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How to Prepare Your Business Plan

NIC Document

Summary


Your business plan can play a key part in accessing the finance you need to get your innovation to market. But it is important to address all the core areas that your potential investors or stakeholders are looking for. This guide outlines the main issues to consider when putting together a business plan with the aim of raising finance.

In brief

  1. Business plan structure
  2. Executive summary
  3. Background and history
  4. Market and market opportunity
  5. Product/service
  6. Summary of intellectual property
  7. Management and personnel
  8. Sales and marketing
  9. Manufacturing process
  10. Financial information
  11. Risk factors
  12. Timescales/strategies

Introduction


A business plan is a useful tool in planning commercialisation and is vital if you wish to gain investment. Finance for your venture comes in two main forms: debt (borrowing) and equity (shares in the ownership of your company). For either form of financing, it is critical that your plan is robust enough to satisfy your investors and creditors. Remember that your investors are taking a risk in you and your idea and will want a return that compensates them for that risk. Grants are another important source of funding and information on grant sources can be found in other ‘how-to’ guides. However most grants require some form of matched funding, so it is likely that you will need to source this through debt or equity funding.

Business plan structure


Financial forecasts tend to be at the core of a business plan. However, detailed plans should be set out in the narrative to support your case and justify any assumptions in the forecasts. The structure of a business plan will depend on what it is intended for and on your company’s circumstances. A typical business plan for a manufacturing company applying for venture capital (equity) financing would be put in the sections outlined below.

>Executive summary


At the front of the plan, your Executive Summary (no more than two pages) should give a concise overview of your proposals. It needs to outline the purpose of the plan and your funding requirements. You should include brief details of your product/service, sales figures, company background and core management team.

Background and history


This section should have a brief history of the company, highlighting any success stories and their relevance to the future. You should describe the capital and ownership structures, including details of present shareholders and any security given to lenders.

Market and market opportunity


Start off by defining the market in which you compete, highlighting its size, anticipated growth and your market share. If there are important trends, explain the reasons behind them. You should describe the nature and distribution of your customers and competition:

  • Customers (who, where, why and when do they buy, typical order size, purchasing habits)
  • Competition (who, where, size, market share, strengths/weaknesses)

Demonstrate that you understand how your customers really behave. If you’ve spoken to key organisations that might buy your product or service, say so. If buying processes are complicated, show that you understand who decides whether or not to buy and who pays. Show evidence for your product or service pricing decisions and have clear and financially appropriate plans for promotion. Also describe the precise need you propose to satisfy. You might, for example, highlight the inadequacies of a current product or service or describe your view of how something can be improved.

Product/service


In this section, your product or service should be described in layman’s terms. The following topics should be covered:

  • Features, advantages and benefits
  • Current status of product
  •  Product market
  • Product lifespan
  • Intelligence on competitors’ products
  • Approval issues (regulations/standards to be met)
  • Future product plans
  • Profitability

Summary of intellectual property


The associated intellectual property behind your company is a critical aspect of the fund raising, transaction and value of the business. This means it is important to present a summary of the IP in the business, the status of its application/protection and its ownership structure.

Management and personnel


Many investors list a ‘strong experienced management team’ as one of their key investment criteria. So your plan must communicate the management’s capabilities and demonstrate they can achieve the objectives they have set. You can attach detailed CVs for the key players as one of the appendices, as well as organisational charts, showing the area and people each manager is responsible for. Identify any areas of deficiency in your team and your plans to cover this weakness. It is not essential to have a complete team in place, but it is important to acknowledge where the gaps are and to specify those roles you plan to fill in detail, with job descriptions written (and added to the appendix). It is useful to outline any time or money you have already invested – this demonstrates your commitment to the business.

Sales and marketing


In this section of the business plan, it is important to show that you understand your market and your role and position in it. Explain how the product will be positioned in the market in relation to the competition. Outline any territorial objectives, e.g., UK only, overseas export. If you are seeking private venture money, investment managers may be concerned if they see a business plan that is based solely on the UK market. State your pricing policy, identifying profit from sales. It is good to show that the pricing policy will allow penetration of the market, increasing your market share. You should clearly define your proposals for advertising and promotion. These could include trade shows, advertising, sales incentives, or promotional literature. Whatever they are, they will cost, so this should be mentioned as a percentage of turnover. Indicate how you expect to sell and distribute your product, for example use of a sales force, distributors, retail shops, internet, licensing and analyse the cost efficiency of each method. You should also consider distribution arrangements for export, with their associated costs.

Manufacturing process


This section should show how the product will be made both now and in the future, giving a brief overview of the process, together with information on the facilities and production capacity. It may be that you plan to outsource manufacturing and you should explain this, together with the availability of this resource and the other company’s credentials. Other details will include:

  • Age of equipment
  • Raw material supply – security and alternatives 
  • Yield/waste ratio
  • Availability of labour
  • Quality control procedures

Financial information


The core of your business plans is usually the financial forecasts which express your intentions in terms of profit and cash. The forecasts will typically be for three years, although they can be longer term for more substantial projects.  You should be very clear in this section about your assumptions governing sales (how many at what price), your costs, your cash flows, and your financing requirements. A good plan will include sales forecasts, a profit and loss forecast and cash flow forecasts and will show how these forecasts alter under difference circumstances (better or worse performance). The forecasts tend to be arranged in the Appendices. However, you should include a summary of the important figures with commentary in this section of the plan.

Risk factors


All new businesses face risk, some of which you can reduce and some that you simply have to be aware of. In this section, list all the things that could go wrong and how you might mitigate them.

Timescales/strategies


In this section, you will set out your company’s objectives in summary form, together with the timescale of major events and the resources needed to achieve them. Stating your timescales and benchmarks not only shows that you have carefully planned the steps of your proposal, but also helps with any subsequent monitoring.