Business plan Practical example of a business plan outline

Practical example of a business plan outline

business plan outline

This article provides a detailed business plan outline as well as a step by step guide to writing a business
plan.

I encourage you to read this article in relation to our series of articles on how to write a business plan.

Business plan outline

Below is our recommended business plan outline. Every company is different and the business plan
needs to be tailored to reflect that, therefore this is more a guideline than a strict template.

Our business plan outline is structured so that each section answers a specific set of investor questions
about your business. It also offers a natural progression making it suitable for both the investor who
wants to read the plan cover to cover and the one who wants to simply jump into specific parts to clarify
particular points.

Executive Summary

Business Overview

Market Overview

Financial Highlights

Our Ask

Company

Structure & Ownership

History

Location
Management Team

Products and Services

Market Analysis

Demographics and Segmentation

Target Market

Market Need

Competition

Barriers to Entry

Regulation

Strategy

Competitive Edge

Pricing

Marketing Plan

Milestones

Risks and Mittigants

Operations

Personnel Plan

Key Assets and IP

Suppliers

Financial Plan

Start-up Funding

Important Assumptions

Sales Forecast

Cost Structure

Appendix
Let me walk you through each section and get into the details of what to write and where to find the
information.

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1. Executive Summary

The first section, the executive summary, is the most important one. It is only if they find this section
attractive enough that potential investors will dive into the other sections of your plan to get more
details.

Because this section is a summary of the rest of the plan this is the one you will write last.

The executive summary is all about getting your investor excited in 5 minutes. Do not try to tell
everything about your business. Keep it short and to the point.

There are four things that you must cover:

who you are

what you sell

how big and profitable it can get

how much you need

2. Company

The objective of this section is to introduce the company and its management. The content of this
section will vary slightly depending on if you already have a business or if you are starting a new venture.
Structure & Ownership

This is a purely descriptive part, the key questions you need to answer here are:

who are the shareholders: as part of the anti-money laundering regulation, investors have the legal
obligation to check the identity of the shareholders of any business they invest in or lend money to.
Giving them the full list enables them to do a quick sanity check and gives them the opportunity to raise
any concern they might have. If your reader is an equity investor it also gives him a grasp of who the
other shareholders are. It is also important that you mention if any of your co-shareholders brings more
than just money to the company (for example if one of your shareholders is an expert in your industry
and also brings advice and credibility to the company).

where is the company registered and what is the legal structure: this is also one of the anti-money
laundering requirements. But it also gives the reader an indication of the size of the business and the
applicable tax system. Some investors also have geographical restrictions on investments, hence this is
also where they will check if you are eligible.

History

If you are writing a business plan for an existing company this is where you would present the key
highlights to date. The idea here is to build your credibility and show to your reader that you have a
viable business. The main points you want to touch on are:

how long you have been in business: this is a real reassuring factor for any investor as it proves that your
business is a viable one.

company milestones: you want to show what has been achieved so far in terms of growth, product
launches, internationalisation. If you are seeking growth capital this will build your credibility and show
that you have the ability to execute your plan.

past difficulties: if there have been periods when the company was in danger (for example because of a
new entrant in the market, or a sudden drop in demand) and you managed to turn things around and
stay in business.

Location

If you are writing a plan for a business for which location is important (for example a shop or a
restaurant) or if you are managing a large business with multiple stores or factories this is where you
would describe (ideally using a map) the main location(s) of your business.
Management Team

This is one of the most important section of your business plan. You must demonstrate that your team
has strong experience in your sector and the skills to run this business.

If there are any important skill gaps in your team, you need to address them and mitigate them here. It
could be that you are looking for someone with these skills or that you have a board member or a non-
executive director that can fill the gap.

Try to put some pictures if you can. It is always better when one can put a face on a name! And it helps if
you are due to meet your investors at some point.

Now that you have introduced the company it is time to dive into what it does.

3. Products and Services

The key to writing a good product and services section is to be precise about the product or service you
sell, the client you are targeting, and the channel you are targeting him through.

After this section, your reader will start thinking about how big, how crowded and how profitable your
market is and try to guess what the overall strategy is going to be. You want to send him in the right
direction! So be ultra-precise, don't say for example "I sell shoes" but "I sell leather boots targeted at
women aged 16-25 who buy online".

If you can try to include pictures of your products.

By now your reader knows who you are and what business you are in. It is time you show him why this is
a good opportunity.

4. Market Analysis
This part is a summary of our article on how to do a market analysis, please refer to the article for more
details

The objectives of the market analysis section are to show the investors that:

the market is large enough to build a sustainable business

you know who your customers are and why they buy

despite the competition, it exists a gap in the market where your business will fit

The first step of the analysis consists of assessing the size of the market.

Demographics and Segmentation

The way you look at the market will depend on your type of business. If it is a small business, such as a
coffee shop for example, then you need to look at the market on a local basis (your town, your street). If
you are targeting a wider audience, then you need to evaluate the market at a national or an
international level.

When assessing the size of your market, you need to come up with two variables: the number of
potential customers and the value of the market.

The idea here is to get a sense of how atomised your market is. If you are in a market where there is a
small set of high-value customers then it might be complicated to compete against more established
players and your business is likely to be dependent on a handful of customers meaning that losing one
would potentially threaten your business. Now if you are in a market with lots of low-value customers it
might be complicated and costly to reach enough of them to get to the minimum volume for your
business to be profitable. Ideally, you want to be in a market with a high number of medium value
customers meaning that there are enough customers to leave room for a few players and that each
customer brings a decent amount of revenues.

Once you have estimated the market size you need to explain to your reader which segment(s) of the
market you view as your target market.
Target Market

The target market is the type of customers you target within the market. You need to identify the
different segments in your market and explain who you are going after and why. One way to identify the
segments is to group customers by buying pattern or demographics. For example in the fashion market
you could have:

men vs. women

low price vs. premium clothing

online vs. in-store

shoes, accessories, and outfit

Market Need

This section is where you demonstrate that you have insight into your market. You know what makes
people buy!

You need to describe the buying pattern of your target customers. What triggers a purchase? Is it
something they need such as food? Is it a value associated with the product or a brand perception? Etc.

Later in your plan, you will use this analysis to justify your market positioning.

Competition

Here you have to explain who your competitors are, how they are positioned on the market, and what
their strength and weaknesses are. Some of the items you need to cover are

who are they? (name, brand, independent vs. part of a larger group, location)

how big are they? (turnover, number of staff, etc.)

which customer do they target? (segments)

what are the key characteristics of their offerings? (price, associated services, etc.)
You should write this part in parallel with the Competitive Edge part of the Strategy section, as the idea
here is to find a weakness in your competitors' positioning that your company will be able to use in its
own market positioning.

Barriers to Entry

Here, the objective is to show to investors that the risk of having new competitors entering the market is
fairly remote. Hence if you are writing your business plan for a start-up then this section is a bit tricky as
you need to show that you will succeed where others will fail!

Once again, you can find more details on this section in our market analysis article.

Regulation

In this section, you need to details which regulation is applicable to your sector and how you are going
to comply with it.

5. Strategy

Until now all the sections of the business plan outline we covered were very descriptive, this is where
things get a bit more interesting.

Strategy is a big word for what is really just explaining your view of the market, how you want to attack
it, and why it should work.

The first part of the strategy section is the Competitive Edge sub-section which is where you explain your
market positioning.

Competitive Edge

The competitive edge part is where you answer investors' favourite question: "what makes you different
from the competition?"
Hopefully, you will have laid the groundwork for this section in the previous ones and orientated your
analysis of the market in a way that prepares the reader to embrace your positioning.

Pricing

In order to explain and justify your pricing strategy you must touch on the following points:

Compare it to your competitor's pricing

Show that you are profitable at that level

Explain the rationale behind your price

I won't touch on the two first points which are pretty obvious but I think the third one deserves a bit
more explanation. Setting a price is not easy but there are a couple of techniques you can use to guide
you.

The first thing to do is to assess if you have control over your prices. It could very well be that you have
limited control over your prices. If you are in a price a driven market where all your competitor's price at
£9.90 it can be complicated to justify a higher price to your customers.

Now if you have control over your prices you then need to come up with a figure. Here are the two main
strategies that you can use to do so:

Cost-plus pricing: this consist of adding a percentage margin to the cost of the good or service you are
selling. The advantage of this strategy is that you are guaranteed to earn your margin on every sale. The
disadvantage is that your price could be below or above what customers are willing to pay for a product
or service.

Benefit driven pricing: this consist of estimating the gain procured by your good or service to the
customer and set the price as a fraction of this gain. It is easier to do when your product or service
procure a hard benefit (i.e. when you can quantify the money your customer will save) than when your
product procures a soft benefit (i.e. when you cannot easily quantify the value of the benefit as for
example if it makes your customer save time). The advantage of this technique is that it allows you to
maximise the price of your goods and services. The disadvantage is that it usually requires trying
different price points in order to find the right market price.

It is always a good thing to test different prices. Do one week with price A and one week with price B
and compare the results in terms of sales and volume.

Ok, so now we know who you will target and how you will price your products. It is time to explain how
you are going to reach those customers.

Marketing Plan

This is the first section where we start to leave aside the helicopter view of the market to really dive into
the implementation and execution strategy of your plan. Therefore you need to show your investor that
not only you know your market inside-out but that you also have a credible plan to conquer that market.

The best way to show that your business plan is realistic is to get into the specifics of the
implementation. Your reader needs to feel that you are ready to go and that he just has to push on a
button (write you a check) to make it happen.

In the marketing plan section, you need to show that you have identified the best channels to use to
target your customers.

By channel, I mean both the distribution network (online, owned stores, third party network, door to
door, etc.) and the means of communication (flyers, print advertising, online marketing, etc.).

You want to start by listing all the different options and then start diving into the ones you picked and
explain why you think they are the most relevant in terms of:

reach: why do you think you will be able to touch most of your potential customers through that
channel?

cost: why do you think this will be cost-effective? What is the budget allocated in your plan?
competition: why do you think you stand a better chance against your competitors by using this
channel?

implementation: who is going to be responsible for that? What makes him relevant? Which
partners/suppliers have you approached so far?

Milestones

This section is where you set the goals for your company. This is a commitment you are making to your
investors and you will be judged on your ability to achieve these goals. It is therefore important that you
take time to identify goals that are:

relevant: i.e. objectives that will make a real difference to the business

achievable: you don't want to get labelled as a dreamer but rather want to be perceived as an
entrepreneur who delivers his business plan

measurable: you want to be able to get back to your investors and say "we said we'll get 1,000
customers by year-end and we delivered 1,200!".

Here you will be judged on your ability to identify and focus on the key objectives to bring your business
to the next level. This will help build your credibility towards your investor and ultimately play a part in
his investment decision.

From a relationship perspective, being able to over-achieve these objectives will be key if you are to
raise more money in the future.

Risks and Mitigants

The risks and mitigants section has one key objective: enable you to anticipate any objection or doubt an
investor might have on your plan or your ability to deliver it and give you an opportunity to show that:

you know this is a key risk,

you thought about it,

you have a contingency measure in place.

It is very important to be transparent in this section. If an investor spots a key risk in your plan that you
haven't disclosed he is going to think "well I am not sure he knows this market as well as he claims", and
that looks bad. You want to do everything to build credibility and trust with your investors because the
moment they start doubting you they will start doubting the investment.

6. Operations

This section is where you get into the details of how your company will operate. It usually starts with the
personnel plan.

Personnel Plan

In the personnel plan section, you must explain how many people you will employ and what will be their
roles. If your staff is planned to increase over the duration of your business plan, it is recommended to
explain what will be the driver. It could be that you plan a new shop opening or that you will increase
support staff with sales.

If you have a shop or a restaurant it is also recommended to put the staff plan in perspective with the
opening hours.

Key Assets and IP

The idea behind this section is to identify or dismiss any operational risks that could arise on the asset
side.

You need to explain which are the assets and intellectual property without which the company could not
operate (for example a delivery truck or a licence) and the steps you took to protect them.

Suppliers

In this section, your investor will want to check that you intend to do business with respectable
counterparties and that you are not dependent on a single supplier. Therefore you need to explain who
will be your main suppliers, the relationship you have with them (if any) and what is your backup plan if
one was to be replaced.
You also need to mention the main terms you have negotiated with your suppliers (price, days of credit,
delivery schedule, etc.).

Now that you have explained how your company will be operated it is time to dive into the numbers.

7. Financial Plan

This is the most crucial part of your business plan. The tone of this section will depend on who the
recipient of your business plan is.

If the recipient of your business plan is a lender you need to show that your business is going to be
stable, profitable and cash generative and that you are not going to take too many risks. If it is an equity
investor you need to show that your business can become big and cash generative enough to make it
easy to sell and enable him to reach his target return.

As a minimum, you will need to show a full set of financial statements (P&L, cash flow statement and
balance sheet) over three years and a monthly cash flow statement. It is also good practice to show a
monthly P&L and balance sheet for the first year.

The reason why investors like to see monthly numbers for the first year is that it is going to be the most
critical year as:

it is the year you are the most vulnerable

any delay or underperformance will have some repercussions over the year 2 and 3

If you don't have a finance background it is recommended that you use a professional tool to help you
with the financial forecast. The Business Plan Shop offers an easy to use online solution that can help
you easily produce your financial statements as well as a professional-looking business plan exportable
in PDF. In our application, you will find most of the tips included in this guide along with precise
examples for each section of the plan. You can learn more about our solution here.

Start-up Funding
In this section, you will list the sources and uses of funds required to start your business.

The investor will look at how much is needed and how much money is brought to the table by the
shareholders. If you are writing your plan for a retail bank it is important that you isolate the assets,
inventory and VAT on a separate line as they often offer specific loans adapted to each of these
categories.

Important Assumptions

This section is a disclaimer section. You must identify the key assumptions underlying your financial
forecasts. These are the assumptions the investor will stress (i.e. run scenarios on) to test the viability of
your plan and estimate the potential downsides and upsides.

Try to identify both assumptions on the revenue and on the cost side of the business. Let's take an
example and look at an e-commerce site.

If you are operating an e-commerce site there are usually two main things your business profitability will
depend on:

the average basket: which is how much one customer is expected to spend in average

the customer acquisition cost: which is how much you need to spend in marketing to acquire one
customer

The first item is revenue related and has the most significant impact on your plan. This assumption has a
1:1 impact on your sales forecast and even a greater impact on your profit. The second one is also
crucial as it impacts your profitability and your ability to scale.

Let's look at a numerical example in order to get a better understanding of the impacts of these two
drivers:

Base case Average basket impact Customer acq. cost impact Cumulative impact

Number customers 1,000 1,000 1,000 1,000

Average basket £40.00 £36.00 £40.00 £36.00

Sales £40,000 £36,000 £40,000 £36,000

Gross profit

(30% margin) £12,000 £10,800 £12,000 £10,800

Customer acq. cost £8.00/cust. £8.00/cust. £8.80/cust. £8.80/cust.

Total customer acq. cost £8,000 £8,000 £8,800 £8,800

Profit £4,000 £2,800 £3,200 £2,000

Profit margin 10.00% 7.78% 8.00% 5.56%

Table: key assumptions for an e-commerce site

As you can see from the table above a 10% deviation on price will have a 30% impact on profit, a 10%
deviation in the customer acquisition cost would cost you 20% of your profit and both impacts would
reduce your profit by 50%!

And these are not remote possibilities. Let's say that your acquisition costs are related to pay per click
advertising on the internet and that your average cost per click is £0.4. An £8 cost per customer means
that you have a conversion rate of 5%: it takes 20 clicks to make one sale. Now a £8.8 cost per customer
means that it takes you 22 clicks to make one sale. As little as 2 more clicks can cost you 20% of your
profit!

Now the positive thing is that if you built a complete financial model and identified these key drivers you
can closely monitor these two elements. Chances are that you will get these wrong in your first plan but
if you monitor them you will be able to quickly update your plan and get a revised financial projection.
This will enable you to get a better view of how much cash your business will generate or need. And give
you the ability to anticipate any upcoming difficulties with your investors or plan what to do with the
excess cash flow if things go better than expected.

Note that in my example I did not take the number of customers as a key assumption. This is because I
made the assumption that 100% of the traffic was coming from advertising. This is specific to e-
commerce sites: chances are your site in its first year will rank on page 20 of Google and that you will
have to acquire the main part of your traffic.
Sales Forecast

The sales forecast section is probably the second most important one in your business plan. This section
relates directly to the market analysis, competitive edge, marketing plan and pricing sections. The
objective here is to build and justify your sales estimate for the next three years.

Building a sales forecast is a double exercise. You first need to build the numbers using a bottom-up
approach and then sanity checks them using a top-down approach. For a complete how-to guide, we
encourage you to read our sales forecast article.

Once you have built a realistic top line, you need to focus on the costs.

Cost Structure

This part is all about analysing the operational risk of a business. The analysis resides in two fundamental
notions: operating leverage and breakeven point.

Breakeven

Let's start with the breakeven point which is the level of sales required to reach profitability.

Every business has 2 types of costs: fixed and variable costs. The fixed costs as their name indicates are
the costs that will be incurred independently from the level of sales. For example the rent of a shop. The
variable costs are the costs that depend on the level of activity. For example the cost of the goods sold
in a shop.

The breakeven point is then computed by dividing the total amount of fixed costs by the margin of
variable costs.

Let's take an example. If the only fixed cost of a shop is its rent of £2,000/month and if the shop sells
goods it buys at £30/item at a price of £50/item. Then the shops make 50 - 30 = £20 of profit over
variable costs per item. This means it needs to sell 2,000 / 20 = 100 items to cover the cost of the rent.
The breakeven point of this shops is therefore 100 items.
The direct conclusion of this is that the higher the fixed costs, the more sales are required to cover
them, and therefore the higher the risk of the business is. In plain English variable costs are great fixed
costs are bad!

Operating leverage

What about operating leverage then? Well, operating leverage has to do with operating profit elasticity,
which is the impact of a difference of 1% in sales on the operating profit. This seems complex but it is in
fact really simple. There are two dimensions in the operating leverage: the level of fixed vs. variable
costs and the margin on variable costs.

As we just saw above the more fixed costs a business has the more sales it needs in order to start
making a profit. But this is not the whole story. Consider two businesses in the same industry. Business A
is manufacturing its goods in the house while business B is outsourcing the manufacture to a supplier. As
a result business A has higher fixed costs than business B (the cost of the factory), but at the same time
business A is earning more on each sale than business B because it doesn't have to pay the supplier's
margin. Therefore there is an expectation that a more operationally leveraged business will generate
higher returns past its breakeven point.

The second aspect of operating leverage is the level of contribution (or margin on variable costs). If your
contribution is high then it takes only a few sales to cover your fixed costs and start making a profit. The
flip side of this is that a small forecasting error will have a huge impact on your level of profit and cash
flows.

The key takeaways here are that investors will look at the level of fixed vs. variable costs in your
business to evaluate its operating risk. They will expect to see the calculation of your breakeven point
either expressed in units or days of sales.

Investors will also judge you on your ability to use operating leverage to your advantage. If you are
starting up in a niche where the market is uncertain they will expect you to focus on sales and to have
outsourced as many services as possible. You will make less profit but will require fewer sales to make a
profit hereby de-risking the cost side of your business to balance with the risks on the revenue side. Now
if you are an established business in a price-driven market, investors will expect you to do the exact
opposite: outsource services only if it makes you save money and try to limit margin frictions to the
maximum by using economies of scale to either increase your margin or reduce your price to increase
market share.

Financial Statements

This section is where you present your financial statements. You can have the yearly statements here
along with the monthly cash flow projections and put the monthly balance sheet and P&L in the
appendix.

You need to walk the reader through the key items of each statement:

P&L: revenues, growth, EBITDA, EBITDA margin and any unusual or one-off items

Cash flow statement: operating cash flow, operating cash flow conversion (% of EBITDA), any major
investments, main debt repayments if any, and any unusual items.

Monthly cash flow statement: any working capital swings or seasonal peaks or troughs.

Balance sheet: level of cash, debt and equity.

Your funding needs to be balanced (positive cash position) and you need to break even during the
course of your plan. You might also want to touch on some additional ratios. In particular, if your
business has a significant working capital requirement, you can mention the working capital ratios (WC /
sales, days of payables and receivables). You can also mention either some credit ratios if the plan is for
a bank (debt/EBITDA, net debt/EBITDA, interest coverage ratio) or some more equity-focused ratios
(operating cash flow / capital employed, revenues / total assets, dividend yield and dividend per share if
relevant).

Appendix

This is where you add any detailed piece of data or backup materials you might have. The objective of
the appendix section is to serve as a reserve of materials that the investor can use either to investigate
certain areas of your business plan in more details or as a starting point to do his due diligence.

Congratulations, you now know the basics of writing a business plan. Now let's get to work!