How to write a business plan.

Writing a business plan shouldn't be complicated. In this step-by-step guide, you'll learn how to quickly and easily write a business plan that will deliver the results you want. Don't worry, you don't need a business or accounting degree to draft an excellent business plan. This guide will show you how to create your plan step by step, without any complications or disappointment.

The six components of a business plan

If you're building a business plan to borrow money and grow your business, or simply need to understand whether your idea will work, every business plan should cover six essential topics. Here's a quick overview of each topic. There are plenty of details and instructions for each step later in this guide.

Executive Summary

The executive summary is an overview of your business and your plans. It comes first in your plan and ideally is only one to two pages long. However, most people write it last.

2. Possibility

The Opportunities section answers these questions: What are you actually selling and how are you solving a problem (or “need”) for your market? Who is your target market and competition? 

3. Execution

In the execution chapter of your business plan, you will answer the question: How will you seize your opportunity and turn it into a business?This section will include your marketing and sales plan, operations, and your milestones and success matrix.

4. Summary of the enterprise and management

Investors look for great teams in addition to great ideas. Use the company and management chapter to describe your current team and who you need to hire. You should also provide a brief overview of your legal structure, location, and history if you are already operating. 

5. Financial plan

Your business plan isn't complete without a financial forecast. We'll show you what to include in your financial plan, but you'll definitely want to start with a sales forecast, a cash flow statement, an income statement (also called profit and loss), and your balance sheet. 

6. Attachment

If you need more space for product images or additional information, use the add-on for those details.  In the upcoming sections of this article, we will outline the details of each section of your business plan and focus on building one that your investors and lenders will want to read.

Three rules that make business planning easier:

Before you start your business plan, let's talk about some “rules” that will make the business planning process easier. The goal is to execute your business plan so you can focus on building your business.

1. Keep it short

Business plans should be short and concise. The reasoning for this is twofold:

1. First, you want your business plan to be read (and no one will read a business plan that's 100 pages long, or even 40 pages).
2. Secondly, your business plan should be a tool you use to run and grow your business, something you continue to use and refine over time. An overly long business plan is a major problem to review — you're almost guaranteed your plan will end up in drawers and on desks, never to be seen again.

2. Know your audience

Write your plan using language your audience will understand. For example, if your company is developing a complex scientific process but your prospective investors aren't scientists, avoid jargon or acronyms they won't recognize.

3. Do not be afraid

Did you know that most business owners and entrepreneurs aren't business experts? They don't have a diploma or degree in accounting. They learn as they go and find tools and resources to help them.

Writing a business plan may seem like a major hurdle, but it doesn't have to be. You know your business—you're the expert. For that reason alone, writing a business plan and then using it to drive growth won't be as challenging as you think.

And you don't have to start with the full, detailed business plan that I'm about to outline here. In fact, it can be much easier to start with a plan to Just a one-page business  and then to go back and build a slightly longer, more detailed business plan later.

The rest of this article will dive into the specifics of what you should include in your business plan, what you need to cover, critical financial projections, and links to additional resources that can help you get your plan off the ground.

Executive Summary

Executive Summary Your business plan introduces your company, explains what you do, and specifies what you are asking of your readers. Structurally, it's the first chapter of your business plan. And while it's the first thing people will read, I usually recommend that you write it last.

Why? Because once you've mastered the details of your business inside and out, you'll be better prepared to write your executive summary. After all, this section is a summary of everything else you'll write about.

Ideally, the executive summary can serve as a single document covering the key points of your detailed plan. In fact, this is very common. for investors to seek for only the executive summary when they are evaluating your business. If they like what they see in the executive summary, they will often follow up with a request for a full plan., an opening presentation and more in-depth finance.

Because your executive summary is such an important component of your business plan, you'll want to make sure it's as clear and concise as possible. Cover the key points of your business, but don't go into too much detail. Ideally, your executive summary should be one to two pages at most, designed to be a quick read that sparks interest and leaves your investors eager to hear more.

Critical components of a winning executive summary:

One-sentence business summary

At the top of the page, immediately below your business name, include a one-sentence summary of your business that captures the essence of what you're doing. This may be a tagline, but it's often more effective if the sentence describes what your company actually does. This is also known as Your value proposition. In one or two sentences, summarize the problem you're solving in the market. Every business solves a problem for its customers and fulfills a need in the market. This is your product or service. How are you addressing the problem you've identified in the market?

Target market

Who is your target market?, or your ideal client? How many of them have? 

If you're a shoe company, you're not targeting “everyone” just because everyone has feet. You're most likely targeting a specific market segment such as “classic attire” or “runners.” This will make it much easier for you to focus your marketing and sales efforts and attract the types of customers most likely to buy from you.

Competition

How are you solving your target market's problem today? Are there any alternatives or substitutes on the market? Do business It has a form of competition. And it is important to provide a summary in your executive summary.

Company Overview and Team

Provide a brief overview of your team and a short explanation of why you and your team are the right people to bring your idea to market. Investors place a great deal of weight on the team—even more than on the idea—because even a great idea needs great execution to become a reality.

Financial summary

Highlight the key aspects of your financial plan, ideally with a table showing your sales, expenses, and planned profit. If business model your (i.e., how you earn money) needs additional explanation; you can do it here.

Financing requirements

If you're writing a business plan to secure a bank loan or because you're seeking angel investors or venture capitalists for funding, you need to include the details of what you require in the executive summary. Don't bother including the terms of a potential investment, since they'll always be negotiated later. Instead, just include a brief statement indicating how much money you need to raise.

Key points and appeal

The final key element of an executive summary that investors will want to see is the progress you've made so far and the upcoming milestones you plan to hit. If you can show that your potential customers are already interested, or perhaps already buying your product or service, that's great to highlight.

You can skip the executive summary (or shorten it) if you're writing an internal business plan that's simply a strategic guide for your company. In that case, you can provide details about the management team, financing requirements and the pitch, and instead treat the executive summary as an overview of the company's strategic direction to ensure that all team members are on the same page.

Opportunities

There are four main chapters in a business plan – opportunity, execution, company summary, and financial plan. The opportunity chapter of your business plan is where the real meat of your plan lives. — it includes information about the problem you're solving, your solution, who you plan to sell to, and how your product or service fits into the existing competitive landscape.

You will also use this section of your business plan to demonstrate what sets your solution apart from others, and how you plan to expand your offerings in the future.

People who read your business plan will already know a bit about your business because they read your executive summary. But this chapter is still very important because it's where you expand on the initial summary, providing more details and answering additional questions that you won't cover in the executive summary.

The problem and the solution

Begin the chapter of possibilities by describing the problem you are solving for your clients. What is their main pain point? How are they solving their problems today? Perhaps the existing solutions for your customer's problem are too expensive or burdensome. For a business with a physical location, there may not be any existing solutions within a reasonable driving distance.

Defining the problem you're solving for your customers is by far the most critical element of your business plan and essential to your business's success. If you can't identify a problem your potential customers have, then you may not have a viable business concept.

To ensure that you are solving a real problem for your potential customers, An excellent step in the business planning process is to step away from your computer and into the field. to really go out and talk to potential customers. Assume they have the problem you suppose they have, then take the next step and present your possible solution to their problem. Is it a good fit for them?

After you have described the problem of your target market, the next section of your business plan should describe your solution. Your solution is the product or service you plan to offer your customers. What is it and how is it offered? How exactly does it solve the problem your customers have?

For some products and services, you may want to Describe use cases or tell a story about a real user who will benefit from (and be willing to pay for) your solution.

Target market

Now that you have detailed the problem and your solution in your business plan, it's time to turn your focus toward market your targetedWho are you selling it to? Depending on the type of business you're starting and the kind of plan you're writing, you may not need to go into much detail here. Regardless, you need to know who your customer is and have a… assessment of approximately how many of them there are.If there aren't enough customers for your product or service, this could be a warning sign.

Market analysis and market research

If you're going to make one market analysis, Start with some research. First, identify your market segments and determine how large each segment is. A market segment is a group of people (or other businesses) to whom you can potentially sell.

Don't fall into the trap of defining the market as “everyone.” The classic example is a shoe company. While it would be tempting for a shoe company to say that its target market is everyone who has feet, in reality they must target a specific market segment in order to be successful. Maybe they should target athletes or business people who need formal shoes for work, or maybe they are targeting children and their families. Learn more about targeted marketing at this article .

TAM, SAM and SOM

A good business plan will identify the target market segments and then provide some data to show how quickly each segment is growing. When identifying target markets, a classic method is to use TAM, SAM and SOM the breakdown to view market sizes from a top-down approach, as well as a bottom-up approach.

Here are some quick definitions:

• Total amount: Your total available or addressable market (everyone you want to reach with your product)
• What's the matter? Your Addressable Segmented Market or Available Service Market (the portion of the TAM you will target)
• System of the Month: Your market share (the subset of your SAM that you will actually achieve—especially in the early years of your business)

Once you have identified your key market segments, you should Discuss the trends. For these markets, are they expanding or contracting? Talk about the needs, tastes, or upcoming changes in the market.

Your ideal client

Once you've defined your target market segments, it's time to determine your ideal customer for each segment.

One way to talk about your ideal client in your plan is to use “buyer personality” or “user personality”.  A buyer persona is a fictional representation of your market — they have a name, gender, income level, likes, dislikes, etc.

While this may seem like extra work on top of the market segmentation you've already done, having a strong buyer It will be an extremely useful tool to help you identify the marketing and sales tactics you need to use to attract these ideal customers. .

Key clients

The final section of your target market chapter should discuss the key clients.

This section is really only required for large enterprises that have very few customers. Most small businesses and typical startups can skip this and move on.

But if you sell to other businesses (B2B), you may have a few key clients who are critical to your business's success, or a small group of important clients who are trend leaders in your space. If so, use this final section of your target market chapter to provide details about those customers and how they are important to your business's success.

Competition

Immediately after your target market segment, you should describe your competition .Who else is offering solutions to test and address your customers' pain points? What competitive advantages do you have over the competition?

Most business plans use a “competition matrix” to easily compare their features against their competition. The most important thing to illustrate in this section of your business plan is how your solution is different from or better than the other offerings a potential customer might consider. Investors will want to know what advantages you have over the competition and how you plan to differentiate yourself.

One of the biggest mistakes entrepreneurs make in their business plans is claiming they have no competition.

The simple fact is that all businesses have competition. .Competitors don't always come in the form of “direct competition,” meaning when you have a competitor offering a solution similar to your offering. Often, you may be dealing with “indirect competition,” which is when consumers solve their problem with a completely different type of solution.

For example, when Henry Ford was first marketing his cars, there was very little direct competition from other automakers – there simply wasn't any other vehicle. Instead, Ford was competing against other modes of transportation – horses, bicycles, trains, and walking. On the surface, none of these things seems like real, direct competition, but they were how people at the time would solve their transportation problems.

Upcoming products and services

All entrepreneurs have a vision of where they want to take the business in the future if they succeed.

While it's tempting to spend a lot of time exploring potential future opportunities for new products and services, you shouldn't expand too much on these ideas in your business plan. It's certainly useful to include a paragraph or two about possible future plans to show investors where you're headed in the long term, but you don't want your plan to be dominated by long-range plans that may or may not materialize. . The focus should be on bringing the first products and services to market.

Execution

Now that you've completed the opportunities chapter, you'll move on to the execution chapter, which covers everything about how you'll make your business work. You will cover your marketing and sales plans, operations, how you will measure success, and the key milestones you expect to achieve.

Marketing and Sales Plan

Planned marketing and sales parts of the details of your business plan such as how you plan to reach your target market segments (also called Target marketing ), how you intend to sell in these target markets, what Your plan price is, and what kinds of activities and partnerships you need to make your business a success.

Before you even think about writing your marketing plan, you need to have your target market well-defined and your buyer persona(s) established. Without truly understanding who you're marketing to, a marketing plan will have little value.

Your positioning statement

The first part of your marketing and sales plan is your positioning statement. Positioning is how you will try and present your company to your customers. Are you the low-priced solution, or are you a premium, luxury brand in your market? Do you offer something your competitors don't?

Before you begin working on your positioning statement, you should take some time to assess the current market and answer the following questions:

• What features or benefits do you offer that your competitors don't?
• What are the main needs and desires of your clients?
• How are your competitors positioning themselves?
• How do you plan to stand out from the competition? In other words, why should a client choose you over someone else?
• Where do you see your company in the landscape of other solutions?

After you have answered these questions, you can then work on your positioning strategy and define it in your business plan.

Don't worry about making your positioning statement too long or in-depth. You simply need to explain where your company stands within the competitive landscape and what your core value proposition is that differentiates your company from the alternatives a client might consider.

You can use this simple formula to develop a positioning statement:

For [target market description], who [need the target market], [this product] [how it fulfills the need]. Unlike [the main competitor], [the most important distinguishing feature].

For example, the positioning statement for LivePlan, our business planning product, is: “For the entrepreneur who is starting a new company, launching new products, or seeking funding or partners, LivePlan is software that produces professional business plans quickly and easily. Unlike [name omitted], LivePlan creates a real business plan with real insights – not just cookie-cutter templates or fill-in-the-blank models.”

Price

Once you know what your overall positioning strategy is, you can move on to price .

Your positioning strategy will often be a key driver of how you price your offerings. Pricing sends a very strong message to consumers and can be an important tool for communicating your positioning to them. If you're offering a premium product, a premium price will quickly convey that message to consumers.

Setting your price may feel more like an art than a science, but there are some basic rules you should follow:

• By covering your expenses. Of course there are exceptions to this, but for the most part, you need to be charging your clients more than it costs you to provide your product or service.
• Prices of the primary and secondary profit center. Your initial price may not be your primary profit center. For example, you might sell your product at or even below cost, but require a much more profitable maintenance or support contract to accompany the purchase.
• Measuring the market share . Your prices must align with consumer demand and expectations. If the price is too high, you may have no customers. If the price is too low, people may underestimate your offering.

You can approach your pricing strategy in different ways. Here are some ways to think about your prices and come up with the right strategy for your business:

• Cost-plus price .You can set your prices based on several factors. You can look at your costs and then mark up your offering from there. This is commonly called “cost-plus pricing” and can be effective for manufacturers when covering initial costs is critical.
• Price based on the market. Another method is to look at the current competitive landscape and then price based on what the market expects. You can price at the high or low end of the market to determine your positioning.
• The price of value. However, another method is to look at a “value-based pricing” model where you set the price based on how much value you provide to your client. For example, if you're mowing lawns for busy professionals, you could save your clients one hour per week. If that hour of their time is valued at $50 per hour, your service could charge $30 per hour.

Promotion

With careful pricing and positioning, it's time to review your promotion strategy. A promotion plan details how you plan to communicate with your prospects and customers. Don't forget, it's important that you measure how much your promotions cost and how many sales they generate. Promotional programs that aren't profitable are hard to sustain in the long term.

Packaging

If you are selling a product, The packaging of this product is critical. .If you have images of your packaging, including them in your business plan is always a good idea.

Ensure that the packaging section of your plan answers the following questions:

• Does your packaging align with your positioning strategy?
• How does your value proposition communicate your packaging?
• How does your packaging compare to your competition's?

Advertisements

Your business plan should include an overview of the types of advertising you plan to spend money on. Will you advertise online? Or perhaps in  Traditional, offline media A key component of your advertising plan is your plan to measure the success of your advertising.

Public relations

Taking Media coverage to cover you — PR — can be an excellent way to reach your customers. Getting a Outstanding summary Your product or service can give you the exposure you need to grow your business. If public relations are part of your promotional strategy, detail your plans here.

Content marketing

A popular promotional strategy is engaging in what is called content marketing.

Content marketing is what Bplans is all about. It's when you publish information, tips, and useful advice—usually made available for free—so that your target market can get to know your company through the expertise you provide. Content marketing is about teaching and educating your prospects on the topics they care about, not just the features and benefits you offer.

Social media

These days, having a social media presence is essentially a requirement for the overwhelming majority of businesses. You don't need to be on every social media channel. , But you need to be on the ones where your customers are. Increasingly, prospects are using social media to learn about companies and to find out how responsive they are.

Strategic Alliance

As part of your marketing plan, you can rely on close cooperation with another company in the form of a partnership. This partnership can help secure access to a targeted market segment for your company while allowing your partner to offer a new product or service to their customers. If you already have partnerships in place, it's important to detail those partnerships in your business plan.

Operations

The operations section is how your business works. It's the logistics, technology, nuts and bolts, and everything else. Depending on the type of business you're starting, you may or may not need the following sections. Include only what you need and remove everything else.

Help and fulfillment

If your company is buying the products it sells from other vendors, it's important to include details about where your products come from, how they're delivered to you, and ultimately how you deliver the products to the consumer – this is helpful and fulfillment .

If you are sourcing products from overseas manufacturers, investors will want to know about your progress working with these suppliers. If your business will ship products to your customers, you must describe your plans for transporting your products.

Technology

If you're a technology company, it's important for your business plan to describe your technology and what your “secret sauce” is.

You don't need to give away trade secrets in your business plan, but you should describe how your technology is different and better than other solutions out there. At a high level, you'll want to explain how your technology works. You don't need to go into nitty-gritty details here, although—if an investor is interested in more details they'll ask for them, and you can provide that information in your appendix.

Don't forget, your goal is to keep your business plan as short as possible, so too many details here can easily make your plan too long.

Distribution

For product companies, a distribution plan is an important part of the overall business plan. For the most part, service companies can skip this section and move on.

Distribution is how you get your product into the hands of your customers. Every industry has different distribution channels, and the best way to create your distribution plan is to interview others in your industry to understand what their distribution model is.

Here are some common distribution models you can consider for your business:

Direct distribution

Selling directly to consumers has so far been the simplest and most profitable option.

You can consider passing the savings directly on to your customers or simply increase your profit margins. You'll still need to handle the logistics of getting your products from your warehouse to your customers, but a direct distribution model is usually quite simple.

Retail distribution

Most retailers don't like the hassle of dealing with thousands of individual suppliers.

Instead, they prefer to buy through large distribution companies that gather products from many suppliers and then make that inventory available for retailers to purchase. Of course, these distributors take a percentage of the sales that pass through their warehouses.

Representatives of the producers

These are usually salespeople who work for a rep agency. They often have relationships with vendors and distributors and work to sell your products through the right channel. They typically work on commission, and it's not uncommon for a representative to be required to secure a new company for a distributor or retailer.

Original Equipment Manufacturer

This means “original equipment manufacturer.” If your product is sold to another company that then incorporates it into their finished product, then you are using an OEM channel.

A good example of this is car parts suppliers. While major automakers build large components of their vehicles, they also purchase common parts from third-party suppliers and incorporate those parts into the finished vehicle.

Most companies use a mix of distribution channels as part of their plans, so don't think you have to limit yourself to just one channel. For example, it's very common to sell directly. and the Through distributors — you can buy an iPhone directly from Apple, or go to a Target store and get one there.

Key points and metrics

A business plan is just a document on paper without a real path to getting the work done, complete with a schedule, defined roles, and key responsibilities.

As long as the part of  points and metrics Your business plan may not be long, but it's important to take the time to look ahead and plan the critical next steps for your business. Investors will want to see that you understand what needs to happen to make your plans a reality and that you're working to a realistic schedule.

Start with a quick overview of your points. Main point The main objectives have been planned. For example, if you are manufacturing a medical device, you will have milestones related to clinical testing and government approval processes. If you're producing a consumer product, you might have milestones related to prototypes, finding manufacturers, and receiving the first order.

While the pickets hope, you'll want to take another look at the key achievements you've already made. Investors like to call this a “pull.” What this means is that your company has shown some early signs of success.

The pull could be a few initial sales, a successful pilot program, or a significant partnership. Sharing this proof that your company is more than just an idea—that there is actual evidence it will be a success—can be crucial in securing the funds you need to grow your business.

In addition to milestones and deliverables, your business plan should describe the details. the main measurements that you'll see as your business takes off. Metrics are the numbers you regularly review to judge the health of your business. They are the drivers of growth for business model yours and your financial plan.

For example, a restaurant might pay special attention to the number of table turns it has on an average night and to the ratio of beverage sales to food sales. An internet software company might look at churn rates (the percentage of customers who cancel) and new sign-ups. Every business has key metrics it monitors to track growth and early problems, and your business plan should detail the key metrics you will track in your business.

Key Assumptions and Risks

Finally, your business plan should detail the key assumptions you've made that are important to your business's success.

Another way to think about the key assumptions is to think about risk. What risks are you taking with your business? For example, if you don't have proven demand for a new product, you're making an assumption that people will want what you're building.  If you rely on online ads as your primary promotional channel, you're making assumptions about the costs of that advertising and the percentage of ad viewers who will actually make a purchase.

Knowing what your assumptions are when you start a business can make the difference between business success and business failure. When you recognize your assumptions, you can determine whether they are accurate. The more you can minimize your assumptions, the more likely your business is to succeed.

Company Overview and Team

In this chapter, you will review your company's structure and who the key team members are. These details are especially important to investors, as they will want to know who is behind the company and whether they can turn a good idea into a great business.

Team

The old adage is that investors don't invest in ideas; they invest in people. Some investors even go so far as to say they'd rather invest in a mediocre idea with a great team behind it than in a blockbuster idea with a mediocre team.

What it really means is that running a successful business depends entirely on the work you put in. Can you actually accomplish what you've planned? Do you have the right team to turn a good idea into a great business that will have customers flocking to your doors?

Overview of the company and The team chapter The part of your business plan is where you make your best case that you have the right team to execute your idea. It should show that you've thought about the key roles and responsibilities your business needs in order to grow and succeed.

Include short bios that highlight the relevant experiences of each member of the core team. It's important here to make the case for why this team is the right one to turn an idea into reality. Do they have the right experience and industry background? Have the team members had entrepreneurial successes before?

A common mistake new entrepreneurs make when describing their management team is giving everyone on the team a C-level title (CEO, CMO, COO, etc.). While this may be good for egos, it's often unrealistic. As a company grows, you may seek different types of experience and expertise. Often it's better to reserve title promotions for the future rather than give everyone a top-level title at the start, leaving no room for growth or changes down the road.

Your management team doesn't need to be complete to have a full business plan. If you know you have gaps in your management team, that's okay. In fact, investors see the fact that you recognize you're missing certain key people as a sign of maturity and an understanding of what it takes for your business to succeed. If you have gaps in your team, simply identify them and show that you're looking for the right people to fill specific roles.

Finally, you can choose to include a proposed organizational chart in your business plan. This isn't critical and can certainly live in the appendix of your business plan. At some point, as you explore financing options, you may be asked for an “org chart,” so it's good to have one. Beyond fundraising, an org chart is also a useful planning tool to help you think about your company and how it will grow over time. What key roles will you look to fill in the future, and how will you structure your teams to get the most out of them? An org chart can help you think through these questions.

Company Overview

Overview of of the company It's very likely to be the shortest part of your business plan. For a plan you intend to share only with business partners and team members, skip this section and move on.

For a plan you will share with people outside your company, this section should include:

• Mission statement
• Intellectual property
• An overview of your company's legal structure and ownership.
• Business location
• A brief history of the company, if it is an existing company.

Mission statement

Don't fall into the trap of spending a day or more in mission statement your .An hour or two should be enough time.

Avoid combining a long, general statement about how your company serves its customers, employees, etc. Your company's mission should be short—one or two sentences at most—and it should include, at a very high level, what you are trying to do. Honestly, your mission statement and Your total price proposal They could even be the same thing.

Here at Palo Alto Software (the makers of Bplans), our mission statement is: “We help people succeed in business.” It's simple and encompasses everything we do, from the types of products we build to the kind of marketing we do.

Intellectual property

This mainly applies to technology and scientific enterprises, so just skip this if you don't need to discuss your patents and other intellectual property.

But, if you have intellectual property that is owned by your business and helps your business protect itself against competition, you must detail that information here. If you have patents or are in the process of applying for a patent, this is the place to highlight those patents. Equally important to discuss is technology licensing — if you are licensing essential technology from someone else, you must disclose that in your business plan and be sure to include details of the financial arrangement.

Business structure and ownership

Your company's summary should also include an overview of the current business structure of your company .Are you an LLC ? A corporation ? An S-Corp ? A single owner ? In a partnership ?

Make sure to specify providing a summary of the of how it is owned by the business Also, does each business partner have an equal share in the business? How is ownership divided? Lenders and potential investors will want to know the business structure before considering a loan or investment.

Company history

If you're writing a business plan for an existing company, it's appropriate to include a brief company history and highlight its key historical achievements. Again, keep this section short—no more than a few paragraphs at most.

This section is particularly useful for providing context to the rest of your plan, and it can also be very useful for internal plans. The company history section can provide new employees with a background in the company, so they have a better context for the work they are doing and where the company has come from over the years.

Location

Finally, the company summary section of your business plan should describe your current location and any facilities the company has.

For businesses that serve customers from a retail store, this information is essential. Likewise, for businesses seeking large-scale facilities for manufacturing, warehousing, etc., this information is an important part of your plan.

Financial plan

Last but certainly not least is the financial planning chapter of your business. This is often what entrepreneurs find most frightening, but it doesn't have to be as scary as it seems. finance For most startups, they're less complicated than you think, and a business scale is certainly not necessary for to build a solid financial forecast .That said, if you need additional help, there are plenty of tools and resources out there to help you build a solid financial plan.

A typical financial plan will have Predictions Monthly sales and revenue for the first 12 months, and then annual forecasts for the remaining three to five years. Three-year forecasts are usually sufficient, but some investors will request a five-year forecast.

Below are the details of the financial statements you should include in your business plan, and a brief summary of what should be in each section.

Sales forecast

Forecast your sales It's just that projection of how much you'll sell over the coming years.

A sales forecast is usually divided into several rows, with one row for each core product or service you're offering. Don't make the mistake of waiting for your sales forecast in tantalizing detail. Just focus on the high level at this point.

For example, if Forecast sales for a restaurant. , You can expect your forecast in these groups: lunch, dinner, and beverages. If you're a product company, you can expect your forecast by targeted market segments or by major product categories.

Your sales forecast will also include an appropriate line item for each sales line to cover Cost of Goods Sold , also known as COGS (also called direct cost). These lines show the expenses related to making your product or providing your service. COGS should include only those expenses directly related to making your products, not regular business expenses such as rent, insurance, payroll, etc. For restaurants, it would be the cost of ingredients. For a product company, it would be the cost of raw materials. For a consulting business, it might be the cost of paper and other presentation materials.

Personnel Plan

Your staff plans the details of how much you intend to pay your employees. For a small company, you can list each position in the personnel plan and how much will be paid each month for each position. For a larger company, the personnel plan is usually divided into functional groups such as “marketing” and “sales.”.

The staffing plan will also include what is commonly called “employee burden,” which is the cost of an employee beyond salary. This includes payroll taxes, insurance, and other necessary expenses you will incur each month to have an employee on your payroll.

Income statement or statement of profit and loss

Also known as Statement of income , Profit and loss (or P&L) is where all your numbers come together and show whether you're making a profit or losing money. P&L pulls data from your sales forecast and your staffing plan and also includes a list of all your other ongoing expenses related to running your business. You can download a example Free income statement here. 

P&L also includes a comprehensive “bottom line” where your expenses are deducted from your revenues to show whether your business is profitable each month or may incur some losses during its growth.

A typical P&L will be a spreadsheet that includes the following:

• Sales (or revenue or earnings). This figure will come from your sales forecast worksheet and includes all revenue generated by the business.
• Cost of goods sold (COGS). This number also comes from your sales forecast and represents the total cost of selling your product. For service businesses, this can also be called cost of sales or direct cost.
• Gross margin .Subtract your COGS from your sales to arrive at this figure. Most profit and loss statements also show this figure as a percentage of total sales (gross margin / sales = gross margin percentage).
• Operating expenses .List all your expenses related to running your business, excluding those you have already detailed. You should also exclude taxes, depreciation, and amortization. However, you will include salaries, research and development (R&D) expenses, marketing expenses, and other expenses here.
• Total operating expenses .This is the total of your operating expenses.
• Operating income .This is also known as EBITDA, or earnings before interest, taxes, depreciation, and amortization. It's a simple calculation where you simply subtract your total operating expenses and COGS from your sales.
• Interest, taxes, depreciation, and amortization. If you have any of these expense streams, you would list them under your operating income.
• Total expenses. Add your operating expenses for interest, taxes, depreciation, and amortization to arrive at your total expenses.
• Net profit. This is the all-important bottom line that shows whether you have made a profit or incurred a loss during a given month or year.

Cash flow statement

Overview of cash flow It is often confused with the income statement, but they are very different and serve very different purposes. While the P&L calculates your gains and losses, the cash flow statement records how much cash (bank balance) you have at any given point. Take a Example of a cash flow statement here . 

The key to understanding the difference between the two statements is to understand… the difference between cash and profits. The simplest way to think about it is when you make a sale. If you need to send an invoice to your customer and then your customer takes 30 or 60 days to pay the invoice, you don't have any cash from the sale immediately. But you will have recorded the sale on your P&L and will show a profit from that sale on the day you made it.

A typical cash flow statement starts with the amount of cash you have on hand, adds new cash received from sales and invoices paid, and then subtracts cash you've paid as you pay bills, repay loans, pay taxes, etc. This will then leave you with your total cash flow (cash in minus cash out) and your ending cash, which starts as cash on hand plus cash in – cash out (cash on hand).

Your cash flow statement will show you when you might be low on cash, and when it might be the best time to buy new equipment. Above all, your cash flow statement will help you understand how much money you need to raise or borrow to grow your company. Since an operating business can't run out of cash without having to close its doors, use your cash flow statement to identify your cash low points and consider options for bringing in additional funds.

Statement of condition

The final financial statement that most businesses will need to create as part of their business plan is balance sheets .The balance sheet provides a summary of your business's financial health. It lists your company's assets, liabilities, and equity (owner's). By subtracting the company's liabilities from its assets, you can determine the company's net worth.

Use of funds

If you're raising money from investors, you should include a brief section of your business plan that details exactly how you plan to use your investors' money.

This section doesn't need to go into tantalizing detail about how every last dollar will be spent; instead, outline the main areas where investors' funds will be allocated. These may include marketing, R&D, sales, or perhaps inventory purchases.

Exit strategy

The last thing you need to include in the chapter of your financial plan is a section on your exit strategy .

An exit strategy is your plan for ultimately selling your business, whether to another company or to the public in an IPO. If you have investors, they will want to know your thoughts on this. If you're running a business that you plan to own indefinitely and you're not seeking angel investments or venture capital funding, you can skip the exit strategy section. After all, your investors will want to get a return on their investment, and the only way they'll get it is if the company is sold to someone else.

Again, you don't need to go into any salacious details here, but you should identify some companies that might be interested in buying you if you succeed.

Add-ons

One Appendix to your business plan This isn't a required chapter in any way, but it's a handy place to attach any tables, charts, definitions, legal notes, or other critical information that either feels too long or too out of place to include elsewhere in your business plan. If you have a patent or a pending patent application, or illustrations of your product, you can include the details here.

Source: Business Plans.