Getting Started

There are many articles and resources available on the Internet explaining how to write a business plan, but
writing a business plan is more than merely following a business plan template or copying someone’s
business plan examples. A business plan can be as simple as a few notes scrawled on a paper napkin. It can
be a 40-page document with multiple sections and subsections describing every minute detail of its
operations, products, and finances.

Writing an effective business plan is easier if you take time before starting the writing process to conduct
your research and gather the information you need to incorporate into it. Business owners of new startups or
established companies can benefit from thinking through and researching such success-determining issues as:

 Marketing strategies
 Regulatory environment
 Capitalization requirements
 Financing opportunities
 Organization
 Risks
 Competition

From this list, you quickly realize that a business plan is more than a document a business uses to get
financing or to attract investors. It is a roadmap of how your business will operate to succeed. Before you can
begin writing your business planning roadmap, you need reliable information about your industry, your
competitors, your product, and your customers for inclusion in it. An industry analysis, competitor analysis,
product feature comparison, and market research will give you the information you need.

How to Conduct an Industry Analysis

Understanding the market and industry in which your company will do business is accomplished through
industry analysis. An industry analysis conducted before you begin to write a business plan will help you to:

 Recognize and analyze ways of reducing business risks

 Identify industry trends including potential problem areas within the industry
 Project capitalization requirements for your business
 Identify product and service trends and opportunities
Industry analysis is specific to the particular industry in which a business is currently operating or plans to
venture. It provides information from which a business owner can create a long-term strategy to minimize
risks and take advantage of growth opportunities.

Porter’s Industry Analysis Method

A method developed by Michael E. Porter of Harvard University has become the most frequently used
method for analyzing any industry to create a strategy to compete within it. According to Porter, five forces
influence all markets and industries.
The five forces are:

 Ease of entry: When new companies can enter an industry with relative ease, those companies already in
operation will love their competitive advantage. Profits will suffer unless existing companies have a way
to block or slow new entries. Government regulation, customer loyalty, and patents and copyrights can be
barriers to new businesses entering a market or industry.
 Power held by suppliers: Suppliers of products, services, or materials that a business needs can affect a
company’s ability to compete. If there are few alternative products or only a few vendors offering the
materials, the suppliers can dictate prices, quantities, and delivery times to businesses that must purchase
from them.
 Power of buyers: Strong customer bargaining power, as in industries where there are many competing
products from which a buyer can choose, can affect a company’s ability to price its products without fear
of losing customers.
 Availability of substitute products or services: If two companies with similar products compete within
an industry, they will each benefit as advertising and marketing by the companies will generally increase
customer demand. For example, two businesses selling different house paint brands will mutually benefit
as customer demand for their products increases due to the competing marketing campaigns. A company
that sells and promotes vinyl siding as a substitute for painted surfaces will reduce the market share’s size
for paint.
 Competitive rivalry: This factor in the analysis takes into consideration the number of competitors in an
industry and their relative strength. An industry with many companies offering similar products will offer
a company little opportunity to control consumers’ or suppliers’ ability from going elsewhere.
Porter believed that an analysis of the five forces that exist in every industry could help forecast a company’s
ability to compete and remain profitable. You will obtain sufficient information on your industry from the five
forces analysis to formulate long- and short-term strategies to incorporate into your business plan.

A business plan for startup companies will benefit from an industry analysis that provides ownership with
information to make decisions and formulate policy in certain key areas. You should be able to answer the
following key questions about the industry and your company’s ability to successfully compete in it when
you have completed the industry analysis:

1. What are the primary economic characteristics of the industry?

2. How strong are the competitive forces that exist within the industry?
3. What trends or changes can be expected in the industry, and from where will they come?
4. What response will competitors make to the entry of a new company into the industry?
5. What are the factors that will determine your company’s ability to succeed?
6. What are the industry prospects for profitability and potential for growth?
7. Will the company compete on a local, national, regional, or international basis?
8. What modifications or changes must be done to the company’s products or services to make them
competitive in this industry?
Industry analysis is not to be confused with a market analysis or a competitor analysis, both of which are
included in a business plan for entrepreneurs. Industry analysis will describe the products offered within a
particular industry and the marketplace parameters concerning economic, regulatory, and political issues. An
industry analysis establishes the marketplace’s scope; a market analysis tells a business owner if a particular
industry’s market will be profitable for a company’s product.

How to do a Competitor Analysis

Competitor analysis is when a business obtains information to identify and learn more about key competitors
to predict how the competition will react. Competitive analysis plays a vital role in strategic planning, so
writing a great business plan becomes easier if you do your research before writing your business plan.

Unlike the competitive rivalry factor of industry analysis, a competitor analysis focuses attention on each
competitor’s strengths and weaknesses instead of focusing on the overall competitive climate within an
industry. A competitor analysis offers a detailed profile of each competitor along with an analysis of
marketing strategies that can be used to counter position your company to improve market share or
profitability.

At the completion of your competitor analysis, you should be able to:

 Identify your primary competition within your industry and marketplace

 Know the company profile of your competitors
 Identify the geographic location in which competitors operate
 Identify competitor’s market share and profitability
 Know and understand your competition’s strategies and objectives
 Identify benefits, such as increased customer awareness, derived from your competitors’ marketing
 How to identify and understand competitor strategies that are successful and those that are not
 How to anticipate your competition’s response to implementation of your strategies and plans
 Learn how to turn your competition’s anticipated response to your benefit
The following steps will guide you through your competitor analysis:

 Create a list of your current and future competitors

 Gather data and information about your competitors, their products, and their marketing and pricing
strategies
 Review and analyze the data
 Create a list of your competitors’ strengths and weaknesses
 Create strategies to take advantage of competitors’ weaknesses while a minimizing threats posed by their
strengths
Sources of Competitor Information

Information for competitor analysis is available from several sources, including news stories and press
releases, advertising, company websites, promotional campaigns, patent and copyright applications, price
lists, and, in the case of publicly traded companies, annual reports, and SEC filings.
Sometimes, getting information about a competitor might require a bit of sleuthing on your part. If your
competitor has a store that is open to the public, no rules are prohibiting you from visiting it and taking a look
around. Becoming a member of a competitor’s mailing list to receive promotional material and updates on
new products and pricing is a quick and easy source of information.

The information gathered about competitors might not seem like much when looked at separately, but it can
be mosaic-like in what it reveals about your competition when viewed as a whole. A random conversation
with a supplier might reveal information about a change in a competitor’s product line. The point is to take
advantage of every opportunity to acquire data about the marketplace in which your business operates. It
might reveal something about your competitors that could be used in developing or refining your marketing
strategy.

The Key Elements in Writing a Business Plan

The answer to the question “How do you write a business plan?” depends upon the type of business and the
purpose for which you are going to use it. Too many business owners think of a business plan as they need to
convince a bank to lend their company a loan or convince a venture capitalist to invest in it.

In fact, business plans come in all shapes and sizes, depending upon the audience for which the plan is
intended. For example, a startup company would want a business plan containing all of the bells and whistles
to serve as a comprehensive guide for the new owners and management. Should the time come when
financing is needed for new equipment or expansion, a revised business plan that focuses on the company’s
financial growth and ability to repay, the debt would be needed.

Business plans are written with an audience in mind. Internal business plans are written for a company’s
management team to use as an operational guide. It can also be written with a specific project in mind to
allow owners and managers to evaluate its feasibility and profitability. These types of plans might include
projections about profitability and growth ten or more years into the future.

External plans are written for the benefit of an audience located outside of the company. Prospective
investors or venture capitalists and lending institutions are examples of the types of audiences for which
external business plans are created. These types of plans are created to answer a question or address a
particular problem. For instance, prospective investors want a business plan that demonstrates their future
growth and profitability to generate a return on their capital investment.

How to Write a Business Plan

Too many businesses start with inadequate planning. No one goes into business to lose money. If you start a
business, you expect that it will be profitable and succeed. Writing a business plan forces you to focus on the
strategies that will make your business a successful one. That is why learning how to write a plan is important
for new businesses or established businesses that might be venturing into new markets or launching new
products.
Business plans come in all shapes and sizes, so what you choose to include in your business plan will depend
upon your audience, the question it seeks to answer or the problem it seeks to resolve, and your personal
preferences. The most frequently included elements of a business plan are the following:

1. Executive summary
2. Business description
3. Business environment analysis
4. Industry analysis
5. Competitive analysis
6. Market analysis
7. Marketing plan
8. Operations plan
9. Team and management plan
10. Financial projections
11. Appendix

The Executive Summary

Regardless of the business plan format chosen, the executive summary always appears first in the document.
Its purpose is to educate and inform the reader about the company. It should explain where the company is at
present, where it is going, and how it plans to succeed. In a plan prepared for an external audience, such as
investors or bankers, the executive summary is the first opportunity the business owner has to engage the
reader’s interest.

Even though it appears first in a business plan, the executive summary should be written last. The executive
summary is a snapshot of your business plan that a reader can quickly look at to become acquainted with your
business. Writing it last allows you to highlight your plan’s strengths in the first section your audience reads.

Your executive summary should include the following information

 Mission Statement: This explains to the reader why your company exists. Its mission statement should
guide the activities of your company.
 Company Information: This is a brief statement giving a historical perspective of your company. It
should include the date of formation, locations, company founders, and current employees.
 Highlights: This is an opportunity to tell the reader about profit or market milestones achieved by the
company since its inception.
 Products and Services: Briefly mention and describe the company’s products or services.
 Financial Information: This section is particularly important for companies seeking financing and should
include mention of bank references and investors.
 Future Projections: Explain the direction in which ownership and management plan to take the business.
Remember that even though it might be the last thing you write for your business plan, the executive
summary is the first thing people will read. You have to grab the reader’s attention and hold it. Think of the
executive summary as a highlight reel showcasing your business. One of the reasons for saving the executive
summary until last to write is to give you the chance to include the best parts from each of the sections of
your business plan in it.

Write the executive summary with a particular audience in mind. If you are trying to attract investors, you
should focus on those sections of your business plan that establish how your company’s product fills a
consumer need. Reference the market research and marketing strategies that demonstrate how your company
will take advantage of this.

After completing the executive summary, read it aloud. It should convey your intended message is clear,
unequivocal terms that flow without sounding like a sales pitch.

Business Description

A business description tells the reader more than simply, “We sell things.” This section of the business plan is
an overview of the company, including its legal structure, its owners and management, a brief company
history, information about the products or services it offers, markets the company will serve and other
information to demonstrate how the company plans to introduce its product into the marketplace.

The purpose of the business description is to help a reader to quickly grasp the goals the company has set
and how it intends to meet those goals. By the time people are finished reading, they should have a clear
picture of the nature of the company’s business, its business structure, its goals and objectives, and its
strengths and advantages.

Begin the description with a few sentences that give a capsule view of the company, its product, and its
position in the industry in which it competes. This is an elevator pitch to get the reader interested in learning
more about the company. Let the reader know if this is a new venture or a business for a while.

The business description should continue with a statement about the type of business structure adopted by the
company. Explain whether it is a corporation, partnership, sole proprietorship, or limited liability company,
and list the principals’ names along with brief profiles for each one showing how their presence benefits the
company.

Part of the business’s description should include information about the company’s products and services, the
potential customers, supply and distribution channels, competitive advantages offered by product features,
and how the company plans to exploit those advantages. End the business description by explaining the
specifics of how the company plans to be profitable.

The business description section of a business plan should not be overly long. Depending upon the
company’s size and the number of products offered by it, a description that is one to two pages in length
should suffice.
Business Environment Analysis

Business planning is an ongoing process that does not begin and end with writing a business plan.
Periodically taking stock of how a company is doing is essential to ensuring that it meets its goals and will
become or continue to be successful and profitable. A business plan should be flexible by incorporating tools
to analyze company performance compared to other industry businesses.

A business environmental analysis accomplishes section accomplishes this by providing useful information to
management and company owners. Analyzing this data allows the management team to identify those plans
and strategies that are not.

The environment in which a company operates involves internal and external factors that influence how
business is conducted. Internal factors include a company’s business culture, its organizational structure, and
the methods by which it is managed. External environmental factors might include government activities such
as laws and regulatory actions, economic changes such as recessions, social trends and movements that shift
consumer preferences, and innovations in technology that can help or damage a business’s profitability and
productivity.

A systematic process of analyzing the environment to identify those environmental factors affecting a
company determines its impact on the business and developing strategies to take advantage of them or limit
their effects. After a business has implemented a strategy, the process will monitor the business environment
to ensure that it is working and does not require modification or change.

Business plan tools that give management a constant source of current and accurate information about the
marketplace and the industry and competitive forces at work in both are essential to an effective analysis of
the business environment. Three of those tools are the industry analysis, the competitor analysis, and the
market analysis that should be included when writing a business plan.

Industry Analysis

The industry analysis you performed before sitting down to write your business plan can be incorporated into
it to provide data on the industry and markets in which your company conducts business. Drawing upon the
data you collected using the various industry analysis resources mentioned earlier allows you to identify the
risks and opportunities confronting the company as it prepares to enter the marketplace with its products or
services. This information permits you to develop strategies to take full advantage of business opportunities
while minimizing or avoiding the identified risks.

When written as a section of a company’s business plan, an industry analysis can be presented as a
five-step process.

 Step 1: Give a brief overview of the industry. Define the industry in terms of historical background, the
geographic area it services, and its products.
 Step 2: Review trends and growth patterns that have existed within the industry.
 Step 3: Identify factors that influence the industry. These might include government regulatory policies
and competitive practices of other businesses.
 Step 4: Using data gathered through research, the industry forecast anticipated growth. The predictions
should be both long- and short-term.
 Step 5: Describe how your company will position itself within the industry. Focus on how your company
can take advantage of opportunities identified within the industry.

Competitive Analysis

You want your business plan to tell you how your company compares to others in the industry. It is difficult
to predict how your company’s product or service will perform in the marketplace without knowing what
your competitors are doing. A competitive analysis section draws upon the research you did before writing
your business plan to offer the data and analysis to support your performance assumptions.

Writing an effective competitive analysis can be accomplished in five steps. Keep in mind that the data you
will need about your competitors should have been gathered earlier when you conducted the industry analysis
before starting work on creating your business plan.

 Step 1: Identify and list your competitors. You can do this in paragraph format or a spreadsheet. You
should include each competitor’s name and location along with the products they offer, sales volume,
market share, pricing information, marketing strategy, and other details of their business.
 Step 2: List your competitors’ strengths and weaknesses.
 Step 3: Analyze the strengths and weaknesses of your company. Focus on how your company can exploit
its strengths while overcoming or minimizing identifiable weaknesses.
 Step 4: Describe your company’s role in the marketplace. Explain how your company can compete for a
market share, given the information you acquired about your competitors. This is where you support
marketing decisions and strategies with the data you previously gathered through your marketing
research, product feature comparison, competitive analysis, and industry analysis.
 Step 5: Give a detailed description of your company. Use this opportunity to describe how ownership,
management, location, business structure, and other resources possessed by your company will allow it to
succeed in the marketplace.

Market Analysis

You should use this section of your business plan to describe the market into which you intend to introduce
your company’s products or services. This is where you draw from the data you collected earlier when you
did your preliminary market analysis before getting to work on preparing your company’s plan.

Ideally, the market analysis should offer an overview of the marketplace, the positions held by your
competitors, and other facts to support your company’s strategies about marketing, production, and
distribution.

Some of the key topics that should be addressed in this section include:

 A description of the industry and the market. This should include information about projected growth,
potential changes in consumer demand, and anticipated trends or cycles that could affect product
performance.
 Describe your customers. Describe the customer need that the product or service satisfies. Provide
demographics about your customers and show how the product your company offers falls within those
demographics.
 How big is the market? If your market research shows that the market has been shrinking, a decision to
enter or continue in the market should be supported by research supporting a prediction for future growth.
 Describe and explain the pricing structures of your company and its competitors. Describe how your
marketing and pricing will give your company an advantage in the market, or describe what changes must
be made to give your company an edge.
 The data collected in the competitive analysis can be incorporated into the market analysis to show how
your company will compete with other companies offering the same or similar products or services.

Marketing Plan

The purpose of a company’s marketing plan is to attract customers willing to purchase a particular product or
product line. Creating a market for the product or service your company offers began with the business
environment analysis and continues by developing a marketing strategy. A marketing strategy must be
flexible and should be evaluated periodically to determine if it must be reworked due to changes in the
marketplace.

Marketing plans frequently include strategies for four stages.

 Penetration strategies represent the company’s plans for its initial entry into the market.
 Growth strategy builds upon a product’s success by introducing it to different users or into new markets.
 Another strategy analyzes new or alternative methods of distributing a company’s product to increase
sales, such as hiring salespeople or developing new retail outlets.
 The fourth strategy controls the communications process between the company and its customers.
Methods of advertising and audiences to be targeted are just two of the issues that a communications
strategy should address.
The strategies created by a company under its marketing plan are affected by or affect other aspects of the
business plan. For instance, a business’s decision to expand into new markets by acquiring a company already
selling in the new market might be hampered by a lack of capital to complete the transaction. It might force
the company to seek additional capital by adding investors or borrowing money.

Operations Plan

The operations plan is closely tied to the team and management plan section of a business plan. An operations
plan is the engine that runs the machine you call a business. Without an operations plan, nothing else in your
business plan will get done. The operations section of a business plan created to obtain bank financing or
some other external purpose does not require the details to go into a plan that will guide ownership and
management in running the business.
This section should be crammed with details and instructions to direct people within the business’s day-to-
day operations. The personnel covered in the team and management plan section of a business plan should
refer to the operations plan to carry out the strategies and tasks needed to run the business.

An effective way of including an operations plan when writing a business plan is to combine it into a single
section entitled “Operations and Management Plan.” Writing the section begins with creating an organization
chart showing each business member’s title, duties and responsibilities, and supervisory role.

Team and Management Plan

The people who make up your ownership and management team focus on the team and management portion
of a business plan for entrepreneurs. Whether intended for internal or external use, readers of this section of a
business plan should have a clear understanding of who is in charge. The length and complexity of this
section will depend upon the size of the company. The business plan written by a sole proprietor will be much
shorter than one prepared for a corporation with multiple management teams, a board of directors, and
multiple locations.

The team and management section includes a list of owners and key management personnel and a description
of the role each plays in running the organization, the compensation and benefits each one receives, and the
criteria used for giving promotions and increasing compensation. Brief biographical information for each of
the owners, key personnel, and members of the board of directors offers readers insight into the qualifications
each person brings to the organization.

Other information about the company that should be included in this section includes:

 Business structure
 Length of time business has existed
 Mission statement and values
 Background and history of the company

Financial Projections

This section of the business plan provides readers with a picture of where your company has been and where
it is going from its finances. Established companies should include financial data on past performance.
Banks, venture capitalists, and other lenders usually want at least three years of financial data, but some
might want to see up to five years of information.

Financial data that should be included in the plan include income and cash flow statements and balance
sheets. Some lenders might ask to include accounts receivable statements, accounts payable statements, and
documentation of other company debt obligations.

Regardless of how long a company has been in existence, this section must include projections of its future
financial picture. These projections must be supported by data the company has compiled through its research
and analysis of the industry, competitors, markets, and products.
Financial forecasts should include the following documents:

 Statements of projected income

 Balance sheets
 Cash flow statements
 Capital expenditure budgets
Assumptions that a company makes about future market trends or other factors that could influence the
financial projections should be explained. People outside of a company want to see that financial projections
in a business plan are supported by accurate data or an analysis based on assumptions having a historical
basis.

Financial projections can be supported by graphs, charts, credit history, order history, reference letters, or
anything that a business believes will lend credibility and support the plan’s predictions. Such items might
work best if they are included in the appendix section of the plan.

Appendix

The information supporting projections, strategies, and assumptions made in a business plan will be found
within the body of each section of it. An appendix usually contains financial information to which company
owners and managers might want to limit access. For example, a company that prepares a plan specifically to
obtain lender financing could use the appendix to submit tax returns, credit histories, and confidential data
such as customer information only to those lenders requesting it. It can also be used for supporting reports,
photographs, and other information that takes up more than a couple of pages.

An appendix should begin with a table of contents corresponding to the organization of the business plan
sections. Even if it only contains information on some but not all sections of the plan, the appendix should
always be located after its last section.