A well-thought-out business plan is an essential element for a business’s success. Without a business plan, it’s challenging to stick to a vision and identify the next step your business should take. A business plan is more or less a litmus test to prove that each action taken is part of a bigger planned effort.
Nevertheless, coming up with a business plan can be challenging. In this article, we’ll go through how to write a business plan and the details to include.
What Is A Business Plan?
A business plan refers to a formal document that details your business’ objectives and how you’ll achieve them. Research from Harvard Business Review suggests that developing a business plan increases an entrepreneur’s likelihood of success by 16%. Coming up with a business scheme guarantees:
- Sustainable success
- Offers guidance as your business grows
- Validates your venture
- Helps to secure funding
What Are The Major Uses Of A Business Plan?
Many service providers and financial institutions require entrepreneurs to provide a detailed business plan to get funding for their business. Online businesses usually have a low overhead when starting; therefore, most owners won’t feel the need to develop a business plan.
That notwithstanding, coming up with a business plan is still essential as it can assist you in securing a significant increase on your credit card limit as the business expands or when opening a business account.
If you’re expanding your business, use it to aid you in raising expansion funds, developing an expansion strategy, mitigating risks, and finding opportunities. According to Palo Alto Software, companies with business plans are twice as likely to get funding than those without.
If you’re just starting in the business world, having a business plan can aid you in identifying your weaknesses and strengths, developing precise predictions, and communicating your vision.
Things To Consider Before Writing A Business Plan
Know your intended audience. For instance, if your company operates in a niche environment, you don’t want to use your niche’s complicated language if the plan will be reviewed by investors or lenders who don’t know much about your niche.
Additionally, keep in mind the length of the plan as you’re writing — keep it as brief as possible. However, some readers may want to see more information, while others might require high-level details solely.
For instance, an underwriter assessing your business will require less information than a prospective business partner. But, that doesn’t mean you go overboard and develop a 50-page plan.
Choose A Format (Conventional Vs. Lean Startup)
There are two ways to write a business plan. The most common method is the conventional route, which typically carries more details and is ideal for most scenarios.
Alternatively, you can use the lean startup method; usually one page long, and details your organization only at the highest level. This method is best for dynamic businesses.
How To Write A Business Plan
A conventional business plan usually consists of seven sections that are vital for explaining different angles of your company. The detail and length of the plan will depend on the audience and how mature the business is.
A business plan is used to sell your business to prospective loan providers and investors. Having a concrete plan is always practical and helps keep your actions as the owner on track.
Step 1: Writing The Executive Summary
This is the first section of your plan; therefore, this is where you need to captivate your readers. All business plans start this way — even the simplest of business plans should start with an executive summary. Sum up your business plan in one page, outlining business details that’ll get prospective lenders and investors excited.
Expound on what your business offers, what differentiates you and your competitors, some information about you, the main people behind your business, business projections, and your target audience.
Even though it’s the first part of the business plan, write it after finishing the rest. It’s simpler since you can get information from the segments you’ve already written. Additionally, it’s easier to pick out the best parts of the business plan to include in the executive summary.
Step 2: Writing A Business Description
In the business description, share all the business details. Be sure to include:
- Legal framework (partnership, sole proprietor corporation, etc.)
- Tax ID numbers and business
- When the company was founded
- Number of employees
- Ownership information
The philosophy, long-and-short term goals, vision, values, mission statement, outlook, market, competitors, and company milestones should also be included in the description.
This is the information you’ll use every time you come up with a business profile, whether on business directories or social networks. Keep your details consistent to avoid confusion and foster confidence in prospective customers.
Step 3: Marketing And Competitive Assessment
Any good company will have conducted a complete assessment of the market they’re entering. This isn’t limited solely to large companies, and the reader may want some proof of this.
Here, you can explain the market and industry your business will work in and outline opportunities your company will exploit. If your market research highlighted any distinct trends, outline them in this section.
Demonstrate the competitive landscape too. Describe what your rivals are excelling at and where they’re failing. Explain why you’re moving into this specific niche and what weaknesses you can take advantage of.
Additionally, highlight how you expect your competitors to react and how you will take their customers.
Step 4: Writing The Operational Framework
This section gets into the business’ concrete details. Explain how the company will function on a day-to-day basis.
Highlight the company’s legal framework and if it’s a sole proprietorship. The best thing will be to create an organizational chart if the company has multiple investors. This will not only show what everyone brings to the table but also who’s involved.
Step 5: Highlighting The Product Description
In this section, you get an opportunity to describe in detail what you’ll be offering or selling. This segment will be longer than the others, owing to its importance.
Ensure you give complete product details and what differentiates it from other similar products. Be sure to include the price and how it plays in the market compared to rivals.
Additionally, highlight a promotion or marketing plan in this section. Even if your product is the best globally, it doesn’t matter if no one knows it. Identify the target market and specify how you’ll create product awareness.
You should also detail the message you want to advertise and explain its relation to the particular product and the intended market. Ensure you also expound on how you’ll retain customer loyalty.
Step 6: Funding Request
If the business plan is intended for a potential lender or investor, it’d be best to include this section so that you can raise capital. Clearly state how much money you’re asking for and why you’re asking for that amount.
No investor or lender would give a $100,000 investment or loan without a clear plan for how you intend to use the money. Besides detailing what you’ll use the funds for, you should also clearly state the predicted ROI.
Investors will also be interested in a short segment on the exit strategy. An exit strategy is a plan highlighting how you’ll sell your business to another company or the public in the long run.
Step 7: Financial Assessment And Projections
Whether you include a funding request in your business plan or not, include a financial assessment segment. You should have two things in this segment: paint a picture of the business’ performance in the past and how it’ll expand in the future. Use images and charts to make the experience easier.
If the company has been operational for a few years, use finances to demonstrate stability. However, if the company is still new and hasn’t made any profits, be realistic and clear with the projections. For instance, if the sales have been growing at a steady 5% each quarter, don’t just assume that the sales will increase to 50% every quarter for no reason.
Research industry standards and how businesses in the same niche have fared. Include balance sheets, multiple years of cash sales, and income statements. When demonstrating your financial outlook, forecast your vision for five years. State the thought process behind the forecasts and link this segment to the one of raising funding.
A standard financial plan will include the following:
1. Sales And Revenue Predictions
A monthly revenue and sales projection for the initial 12 months, and then yearly forecasts for the next 3-5 years. Three-year forecasts are usually enough; however, some investors may request a five-year projection.
2. Profit And Loss Statement
A P&L (Profit and Loss) or income statement is where the numbers come together and show if the business is making profits or losses.
3. Cash Flow Statement
A cash flow statement monitors the amount of money in the bank at any given point.
4. Balance Sheet
A balance sheet outlines the business’s liabilities, assets, and equities. In other words, it gives a synopsis of your business’s financial health.
Step 8: Appendix
If there are any remaining relevant details like charts, licenses, or patents that couldn’t fit in the plan naturally, include them in this section.
That’s not to mean you use this segment as a document dump. Ensure that all the details included here go toward supporting your plan.
Step 9: Swot Analysis (Optional)
Apart from the segments listed above, some business plans also have a SWOT analysis section. A SWOT analysis is a one-page summary of your business’s strengths, weaknesses, opportunities, and threats. The strengths and weaknesses are usually internal, while the threats and opportunities include external factors.
Based on the revelations of this segment, you might or might not want to include a SWOT analysis when submitting the plan unless it’s requested.
A Guide To Writing A Lean Startup Business Plan
The thinking behind lean startup business plans is that each plan can be split up into nine sections. Without going into specifics, every section can be described at an adequately high level and outlined on a single page.
Compared to the conventional business plan, this plan allows for more flexibility if you have a dynamic business. There are many types of templates to choose from, but in this article, we’ll go over the most common template:
The following are primary components to include:
- Customer Segments: Explain to the reader who your target customer base is—many businesses have several sections listed here, and it’s essential that you correctly identify them.
- Value Proposition: Your business will likely appeal to various customer segments in varying ways — if that’s the case, list out the various value propositions for every section in different ways succinctly and clearly.
If that’s not the case, outline the only value proposition the business will have — if you can’t determine the company’s value proposition, it means you have no idea what value the business has.
- Channels: This section details how you’ll communicate the value proposition to your customers — explain how you plan to create brand awareness and the channels that’ll be used to communicate with clients.
- Customer Relationships: After detailing how you’ll be communicating with your customers, think about the type of relationship you want to establish and maintain with them — will you have ongoing communication with your customers? Will you be in direct contact with them, or will you be using automated emails?
- Revenue Streams: This section outlines how the company will be making money and the point in the customer relationship you’ll start generating revenue — many companies have multiple income streams, but if the business is new, you may only have one — that’s still okay; ensure you demonstrate you know exactly where the income will come from.
- Essential Resources: Now that you’ve outlined how you’ll be generating income from your clients, you have to demonstrate what the infrastructure that will support it will look like — support resources might include but aren’t limited to capital or staff.
- Key Activities: Outline all the necessary activities to make your business successful — ensure you explain how these activities are essential.
- Key Partnerships: As a new company, you’ll probably not own all the critical resources and won’t be able to do all the essential activities by yourself — detail all the entities you’ll partner with, for instance, vendors and suppliers.
- Cost Structure: Now that you’re aware of your company’s needs and infrastructure, outline its total forecasted expenses or at least identify the most significant ones — also, explain how you plan to make sure the company is optimizing the value of the costs.
Tips On Writing A Business Plan
To make the writing process as seamless as possible, here are some pointers on how to write a business plan to ensure you avoid common mistakes.
1. Establish The Purpose Of The Business Plan
Determining why you’re writing a plan will determine the strategy to use. For instance, skip the team and organization section if the business plan is just for you. If the plan is to raise funding, you’ll have to explain why you need to raise capital and how it’ll be used.
Therefore, before you start writing, establish the purpose of the plan and what the end goal is.
2. Be Brief And To The Point
An essential pointer is to keep the business plan short and straightforward. There are no awards for lengthy plans. In truth, the longer it is, the less likely that it’ll be read. Focus on limiting yourself to the essentials. Don’t put a lot of effort into detailing your target audience; instead, create an easy-to-read business plan.
3. Have Someone Go Through Your Business Plan
Writing a plan by yourself is never a good idea. It’s essential to zoom out occasionally and ensure that the business plan is logical and sensible. Ensure it’s also easy to read and comprehend — don’t wait till you’ve finished it to review it.
Start sharing the business plan from the onset and find out from readers what questions are unanswered in the plan. This early assessment cycle will aid in keeping you on track. If you require a more detailed analysis, think about hiring a business plan writer to give it a thorough assessment.
4. Use A Free Plan Template To Get Started
If you have trouble getting started or need extra guidance, it may be worth using a template. There are many free business templates available online. Ensure you go for a template used by a huge number of businesses.
5. Be Honest
When writing the projections section, be realistic and honest. Use industry benchmarks to establish the practical measures, and be careful so that you don’t inflate the forecast. This is a very common problem.
6. Accept Assistance
There are many free resources, both in-person and online, to assist you with all your business affairs. Non-profit organizations such as SCORE offer resources such as free mentorships to help you learn how to write a business plan. If you’re a minority or a woman, various government-sponsored resources such as the National Women’s Business Council provide free consultations.
Pointers On Updating Your Business Plan
It’s good to occasionally review your business plan, particularly if you want to expand your business. Doing research and updating your business plan may also provide answers when you come across difficult questions.
The best time to revise and refocus your initial business plan is in the middle of the year. Below are some of the ways you can update your business plan:
1. Refocus The Productivity
You probably outlined your specific personal and business goals when writing the initial business plan. Take some time to analyze if you hit the goals.
For instance, if the plan was to start new tips and trends videos, and it hasn’t happened, identify what’s keeping you from achieving this goal. Set a timeline and a launch date.
If you want to work for a particular number of hours in a week, identify services and products that deliver the profits you require to make that a reality. You’ll refocus your productivity on the most profitable streams by doing this.
Additionally, use what you’ve accomplished and the hard lessons to help you determine what’s working and what’s not.
2. Realign With The Original Goals
Assess your business to establish if all the hard work you’ve put in still aligns with your initial goals. Ask yourself the following questions:
- Are the goals still relevant?
- Is your business still focused on the big picture?
- Where do you want your business to be in a year?
- Will the current business plan still take your business where you want to go?
At first glance, these questions may be challenging to answer, but they show your ties to your objectives and what needs to change to achieve them.
3. Repurpose Your Business’ Offerings
If your time is spent on small projects instead of tangible expansion and creating a valuable customer list, think about packaging your current services or products differently.
You should deliberately manage your income streams, and that may need shuffling things to focus on what’s working for you.
Writing a strong, comprehensive plan takes a lot of effort. Business plans are essential in connecting with vendors, investors, and lenders. A business plan can also guide your team on how to move forward in the first years. It can also assist you in conveying why your business will be a success and why it’s an excellent investment for all parties.
Frequently Asked Questions
1. What’s the difference between a lean and conventional plan?
Even though the two plans have almost similar structure and content, a conventional plan is the most common and carries more information than a lean plan. A lean plan is typically one page long and only carries the minimum amount of information to describe the company at the highest level. It should only be used when the company is new, and there’s little time.
2. What contents should be included in a business plan?
A business’ plan contents will vary depending on the company. However, the standard business plan consists of an executive summary, competitive or market assessment, product description, business description, and a proposed operational framework.
3. How is a business plan for a loan application written?
Many loan providers will need a business plan from applicants. When writing a business plan, always consider the audience. Emphasize what separates you from your competitors, why it’ll likely succeed and how you plan to pay off the loan. As long as the loan provider is sure you’ll be able to make timely repayments, your business plan will have done its job.
4. What’s the importance of a business plan?
Business plans give individuals a chance to explain their company comprehensively. Loan providers use the plan to determine if you qualify for a loan, and investors use it to determine if investing in your business is worthwhile. A business plan also helps keep the company on track and align strategic objectives with actions.
5. What are the common mistakes made when writing business plans?
The five most common mistakes include:
- Being unrealistic
- Sloppy mistakes
- Making it too long
- Poor executive summary
- Not backing what you say