A well-thought-out business plan can be a critical factor for a new business’s success. Business plans are like a road map for your business that helps increase your chances of success. A study by the Harvard Business Review of entrepreneurs showed that those who created a formal business plan were 16% more likely to succeed. Your business plan will help improve your decision-making, assist when you face roadblocks, and be a significant factor in receiving loans and outside investment.Table of Contents
A business plan is a strategic document that lists the business’s goals and documents how it plans to achieve them. This plan should outline the business purpose and mission and provide direction for its marketing strategy. Business plans are crucial to convincing banks to lend to you and attract investors.
Many new and prospective business owners make the mistake of thinking that a business plan is an unimportant document and jump straight into launching their business. Starting your business without creating a basic business plan can be a significant mistake and put you at a disadvantage. There are three notable reasons why you should create a business plan.
- Secure Financing from Investors Business Plans are the primary tool used to show investors and bankers how you plan to use capital to help the business grow. Most banks and investors will want to see a well-written business plan before giving their money and will want to see an expected return on their investment.
- Document your Business’s Strategy and Goals A business should investigate all ways to improve, and with a business plan, no potential source will fall through the cracks. Your business plan should include sales and cost projections
- Legitimizes your Business Idea Many people have an idea for a business, but without writing a plan, it is just that, an idea. With a business plan, you can show that the company has a strategy on how it will be successful.
When writing a traditional business plan there are 6 main components that should be included:
TThe executive summary is the overview of your plan and should distill your main ideas and plan concisely. While it is the first section of your plan, it should be the last section written to summarize the rest of your plan’s findings. This section is best thought of as a slightly longer version of your elevator pitch. Your executive summary should include the following information:
- Includes a mission statement – this explains what the business does
- Company information – should list founder’s names and when the business was formed.
- Growth highlights or growth opportunities for established businesses include information about company growth (financial and market highlights). For a new business, highlight how you will use your knowledge or expertise to grow your new business
- Your product and or services – a brief description of what you provide
- Financial Information – If you are seeking financing, provide any investors and information about your current bank.
- Summary of future plans – Explain where you would like to see your business go.
The opportunities section is the real “guts” of your business plan. It will answer important questions like what’s being sold, how your product or service solves a problem, who your target market is, and outlines your competitors. Your opportunities section should include:
- Why your business is exciting, or how it solves problems in new ways
- Identifies the target market using data and insights from your market analysis and research
- Describe your competition and highlight how your product or service is better or different
- List any future products or services
Within the execution portion of your business plan you’ll detail how you’ll take your product or service to market. It should cover your marketing and sales plans, operational requirements to hit your sales projections and outline the key performance indicators (KPI’s) & milestones to evaluate success. You should have answers to the following questions provided in the execution section:
Marketing and Sales
- How you will reach your target market
- What is your Product/Service Positioning?
- What you do better than the competition?
- What the target customer needs and wants?
- How are you different than the competition?
- How you are pricing the product or service
- How will you cover costs
- If you make your profits from initial sales or follow up service
- How your prices compare to the market
- How are you promoting the product/service
- How are you packaging the product
- Advertising – An overview of how you plan to spend money on advertising
- Public Relations – How you will get the media to cover you
- Content Marketing – How and when to release useful information not necessarily about the product or service you sell to raise awareness of your company
- Social Media – Will your business utilize social media and how will you engage with your target audience
- Strategic Alliances – List any relationships your marketing team fore sees for your and any other business. Include any existing partnerships.
Operations and Distribution
- How you get your products or the raw material to manufacture your product?
- How your technology is different if in that space?
- How will you deliver the product or service to the end customer?
Milestones and KPI’s
- Set Milestones – Determine the major goals and targets
- Key Performance Indicators (KPI’s) – Identify the specific metrics and performance indicators that you will use to judge the health of your business
Assumptions and Risks
- List out key assumptions – Know what your assumptions are as your start out and aim to prove if they are correct or not.
- Acknowledge Risks – Be sure to show recognition of the areas where you are using projections and assumptions so that you understand where there is risk.
In the company overview section you’ll provide an overview of the structure of the company and who the key stakeholders & team members are. This information is especially important for prospective investors. The following information should be included:
- List your Mission Statement or Purpose
- Any relevant Intellectual Property (IP)
- Legal Structure of the business and ownership
- Locations where the business will operate (physical and/or website domains)
- List the key team members and their expertise
- Provide an overview of important roles and who will fill them
- A brief bio for important team members along with their relevant experience and expertise
Looking for more in-depth information on the business structure that will work best for your business? Check out our step-by-step guide:
Business Types: How to Choose a Business Structure
Your financial plan section should have a monthly sales and revenue forecast for the first year of the business. In addition you’ll want to include annual projections for 3-5 years. Be sure to include the following information:
- Sales forecast – projection on sales for the next few years
- Income statement – report lists profit and losses projected
- Cash flow statement – a projection of cash receipts and expenses
- Balance sheet – indicates financial health of the business
- Operating budget – detailed breakdown of income and expenses
- Break-even analysis – projects when revenue will cover all expenses, shows when a company will become profitable and under what circumstances
An appendix is optional, however, it can be helpful to include any additional detailed data to support information presented in previous sections of your business plan. This can include information such as:
- Legal Notes
- Examples of Marketing and Sales Materials
- Patents or Product Illustrations