Developing a business plan, securing financing, and putting together a winning team—all are key components of getting your new business on the right path from the start. But without a business plan, you may not stand a chance of recruiting your dream team or landing the financing you need.
The Ins and Outs of Developing a Business Plan
We’ve all read the stories of million-dollar businesses that started with a few ideas jotted on a scrap of paper or a bar napkin. But in reality, how many of those businesses grew to million-dollar sales without developing a business plan at some point? A business plan helps you answer important questions such as what is the best business model, what is the future path of the business, and how is the business going to reach its goals? Beyond that, formally-developed business plans serve a number of purposes:
- Investors and banks will expect to see a well-thought-out, comprehensive plan for your startup before deciding to give you any type of funding.
- Developing a business plan forces you to think through your goals and resources to realistically assess your capital needs and make better financial decisions.
- Developing a business plan can give you a deeper understanding of your market and your competition.
- A business plan provides a roadmap that helps to keep your business on target and organized as it grows.
- Your detailed business plan lays out your vision for the business to show you how you can achieve your goals.
- As you grow your business, your plan provides benchmarks to measure your business against.
Like any new endeavor, developing a business plan might seem like an overwhelming task. Challenges include choosing the right verbiage, knowing what to include and what to leave out, where to find statistics and marketing information to back up your ideas and add credibility to your plan, and more. Don’t worry: As with any big task, writing a business plan is less daunting if you break it down into smaller sections that are easier to execute.
Before you jump into actually writing your business plan, take a minute to answer the following 10 questions to get your head in the right frame of mind.
- What are you selling?
- Who is your market?
- How will your product or service help your customer?
- How much will you charge?
- How will you get paid?
- Are there any possible spinoff products or services?
- How will your customers know about your business?
- What is your measure of business success (for example, number of customers or annual net income)?
- What are the obstacles to your success?
- What are your solutions to these obstacles?
Once you have some rough notes jotted down, you can start developing your business plan. It should include these five major components:
1. The Executive Summary (Company Description)
Here’s your chance to make a good first impression—especially since many readers won’t read past this initial section. Concisely describe what your company does in the first paragraph of your Executive Summary. Be succinct, descriptive and engaging, and explain the specifics of your business. Why did you choose your business name? Why did you choose your business structure? Why is your business uniquely qualified to succeed? Is it your intellectual property, your management team’s unique and/or extensive background, your startup’s early (standout) accomplishments, your key partnerships or favorable market trends?
In this section, you should also summarize your vision and your goals. In the beginning stages of a startup, entrepreneurs tend to improvise, and their vision may be a bit hazy. Developing a business plan helps sharpen that vision, and down the road helps the startup succeed. Note: Even though the Executive Summary is the first part of the plan that others will read, you should write it last, after you’ve thought through all of the other elements of the business plan.
2. Market Analysis
In this section, you need to provide detailed statistics and research on your target market. Colorful visuals are important here to help highlight the key numbers and demographics supporting the validity of your business idea. Use your market research to explain why your business will appeal to your prospective customers. Show the reader that you know your market and you understand where your best prospects lie.
Are there new markets you’ll explore in the future, new product lines you plan to add, or new services you expect to develop as the business grows? Include them here. You should also include information about your sales and marketing strategies, such as digital, print, word-of-mouth, etc.
Where to get all those facts and figures?
- The American Factfinder section of the Census Bureau website has helpful marketing research and consumer data for free. You can search for market information by specific address, by city and state, and find specific city demographics such as social, economic and housing characteristics. You can also look for business patterns statistics and key population by county.
- eMarketer.com is a great source for information on online marketing trends.
- If you’re not finding the market research you want or you need help gathering the research, check out Ask Your Target Market. AYTM gives you the tools to conduct your own market surveys. Or, if you don’t feel you’re qualified to put the survey together, AYTM will create the survey for you.
3. Financial Projections
This section outlines what your business will accomplish financially over the next three to five years. The Panel Study of Entrepreneurial Dynamics II found that business plans are vital for external fundraising because a plan builds legitimacy and confidence among investors that the entrepreneur is serious. It also serves to reassure staff, suppliers, customers, and other key stakeholders.
Potential investors, creditors, and business partners want to know whether they’re making a good investment with your business. Having solid projections and supportable figures in this section of the plan is key. If you are developing a business plan to seek immediate funding, you also need to include a formal funding request. This should specify how much you need, both now and in the future, and what the money will be used for. Go over this section with your accountant to make sure everything is worded correctly and that your numbers make sense.
4. Your Team
The organization and management section of the business plan tells your readers about the organizational structure of your business and which key employees or owners are responsible for key areas of the business, such as operations, sales, finances, etc. Make sure your business plan explains how each key employee adds to the success potential of your business by explaining their expertise, special skills, and prior experience.
If you’re a sole proprietor, you most likely outsource some of your work or special projects to independent contractors or freelancers. In that case, include information on their expertise, as well as that of any business consultants you regularly engage with or have on your board of advisors.
Finally, since readers want to see your potential for growth, you should also project how your org chart will develop as the business grows and what positions you plan to add in the future.
5. Products or Services
In this section, go into more detail about your service or product. Thoroughly describe your product or service and any associated intellectual property information such as patents or trademarks. Describe what makes your product or service unique and competitive in the marketplace. Most likely your business has more than one product or service, so be sure to provide a brief description of each. Use colorful photos or drawings to illustrate your business and include relevant details such as dimensions, weights and shelf life. For service businesses, outline your menu of services and any add-ons or extras customers can purchase.
Do you have plans to add new products or services as your business grows? If so, outline the areas of opportunity you see. Explain what you plan to add to your offerings and how that will make your business more competitive.
Once your plan is done, have some impartial reviewers, such as your attorney and accountant, go overthe whole thing and suggest any changes to make it stronger. The more eyes you can get on your business plan before you give it to a potential lender or investor, the better.
Developing a Business Plan Leads to Success
Need more motivation? The Panel Study of Entrepreneurial Dynamics II surveyed entrepreneurs who wrote a formal business plan and those who didn’t. Entrepreneurs who write formal plans are 16 percent more likely to achieve viability. What’s more, high-growth startups and innovative startups are more—not less—likely to write a business plan. So, throw away that cocktail napkin and start developing a business plan.