Chapter 6

Writing a Business Plan

Bruce R. Barringer
R. Duane Ireland
Chapter Objectives

1. Explain the purpose of a business plan.

2. Describe who reads a business plan and what they are
looking for.
3. Discuss the guidelines to follow to write an effective
business plan.
4. Identify and describe a suggested outline of a
business plan.
What Is a Business Plan?

• Business Plan
– A business plan is a written narrative, typically 25 to 35
pages long, that describes what a new business plans to
accomplish.

• Dual-Use Document
– For most new ventures, the business plan is a dual-purpose
document used both inside and outside the firm.
Reasons for Writing a Business Plan

There are two primary reasons for writing a firm’s

business plan
Who Reads the Business Plan—And
What Are They Looking For?
There are two primary audiences for a firm’s business plan

Audience What They are Looking For

A Firm’s A clearly written business plan helps the

Employees employees of a firm operate in sync and move
forward in a consistent and purposeful manner.

Investors and A firm’s business plan must make the case that the
other External firm is a good use of an investor’s funds or the
Stakeholders attention of others.
Guidelines for Writing a Business Plan

• It is important to remember that a firm’s business plan is typically

the first aspect of a proposed venture that an investor will see.
• If the plan is incomplete or looks sloppy (careless) the investor
will infer that the venture itself is incomplete and sloppy.

• Structure of the Business Plan:

▪ To make the best impression, a business plan should follow a
conventional structure.
▪ Although some entrepreneurs want to demonstrate creativity,
departing from the basic structure of the conventional business plan
is usually a mistake.
▪ Investors are busy people and want a plan where they can easily find
critical information.
Guidelines for Writing a Business Plan

• Content of the Business Plan:

▪ The business plan should give clear and concise information on all
the important aspects of the proposed venture.
▪ It must be long enough to provide sufficient information yet short
enough to maintain reader interest.
▪ For most plans, 25 to 35 pages is sufficient.

• After a business plan is completed, it should be reviewed for

spelling, grammar, and to make sure that no critical information
has been omitted.
Guidelines for Writing a Business Plan

Types of Business Plans

There are three types of business plans
Guidelines for Writing a Business Plan

• It is important to recognize that the plan will usually change

while written.
• New insights invariably emerge when an entrepreneur or a
team of entrepreneurs immerse themselves in writing the plan
and start getting feedback from others.
• A Cover Letter should accompany a business plan sent to an
investor or other stakeholders through the mail.
▪ The cover letter should briefly introduce the entrepreneur and
clearly state why the business plan is being sent to the individual
receiving it.
Cover Page and Table of Contents
• The cover page should include the company’s name, address, and
phone number; the date; the contact information for the lead
entrepreneur; and the company’s website address if it has one.
• The company’s Facebook page and Twitter name can also be
included. This information should be centered at the top of the page.

• The bottom of the cover page should include information alerting

the reader to the confidential nature of the plan.
• If the company already has a distinctive trademark, it should be
placed somewhere near the center of the page.

• A table of contents should follow the cover letter. It should list the
sections and page numbers of the business plan and the appendices.
Section 1: Executive Summary

• The executive summary is a short overview of the entire

business plan.

• It provides a busy reader with everything that needs to be

known about the new venture’s distinctive nature.

• An executive summary should not exceed two single-spaced

pages.

• Even though the executive summary appears at the beginning

of the business plan, it should be written last.
▪ The plan itself will evolve as it is written, so not everything is
known at the outset.
Section 1: Executive Summary

Key Insights
• In many instances an investor
will ask for a copy of a firm’s
executive summary and will ask
Executive Summary
for a copy of the entire plan only
if the executive summary is
sufficiently convincing.

• The executive summary, then, is

arguably the most important
Section 2: Industry Analysis

• This section should begin by describing the industry the

business will enter in terms of its size, growth rate, and sales
projections.

• Items to include in this section:

▪ Industry Size, Growth Rate, and Sales Projections
▪ Industry Structure (Fragmented vs Concentrated)
▪ Nature of Participants
▪ Key Success Factors
▪ Industry Trends
▪ Long-term Prospects
Section 2: Industry Analysis

Key Insights
• Before a business selects a
target market it should have a
good grasp of its industry—
including where its promising
Industry Analysis areas are and where its points of
vulnerability are.

• The industry that a company

participates in largely defines
the playing field that a firm will
participate in.
Section 3: Company Description

• This section begins with a

general description of the Key Insights
company.
• While at first glance this
• Items to include in this section: section may seem less
▪ Company Description important than the
▪ Company History others, it is extremely
▪ Mission Statement important.
▪ Products and Services
▪ Current Status • It demonstrates to your
▪ Legal Status and Ownership reader that you know
▪ Key Partnerships (if any) how to translate an idea
into a business.
Section 4: Market Analysis

• The market analysis breaks the industry into segments and

focuses in on the specific segment (or target market) to which
the firm will try to appeal.

• Items to include in this section:

▪ Market Segmentation and Target Market Selection
▪ Buyer Behavior
▪ Competitor Analysis
▪ Annual sales and market share
Section 4: Market Analysis

Key Insights
• Most start-ups do not service their entire
industry. Instead, they focus on servicing a
specific (target) market within the industry.
Market • It is important to include a section in the
Analysis market analysis that deals with the behavior
of the consumers in the market.

• The more a start-up knows about the

consumers in its target market, the more it
can tailor its products or services
appropriately.
Section 5: The Economics of the Business

• This section addresses the basic logic of how profits are

earned in the business and how many units of a business’s
profits must be sold for the business to “break even” and then
start earning a profit.

• Items to include in this section:

▪ Revenue Drivers and Profit Margins
▪ Fixed and Variable Costs
▪ Operating Leverage and its Implications
▪ Start-up Costs
▪ Break-even Chart and Calculations
Section 6: Marketing Plan

• The marketing plan Key Insights

focuses on how the • The best way to describe a start-up’s
business will market and marketing plan is to start by
sell its product or service. articulating its marketing strategy,
positioning, and points of
• Items to include in this differentiation, and then talk about
section: how these overall aspects of the plan
▪ Product, Price, Promotions, will be supported by price,
and Distribution promotional mix, and distribution
▪ Sales Process (or Cycle) strategy.
▪ Sales Tactics
• It is also important to discuss the
company sales process.
Section 7: Design and Development Plan

• If you are developing a completely new product or service,

you need to include a section in your business plan that
focuses on the status of your development efforts.

• Items to include in this section:

▪ Development Status and Tasks
▪ Challenges and Risks
▪ Projected Development Costs
▪ Proprietary Issues (Patents, Trademarks, Copyrights, Licenses,
Brand Names)
Section 8: Operations Plan

• Outlines how your business will be run and how your product
or service will be produced.

• A useful way to illustrate how your business will be run is to

describe it in terms of “backstage” (unseen to the customer)
and “front stage” (seen by the customer) activities.

• Items to include in this section:

▪ General Approach to Operations
▪ Business Location
▪ Facilities and Equipment
Section 8: Operations Plan

For example, if you are opening a new fitness center, the backstage
and the front stage issues might be broken down as follows:
Section 9: Management Team and
Company Structure
• The management team Key Insights
of a new venture
typically consists of the • This is a critical section of a
founder or founders business plan.
and a handful of key
management personnel. • Many investors and others who
read the business plan look first at
• Items to include in this the executive summary and then
section: go directly to the management
▪ Management Team team section to assess the strength
▪ Company Structure of the people starting the firm.
Section 10: Overall Schedule
• A schedule should be prepared
that shows the major events Key Insight
required to launch the business.
• The schedule should be in the • An effectively prepared
format of milestones critical to and presented schedule
the business’s success. can be extremely helpful
in convincing potential
• Examples of milestones: investors that the
▪ Incorporating the Venture management team is
▪ Completion of Prototypes aware of what needs to
▪ Rental of Facilities take place to launch the
▪ Obtaining Critical Financing venture and has a plan in
▪ Starting Production place to get there.
▪ Obtaining the First Sale
Section 11: Financial Projections

• The final section of a business

plan presents a firm’s pro forma Key Insights
(or projected) financial
projections. • Having completed the
earlier sections of the plan,
• Items to include in this section: it is easy to see why the
▪ Sources and Uses of Funds financial projections come
Statement last.
▪ Assumptions Sheet
▪ Pro Forma Income Statements • They take the plans you
▪ Pro Forma Balance Sheets have developed and express
▪ Pro Forma Cash Flows them in financial terms.
▪ Ratio Analysis
Appendix

• Any material that does not easily fit into the body of a
business plan should appear in an appendix—résumés of the
top management team, photos or diagrams of product or
product prototypes, certain financial data, and market
research projections.

• The appendix should not be bulky and add significant length

to the business plan.

• It should include only the additional information vital to the

plan but not appropriate for the body of the plan itself.
Putting it all Together

• In evaluating and reviewing the completed business plan, the

writers should put themselves in the reader’s shoes to
determine if the most important questions about the viability
of their business venture have been answered.

• Table 6.4 lists the 10 most important questions a business

plan should answer. It’s a good checklist for any business
plan writer.
Putting it all Together