Practical example of a 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.

1. Executive Summary
1. Business Overview
2. Market Overview
3. Financial Highlights
 4. Our Ask
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 Mittigants
6. Operations
1. Personnel Plan
2. Key Assets and IP
3. Suppliers
7. Financial Plan
1. Start-up Funding
2. Important Assumptions
3. Sales Forecast
4. Cost Structure
8. Appendix

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

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:

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 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:
 Table: key assumptions for an e-commerce site

Average basket Customer acq. Cumulative

Base case impact cost impact 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 £12,000 £10,800 £12,000 £10,800

(30% margin)

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

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

cost

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:

• 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!

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