How To Write A Business Plan
If you're a budding entrepreneur, you can increase your odds of success by developing a clear business plan before you open your doors.
The first step toward launching a successful new business is developing a plan. However, there are several steps involved in composing a full, functional plan for your business concept.
A business plan is the key to realizing your entrepreneurial goals. Before crafting one, however, you need to understand the main elements that come together to make it whole.
A Few Pointers Before You Start
For some things - like money - more is better. However, that's not necessarily the case with business plans. Ideally, your business plan will express your ideas vividly while taking up the fewest pages possible. Some entrepreneurs have successfully launched enterprises with business plans that were only one page long.
The plan should be easy for you and others to read. Use plain language - especially if you intend to share it with external stakeholders. Investors aren't scientists and bankers most likely will not appreciate your industry jargon and acronyms.
Your business plan should speak to potential partners in a language that they can understand. Craft the explanations of your goods or services clearly and concisely.
If you need to include highly technical language in your business plan to make an important point about your good or service, include it in the appendix. Stakeholders who are interested in technical information can review detailed specifications there.
Also, potential stakeholders are not going to read a lengthy business plan. What's worse is that it's highly unlikely that you'll ever revisit the document yourself if it's too long. A massive tome of a business plan almost guarantees that its primary function will serve to take up space in a drawer that you'll never open.
A business plan is a living, breathing document that you'll use to direct your enterprise. You should revise your business plan annually and refer to it often after you launch your business.
Most of all, don't underestimate your abilities. You don't need a degree to understand how to write an effective business plan. Like many entrepreneurs before you, you can learn as you go and still create an effective plan.
If you're considering starting a business, you most likely already know more than most people about the field. That knowledge will give you a marked advantage when you set out to write your business plan.
6 Sections of a Business Plan
There are six general sections in a full business plan. The sections include:
- Executive Summary
- Company/ management summary
- Financial Plan
The executive summary is a high-level overview of your business and your goals. The opportunity section explains what you're selling and the problem that you solve for your market. It also highlights your target audience and your competitors.
The execution section of your business plan covers how you're going to turn your opportunity into a successful business. You'll use the management section to highlight the expertise of your company's leadership for potential investors.
Also, the management section will help you identify talent gaps. This section will also include brief descriptions of your legal structure, the planned physical location of your business and the company history.
The fifth section of your business plan is for financial information. Finally, the appendix is where you publish extra information, such as images and other essential details that don't necessarily fit into other parts of the plan.
1. Executive Summary
The executive summary is the first part of your business plan. However, you should make it the last part that you write. After you complete the other sections of your business plan, you'll know everything there is to know about your good or service.
This section introduces your company to readers. It explains what your company does and what you'd like to gain by engaging potential stakeholders with your business plan.
Tip: Craft the executive summary so that you can use it separately as an introduction to your detailed business plan.
The opportunity section of your business plan is one of the four most important chapters of the entire document. The main chapters are the opportunities, execution, company/ management summary and financial plan sections.
The opportunity section identifies the problem solved by your good or service and how it serves that need. Also, this section will highlight the potential buyers for your products or services and how your offering will fit in among existing competitors.
You'll also use the opportunity section to show readers what sets you apart from the competition. Furthermore, you'll use this section to explain how you plan to improve on your offering in the future.
In the execution section, you'll cover all the facts about how your business will work. Here, you'll include your marketing, sales and operations plans as well as your key performance indicators (KPIs) and milestones for those functions.
Your marketing and sales plan will detail how you intend to reach your target audience with your marketing messages as well as how you will sell your goods or services to those individuals.
This section will also include your positioning statement, which explains how you present your enterprise to consumers. Finally, the operations chapter will provide the detailed nuts and bolts of exactly how your business works.
4. Company and Team Overview
Here, you'll detail the structure of your company and its key members. This information is especially important to investors. Investors weigh the past achievements of key executives to estimate their future performance.
Investors are typically more interested in the people behind a good or service, rather than the offering itself. They want to know that the people you've chosen to lead your organization can do the job.
For each company leader, include a concise biography that highlights their experience, and don't start off using fancy titles. C-level titles may make your fellow entrepreneurs feel good - but they'll do little more. It's a good idea to leave room for growth and change, rather than focusing on assigning titles that don't serve the needs of your enterprise in the long run.
Tip: Include an organizational chart in the appendix. It will help you maintain an overview of your company's talent and make it easier to manage evolving staffing demands.
5. Financial Plan
Completing the financial section may seem like the most challenging task of completing your business plan. However, it's not as complicated as it looks.
A basic financial plan includes monthly sales and revenue forecasts for the first year as well as annual projections for 3 to 5 years. There are several items that you should include in the financial section, including a:
- Sales forecast
- Personnel plan
- Profit and loss statement
- Cash flow statement
- Balance sheet
- Use of funds
The appendix isn't a necessity, but you can use this section for visual aids, technical explanations, legal information and other facts that are vital for explaining the details of your business, but not necessarily a good fit for developing an easy-to-understand business plan.
In the appendix, you can include anything that doesn't fit well with the main sections of your plan. For example, you could put patent information and detailed schematics in the appendix. This depth of information would certainly look out of place in the middle of a clear and concise business plan.
Planning for Succession
You should also consider developing an exit strategy as part of your business plan. Failing to do so may limit your access to future opportunities.
If, for example, you come across an excellent opportunity to sell your business for a substantial profit, your partners may have no interest in the deal. Also, a sudden change in ownership could leave a sour taste in the mouth of key employees from whom you'll need support to complete a change of ownership.
Alternatively, you may want to vest your shares to heirs at retirement. However, investors may frown on the idea. By developing an exit plan now, you can avoid disagreements with important stakeholders in the future.
Getting in the Right Frame of Mind
You should have a clear purpose for developing your business plan. Before you begin drafting your plan, know what you're trying to do with it. It's essential that your goals inform the drafting of your business plan.
Also, don't work on your plan sporadically or when you get around to it. You should have an organized agenda for developing your business plan. For example, you could establish finite deadlines for completing the various sections of the plan.
You should draft your business plan with the reader in mind. If you are going to approach any financier using your plan, for example, make sure that your business plan is in a format that is familiar to the intended reader.
Remember - You Never Really Finish a Business Plan
Your business plan is a tool to help your business grow - not slow it down. Don't allow developing a business plan to cause you to lose forward momentum. The worst thing that you can do is spend a year or more crafting the perfect business plan and miss out on an opportunity because it has passed.
Also, business plans aren't written in stone. You'll extract the most value from your plan by treating it as an ever-evolving work.
As circumstances change, so should your plan. This advice applies more so for startups. Very rarely - if ever - will a startup evolve to run as precisely as indicated in a pre-operation business plan.
You may write what feels like the perfect business plan, but circumstances may compel you to change it drastically. That's fine. A business plan isn't a living document until you've launched your enterprise and your plan reflects your real-world business experiences.
Business Plan FAQ
What are the different types of business plans?
What are the purpose of a business plan?
The purpose of a business plan is to outline the goals and objectives of a business, and to provide a roadmap for achieving those goals. The plan should also include a financial component, detailing how the business will be funded and what return on investment (ROI) investors can expect.
What needs to be in a business plan?
How do I write a business plan for a loan?
Most lenders require applicants to submit a business plan. The audience should always be considered when writing a business plan. In this instance, you will need to highlight how your company stands out in the marketplace, why it is likely to succeed, and how your plan includes paying off your loan promptly and on-time. Your business plan is complete if a lender is sure that you will be able pay your loan payments on time.