What is a Business Plan? A Layman’s Guide

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Have you ever written down your business idea, goals and some methods of achieving those goals? Then you’ve written a business plan! Well, at least a very simplified version of it.

The concept of a business plan is really that simple. Starting a business seems to come with various daunting tasks, with the business plan being one of the major parts. But it doesn’t necessarily have to be so intimidating with a proper understanding of what a business plan is and why you’re writing one.

The core concepts of a business plan

The simplest way to understand and approach a business plan is to learn that it aims to do one thing: understand your business’s goals and the ways in which you intend to achieve those goals.

As a simple example, a business plan for a bakery can essentially be boiled down to the following major points:

Concept: A physical store that sells baked goods in Brunswick.
Goal: Become the biggest and most reputable bakery in Brunswick.
Plan: By selling large quantities of baked goods, delivering quality customer service, hiring and rewarding well-experienced bakers, and utilising digital and print marketing techniques.

This was already in your head and you didn’t think such common-sense statements could be considered part of a business plan. At the end of the day, though, this is precisely what business plans are meant to be about.

You may be asking, “If it’s really that simple, why are the example business plans I’ve seen so long and complicated? And why do I need help writing it?” This is like asking, “Why should I buy a bed when I can easily learn how to build one myself?”

The answer might depend on your attitude, personality and business. You might be lazy, you might feel intimidated, or just the thought of writing a detailed business document could make you feel nauseous. But after all, the biggest reason you invest your time and money into business plans is because you want the best quality plan that represents your business as accurately as possible, and to help you learn about your business along the way.

The characteristics of business plans

Before we get to the sections that are included in a business plan, let’s first understand the qualities of a good business plan.

Business plans are written for specific audiences.

The purpose of the business plan determines the audience of it, and together they determine the style, length and other details surrounding your business plan.

If you’re writing a business plan for your small business idea in order to keep your current thoughts and plans in a neat form, it is most likely going to be straight to the point. You could skip quite a large number of the sections in a standard business plan template and have a very basic, minimal version of it.

Business plans can also be written to be presented to potential investors who may be interested in funding your business, or to attract the right kinds of talent when seeking contractors and employees. They can also be used to seek partnership or other business opportunities. In these cases, your business plan is going to have as much detail as possible, to not only showcase your business in the most accurate light, but also to show its great growth potential.

Business plans are rational.

If done well, your business plan becomes your bible, diary schedule, and guide to success. A great business plan template prompts you to consider things you haven’t considered before, as you are writing it. Writing a business plan can then become a great way to think rationally about your ideas. For example, after writing down your goal of “becoming a household name in the IT industry in the next 2 years”, being prompted to write down your plans to get there might help you to see if your goal is realistically achievable.

Business plans are factual.

When writing a business plan, you are writing down facts about your business. Sure, goals aren’t facts; But the details of the plans to achieve the goals are an accurate representation of the state and health of your business. Especially when you are planning for a great future of your business and trying to attract the right business opportunities or growth opportunities, holding back on details such as financials can have a detrimental effect. You wouldn’t want to write a whole business plan based on a false budget now, would you?

Business plans are cautious.

Great business plans help you to plan out your business activities every step of the way and visualise the difficulties that may arise down the road. This could be a problem with budgeting or required marketing activities vs available funds, growth plans vs number of staff, or the possibility of your competitors catching up. Business plans help you to consider all these elements to put in some measures to shield your business from potential vulnerabilities.

Sections included in a business plan

All business plans are different, depending on the purpose, audience and the structure of the business. However, most, if not all, business plans include the following essential components. This section of the article will go through each critical section of a business plan accompanied by a simple explanation.

Executive/Business Summary

The executive summary section outlines the most important aspects of your business and what’s included in the rest of your plan. For those seeking investors, the summary is a critical ‘first impression’ page that will either intrigue the potential investors to read further or switch off.

Business Overview/Description

This section provides information on the following components of your business:

Structure: sole trader, partnership, company, etc.
Background: the background of the owners or directors that benefit the business
Licenses and registrations: any official registrations in place that are required in running the business or optional
Location: information about the location and the premises of the business
Staff: how many staff you have, their position within the org chart and additional information about them that might be required (e.g. expected turnover rates)
Products/services: information about the products and services your business provides, what problem they solve and how. How your products differ from the competition and foreseeable development plans. The products and services section can be considered as its own chapter of the business plan.

The Market

The target market section of your business plan is about your current and potential customers. It details your market research findings – who your customers are, where they are, where they buy your products and services, what entices them to let your business solve a problem they’re having. It also outlines your marketing targets/goals and the strategies that are and will be implemented to meet those targets. This section also explains how you plan to maintain or improve your position against the competition.

Goals and Milestones

This section is all about the future of your business. What goals do you have? What targets do you want to achieve? How will you achieve them? And how will they be measured? It is about laying out the concrete milestones that you plan to achieve, accompanied by the key metrics that will be used to measure your achievement, actual dates, and responsible staff.

The Finance

The financial plan section of your business plans details how much your business is making, how you’re planning to fund your business activities in order to achieve the goals you’ve set, how much it costs to operate the business and put in growth activities, and the financial projections. The more detailed this section, the better it is for you to understand the financials of your business in detail and accurately represent its potential to investors. This is the section where you explain how much you need to get things started or to expand your business.

Example questions to answer in a business plan

Now that you understand the big picture points that a business plan should show and the sections that are included, let’s get back to the bakery example from the beginning of this article. What kind of questions would a business plan about a bakery answer? Bringing the above sections together, below are just some of the key information that this particular business plan will provide.

Concept: A physical store that sells baked goods in Brunswick.

Who is this store owned by?
How is the business structured? Is it a company? Partnership?
What registrations and licenses do you have?
Do you have a website? If so, what is the website address?
What kind of baked goods are you selling?
Who is running the bakery and who are the staff?

Plan: By selling large quantities of baked goods, delivering quality customer service, hiring and rewarding well-experienced bakers, and utilising digital and print marketing techniques.

How do you intend to hire experienced bakers?
How do you intend to keep them? Do you provide any training?
How much is a large quantity?
Do you have any money to buy the ingredients?
How much are your baked goods? Do you have pricing strategies?
Why should customers buy from you? What do they get out of it?
Do you have any secret recipes?
Who is most likely to buy from your bakery? Who are you selling to?
Do you know if bakeries are popular in Brunswick?
How do you intend on getting the required ingredients?
What will be your bakery’s opening hours?
Are there any other bakeries in the area?

A great business plan should answer all the above questions and more, and leave the reader with a very detailed and clear understanding of the business, its goals, plans and potential.

Now that you understand the core sections of the business plan, it’s time to test what you’ve learnt! Take the quiz below to see if you’ve gained an adequate understanding of business plans. When you’re ready, move onto the next articles in the ‘Business Plan Series’. Learn why you should write a business plan, who should write it, who will read it and how often you should review it.

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