A wealth of data now exists on the difference a written business plan makes, especially for small or growing companies. In this post, we’ll cover everything you need to write a successful business plan, step-by-step, and turn your idea into a reality.
What is a business plan?
A business plan is a comprehensive roadmap for your small business’ growth and development. It communicates who you are, what you plan to do, and how you plan to do it. It also helps you attract talent and investors.
When do you need a business plan?
Before you leave a nine-to-five income, your business plan can tell you if you’re ready. Over the long term, it’ll keep you focused on what needs to be accomplished.
It’s also smart to write a business plan when you’re:
Seeking funding, investments, or loans
Searching for a new partner or co-founder
Attracting, hiring, and retaining top talent
Experiencing slow growth and need a change
Start with a clear picture of the audience your plan will address. Is it a room full of angel investors? Your local bank’s venture funding department? Or an internal document to guide you, your leaders, and your employees?
Defining your audience helps you determine the language you’ll need to propose your ideas as well as the depth to which you need to go to help readers conduct due diligence.
Now, let’s dive into the ten parts of your business plan.
1. Create an executive summary
Even though it appears first in the plan, write your executive summary last so you can condense essential ideas from the other nine sections.
What is an executive summary?
The executive summary lays out all the vital information about your business within a relatively short space; typically, one page or less. It’s a high-level look at everything and summarizes the other sections of your plan. In short, it’s an overview of your business.
How do I write an executive summary?
You can follow a straightforward “problem, solution” format, or a fill-in-the-blanks framework:
• For [target customers]
• Who are dissatisfied with [current solutions]
• Our [product or service] solves [key customer problems]
• Unlike [competing product], we have [differentiating key features]
2. Compose your company description
Within a business plan, your company description contains three elements:
(1) mission statement,
What is a mission statement?
A mission statement is your business’ reason for existing. More than just what you do or what you sell … it’s about why.
Mission statements should be inspirational and emotional.
They should be rallying cries around which the heart and soul of your business turn.
Throughout every part of your plan, less is more. Nowhere is that truer than your mission statement.
Think about what motivates you, what causes and experiences led you to start the business, the problems you solve, the wider social issues you care about, and more.
How do you describe a company’s history?
Don’t worry about making your company history a dense narrative. Instead, write it like you would a profile:
• Founding date
• Major milestones
• Location or locations
• Number of employees
• Executive leadership roles
• Flagship products or services
Why do business objectives matter?
Business objectives give you a north star. These goals must be SMART: specific, measurable, achievable, realistic and time-bound. Or, they must be tied to key results.
When your objectives aren’t clearly defined, it’s hard for employees and team members to work towards a common purpose. Worse, fuzzy goals won’t inspire confidence from investors. Nor will they have a profitable impact on your business.
3. Summarize market research and potential
The next step is to outline your ideal customer as well as the actual and potential size of your market.
Target markets—also known as personas—identify demographic information like:
You can get even more targeted by mapping your customer’s journey:
If your target market is too broad, it can be a red light for investors. For example, if your product is perfect for people with money to hire landscape architects, listing “anyone with a garden” as your target market might not go over so well.
The same is true with your market analysis when you estimate its size and monetary value. In addition to big numbers that encompass the total market, drill down into your business’ addressable market; meaning, local numbers or numbers that apply the grand total to your specific segments.
4. Conduct competitive analysis
Competitive research begins with identifying other companies that currently sell in the market you’re looking to enter. The idea of carving out enough time to learn about every potential competitor you have may sound overwhelming, but it can be extremely useful.
Answer these additional questions after you’ve identified your most significant competitors:
• Where do they invest in advertising?
• What kind of press coverage do they get?
• How good is their customer service?
• What are their sales and pricing strategies?
• How do they rank on third-party rating platforms?
When visiting your competitor’s websites, take a look at their “About Us” page, or their mission and values statement. If you’re presenting to a panel of investors, distinguishing yourself from competitors is one of the most critical pieces of your business plan. If you haven’t done your homework, those investors will see right through you.
Spend some time thinking about what sets you apart. If your idea is truly novel, be prepared to explain the customer pain points you see your business solving. If your business doesn’t have any direct competition, research other companies that provide a similar product or service.
Next, create a table or spreadsheet listing your competitors to include in your plan. Your business should be listed last, on the right which is standard practice. This is often referred to as a competitor analysis table.
5. Describe your product or service
This section distils the benefits, production process, and lifecycle of your product or service … and how what your business offers is better than your competitors.
When describing benefits, focus on:
• Unique features
• Translating features into benefits
• Emotional and practical payoffs to your customers
• Intellectual property rights or any patents that protect differentiation
For the production process, answer how you:
• Create your products or service
• Source raw materials or components
• Assemble them through manufacturing
• Maintain quality control and quality assurance
• Receive and deliver them (supply-chain logistics)
• Manage your daily operations: bookkeeping and inventory.
Within the product lifecycle portion, map elements like:
• Time between purchases
• Upsells, cross-sells, and down-sells
• Future plans for research and development.
6. Develop a marketing and sales strategy
Your marketing strategy can be the difference between selling so much that growth explodes or getting no business at all.Growth strategies here are a critical part of your business plan. You should briefly reiterate topics such as your:
• Value proposition
• Ideal target markets
• Existing customer segments
Then, add your:
• Launch plan to attract new business
• Growth tactics for established businesses to expand
• Retention strategies like customer loyalty or referral programs
• Advertising and promotion channels: i.e., search engines, social media, print, television, YouTube, word of mouth, etc.
• You can also use this section of your business plan to reinforce your strengths and what differentiates you from the competition.
Be sure to show what you’ve already done, what you plan to do given your existing resources, and what results you expect from your efforts.
7. Compile your business financials
If you’re just starting out, your business may not yet have financial data (statements) or comprehensive reporting. However, you’ll still need to prepare a budget.
If your company has been around for a while and you’re seeking investors, be sure to include:
• Income statements
• Profit and loss statements
• Cash flow statements
• Balance sheets
Other figures that can be included are:
• How much of your revenue you retain as your net income
• Your ratio of liquidity to debt repayment ability
• How often you collect on your invoices
Contact us for assistance with your financial records
Ideally, provide at least three years’ worth of reporting. Make sure your figures are accurate and don’t provide any profit or loss projections before carefully going over your past statements for justification.
Costs, profit margins, and sale prices are closely linked, and many business owners set sale prices without accounting for all costs.New business owners are particularly at risk for this mistake.
The cost of your product or service must include all of your costs, including overhead. If not, you can’t determine a sale price to generate the profit level you desire.
Underestimating costs can catch you off-guard and eat away at your business over time. Insurance premiums tend to go up annually for most forms of coverage, and that’s especially true with business insurance.
8. Describe your organization and management
Your business is only as good as the team that runs it.
Identify your team members and explain why they can either turn your business idea into a reality or continue to grow it. This section of your business plan should show off your management team superstars. Highlight expertise and qualifications throughout. Also, mention the roles you still need to hire to grow your company and the cost of hiring experts.
To make informed business decisions, you may need to budget for an Accountant and an attorney. Contact us for accounting services
Accountants can help you review your monthly accounting transactions and prepare your annual tax return. An attorney can help with client agreements, investor contracts (like shareholder agreements) and with any legal disputes that may arise.
9. Explain your funding request
It’s important to outline how much money your small business needs, so you can make an accurate funding request. Try to be as realistic as possible. You can create a range of numbers if you don’t want to pinpoint an exact number. However, include a best-case scenario and a worst-case scenario.
Since a new business doesn’t have a track record of generating profits, it’s likely that you’ll sell equity to raise capital in the early years of operation.
Equity means ownership: when you sell equity to raise capital you are selling a portion of your company. Keep in mind, an equity owner may expect to have a voice in company decisions, even if they do not own a majority interest in the business.
Most small business equity sales are private transactions. The investor may also expect to be paid a dividend, which is a share of company profits, and they’ll want to know how they can sell their ownership interest.
Additionally, you can raise capital by borrowing money, and you’ll have to repay creditors both the principal amount borrowed and the interest on the debt.
If you look at the capital structure of any large company, you’ll see that most firms issue both equity and debt. When drafting your business plan, decide if you’re willing to accept the trade-off of giving up total control and profits before you sell equity in your business.
You should also put together a timeline, so your potential investors have an idea of what to expect. Some customers may not pay for 30 days or longer, which means the business needs a cash balance to operate.
The founder can access cash by contributing his own money into the business, by securing a line of credit at a bank. If they raise cash through a loan, it needs to be paid off ASAP to reduce the interest cost on debt.
10. Compile an appendix for official documents
Finally, assemble a well-organized appendix for anything and everything (1) investors will need to conduct due diligence and (2) you or your employees will need easy access to moving forward:
• Deeds, local permits, and legal documents
• Business registries and professional licenses
• Patents and intellectual properties
• Industry associations and memberships
• Key customer contracts and purchase orders
As you include documents in the appendix, create a miniature table of contents and footnotes throughout the rest of the plan linking to or calling attention to them.