What is a Business Plan?

A business plan is a document that contains the operational and financial plan of a business,
and details how its objectives will be achieved. It serves as a road map for the business and can
be used when pitching investors or financial institutions for debt or equity financing.

Business Plan - Document with the words Business Plan on the title

A business plan should follow a standard format and contain all the important business plan
elements. Typically, it should present whatever information an investor or financial institution
expects to see before providing financing to a business.

Contents of a Business Plan

A business plan should be structured in a way that it contains all the important information that
investors are looking for. Here are the main sections of a business plan:

1. Title Page

The title page captures the legal information of the business, which includes the registered
business name, physical address, phone number, email address, date, and the company logo.

2. Executive Summary

The executive summary is the most important section because it is the first section that
investors and bankers see when they open the business plan. It provides a summary of the
entire business plan. It should be written last to ensure that you don’t leave any details out. It
must be short and to the point, and it should capture the reader’s attention. The executive
summary should not exceed two pages.

3. Industry Overview

The industry overview section provides information about the specific industry that the business
operates in. Some of the information provided in this section includes major competitors,
industry trends, and estimated revenues. It also shows the company’s position in the industry
and how it will compete in the market against other major players.

4. Market Analysis and Competition

The market analysis section details the target market for the company’s product offerings. This
section confirms that the company understands the market and that it has already analyzed the
existing market to determine that there is adequate demand to support its proposed business
model.

Market analysis includes information about the target market’s demographics, geographical
location, consumer behavior, and market needs. The company can present numbers and
sources to give an overview of the target market size.

A business can choose to consolidate the market analysis and competition analysis into one
section or present them as two separate sections.

5. Sales and Marketing Plan

The sales and marketing plan details how the company plans to sell its products to the target
market. It attempts to present the business’s unique selling proposition and the channels it will
use to sell its goods and services. It details the company’s advertising and promotion activities,
pricing strategy, sales and distribution methods, and after-sales support.

6. Management Plan

The management plan provides an outline of the company’s legal structure, its management
team, and internal and external human resource requirements. It should list the number of
employees that will be needed and the remuneration to be paid to each of the employees.

Any external professionals, such as lawyers, valuers, architects, and consultants, that the
company will need should also be included. If the company intends to use the business plan to
source funding from investors, it should list the members of the executive team, as well as the
members of the advisory board.

7. Operating Plan

The operating plan provides an overview of the company’s physical requirements, such as office
space, machinery, labor, supplies, and inventory. For a business that requires custom
warehouses and specialized equipment, the operating plan will be more detailed, as compared
to, say, a home-based consulting business. If the business plan is for a manufacturing company,
it will include information on raw material requirements and the supply chain.

8. Financial Plan

The financial plan is an important section that will often determine whether the business will
obtain required financing from financial institutions, investors, or venture capitalists. It should
demonstrate that the proposed business is viable and will return enough revenues to be able to
meet its financial obligations. Some of the information contained in the financial plan includes a
projected income statement, balance sheet, and cash flow.

9. Appendices and Exhibits

The appendices and exhibits part is the last section of a business plan. It includes any
additional information that banks and investors may be interested in or that adds credibility to
the business. Some of the information that may be included in the appendices section includes
office/building plans, detailed market research, products/services offering information,
marketing brochures, and credit histories of the promoters.

Business Plan Template - Components

Business Plan Template

Here is a basic template that any business can use when developing its business plan:

Section 1: Executive Summary

Present the company’s mission.

Describe the company’s product and/or service offerings.

Give a summary of the target market and its demographics.

Summarize the industry competition and how the company will capture a share of the available
market.
Give a summary of the operational plan, such as inventory, office and labor, and equipment
requirements.

Section 2: Industry Overview

Describe the company’s position in the industry.

Describe the existing competition and the major players in the industry.

Provide information about the industry that the business will operate in, estimated revenues,
industry trends, government influences, as well as the demographics of the target market.

Section 3: Market Analysis and Competition

Define your target market, their needs, and their geographical location.

Describe the size of the market, the units of the company’s products that potential customers
may buy, and the market changes that may occur due to overall economic changes.

Give an overview of the estimated sales volume vis-à-vis what competitors sell.

Give a plan on how the company plans to combat the existing competition to gain and retain
market share.

Section 4: Sales and Marketing Plan

Describe the products that the company will offer for sale and its unique selling proposition.

List the different advertising platforms that the business will use to get its message to
customers.

Describe how the business plans to price its products in a way that allows it to make a profit.

Give details on how the company’s products will be distributed to the target market and the
shipping method.

Section 5: Management Plan

Describe the organizational structure of the company.

List the owners of the company and their ownership percentages.

List the key executives, their roles, and remuneration.

List any internal and external professionals that the company plans to hire, and how they will be
compensated.

Include a list of the members of the advisory board, if available.

Section 6: Operating Plan

Describe the location of the business, including office and warehouse requirements.

Describe the labor requirement of the company. Outline the number of staff that the company
needs, their roles, skills training needed, and employee tenures (full-time or part-time).

Describe the manufacturing process, and the time it will take to produce one unit of a product.

Describe the equipment and machinery requirements, and if the company will lease or purchase
equipment and machinery, and the related costs that the company estimates it will incur.

Provide a list of raw material requirements, how they will be sourced, and the main suppliers
that will supply the required inputs.

Section 7: Financial Plan

Describe the financial projections of the company, by including the projected income statement,
projected cash flow statement, and the balance sheet projection.

In order to become a great financial analyst, here are some more questions and answers for you
to discover:

What is Financial Modeling?

How Do You Build a DCF Model?

What is Sensitivity Analysis?

How Do You Value a Business?

### What is Financial Modeling?

Financial modeling is the process of creating a representation of a company's financial

performance. This model uses historical data and assumptions about the future to predict
outcomes like revenue, expenses, and cash flow. It helps businesses make informed decisions
about investments, budgeting, and financial planning.

### How Do You Build a DCF Model?

A Discounted Cash Flow (DCF) model estimates the value of an investment based on its
expected future cash flows. Here’s how to build one:

1. **Project Cash Flows**: Estimate the cash flows the business will generate over a certain
period (usually 5-10 years).

2. **Determine the Discount Rate**: This rate reflects the risk of the investment. It’s often based
on the company's cost of capital.

3. **Calculate the Present Value**: Discount the projected cash flows back to their present
value using the discount rate.

4. **Estimate Terminal Value**: This accounts for cash flows beyond the projection period,
often using a growth model.

5. **Sum the Present Values**: Add the present value of the cash flows and the terminal value
to get the total business value.

### What is Sensitivity Analysis?

Sensitivity analysis examines how changes in key assumptions affect the outcomes of a
financial model. For instance, you might change the growth rate or discount rate in a DCF model
to see how it impacts the business valuation. This helps identify which factors have the most
influence on the results.

### How Do You Value a Business?

Valuing a business can be done through several methods, including:

1. **Income Approach**: Uses DCF or similar methods to estimate the present value of future
cash flows.

2. **Market Approach**: Compares the business to similar companies or recent sales in the
market.

3. **Asset Approach**: Looks at the value of the company’s assets minus its liabilities.