Business Plan : It is often said Anyone who is self-employed needs a business plan. But what exactly is a business plan and what is its purpose? Who should read it and how can they help you start your business? Here you will find answers to these fundamental questions.
What is a business plan? : A business or business plan presents a start-up with all its opportunities and risks in a clear and easily understandable way. It describes the business idea, analyzes the market available for it, plans the implementation process, estimates the capital requirement and provides a forecast of expected profits .
Start-ups are faced with the question of whether they should start building their company immediately or invest part of their limited time in drawing up a business plan beforehand. So why do you need a business plan and how can it help you set up your own business? You can find answers to these questions here.
What is the purpose of a business plan? : Start-ups are faced with the question of whether they should start building their company immediately or invest part of their limited time in drawing up a business plan beforehand. So why do you need a business plan and how can it help you set up your own business?
A business plan is used to raise capital : A business plan is not only important for external investors: You can also use it to analyze your business idea. Only when you have estimated the expected revenues (income) and the effort (costs) can you assess whether your business idea is profitable.
In addition to a profitability analysis, the market analysis is also of central importance in the business plan. Above all, the question of your target customers, your competitors and your expected sales revenues are important.
A business plan is used for planning and control :The business plan defines your approach so that you do not get bogged down in processing the numerous tasks during your start-up.
A thorough procedure and an examination are particularly necessary when planning capital requirements. How high will the capital requirement be, how high are the estimated sales proceeds and what expenses (costs) do I calculate? You can later easily compare these plan figures with the real actual figures and counteract them in good time if there are deviations from your calculation.
A business plan is used to represent your company in business life : A business plan is also helpful to win customers or suppliers, because it supports your competent appearance. The same applies here – as with investors – that the customer, supplier or strategic partner should be convinced of your company on the basis of the business plan. However, the following also applies: The addressee of the business plan is important! Not all information should be visible to every recipient.
In short : As the central document of your business start-up, the business plan presents your business idea in a clear, comprehensive and generally understandable manner. It gives an outlook on all the opportunities and risks that your idea entails. You can not only use a business plan to convince investors, but it should also structure your own thoughts, serve as an analysis tool and enable easy control of the budgeted figures. You can also use your business plan to win customers, suppliers and strategic partners for cooperation. That is why it is worthwhile for every entrepreneur to start his project by writing a business plan.
Also Read : Business start-up
What to look for in the business plan
There are certain formal and substantive norms in every document. But which ones are important for writing a business plan? You can find the essential points to consider here.
What to look for when writing a business plan.
There are certain formal and substantive norms in every document. But which ones are important for writing a business plan? The main points that you should be aware of can be found here:
The business plan is objective : Interested investors, suppliers and entrepreneurs themselves should be given a good, realistic insight through the business plan. It is therefore important to adhere to a factual standard when presenting. The business plan therefore does not contain any emotional statements, and risks are not exaggerated, but assessed as realistically and objectively as possible. In addition, all quantitative statements, for example about the purchasing power of a certain area, must be substantiated with statistics.
Tip Problems and risks should never be presented without showing one or more suggested solutions in the business plan.
The business plan impresses with its clarity : The business plan wants to convince its readers of the business idea. That is why he not only has to have an answer to all his questions, he also has to convince argumentatively. A clear structure supports every argument and is therefore necessary. However, the reader should not be overwhelmed with information: Market-relevant data, such as the purchasing power of an area, belong in every business plan, but only if this specific data is actually useful for the idea.
The business plan is also understandable for technical laypeople : An investor is usually a specialist in finance. He can read numbers, but does not necessarily have your special know-how. Therefore, caution is required, especially with technical processes and technical terms: The business plan must be formulated in such a way that a layperson can understand it. Simple sketches or drawings are helpful for technical explanations.
The business plan is visually appealing : The external appearance of the business plan determines the first impression. For this reason, it is important that the content of the plan is structured. The typeface must be appropriately formatted and graphics should be clearly integrated. Of course, a company logo in your business plan looks even more professional.
The business plan follows a uniform presentation.
If more than one person is writing the business plan, it is important that the different writing styles are adapted to one another. The reader should not be aware that several people have jointly formulated the plan. Uniform terminology must therefore be used so that the text appears from a single source.
The business plan matures : The longer you deal with your business idea, the more clearly you can see its implementation. An idea is usually not drafted within a short period of time, but in an ongoing process. The business plan should not be created selectively, but rather during the development of the idea: As you research, your knowledge of the idea grows. In this sense, the business plan should also grow with you in order to best serve its purpose.
Business plan in a nutshell : The business plan must be written simply and understandable for everyone. The content must be clearly structured and presented with arguments. Outwardly, it must be clearly designed and made of one piece. A business plan does not arise suddenly, but grows in a process. If several people write on it, make sure they use a consistent style.
Tip Have people who are not familiar with your idea and who do not have your knowledge proofread your business plan. This makes incomprehensible passages clear and unclear arguments.
Business plan structure
Business plan structure – create a business plan
Structure of a business plan – create a business plan – introduction: The development of a business plan is the prerequisite for the successful start of a company. The construction of a business plan fulfills various tasks. On the one hand, it helps you to precisely record the qualifications of your company. Because the business plan is written in a short, written form, it helps you to organize your thoughts and put them into a clear, structured form and, on the other hand, to precisely record all areas of activity relevant to success.
On the other hand, the structure of the business plan helps to precisely formulate the business idea and perhaps develop appropriate alternatives from it.
Only when these two tasks have been completed can you start to write down the idea as a plan. As a result, the business plan later becomes a review criterion for the entire company. In addition, the business plan is an indispensable aid in financing the company.
A business plan should contain the following points:
- Founding persons
- Product description
- Market analysis
- Marketing concept
- Distribution channels / li>
- financial planning
Individual chapters of a business plan
Every business plan is different. Nevertheless, all business plans have a certain structure in common, which we want to present for you below. This structure helps you to consider all the essential points of a business plan and to convince your readers (funding agencies, financiers, etc.) of your business idea.
Every business plan is different. Nevertheless, all business plans have a certain structure in common, which we want to present for you below. This structure helps you to take into account all the essential points of a business plan and to convince its readers (funding agencies, financiers, etc.) of your business idea.
All the chapters of a business plan are presented for you below:
Chapter 1: Executive Summary
The Executive Summary is a short version of the entire business plan. There, the entrepreneur presents all the essential results of the business plan on one or two pages. The main purpose of the executive summary is to arouse interest in studying the entire document in detail.
Of course, the focus is on your business idea. This should support you with an overview of all important points, such as the unique selling points, the markets, the competence of the management team, the capital requirement and the forecast return.
Do not write the executive summary until all other chapters have been completed. In this way you can take into account the essential points of the individual chapters in the executive summary.
What are the most important results from the individual chapters of my business plan?
Which key data and core ideas should the investor know?
Chapter 2: Business Idea, Company Goals and Vision
In this chapter you describe your business idea (e.g. development of an AIDS drug). This presentation is used to introduce your business. Keep this section of this chapter short and introduce the reader to your industry.
Present your company vision (e.g. we want to offer AIDS sufferers a chance to heal). The company vision describes why your company is on the market and what long-term vision you have for your business start-up. Dare to think big!
Then formulate concrete goals for your business start-up (e.g. in ten years we want to be able to produce enough drugs for 100 million people). The goals should be measurable, contain a specific point in time and be achievable.
Present your business idea, visions and goals as concretely as possible.
The following key questions will help you:
What is the core of my business idea?
What is the vision that drives me?
What long-term corporate goals am I pursuing? How do I want to achieve this?
What are the critical success factors?
Chapter 3: Product and Service
In the first part of this chapter, you describe in detail which products or services you want to offer. The focus should be on the advantages of your products and the resulting customer benefits in comparison with competing products. Pay attention to comprehensibility and conciseness! Examples of this are cost savings (eg cheaper internet flat rate) or added value (eg faster internet access). The best thing to do is to quantify these advantages – this will help you later in the discussion about market entry speed and pricing. If you offer a completely new product, you have to show which replacement products have previously been used to satisfy the same customer need.
If your business idea is based on a patent or license, be specific about how it makes them superior to your competitors.
Only in the second step do you explain how you want to produce your product or provide your service. In addition to the production processes, you also go into the capacities required for this. If your product is still in the development phase, present the current development status along with a plan for its completion.
First, describe your product or service thoroughly. Second, show how you intend to manufacture your product or provide your service.
What exactly is your product / service?
What quantitative advantage does the customer have from your product?
How far has your product developed?
What difficulties are still to be solved?
How and how many pieces do you want to produce?
Can you adapt your production to fluctuations in capacity?
Chapter 4: Market and Competition
Your future customers are the key to the success of your company. Therefore, in the “Market and Competition” chapter, you must use a market analysis to show how many customers you will find for your product. Only from this result can you plan your sales, the planning of which flows into your financial plan.
You need a market for your product; so customers who buy your product. But not every market participant in the overall market is a potential customer. Therefore, with the help of the market analysis, try to differentiate the market relevant for your product from the entire market. The most important components of the market analysis are the market segmentation and the determination of the market potential.
Not every customer in a market is equally interesting for your product. That is why you split the overall market into different market segments, i.e. sub-markets with target customers who have the greatest advantage from your product, promise the most sales and / or which you can reach most easily. Common criteria for market segmentation are demographic characteristics such as age, income or the geographic location of your target customers.
A central task when creating your business plan is to determine the market potential. This means how much sales you and your competition can generate overall. In your analysis, the forecast potential of the market for the next five to ten years must be shown in order to be able to include developments in the market and market participants in the planning. This is especially important if the market is still developing (e.g. using UMTS).
The basis for calculating the market potential is either market analyzes by market research institutes, statistical data, for example from the Federal Statistical Office of Germany (http://www.destatis.de/) or the results of our own surveys. Above all, the results of your own surveys are very valuable in order to confirm your assumptions and to receive initial feedback from your potential customers. Note that your own surveys can be very time-consuming and offer many sources of error. Nevertheless, you should definitely not do without your own surveys.
Talk to your potential customers to validate and better understand your market. You get very valuable information on whether the sale of your planned product is worthwhile!
You can approximate your sales by calculating Price X Sales Quantity Be careful with your sales volume! Based on the size of your target audience, you should estimate how many customers you can reach. Previous industry experience, sales figures from the competition or comparable companies can also serve as a guide.
The estimated market share also serves as a control to determine whether your sales planning is realistic. A market share that is overestimated can also be interpreted negatively. These figures are often questioned during discussions. Be prepared to explain exactly why and how you will achieve that sales / market share.
Since you will usually not be the only provider in your market, you must also analyze the competition with its strengths and weaknesses in your concept. Often, however, the competition is ignored. When evaluating business plans, this is either a sign of a lack of market knowledge or that there is no market for this area: “If there are no competitors, there is probably no market” (Brian Woods, venture capitalist). Therefore, examine your competitors in as much detail as possible. Typical criteria for a competitive analysis are sales, size, growth, market share, cost position, product lines, service and sales channels.
The overall market is divided into different segments. The relevant target group for you results from these sub-markets and customer groups. When you determine your sales forecast with the help of market analysis, always include the next five years. You can estimate your sales by multiplying your target number by the price. If you want a large part of the market then validate your sales by multiplying the market share by the size of your target market. Present the development clearly in the form of a table, and possibly graphically. The analysis of your competition in the market is also included in this chapter.
How big is the overall market?
Which is my market segment?
Who are my future customers?
How high is the market potential?
How high can my sales be?
Which competition do I have to consider? How big is the competition?
How are the products of the competition, their prices, their service?
Chapter 5: Marketing and Sales
In this chapter you describe in concrete terms how you want to sell your products. To do this, you need a coherent concept consisting of a price strategy (“under what conditions do I sell my product?”), Sales strategy (“how and where do I sell my product”) and communication strategy (“how do I draw attention to my product”).
The price strategy defines the prices at which you want to offer your products and services. Please note that the price is included in the financial plan via the sales planning.
Do not calculate the price based on the costs, but orientate yourself on the benefits for the customer!
The sales strategy shows which sales channels you want to use to reach your customers and whether they are setting up their own sales team or looking for a partner.
In this chapter in particular, you can convince with a well-thought-out concept, because the sales aspect is unfortunately often neglected. In this section, remember the following statement: “You can reduce a company to sales”.
All the measures you want to take to promote your product are listed here. Please note here that appearances at trade fairs and advertisements in newspapers often result in considerable costs that you must take into account in your financial plan.
Market entry strategy
A well-considered market entry strategy is particularly important when introducing new products. It explains how and how quickly you want to enter the market and lists all the measures you can take to achieve this.
Chapter 6: Management and Team
“I invest in management, not in ideas” (Eugene Kleiner, venture capitalist). Therefore, in this chapter you have to convince investors why you should invest in your team. You do this by showing that your team is filled with good people in all key positions.
Fill in gaps in the team by involving external consultants.
Chapter 7: Organization
This chapter could fill any number of pages if you don’t focus on the essentials. As a rule, this is brief information about the company itself, the organizational structure and the process organization.
In any case, a description of the legal form together with a list of who holds how many shares in the company (cap table) is mandatory. Information on the entry in the commercial register and the place of business registration should also not be missing.
Here you describe how your company will be structured – i.e. which departments, responsibilities, hierarchies and decision-making channels should exist. If you will employ a large number of people, you can also describe the organizational structure with the help of an organization chart. However, this information is often left out – especially if the responsibilities of the individual team members have already been described in the previous chapter.
The process organization describes how the process of production or service provision is organized from purchasing to sales. With regard to the process organization, a detailed definition of all company processes is less important than a description of your value chain. Explain exactly which parts of it you are mapping yourself and what you are outsourcing to external service providers.
Chapter 8: Implementation Plan
You have to plan your steps well, especially when starting a new company. A project plan with milestones clearly defines when you want to achieve which goal. Please note, however, that you will measure your investors by the achievement of the milestones. Realistic planning with achievable goals is therefore essential. The following plans should result from your project plan, which then flow into the financial planning:
In the production plan you determine when you want to produce which quantities. You can deduce from how many investments you need to make in assets. Material costs should also be taken into account over time.
Personnel requirements arise from the various phases of your project and production plan. This is summarized in the personnel plan and assessed with all costs (including ancillary wage costs).
Investment and depreciation plan
You derive the necessary investments from the project, production and personnel plan. In the investment and depreciation planning, you record all investments and determine the method by which you want to depreciate them. Investments and depreciation must be listed separately because investments are included in liquidity planning, while depreciation is used to determine the reported plan profit. The reason is that an investment usually pays off immediately, while the depreciation is spread over several years.
Chapter 9: Opportunities and Risks
Every company offers opportunities and risks that you must clearly identify. A division into external risks (eg new competitor enters the market) and internal risks (eg a company with know-how is lost) is suitable.
Compare each identified risk with at least one measure with which you want to counter this risk.
Chapter 10: Budget
In the financial plan, use a budgeted profit and loss account to calculate that your business idea is profitable and use the liquidity planning to explain when and how much financial resources you need. All calculations are carried out for several years in order to show future developments. The financial plan is not just an elegant set of figures, but must be conclusively derived from the previous chapters.
Profit and Loss Account (P&L)
The income statement compares the revenues from sales planning in the Market and Competition chapter with all expenses (e.g. personnel, depreciation on investments, material costs, etc.). The difference between these items is the reported profit or loss. In the P&L, the main question is whether a process leads to an increase (income) or a decrease (expense) in net worth (sum of all assets minus debts). The following table shows a schematic P&L plan:
The break-even analysis provides information on when the revenues exceed the expenses. To do this, you cumulate the revenues of all years and compare them with the cumulative expenses of all years. It can look like this, for example:
Capital requirement planning
The liquidity calculation shows when and how much money you need for your company. The capital requirement planning shows the sources from which you can meet your capital requirements. It is best to choose a mixture of debt and equity here.
Do not calculate too tightly because in the event of a liquidity shortage you will either have to raise very expensive capital or file for bankruptcy.
In addition to identifying opportunities and risks, a scenario analysis is suitable for analyzing the impact of positive and negative developments on the income statement and liquidity planning. Typical scenarios are the assumption of different costs and revenues. These assumptions can be represented in two or three different financial models. The “best case” assumes a consistently positive business scenario, while the “worst case” analyzes the effects of a negative business development.
When is your break-even point?
What is your rating?
At which milestones do you need how much capital?
Evaluation of a business plan
If a business plan serves to raise capital or attract business partners, it is important to know what its readers are looking for. Get as much information as possible here. This applies to bank financing as well as to public subsidies or venture capitalists. Read here the criteria according to which your business plan is evaluated.
This is how investors rate your business plan
When creating a business plan, the addressee of the business plan is important: Investors apply different criteria when evaluating their business idea than, for example, suppliers or customers, because for investors the focus is on increasing the company’s value. Therefore, characteristics such as the uniqueness of your product, the founding team and the attractiveness of the market are particularly important for investors. The most important points for the investor evaluation of your business plan can be found here:
Clear customer benefits
Based on the product or service you offer, an investor wants to know whether your business idea offers the customer a clearly recognizable benefit. How can you answer the following provocative question: Why can your customer not help but buy your product, since it has so immense advantages? Your business idea only offers a high level of customer benefit if it stands out from products already available on the market. This customer benefit can for example be a cost saving (Internet telephony) or a completely new product (traveling to the moon).
Unique selling proposition
You want to offer your customer a superior benefit, so your starting question must be: What makes my product unique? You can only set yourself apart from the competition with unmistakable product features. That is why a clear unique selling proposition, the marketing term for a unique selling point, should always be included in your business idea. Investors like to ask the following questions: “What can you do better than the competition?” Or “Why should customers come to you and not your competitors?” Cook or special national dishes. Particularly favorable contributions from a fitness chain (e.g. McFit) or the service of a laundry to deliver the cleaned laundry to an address is a USP,
High degree of innovation
Innovations are new or fundamentally improved products, new technologies and new manufacturing methods. They are particularly common in technical areas. A design, a production or the organization of a company can also be innovative. The innovation must be translated into an outstanding USP. You should be able to sustainably maintain the lead over your competition. Therefore, the more innovative your product, the greater the likelihood of venture capital financing. A high level of technological innovation is a necessary criterion for many venture capital financings and public subsidies.
The assessment of the market is an important point for investors. A business idea should be located in a large, growing market with attractive margins. Often venture capitalists invest more in growth industries. The influence of the environment, i.e. the product’s dependency on the economic situation or legislation, is an important factor. If you have come to the conclusion in the market analysis of your business plan that there is no competition in your future market, investors are rather skeptical of this. Investors often conclude from this statement that there is no market for the product you are introducing because customers do not necessarily need it, or that they do not know the market well enough.
Tip: Carry out an intensive competition analysis!
Detailed market development
A key evaluation criterion is a convincing and precise plan for market entry. A market entry plan outlines exactly how the product will be launched and sold. The best products and services are of no use if you don’t know exactly how to sell them. The sales forecasts are derived from market development and are the basis for financial planning. Therefore, the sales figures must be particularly credible.
Tip: Be prepared for your sales figures to be critically scrutinized!
Convincing management team
Investors not only invest in a business idea, but also in a team that can implement it. An experienced and competent team will solve the problems that arise when implementing a business idea better than an inexperienced team. It is important for every business start-up that technical and commercial knowledge is brought along and covered by the team. Other typical skills are development, production, marketing, sales, human resources and finance.
Personality traits of the individual members are also important: experience, creativity, motivation, strong nerves and cost awareness are sometimes more important than academic titles. The founding team must also be open to criticism and suggestions for improvement from the investors.
The evidence as to why your product is superior and why an investment in your company is highly profitable must run like a red thread through the entire business plan. Based on the reasoning as to why your business idea will be successful in the market through the satisfaction of a customer need and a unique selling proposition, you must be able to substantiate all the figures that go into the financial plan.
Realistic planning and forecasts
Almost all statements in your business plan relate to the future. Make sure that your sales forecasts are credible, estimates of the effort (costs) are realistic and that the milestones in your implementation schedule are achievable. You will be measured by it – under certain circumstances a gross misjudgment can cause you difficulties if you have to negotiate a new loan at a later date.
Tip: Be prepared for questions as to why your assumptions (e.g. about sales, the achievement of a milestone or costs) are realistic.