Business Plan Outline:
Entrepreneurial Management ELM 224
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Use Short bond Paper
MS Word Office
Double spacing (within and between references)
Hanging indent of ½ inch
Legible font (Arial 11)
Page number in the top right header
Submission: one week before the Final Exam - in our Google Classroom
1. Executive Summary
1. Business Overview
2. Market Overview
3. Financial Highlights
2. Company
1. Structure & Ownership
2. History
3. Location
4. Management Team
3. Products and Services
4. Market Analysis
1. Demographics and Segmentation
2. Target Market
3. Market Need
4. Competition
5. Barriers to Entry
6. Regulation
5. Strategy
1. Competitive Edge
2. Pricing
3. Marketing Plan
4. Milestones
5. Risks and Mitigates
6. Operation
1. Personnel Plan
2. Key Assets
3. Suppliers
7. Financial Plan
1. Start-up Funding
2. Important Assumptions
3. Sales Forecast
4. Cost Structure
8. Appendix
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.
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:
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who you are
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what you sell
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how big and profitable it can get
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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:
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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).
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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:
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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.
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company milestones: you want to show what has been achieved so far in terms of
growth, product launches, internationalization. If you are seeking growth capital this will
build your credibility and show that you have the ability to execute your plan.
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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:
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the market is large enough to build a sustainable business
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you know who your customers are and why they buy
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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 atomized 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:
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men vs. women
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low price vs. premium clothing
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online vs. in-store
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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
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who are they? (name, brand, independent vs. part of a larger group, location)
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how big are they? (turnover, number of staff, etc.)
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which customer do they target? (segments)
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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!
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:
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Compare it to your competitor's pricing
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Show that you are profitable at that level
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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 maximize 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:
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reach: why do you think you will be able to touch most of your potential customers
through that channel?
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cost: why do you think this will be cost-effective? What is the budget allocated in your
plan?
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competition: why do you think you stand a better chance against your competitors by
using this channel?
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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:
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relevant: i.e. objectives that will make a real difference to the business
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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
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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:
1. you know this is a key risk,
2. you thought about it,
3. 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
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:
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it is the year you are the most vulnerable
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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 professionallooking 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.
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:
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the average basket: which is how much one customer is expected to spend in average
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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:
Table: key assumptions for an e-commerce site
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%
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:
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P&L: revenues, growth, EBITDA, EBITDA margin and any unusual or one-off items
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Cash flow statement: operating cash flow, operating cash flow conversion (% of
EBITDA), any major investments, main debt repayments if any, and any unusual items.
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Monthly cash flow statement: any working capital swings or seasonal peaks or troughs.
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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!