Before you start a firm, a good business plan can help you clarify your strategy, identify potential bottlenecks, establish what resources you'll need, and assess the sustainability of your idea or expansion ambitions.
Although not every successful firm starts with a formal business plan, many entrepreneurs find it beneficial to take a step back, investigate their idea and the market they want to penetrate, and comprehend the scope and strategy behind their methods.
What is the definition of a business plan?
A business plan is a document that describes a company, its products or services, how it generates(or will earn) money, its leadership and workforce, funding, operations model, and many other factors that are critical to its success.
Why should you create a business plan?
Investors use business plans to assess the viability of a business before funding it, which is why business plans are frequently related with obtaining a loan. However, even if you do not want finance, there are some compelling reasons to consider developing a business plan.
- Strategic planning: Writing out your strategy is a great way to clarify your ideas and comprehend the breadth of your business, as well as the amount of time, money, and resources you'll need to get started.
- Idea evaluation: If you have several ideas, creating a preliminary business plan for each will help you focus your time and energy on the ones that have the best potential of success.
- Research: To build a business strategy, you must first investigate your ideal consumer and competitors information that can assist you in making more smart decisions.
- Recruiting: Your business plan is one of the simplest methods to express your vision to potential new hires and can help establish their trust in the end ever, especially if you're still in the early phases of development.
- Partnerships: If you intend to approach other companies for collaboration, having a clear understanding of your vision, target audience, and business strategy will make it much easier for them to determine whether your company is a good fit for theirs especially if they are further along in their growth trajectory.
- Competitions: There are numerous business plan competitions that offer rewards such as mentorships, grants, and investment funds. To find suitable competitions in your industry and area, Google "business plan competition + [your location]" and "business plan competition + [your industry].
A business plan is a good beginning point if you're seeking for systematic manner to set out your thoughts and ideas and share those ideas with people who can have a huge impact on your success.
Formats for business plans
Business plans can range from one to numerous pages and include elaborate graphs and reports. There is no single method for developing a company plan. The goal is to provide readers with the most important information about your organization.
The following are examples of common sorts of business plans that we see:
- Traditional. These are the most often encountered company plans. We'll go over the standard features of a business plan and go over each section in detail below. Traditional business plans are more time consuming to create and might be dozens of pages lengthy. This plan is requested by venture capital firms and lenders.
- Lean. A lean business plan is a condensed version of a standard business plan. It has the same formats the previous one, but just covers the most vital information. This plan is used by businesses to onboard new personnel or to adapt existing plans for a specific target market.
- Non profit. A non profit business plan is for any organization that operates for the public or social good. It includes everything found in a standard business plan, as well as a section explaining the company's intended impact. For instance, a speaker and headphone brand that tries to assist persons with hearing impairments. This plan is frequently requested by donors.
9 Steps to Writing a Business Plan
There are few things more scary than a blank page. The ideal way to begin your business plan is with a structured framework and key ideas for what you'll include in each area.
We've put together a high-level overview you can copy into your blank document to get you started(and avoid the horror of facing a blank page) because an outline is such avital step in the process of drafting a business plan. You can also start with a free business plan template to help you create your plan.
Once you've created an overview for your business strategy, it's time to flesh it up. We've divided it into sections to assist you in developing your plan step by step.
1. Prepare an executive summary
A excellent executive summary is one of the most important elements of your strategy, and it should also be the last one you create.
The objective of the executive summary is to condense everything that follows and provide time-pressed reviewers (e.g., potential investors and lenders) with a high-level overview of your firm that persuades them to read more.
Again, this is a summary, so emphasize the essential elements you discovered when developing your strategy. If you're writing for your own planning, you may skip the summary entirely though you might want to attempt it anyway for practice.
A one-page executive summary is ideal. To be sure, the space constraint can make cramming in all of the important information stressful but it's not impossible.
2. Describe your business
This section of your business plan should address two basic questions: who you are and what you intend to do. Answering these questions with a firm description provides an overview of why you're in business, what makes you unique, what you have going for you, and why you're a solid investment bet. For example, releases a statement from its creator outlining the company's objective and why it operates.
Clarifying these subtleties is still a useful practice, even if you're the only one who will see them. It's an opportunity to write down some of your company's more intangible aspects, such as its ideas, ideals, and cultural philosophies.
Here are some of the elements you should include in your company description:
- Your company structure (are you a sole proprietorship, a general partnership, a limited partnership, or an incorporated firm?)
- Your business plan
- Your line of work
- The vision, goal, and value proposition of your company
- Background information about your company or its history
- Long term and short term business goals
- Your group, including important individuals and their pay
Some of these elements are factual, but others will require more thinking to describe, particularly when it comes to your company's vision, goal, and values. This is where you begin to get to the heart of why your company exists, what you aspire to achieve, and what you stand for.
Consider all of the individuals to whom your firm is accountable, including owners, employees, suppliers, consumers, and investors, when defining your values. Consider how you want to do business with each of them. Your essential values should begin to emerge as you build a list.
Finally, your business description should incorporate both short term and long-term objectives. Short-term goals should normally be accomplished within the following year, whereas long-term goals should be accomplished between one to five years. Make certain that all of your objectives are SMART: precise, measurable, achievable, realistic, and time-bound.
3. Conduct a market analysis
It is not an exaggeration to state that your market may make or ruin your business, regardless of the type of business you start. Choose the right market for your products with a large number of clients who understand and require your product and you'll be well on your way to success.
If you choose the wrong market, or the correct market at the wrong time, you can find yourself fighting for every sale.
This is why, whether or not you intend for anybody else to read your business plan, market research and analysis are essential components. It should include an outline of how large you believe the market for your products is, an appraisal of your company's market position, and an evaluation of the competitive landscape.
Thorough research to back up your conclusions is essential for persuading investors as well as validating your own ideas as you go through your plan.
For example, if you sell jewellery, your competitive differentiator could be that, unlike many high-end competitors, you contribute a portion of your profits to a worthy cause or pass along savings to your clients.
If you're entering a market where it's difficult to identify direct competitors, think about indirect competitors companies that sell products that are alternatives for yours. For example, if you're selling an inventive new piece of cooking equipment, it's all too simple to claim that you have non competition because your product is brand new. Think about what your potential clients are doing to tackle the same challenges that your product solves.
4. Explain the management and organization
Your business plan's management and organization section should inform readers about who runs your company. Describe your company's legal structure. Discuss whether you'll incorporate your company as a S corporation, a limited partnership, or a sole proprietorship.
If your company has a management team, utilize an organizational chart to depict the internal structure of your company, including the roles, responsibilities, and interactions between people in your chart. Communicate how each individual will help your start up succeed.
5. Describe your products and services
Although your products or services will be prominently featured in most areas of your business plan, it is critical to have a section that provides crucial data about them for interested readers.
If you sell a lot of things, offer more broad information about each of your product lines; if you just sell a few, include more detail about each. BAGGU, for example, sells a wide range of different types of bags, as well as house hold items and other accessories. Its business plan would outline such bags and their important features.
Describe any new items you intend to launch in the near future, as well as any intellectual property you own. Describe how they intend to increase profitability.
It's also vital to consider where things are sourced—handmade crafts, for example, are sourced differently than popular products for a drop shipping firm.
6. Carry out consumer segmentation
Your ideal consumer, often known as your target market, serves as the core of your marketing strategy, if not your entire business strategy. You'll want to keep this individual in mind when you make strategic decisions, which is why understanding and include them in your plan is critical.
Describe a variety of general and particular demographic traits to provide a comprehensive summary of your potential customer. Customer segmentation frequently involves the following:
- Their residence Their age range
- Their educational level
- Some typical tendencies of behaviour
- What they do in their spare time, where they work
- what technologies they employ
- How much money they make
- where they are regularly used
- Their ideals, beliefs, or points of view
This information will vary depending on what you're selling, but you should be detailed enough that it's obvious who you're attempting to reach and, more crucially, why you've made the decisions you have based on who your consumers are and what they value.
A college student, for example, has different interests, buying habits, and pricing sensitivity than a 50-year-old Fortune 500 executive.
7. Create a marketing strategy
Your ideal consumer has a direct impact on your marketing efforts. Your marketing strategy should detail your present decisions as well as your future strategy, with an emphasis on how your ideas are a good fit for that target customer.
If you plan to invest extensively in Instagram marketing, for example, consider whether Instagram is a top platform for your audience if it isn't, it may be time to reconsider your marketing strategy.
The majority of marketing plans include information on four main topics. The level of detail you offer on each will be determined by your company and the audience for your strategy.
Because you may more easily go into practical specifics with promotion, the other three areas should be mentioned briefly each is an important strategic lever in your marketing mix.
8. Provide a plan for logistics and operations
The routines you'll implement to make your ideas a reality are logistics and operations. If you're developing a business plan for your own planning purposes, this is still an important component to consider, even if you don't need to include as much detail as if you're looking for financing.
Cover all aspects of your intended operations, such as:
- Suppliers. Where do you acquire your raw materials or where are your products made?
- Production. Will your products be made, manufactured, wholesaled, or drop shipped? How long does it take to manufacture your products and ship them to you? How will you deal with a busy season or an unforeseen increase in demand?
- Facilities. Where will you and your colleagues work? Do you intend to open a physical store? If so, where?
- Equipment. What tools and technology do you need to get started? Everything from laptops to lightbulbs and everything in between is included.
- Shipping and delivery. Will you handle all fulfilment tasks in-house or outsource them to a third-party fulfilment partner?
- Inventory. How much will you stockpile, and where will it be kept? How will you send it to partners if necessary, and how will you manage inventory?
This part should demonstrate to your reader that you have a thorough understanding of your supply chain and excellent contingency plans in place to deal with any potential instability.
If you are the reader, it should provide you with a foundation for making other crucial decisions, such as how to price your items to meet your expected expenditures and when you expect to break even on your initial investment.
9. Create a financial strategy
A business lives or dies dependent on its financial health, regardless of how wonderful your idea is or how much effort, time, and money you put into it. At the end of the day, individuals want to work with a company that they believe will be around for the foreseeable future.
The level of information required in your financial plan will very depending on your audience and aims, but you should normally include three primary financial views: an income statement, a balance sheet, and a cash-flow statement. It may also be necessary to give financial facts and estimates.
Here's a spreadsheet template with everything you'll need to make an income statement, balance sheet, and cash-flow statement, as well as some sample data. If necessary, you can change it to reflect projections.
Profit and loss statement
Profit and loss statement is intended to provide readers with an overview of your revenue sources and expenses over a specific time period. They can examine the all-important bottom line or profit or loss your organization had over that time period using those two pieces of information.
If you haven't yet established your company, you can project future mile stones of the same data.
The balance sheet
Your balance sheet shows how much equity you have in your company. You list all of your business assets (what you own) on one side and all of your liabilities (what you owe) on the other. This gives you a glimpse of your company's shareholder equity, which is determined as follows:
Assets – liabilities = equity.
Flow chart of cash
Your cash flow statement is identical to your income statement, with one key difference: it considers when revenues are collected and when expenses are paid.
When the amount of money coming in exceeds the amount of money going out, your cash flow is positive. When the inverse is true, your cash flow is negative. Ideally, your cash flow statement will show you when cash is running low, when you may have a surplus, and when you may need to have a backup plan in place to acquire capital to keep your firm running.
Forecasting your cash-flow statement can be especially useful for identifying gaps or negative cash flow and adjusting activities as needed. Here's a comprehensive approach on creating cash-flow projections for your company.
Download a copy of these templates and use them to create financial statements for your business plan.
Even if you never intend to pitch investors, a business plan may help you establish clear, intentional next steps for your company and it can help you uncover gaps in your strategy before they become problems.
You now have a thorough guide and the information you need to assist you start working on the next phase of your own business, whether you've prepared a business plan for a new online business idea, a retail storefront, increasing your established firm, or purchasing an existing business.