You would never build a house without a blueprint, so why would you build a business without a sound business plan? A business plan is essential for developing an objective, setting measurable outcomes and goals to achieve it, and can be used as a document to secure funding to help build or grow your enterprise. Keep it short and remember it is flexible. It doesn’t have to be all inclusive the first time around.
Ask yourself, who is this plan intended for? If it is for your eyes only, write it so YOU will understand what you mean overtime. Most likely, you are writing this plan to secure financing or to grow your business with the help of a third-party. Make sure that the language that you use can be read by the reader, and that it is written in a tone that is appropriate for the correct audience.
There are several parts of a business plan. Feel free to jump around and fill out what you can, because you can come back to other sections as you develop ideas in other parts. When you are done with all components, read your business plan from front to back, to make sure that all your ideas are consistent across the board.
WRITING A WINNING EXECUTIVE SUMMARY
This is the opening section of your business plan that gives the reader a summary of what type of enterprise you are embarking on and what your goals are. Many individuals choose to write this section last because it sums up all the information in the other parts of your plan.
The executive summary will introduce your company to the reader. You will outline what your purpose has, what your goals are and how your business will accomplish those goals for your target audience; it also tells the readers what they may be able to do to assist you.
The following outlines the sections that you need to incorporate into your executive summary. Keep this section of your business plan under two pages.
IN ONE SENTENCE, TELL THE READER WHAT YOUR COMPANY IS ABOUT
This is your tagline, your motto, or a one-sentence summary of what your business is all about. Try to aim for the latter, because you want to convey what your company really does and what its values are.
WHAT PROBLEM ARE YOU TRYING TO SOLVE, AND HOW ARE YOU TRYING TO SOLVE IT
What is the problem you are trying to solve for your customers? Why is there a need for your business in the market?
Once you have stated that, follow up with what the solution is. What idea, product or service do you have that addresses the problem that you have identified?
WHO ARE YOU TRYING TO SELL YOUR PRODUCT OR SERVICE TO?
Specifically speaking, who is going to purchase “the solution.” The more specific you are when describing your target market, the more focused your plan will be, right down to the type of advertising that you will do. Don’t assume that everyone needs your product. However, do outline what traits your perfect customer will have.
WHO ARE YOUR COMPETITORS?
Unless your idea is truly unique, chances are you will have some competitors on the market. This doesn’t mean your business will fail just because someone else is trying to solve the same problem. There are multiple solutions to any given dilemma, and your product or service may provide a better option. You don’t need to list every given competitor and solution, but you do need to at least mention other options in your executive summary to give the reader information on what you could be up against.
PERSONNEL AND PARTNERSHIPS
Give your reader an idea of WHO is going to help you make this happen. People who may potentially be helping you financially with your endeavors want to know that the right people are on the job to help make this investment a success. Every good idea needs to have a qualified team to make it real.
A MATTER OF FINANCES
What financial commitment do you have towards this business? What kind of collateral do you have to back you up? How many potential sales are you hoping to secure over what period? What expenses will you have? How much net income will you make after all is said and done?
If you are looking for financing, it is important to name what your specific needs are in this section. Make the focus on how much you need just to get your idea off the ground.
HOW WILL YOU KNOW IF YOU ARE SUCCESSFUL?
This can be looked at as the goal section of your executive summary. This outlines what you have already accomplished, and what milestones you have set for the future. If you have already had success in launching the idea to customers and have feedback, be sure to include this as a highlight in this section. This is very appealing to potential funding sources.
THE DEVIL IS IN THE DETAILS
The opportunity section is the girth of your plan. This is the filler, the information, and the meat of what the reader looks at to fully gain an understanding of what you and your business are all about.
The first thing that you need to address is the problem and solution. Why does the market need your product, and how does your product solve this problem? Ask yourself the following questions and answer them for your reader in detail. Make notations to your index that provides them examples of case studies, articles, and statistics that will back up your assumptions.
- What is the problem that you are trying to solve and who has this problem?
- How bad is this problem for your customers? Is it bad enough they need a solution? What is their breaking point that they will need your product?
- What is your solution?
- How are you planning on offering it?
- How does your product or service help your customer?
- Who is your competition and what sets your solution apart from theirs?
- How do you plan to grow your business or expand your idea?
WHO IS YOUR IDEAL CUSTOMER?
Your target audience is who you are planning on selling this product or service to. If you can’t answer this question, you may have to reevaluate your business plan.
If you want to get more technical with your writing, you can really dive into some research. By looking at each group of people you could potentially sell to, you can also find out how big your sales base is.
IS YOUR CUSTOMER BASE GOING TO GROW OR SHRINK?
What kinds of changes will happen in this market over time? How will your customers’ needs change? What kinds of changes will happen in this market over time?
Once you have the primary population identified, you can now start focusing on the individual consumer. You define this consumer by their demographics, including but not limited to how old they are, what their gender is, how much money they make, what they like and don’t like, and where they are located. This information is important because you really need to know who you are selling to before you create a marketing plan that is specific to that target audience.
WHAT KIND OF COMPETITION DO YOU HAVE?
In this section, you really want to look at who is already on the market attempting to sell your solution. What are they selling? How effective are they? What are the gaps in their approach? How would your business avoid some of the pitfalls of other companies and provide better solutions? How closely it is related to your product? What advantages do you have over other competitors? This will be a key point of interest to your reader and potential funding source.
If you don’t think you have competition, remember that sometimes people can solve the problem for themselves without the use of a product or service. This is also a type of competition that you need to keep in mind.
WHAT COULD YOU OFFER IN THE FUTURE?
What would your business look like in the future if it is successful?
You will want to incorporate an idea of what your business could expand into, but don’t get sidetracked thinking about what other products you can offer – that is a whole new business plan. Keep it simple and brief.
TIME TO EXECUTE: HOW WILL YOU MAKE IT HAPPEN?
Execution is the action part of your business plan. How are you going to take the information that you wrote about in the opportunity section and make that into a viable business?
WHAT KIND OF MARKETING WILL YOU DO?
How is your customer going to find out about your product? How are you going to sell your product to them? How much is it going to cost? Who do you need to team up with, or add to your team, to make this happen? These are all questions that you need to identify and explain in the marketing portion of your execution.
Since you have already started examining your target audience, you have a little information to start developing a marketing plan. Without details, your marketing and advertising will fall on deaf ears, because it will either be heard by the wrong people or the message will be incorrect; so, your potential clients will not believe they need your product.
When you are preparing for positioning, get some information on what you will offer over your competition, and how competitors are currently reaching their market. Identify what your consumers demand is and why. The reason you need to consider these questions is because you need to be able to state the value of your company and describe how it differs from others, making it the solution a customer may consider using to solve their problem.
ARE YOU HIGH-END OR LOW-END?
This positioning statement will determine what price you are going to ask for your product or solution. If you are aiming for more high-end customers, your price point will be nominally higher. If you want to reach lower income customers, your position will be one that you offer a less expensive solution, meaning your price point will be lower than your competitors. If you are having trouble figuring out what your price point should be, consider the following:
- You need to consider what it will take to cover your cost to produce and sell your product. Your price point should be higher than what it costs to produce it so that you can make a profit.
- Can you offer add-ons that go beyond the initial cost? Lots of companies use this technique. Apps are a great example of this. The cost to download an app may be low, or even free, but once you get into the app, you can purchase add-ons to allow you to do more.
- What are people willing to pay for your product? What are other competitors charging?
POSITIONING, PRICE POINT AND NOW PROMOTION: HOW WILL YOUR CUSTOMER FIND OUT ABOUT YOUR PRODUCT?
You are in position. You have a price. Now, how are you going to tell your potential consumer that your product or business exists? How much will it cost for you to deliver the message? How will it be delivered and how frequently? How many sales will it bring in (what is the conversion rate)?
Think about packaging. Do you have pictures or examples that you can include? How does it look – better or the same as your competitors? What kind of materials will you use? How the product is presented? Can it make all the difference in the world on when it is purchased?
Advertising is how you will tell your consumer about your product or service. There are plenty of ways to advertise, but you need to figure out what is going to be most effective one based on your target audience. If your consumer is over the age of 65, are they more likely to listen to a radio announcement or see an Instagram photo? Who your market is will help you define what types of advertising will be most effective.
If you get newspapers and the radio to cover your business for free, this means you are employing a good public relations policy for your company. Reviews expose your company for the better or worse.
Using content marketing and social media marketing are also great ways to enhance your execution plan. Content marketing (such as blogs) inform your consumers about topics related to the problem and solution. Social media marketing is a tool that is used to share this information with a mass audience. Content marketing is usually written in article form and is educational. Social media includes products like Facebook, Twitter, Linked-In, Instagram, and YouTube.
DO YOU HAVE ANY PARTNERS?
Are there other businesses that you partner up with to increase your chances of success? Find out if there is a synergistic relationship that can be formed between your business and another enterprise. If you have already secured a partnership, make sure you put this information in your execution section.
HOW WILL YOU OPERATE YOUR BUSINESS?
It is just what it sounds like. How does your business operate? What kinds of technology do you use? How many hours is it open? How many employees do you have?
Other operational procedures that you may need to consider are who your vendors going to be? If you are in manufacturing, who supplies the needed raw materials? How are your products made and how will they get to your consumer? What methods of shipping will you offer for distribution? Will these methods be included in the price or will they have a separate cost for your consumer?
Will you sell your product directly to customers (i.e., online), through a distributor, through a sales representative or in a store? Is your product being sold to another business to be used in their product?
HOW WILL YOU MEASURE SUCCESS?
How will you know if your product is successful? How will you know what the next step is? At the beginning of this article, we discussed how businesses grow and change over time. Instead of rewriting a new business plan each time your company evolves, you can set new objectives and metrics.
You will need to outline what your schedule is. Having a timeline of how your business will work is important to the reader. If your product will take a decade to take off, a funding source needs to be aware of this upfront. This estimation needs to be realistic.
Milestones are steps when accomplishing goals. They have specific outcomes. When a milestone is reached, your business can move on to the next one. If a milestone is not met, then you may need to evaluate what went wrong. Milestones help you to stay on track.
Not only do you want to keep looking forward to what is coming, but you also want traction to identify what you have accomplished so far. If you can show how you have already been successful, you are not only going to stay motivated by your accomplishments, but your potential investors will be intrigued as well. Talk about this in your business plan to show how you are already demonstrating success in your endeavors.
WHEN YOU ASSUME, YOU MAKE AN….
What are you risking for your business to succeed? What are factors in the environment that will cause a change in demand or supply, that could potentially devastate your business? Risks are sometimes easier to identify than assumptions. Assumptions are what you are assuming will happen in the market, or who you assume will purchase your product. An assumption means that you may be wrong and that one point of your analysis may be off. This is okay, that is why there is a section of your business plan devoted to this. The fewer assumptions you have, the better. The more you have, the higher chance your business will fail because it is not based on realistic evaluations.
PERSONNEL AND PARTNERSHIPS
Most businesses require more than one person to help make it successful. Who are you looking to employ? Who are the members of your future company that will help your ideas come to fruition? This is also a great section to place information about the structure of your company, where it is located and what its history is if you have already gotten your enterprise off the ground.
There are several layers to a company, from management to the everyday workers who assemble or deliver your product or service. Right now, the focus will be on how your team is managed. What kind of roles with the individuals play that you have already brought on board? What future roles will be developed once funding is secure? What roles could potentially develop if your business ends up being successful? How many people are you set to employ?
In the TEAM section of your business plan, talk about each of the key players with a short biography that demonstrates what experience they have, skill levels they possess, and kind of education or training that will be useful to your business. Connect the dots for your reader and show how each person will be impactful. There is nothing worse for a funding source, or a business owner than to be throwing money at an individual that does not have a real contribution. Don’t jump to making everyone a chief. It isn’t good when you have too many chiefs and not enough Indians. Use an organizational flow chart if this will help. If you have a missing field, write about how you will develop the position and seek out the right person for the job. You don’t have to have all the answers right now but give yourself the flexibility to think about how you can make it happen!
WHAT IS THE HISTORY BEHIND YOUR COMPANY?
You don’t have to include this in your business plan if this is just an internal document. The players you are working with should understand what they are trying to accomplish. If you are writing this for a potential investor or funding source, include it, but keep it short.
The mission statement is very important but will develop over time; it is what you will open your company overview with. Spend a day or two thinking about what your company is, what its value is, what it produces and for whom, and what needs it fulfills.
Think about what kind of ownership your business is classified as. Do you have sole-proprietorship or an LLC? If you have already been through this phase, include a copy of the most important legal paperwork in your business plan.
Write a brief history of the company. How did you get started? What successes have you had up to this point? What challenges have you encountered? How was the company founded and who participated in your execution up until now?
Where is your company located? We are not just talking about physical location, like a city or state. What kind of building is it housed in? Is it in a storefront, or are you renting out office space and a warehouse? Are all your employees located in this building, or is some of your work done by telecommunication? Be as specific as possible and speak on what needs you may have in the future.
LET’S TALK ABOUT MONEY
Don’t let the financial plan section of your business plan scare you. You need to have a clear understanding of your business financials, and if you are seeking outside investment, your funding sources need to know how risky your business options are going to be.
Start with where you currently are, and then think about the next twelve months. If this baseline is all-inclusive, you can lower-income by different annual time spans. You should shoot for a minimum of three years but try to calculate up to five years.
What kind of documentation should you include in your business plan?
- A sales forecast: how many products or services are you aiming to sell, and how many of each? Include a corresponding number that will explain the cost of how much each one will cost to produce or execute
- Personnel: How many employees will you have and how much will you pay them? If you are a small company, you can just list the information. If you are starting a large company or are seeking to expand, break the employees down into categories. Don’t forget to include other costs in payroll including taxes, insurance, retirement plans, etc.
- Profit and loss: PNL statements (as they are commonly called) is the overall financial statement of your company. This will show if you are making money or losing money. This will pull all associated costs from your company (including payroll, utilities, resources, and more) and compare them to the total profit that you are making. Subtract what you are spending from what you are making to find out what your bottom line is each month.
- Cash flow statement: This is how much money you have on hand. While your PNL will show what you are making and spending, this number will give you how much you have, rolled over from year after year. You may be sinking this year, but you may have hundreds of thousands in the bank gained from the last two years profit. Sometimes, you may have accounts receivable that are default. The cash flow will show you how much money you must be able to pay your vendors with.
- A balance sheet is a summary of your financial health. It lists all the pros and cons (assets and liabilities) and the equity or total worth of your company. If you were to close today, sell and cash in on everything, what is the monetary worth?
- Use of Funds: If you are working from a microenterprise grant (or another type of outside funding, like a loan) include information in your financial section on how this money is being used. You can emphasize major areas of spending, but you don’t necessarily have to list every dollar that you have spent.
- Succession plan: What will happen when you sell your business, or it fails? Who takes over, or who takes the financial loss? This is your succession plan. You never know when something will happen to one of the owners…it is a good thing to know how the company will continue.
This isn’t essential, but it could be an important chapter of information. This is where you would include any tables, charts, graphs, pictures, supporting documents, or definitions. Yes, you could include them in your business plan sections, but it may be unnecessary information that your reader doesn’t really need or want. By supplying them in the index and referencing the index only within your document, it will make reading easier, and having resources available but optional for your reader to examine.
Now You Have It
Writing a business plan does not have to be a difficult process, but it is a necessary one. If you are creating a business plan for yourself, it will guide you and give you a foundation so that you can begin and evolve. If you are writing it for an existing company, it will provide documentation to your employees and partners about the essential basics of your operations. If you are applying for funding or seeking strategic partnerships, this document will provide the information necessary for them to make an informed decision.
Take the time to write a well-written document. Keep it concise and written for the audience that you are intending it for. This is the one document that will guide your business from a starting point and through each milestone. It can be changed as your business grows, so be flexible. It is okay to not know all the answers now- but fill them in as you go along, so you have a living document that is both useful and informative.