A comprehensive and concise business plan is vital to the success of entrepreneurs and corporate managers. A business plan is useful for different purposes, like starting a business, proposing a new activity in a corporate division, or seeking additional funding for existing product lines, equipment, or premises.
Creating a business plan can help you assess the viability of your business idea, identify potential roadblocks, and determine the necessary resources needed to run and grow your company. Without a thorough business plan, you might run the risk of lacking direction with resources, missing growth opportunities, and failing to turn a profit.
When writing a business plan, it is essential that you cover all bases. Do not fall into the trap of writing only from your viewpoint. Instead, ensure your plan caters to the perspective of other major parties, like investors and the market. These two constituencies contribute immensely to the financial viability of a business venture, and yet they're often neglected in business plans.
In this article, we'll discuss how to create a great business plan, and we've compiled a list of 8 steps to help you get started.
What is a business plan?
A business plan is a document that defines a company's goals and objectives and how it plans to achieve them. This document describes the business, its products or services, financing, profitability, operations mode, marketing plans, brand values, and leadership and staffing.
A business plan can significantly benefit both start-ups and existing businesses. It’s often used to secure funding from financial institutions or attract investors before a company has established a proven track record. Internally, a business plan can align the executive team with business strategies and growth plans.
A well-crafted business plan can serve as a roadmap to success, steering the staff and leadership teams to a common goal. Ideally, it should be reviewed periodically to reflect on achievements, challenges, opportunities and risks.
Why do you need a business plan?
A business plan is essential for several practical reasons, whether you're starting a new business or looking to grow an existing one. Here’s why a business plan is indispensable:
- Clarity of vision: It articulates your business idea, goals and the path to achieve them, ensuring that your journey is guided by a clear strategy.
- Securing funding: Investors and lenders seek confidence in your business's potential. A robust business plan demonstrates your venture's viability and profitability, making it easier to secure the necessary capital.
- Strategic planning: It enables you to outline your approach to market analysis, marketing strategies, financial forecasts and operational plans, turning challenges into opportunities.
A business plan acts as a roadmap for your business, guiding you through the early stages and beyond. It's crucial for making informed decisions and ensuring that your business moves towards its goals efficiently.
Whether you're seeking financial backing or just setting up your business structure, a well-thought-out business plan is your first step towards success.
Before you write your business plan
Before diving into the creation of your business plan, several foundational steps lay the groundwork for a comprehensive and effective strategy. These preliminary actions ensure that when you sit down to write your plan, you clearly understand your business's framework, goals and the market environment.
Here’s what you need to consider:
- Understand your business model: Define how your business will operate, make money and provide value. Identify your unique value proposition, main revenue sources and essential resources and activities.
- Conduct market research: Validate your product or service demand through market research. Analyse trends, identify your target market and assess your competitive advantage using tools like SWOT analysis.
- Set clear objectives: Establish SMART (Specific, Measurable, Achievable, Relevant, Time-bound) goals for both short-term achievements and long-term ambitions, covering financial targets and operational milestones.
- Financial forecasting: Begin with estimating startup costs, ongoing expenses and expected revenue to gauge your business's financial viability. This step is crucial for securing funding and understanding your financial needs.
- Identify your ideal customer: Determine who your ideal customers are to focus your marketing and product development efforts. Develop customer profiles that detail demographics, buying behaviours and motivations.
- Prepare for potential challenges: Anticipate and plan for potential business challenges by considering risks related to the market, finances, or operations and devising strategies to address them.
Business plan types
Various types of business plans serve distinct purposes, each tailored to specific needs and objectives. Let’s take a look at some of the most common business plan types:
- Startup business plans: These are vital for new ventures because they outline initial steps, market entry and growth strategies. Rich in market analysis and financial forecasts, they're comprehensive business launching guides.
- Internal business plans: Focus on internal strategy and short-term goals, guiding daily operations and financial planning. They streamline internal processes, emphasising immediate objectives over extensive company backgrounds.
- Strategic business plans: Long-term visions for a company, detailing market share goals and competitive strategies. These plans map out the path to long-term success, backed by in-depth market analysis.
- Feasibility business plans: Assess the viability of new ideas, focusing on market potential, financial needs and operational requirements. They're crucial for validating the feasibility of projects before full commitment.
- Growth or expansion plans: Strategies for scaling businesses, including entering new markets or launching new products. They outline steps for significant growth, supported by financial projections.
- Investment business plans: Designed to attract investors by showcasing the business's value, market opportunity and financial health. They highlight potential ROI and growth to secure funding.
How to write a business plan in 8 steps
Before you begin writing your business plan, you need to understand who it is for. Is it your bank's funding department? A room full of angel investors? Or is it you, your executives, and your future employees?
Understanding who your business plan is for and what they need to know helps you determine the tone and depth needed to communicate your ideas.
Now, let's dive into 8 steps you can take to write a small business plan.
Write an executive summary
The executive summary is one of the most critical sections of your plan, and even though it comes first structurally, it should be the last section you write. This is because the executive summary offers a high-level overview of your business to your readers. So, by writing it last, you can adequately summarize the essence of your business plan into a compelling opener.
Your executive summary should include your business plan structure, such as:
- A brief overview
- The solutions you offer and how you plan on implementing them
- Your target market and competition
- A quick rundown of your company structure
- Summary of financial and funding requirements
- Milestones achieved and future goals
Tip: The executive summary should make sense without any other parts of the business plan. It can even be used as a standalone document to generate interest in your business.
Write a company description
Your company description is an opportunity to pen down the more intangible aspects of your business, like your ideals, principles, and cultural philosophies. Your company description should answer two primary questions:
- Who you are
- What you plan to do
Using your company description to answer these questions gives your readers an all-encompassing idea of your history, your mission, your value proposition, and why you're a good investment. Other components your company description should include are:
- The industry your business belongs to
- Your business structure (are you a corporation, partnership, or sole proprietorship?)
- Your team, including their job title and job description.
- Short and long-term business goals
Conduct your market analysis
Understanding your industry and choosing the right market for your product can give you a head start on success. If you choose the wrong market or the right market at the wrong time, your business might find it challenging to turn a profit. That's why market analysis is the cornerstone of a successful business plan.
Your market research should include an estimation of your business's position in the market, an assessment of the demand for your product, and a competitor analysis.
Carrying out a comprehensive market analysis can be a daunting process, so here are some tips to help you with your research.
To determine your position in the market, you carry out a SWOT analysis. This looks at your strengths, weaknesses, opportunities, and threats to your business. This considers internal and external factors that could affect your company. Find answers to these four questions to figure out how you're positioned in your target industry:
- What do you have going for you in your company?
- What are the things you seriously need to improve on?
- Are there any gaps in the market you can capitalize on?
- Are there any factors that could be a stumbling block to your growth plan?
You can conduct a demand analysis by first understanding your target customer demographic. Source for useful information about your target market to learn about their shopping habits, location, and social channels they frequent.
Next, study the industry trajectory and evaluate consumer and product trends by reading through trade publications, Google Trends, and influencers in the space.
Finally, make calculated predictions based on your gathered information to determine your addressable market.
Describe your product and service
This is the section where you highlight the products or services that your business is offering. This is your opportunity to give readers a straightforward explanation of how your product or services work without sounding too technical.
Lay emphasis on what makes your product different and focus on:
- Unique features
- Practical and emotional payoffs to your customers
- Patents or intellectual property rights that protect differentiation.
Your product and services section can also include other product-related details like pricing, product lifespan and information about research and development.
Tip: Always demonstrate how your product fills a gap in the market and how it will stay viable for the foreseeable future.
Come up with a marketing and sales strategy
Your marketing strategy determines how consumers interact with your products or services, which can be the difference between making outstanding numbers right off the gate or getting no business at all. Therefore, your marketing plan should focus on how you will position your product and services in the market.
Here are some tips to consider when writing your marketing plan:
- Pricing: set a price that reflects the value, uniqueness, and quality of your product.
- Product: what solutions are you offering, and what is its unique selling point?
- Promotion: figure out what promotional method best suits your product and determine the scalability of such a method. Also, find out what marketing channels work for your product— traditional or digital marketing.
- Sales: how will your product reach your consumers? Do you have a repeatable process to turn a lead into a client?
Tip: When developing your marketing plan, always consider your marketing cost and projected return on investment. This will help you understand if your money is being invested into the correct channel, or if you should reallocate your budget elsewhere.
Define your business operations
This section is where you explore the tangible elements of your business. What will the day-to-day operation of the company look like?
Figure out the logistical and operational requirements of the business, including:
- Supply chain: where would you source raw materials or components required for production? Also, how do you plan to deliver to your consumers? Will you be handling deliveries yourself, or will you be outsourcing that responsibility to a third party?
- Production: how long would the manufacturing process take? Will you make, wholesale or dropship your products? Also, do you have measures to handle an unexpected increase in demand?
- Facilities and Equipment: what premises would you be operating from? Would it serve your immediate and future needs? Next, consider the tools and technology you need to be up and running and how they compare to industry standards.
- Inventory: how will you handle your inventory management? Will you explore and integrate inventory software into your process?
Financial planning
This section should include your company's financial analysis. For an existing business, this section should consist of financial information such as income statements, cash flow, and balance sheets. However, if you're a new business, you can include targets and assessments for the first couple of years, like an estimated break-even point and a description of potential investors.
Let's review the financial statements you'll require.
- Income statements: this highlights your revenue, expenses, and profits over a given period. With this information, your readers can assess the financial viability of your business. Startups generate their income statement monthly, while established companies generate it monthly.
- Balance sheets: this financial statement offers your readers your business's assets, liabilities and shareholder equity at a given period. It's calculated as: Assets- Liabilities = Equity
- Break-even analysis: your financial planning should include an estimated break-even point. A break-even point is a production level where the total expenditures and total revenue are equal. Since the break-even point indicates when a business will stop losing money, most investors consider this before investing.
Tip: Using graphs and charts to illustrate your financial projections is a great way to visualize your financial planning, making it easier for investors to review your forecasts.
Budget
Every establishment needs to have a budget in place. This section should detail business expenses, such as costs related to manufacturing, marketing, staffing, and development. A budget helps you keep track of where your money goes so you have better control of your finances. Aside from earmarking resources, a budget can also aid in setting goals, planning contingencies, and measuring outcomes.
The bottom line: writing a winning business plan
So there you have it: writing a winning business plan in 8 steps. A great business plan can be the blueprint for your business idea. It's an important document to have whether you're just starting or looking to reach new levels with an established business.
Remember to consider the perspective of the market and investors when writing your business plan and let that guide your research and tone. Also, as your business grows, do not forget to review and update your business regularly to reflect your achievements and future milestones.
If you're at that point in your business planning where you're looking for funding options, you can read our business financing guide to educate yourself on different funding options for different purposes.
Good luck on your new venture!
@Be_theBoss