is operating in.
The SWOT analysis is a four part strategy to uncover Strengths, Weaknesses, Opportunities and Threats in your business model.
These are divided into a simple 2x2 square grid with each square representing one of the components.
Strengths and weaknesses are internal to your company and can be controlled.
Opportunities and threats are external to your company which you can respond to but not directly control.
Here are examples of each:
- Your personal network
- A proven and repeatable process for creating sales
- Intellectual property
- Exclusive partnerships
- Physical assets and equipment
- A high barrier of entry to new companies
- A strong reputation
- A recognizable brand
- A clear and tested value proposition
- Poor physical location
- Gaps in skills on the management team
- A poor reputation
- Exclusive partnerships
- An unknown brand
- No system to add new sales
- A low barrier to entry to your industry
- A recognizable brand
- A vague or missing value proposition
- Underserved markets
- Regulatory changes that will increase the popularity of your product/service
- Increased referrals from clients
- Media coverage of your company
- A lack of competitors in your area
- An increase in competitors
- Regulatory changes that will make your business harder to operate
- An unstable supply chain
- Technology improvements that render your service less valuable
- Changing consumer behavior that will impact your business negatively
Who should do a SWOT analysis?
A proper SWOT analysis should involve a cross-section of your team. You want people who have different perspectives on the company and should include people from sales, marketing, product development, engineering, etc.
In fact, some companies even invite customers to participate in a SWOT analysis.
Importantly, while you should include others, company leaders and founders should be deeply involved in a SWOT analysis as they create the overall vision for the company.
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A product or company roadmap details the priority and timeline of new products and services that will help you attract a larger market share.
As an entrepreneur at the beginning of a new business you have a lot of excitement and ideas. Communicate your vision for how the company will grow and what additional opportunity this growth will allow your company to achieve.
Amazon did not start as 'the everything store' they started with a single product, books. But their product roadmap has grown to include many new products and services, including: produce, web infrastructure services, 2 day shipping, original video entertainment and smart home devices.
Since these new products and services might be months or years away, a high level detail in the business plan is ok. The point of this section in business plans is to convey that you’ve thought about additional ways to grow the business beyond the core product.
Milestones and traction
There is a big difference between a new business pitching an untested idea and one that already has some success selling the product or service.
This success is called traction and the more you have the more investors reading your business plan will feel you are less of a risk.
Business plans take many different approaches with milestones and traction. Examples of traction can include: sales, delivery and positive reviews from an existing product or service, recurring purchases, presales of your product or service, sales agreement contracts, and surveys indicating a desire to purchase.
Key assumptions and risk
What assumptions are you making in your business plan, including your market analysis, that you have not been able to prove yet? For example is the demand for your products and services untested?
What risks are known such as relying on a single traffic channel or expecting favorable legislation and PR to continue in this industry.
You should be able to articulate in the business plan why you are moving forward knowing these assumptions and risks exist. The risks might seem worthwhile if the current timing suggests it is a great opportunity. Or perhaps you are very early in the business and you are trying to prove these assumptions.
Marketing and sales plan
The prior sections of the business plan identified your products and services, target market, and competitive position. Now it is time to show how you will attract that audience and how you will charge. This section of the business plan should be specific to your business model and positioning. Don’t just list random marketing tactics - a common mistake in many business plans. Include a well-research, well constructed marketing plan.
This section of the business plan includes:
- Positioning statement
- Pricing strategy
- Sales and marketing channels
Your positioning statement is a simple one to two sentence reason why your target market should choose your company instead of the competition.
This statement makes it clear you have identified a core problem your company is built around and you understand your competitive advantage that makes you a better fit for this audience compared to your competitors. Don't forget to include strengths and weaknesses of your positioning statement.
This is the part of the business plan where you explain how you will make money.
What you intend to charge for your product and your pricing model help inform the health of your business plan.
Will you charge per project, an hourly rate or a recurring revenue subscription?
Charging your customers on a regular basis with a subscription plan helps keep your revenue predictable and is a sought after business model among investors.
Do you plan to offer a free subscription or trial that will serve as a lead generation tactic?
Are there opportunities to up-sell beyond the initial product?
There are several pricing strategies to follow when trying to determine if you have the correct price.
Value pricing. Price your service not based on how long it takes you to deliver but how much value you provide the client. If you have developed a system that creates $1,000 in revenue for a business but it only takes you 60 minutes to perform the task you could charge $500 because you focusing on the value you are creating for the client and not your hourly rate.
Cost plus. Determine the cost in time and materials that it takes to deliver the service and add a percentage on top for profit.
Market pricing. Look at what current businesses are charging for a similar service as part of your market analysis and base your price around this number.
Freemium. You plan to give away your product for free. This is when you plan on making money by selling your customers attention (ads) or data. It might be chosen when you are building your company for acquisition and want a large user base.
Pay what you want. If you don’t have a lot of fixed costs and there is not a strong baseline for the rate of your product you could allow customers to pay what they think is fair. Studies have shown on average you can get paid more than what you would make if you set the price yourself.
New businesses are missing an established audience which can make it difficult to grow sales.
What problem does your product solve for another company’s core product?
A lawn sprinkler company is the perfect partner for a lawn care company because the companies are uncompetitive but serve the same need, beautiful stress-free landscaping.
Sales and marketing channels
Your marketing plan should include what marketing channels will you primarily rely on for your traffic?
Potential marketing channels could include: advertising, affiliates, email, social media, referrals, organic Traffic, cold email.
Get specific on the types of campaigns you plan to run in these primary channels for new clients.
Can you show evidence of these channels working for similar companies or those targeting the same audience?
And, remember to include industry trends as those will be relevant to your ability to launch and grow your business.
This section of the business plan describes how your business works. This will be different depending on the type of business you operate. So some of this may not apply to you.
Sourcing and fulfillment. If you are purchasing products and services from suppliers include details about the process for obtaining these products and services and the supply chain.
What progress have you made working with these suppliers? What is the process for fulfilling customer’s orders?
Technology. What technology do you use that helps you run your business. In an older industry adopting technology could give you a competitive advantage by providing the customer a better product and price because you leverage the right technology your competitors refuse to use.
Distribution. Distribution is about getting the product you make into the hands of the consumer. If you are a service based business you can skip this section.
There are several distribution methods: Retail distribution - you will sell your product through established retail locations which can be physical or online, and Direct distribution - the customer will purchase the product directly from you and you will send it directly to the customer.
Manufacturer’s representatives. A salesperson typically working on commission who sells your product to established retailers and distributors.
The management team and company
This section of the business plan highlights the details of your company structure and who is managing the business. Investors look to this section in business plans to understand who is running the business and what unique qualifications they possess to make the company as strong as possible.
This section of the business plan includes:
- The team members, including your management team
- The business structure
- Intellectual property
- Business location
The management team members
Having the right management team is more important to investors than simply the idea. Business plans that ignore or short-change this section are inherently weaker. Investors want to see that you have the ability to overcome the inevitable challenges and make the right decisions and the business plan is a good place to show this.
Some things you can share: past successful companies the team has started or been a part of, specific experiments lead at other companies that created results, experience in a different industry and how it makes the team member more valuable for tackling this company’s problem, specific skill sets, educational background, the network of a specific person.
Are you not able to tell a strong story about the team? You might want to consider why this group is working together. Simply having the idea is not a good enough reason for founding team members.
The business structure
When starting your own business, one of the first decisions you’ll make is how to legally structure the business.
There are many different types of legal structures for various business entities. For new business owners, choosing the best business structure for your business can feel overwhelming.
Don’t rush into making a decision. Instead, spend some time reading about each possible entity your business might fit into. Consider which structure is most helpful for your business, and how each structure can help you accomplish your professional and personal goals.
Consider the following issues when deciding on what type of entity to register:
- What are the potential liabilities/risks?
- What are the anticipated tax benefits from being taxed as a partnership as opposed to a corporation?
- Do you intend to have outside investors?
- Do you anticipate selling your company in the near future?
- Are you pursuing a risky business where you might be sued?
- Are you willing and able to keep up with the periodic filing requirements that certain types of entities (corporations) require?
Each business type has its own personal asset protection, tax laws, and operational implications. Understanding your business needs and how the various business entity types affect your business will play a key role in your company’s overall success.
Intellectual property consists of all the pieces of your business that you, your employees, or contractors or advisors (under contract to do so), have thought of or invented. This includes business ideas, works, processes that stem from ideas, and creative elements such as your business name and logo. Intellectual property is a corporate assets of the business. In the United States, intellectual property can be protected through patents, trademarks, and copyrights.
If your company owns any intellectual property, talk briefly about that here. Intellectual property can serve as a barrier to entry for new companies and will make your business look more attractive. Not all business plans need to address intellectual property. If you don’t have intellectual property you can skip this section in your business plan.
If you have a physical business location that serves customers or employees go into a little detail in this section. Sometimes a physical location can help attract strong employees, offer stronger tax incentives or serve as a more ideal place to attract your customer.
Your financial plan will be reviewed carefully to evaluate your risk and the opportunity of this business model.
The financial plan section of the business plan includes:
- Sales forecast
- Personnel expenses
- Financial statements (including income statement or profit and loss statement)
- Cash flow statement
- Balance sheet
- Use of funds
- Exit strategy
You don’t need an accountant to create a financial plan. Simply understanding how your business plans to spend and make money will allow you to complete this section of the business plan.
There are specific documents you will need to make this section of the business plan as strong as possible.
Below are details about each of the financial documents you should include in your business plan.
Your sales forecast is the revenue you anticipate earning over the next several years selling your products or services. This should be broken down by each core product or service category you offer. For example, a landscaping company might have a specific row in their sales forecast for lawn mowing, snowplowing and landscape design services.
There should be an additional row for each product offered that details the Direct Costs or Cost Of Goods Sold (COGS). These are the direct expenses incurred for offering the service. For the landscaping company that might be the lawnmower, fuel and employee.
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This section of the business plan details how many employees you will have and what you will pay them. Feel free to list each position or just group them into teams like admin and sales if the company is larger.
The 'employee burden' should also be included which is the cost of having an employee beyond their salary. This will include taxes, medical and insurance that you pay monthly as a cost to having these employees.
Income Statement or Profit and Loss statement
The Profit and Loss Statement or P&L shows if your company is making a profit and at what time you expect to be profitable and earning net income.
The P&L aggregates the data from the sales forecast, the personnel expenses and your ongoing expenses to create a monthly view of your company's financial health.
A P&L is a spreadsheet that includes the following:
- Income. Taken from your sales forecast and includes all revenue generated by the business.
- Cost of goods sold (COGS). Taken from your sales forecast and includes the total expense for offering your product or service.
- Gross margin. Simply subtract your COGS from your sales to get this number. It is most acceptable to show this number as a percentage of total sales. (gross margin / sales = gross margin percent).
- Operating expenses. List all of your expenses associated with running your business. This includes salaries, research and development, marketing, and other expenses. Do not include COGS that you already identified. Do not include taxes, depreciation, and amortization as you will list that in its own section.
- Total operating expenses. Add all of your operating expenses identified above.
- Operating income. Also known as EBITDA, (Earnings Before Interest, Taxes, Depreciation, and Amortization). Just subtract your total operating expenses and COGS from your sales.
- Interest, taxes, depreciation, and amortization. Include any of those expenses in this location.
- Total expenses. The total expenses is the sum of your operating expenses plus the interest, taxes, depreciation, and amortization.
- Net profit. This number shows whether you made a profit or loss in a given month or year.
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Cash flow statement
The P&L statement shows how much money is coming in and out, but it doesn’t show how much cash you have in the bank at a specific point in time. That is the job of the Cash Flow Statement.
A P&L statement shows if a company is tackling a problem in a way that produces a profit. It’s your bottom line. A cash flow statement shows if a company’s model and cash on hand is strong enough for them to pay all its bills on time and have the cash to follow the business plan.
Sometimes you will make a sale but the customer might not pay for 30-90 days.
You still need to pay cash out as identified by your Cost Of Goods Sold which will reduce your cash on hand.
Knowing this number helps understand when it might be a good time to make a large purchase and at what time you might need an infusion of cash from a loan or investment.
The cash flow statement first identifies how much money you have on hand at the start of the company. Then it adds the revenue in from sales and subtracts the cash you pay out for employees, taxes, marketing etc.
For example if your typical customer pays after 60 days of performing the service and you expect it to take 60 days to get your first customer, your cash flow statement will show you do not bring in cash for 120 days but you will still have expenses during that time reducing your cash on hand.
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The balance sheet is a snapshot of the company’s health right now. It includes the assets and liabilities of the company and the owner’s equity.
Assets. Assets are divided into three categories, current, fixed, and other assets. Current assets are either cash or those items that can be converted to cash within one year like stocks, inventory and account receivables. Fixed assets are tangible like vehicles, machinery, property and furniture. Other assets don’t fit neatly above and might be life insurance cash value or long term investment properties.
Liabilities. There are two types of liabilities, current and long-term. Current liabilities are debts due under one year can include accrued payroll, short term lines of credit and taxes payable. Long-term liabilities are debt due greater than one year and can include bank debt and shareholder loans.
Owner’s equity. This is the share of assets that are allowed to pass to the owner(s) after liabilities are paid.
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Use of funds
If you are raising funds from investors, this section of the business plan will detail broadly how the money will be spent. This does not need to account for every dollar spent but can provide a direction like research and development or marketing. And, if you have unique circumstances, such as a mission statement that commits to donating a portion of your sales or profits to charity, mention this here.
Investors will want to know how they can recoup their investment and create a profit.
What is the timeline to either sell your company to the public in an IPO or to a private company.
Are there specific companies your business would be a valuable asset? Are you building a company and product that will be attractive to a specific buyer? How long will it take before you can approach this buyer to suggest an acquisition of your company?
If you are not seeking angel investors or venture capital then you can skip this part.
The appendix is an optional section of the business plan to include all content that was too large or out of place to include in the body of the business plan.
The business plan appendis is a great place to include:
- Financial documents like your income statement, profit and loss statement, and cash flow statement.
- Credit history.
- Illustrations of your product.
- Marketing materials.
- Licenses obtained.
- Detailed market studies.
- Resumes of the founders.
- Contracts with vendors or prospects.
- Survey results from potential customers.
When adding items to the appendix make sure they are numbered and include the number in the body of the business plan when you reference that item.
Pro tips for a business plan appendix:
- The appendix should supplement the business plan. Make sure your business plan can stand alone if someone never reads the appendix.
- Make sure everything included in the appendix is relevant and is referenced within the body of the business plan.
- If the appendix is really long or has a lot of different parts consider adding a table of contents at the beginning.
Guides on How to Start a Business In Different Industries
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