A business plan is a roadmap based on a thorough review of your current situation and what’s predicted for the market environment, goals and objectives building on these reviews, and strategies designed to help reach your goals. A business plan is essential no matter what kind of business you run or are thinking of starting. Sure, we’ve all heard stories of successful companies formed based on some ideas scratched on the back of a cocktail napkin, but these are the exception rather than the rule. Most businesses without a carefully constructed business plan fail fabulously. That’s why writing a business plan is essential. Yet, writing a business plan isn’t easy and many budding business owners have no idea where to start. Today, we hope to provide the basics of writing a business plan and share some tips from those with experience building successful businesses from their plan.
What goes into a business plan?
Great question.
Online you’ll find a plethora of outlines for a business plan. In general, most sources, including the Small Business Association, advise including the following as part of your plan (I’ve listed them in order of where they appear in the finished plan but not necessarily in order of when they’re completed):
- An executive summary (usually written last) that provides a brief overview of the entire plan. Think of this as an abstract rather than an introduction or teaser.
- Introduction that lays out the business, its market, and some brief history of the business
- An internal situation analysis
- A market analysis reviews the company’s actions and results to date
- Product elements that include the current products, anticipated future products, and products the company discontinued
- Pricing elements include the pricing structure for all products, including margins, costs, etc
- Promotional elements cover current and past marketing campaigns, results, targeting, etc
- Distribution strategies discuss how you distribute your products and supply chains
- Organization, operations, and management
- Cover the organization’s legal structure and hierarchy; you might include the resumes of key executives, as well
- Operations management includes how the company gets things done and the technology used
- Financial performance
- A market analysis reviews the company’s actions and results to date
- External situation analysis
- State of the economy such as inflation, consumer confidence, borrowing costs, etc
- Technology that impacts business such as the metaverse, social media, cybersecurity, etc
- Competitive analysis includes your direct competitors (in the same industry) as well as indirect competition (those offering substitutes for the products in your market)
- Consumer culture, especially how consumers make decisions, attitudes toward your market, and shifts in consumer markets
- The legal environment is also important to the extent it impacts or might impact your business
- A SWOT (strengths, weaknesses, opportunities, and threats) analysis that summarizes the impact of these internal and external factors on your firm’s ability to succeed
Image courtesy of Wordstream - Goals and objectives, especially SMART (specific, measurable, attainable, realistic, and time-bound) goals
- A strategic plan covering all the elements from the internal analysis and designed to meet your goals and objectives
- Financial pro forma statements
- KPIs (key performance indicators) and assessment plans
- Contingency plans
- Action plans for major campaigns within the plan
Image courtesy of Creately
While these elements involved in a business plan seem straightforward, it’s important to do your research and build the plan based on data rather than assumptions about both internal and external elements. The better your research is, the better your plan and the more likely you are to achieve your goals.
Commonly, writing a business plan is an ongoing process rather than something you do once. Most companies write a 5-year business plan with a lot of detail for year 1 and increasingly less specific details for subsequent years. Each year, you add a summary of your ability to achieve what you planned for the last year, add detail for the coming year, and add another year to the end of the plan.
Now that you know what it takes to write a business plan let’s talk about some tips for writing a good one.
Tips for writing a business plan
1. Involve your stakeholders
Whether you have one or 100 people on your management team, involving your team in crafting your business plan is the key to success. This might include the owner(s), CFO, C-suite executives, and project managers. Involving multiple voices adds their expertise and first-hand experience into the equation, so you end up with a well-thought-out plan. Bring in members from your board (if any) and consider consulting with investors and lenders to get early buy-in for any financial implications resulting from your plan.
Bringing in multiple stakeholders eases the implementation of the plan as everyone feels they had a part in its creation. It’s a one for all and all for one situation.
You also want to find people who can write, edit, and proofread the plan. For most small businesses, one person with all of these skills is often hard to come by. It may be worth hiring a business plan writing service to help with this critical task and get it right. A professional business plan writer can help you create a perfect start-up business plan. You’ll probably want several versions of your business plan-one for bankers, one for individual investors, one for companies that may want to do a joint venture with you rather than fund you, etc. Once you have determined which category you’re writing for, you can begin writing.
Without a strong management team that communicates these ideas to the rank and file, you can’t show a profit. So, find people who can write, edit, and proofread well.
2. Know your market
Understanding your target market and your competition are the most important elements in the external situation analysis. You need a complete understanding of your prospective buyers, including:
- Who they are, i.e., gender, demographics, where they live, their lifestyles
- Their needs, desires, and wants
- The problems they face since consumers buy solutions to these problems rather than products
- How they make decisions
- Their current attitudes toward your brand as well as competing brands
- How they live their lives
- Who influences their decisions
- Where they get their information
Based on this information, you should build personas that reflect your target market(s) like the one below.
You also need an objective evaluation of your competition. What do they do better? What actions do you anticipate they’ll make in the future? How well do they compete with your brand.
3. Have proof to back up every claim you make
One of the worst things you can do when writing a business plan is to make claims you can’t back up with facts and figures. Every time you make a claim, you need to have proof to back it up. This may seem obvious, but you’d be surprised how many business owners miss this simple step. If you say your business will make $50,000 in revenue, you need to back that up with figures. If you say staff-training software is the anticipated revenue driver for your company, you need to show proof that you can show a profit with this product in the future.
A business plan isn’t a marketing vehicle, per se. It’s an objective evaluation of your ability to serve your market profitably. Thus, avoid throw-away statements such as “we produce a great product”. Instead, say something like, “we have over 1000 5-star ratings for XYZ product on Amazon. Show, don’t tell.
4. Organize your plan from beginning to end
Don’t get too fancy with your organizational scheme. That may sound backward, but we’re talking about your business plan. There’s no need to make it look fancy. In fact, you should try to keep your business plan simple.
Flesh out the details, including financial statements that help guide your actions and graphics that support your claims but don’t worry about using fancy images to make it look better. You’re writing a business plan for a reason. It’s not a creative document; it’s a financial document. The fancier you make it, the more work it may be to follow through. Keep your business plan simple, and you won’t have to work so hard to write it. If you keep your business plan simple, it’s much easier to follow. You’ll also be able to focus more on your business details.
5. Be conservative in all financial estimates and projections
When you’re writing your business plan, you need to be conservative in all of your financial estimates and projections. This doesn’t mean you shy away from showing profitability, but you need to be realistic when outlining your financial goals. Often companies make multiple projections, a pessimistic return, an anticipated return, and a best-case return. In each case, projections are based on past performance or, for new companies, benchmark data from similar companies.
A conservative projection is less than a conservative estimate. Let’s say that you want to make $50,000 in sales this year; you might build a forecast for $45,000, $50,000, and $60,000 and show where these forecasts came from. This helps you stay on budget and makes sure that your business is as profitable as possible.
Final thoughts
While writing a business plan is not easy, you can do it with a little bit of preparation and research. Don’t be the business owner that makes claims that aren’t backed up by facts and figures. These tips will help you write a great business plan and will make sure you have a successful business in the future.
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