The business plan is a document that outlines what your business is about and what it intends to achieve. However, few business owners understand how to really write a good business plan. They only think about writing a business plan when the time has come to acquire funding for their business.
And next, they write the business plans with the sole aim of getting money from banks or potential investors. This is the wrong way to go about things. Even without having funding in mind, it’s best to have a cohesive business plan written down, for your own benefit.
Below, we’ll show you how to write an accurate, detailed, concise, and comprehensive business plan that will give you the best chance of funding and assist you in understanding your own business.
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Why Write a Business Plan?
The most commonly cited reason to write a business plan is to acquire funding. Whether you want to get an SBA(7)(a) or look towards venture capitalists, you’ll need a solid business plan.
The business plan is an outline of what your business is about, what your value proposition is, how you intend to market your business, the target demographic, and how you intend to spend the acquired funds.
In short, the business plan is a detailed representation of what your business is about, containing all the possible details that a potential investor would like to hear.
However, there is another reason why you’ll want to write a business plan. A business plan is essentially a crystallization of your business on paper. It will help you to understand your business. And it’s always useful to clearly define your goals and expectations.
The business plan helps you to do this, in the most efficient possible way. You are really hitting two birds with one stone. The business plan will help you to run your business, and could also help you to acquire funding. It could be said that there are four major reasons why you should write a business plan:
- To outline your business goals and aspirations in writing.
- To identify strengths and weaknesses objectively.
- To communicate the vision of the company.
- To convince investors to lend you money.
Stages of the Business Plan
There are many business plan variants that depend on your industry, business, size, preferences, and numerous other factors. However, the Business Plan is often described as going through 3 primary stages. These stages are:
- The Mini-Plan – This is really just a business plan outline. It is typically short, less than 10 pages in length. However, it will contain all of the relevant data. Depending on what you are trying to do and who you are trying to convince, the 10-page plan can be more than enough.
- The Working Plan – The working plan is often between 15 and 25 pages in length and explains how the business will operate in more detail. This is the plan that business owners will typically ‘work’ from, though it is still a little bit rough around the edges.
- The Presentation Plan – This is the business plan as presented to investors and bankers. It is the business plan with the correct terminology and images as appropriate for convincing a particular audience. This is really a term that is synonymous with a “business plan”.
Even before engaging in a full-blown business plan, it’s best to have a mini-plan to refer to. This can be used when hiring employees or working with partners/contractors, to give them an idea where the business is headed.
The 6 Components of a Business Plan Outline
While there is a lot of room for customization (and a lot of opinion on the matter), the business plan can be loosely broken down into 6 components:
- Executive Summary – Brief outline of the company.
- Opportunity – Value proposition and what you intend to do.
- Execution – How you intend to capitalize on the opportunity (sell products to customers).
- Management Infrastructure – Company hierarchy, organization, and significant persons.
- Financial Status – Cash flow status and projected income.
- Appendix – Any additional details and references.
These components are outlined in more detail below. Some steps have multiple subcategories (for example, you can break up step 5 into your current financial situation, projected financial situation in the future, and include a funding request).
Component #1 – Executive SummaryThe executive summary is covered in more detail below in the 12 step outline. It’s the most important part of the business plan. It will contain:
- A summary of what you provide and who you are.
- The current market situation.
- How much money you have, and how much you need.
- A justification (brief) about why your business will succeed against competitors.
- The growth potential of your enterprise.
The Executive Summary is actually the easiest part of the entire process. It’s only 1- 2 pages long and should be a neat outline of what you intend to achieve. But it’s very important to get this part correct. It will set the tone for the rest of the plan. So it has to read well and smoothly.
When writing the Executive Summary, take note that all businesses exist to solve customer problems. What is the problem, how are you solving it, and why are you better than competitors? If you answer these questions succinctly, then you are highly likely to acquire funding. Don’t hype your position – just state it clearly.
A great way to think about an Executive Summary is that it is a written elevator pitch. The Executive Summary is the perfect tool for you to refine your business concept. It allows you to write down a precise and exact concept about what your business stands for. If you have zero intention of acquiring funding from clients, it’s still a great idea to write out an Executive Summary.
Additional benefits of a concise Executive Summary are that it will help you to determine your priorities and will help the rest of the business plan run smoothly. It is often the case that if you start strongly, you will finish strongly.
Component #2 – OpportunityThe Opportunity section details where the customer base is under-served. This is a perfect place to include statistics indicating your target market and how it is expanding. Know your target market inside and out. What their spending habits are, what they are looking for, what methods of payment they prefer, how you can enhance their lifestyles, etc.
The more intimately you understand your target market, the better you can give them what they want. The more sophisticated investors will need to know that you have done extensive research on your target market.
Before you embark on any campaign you must do research to see what is viable and what isn’t. The best way to start is with a question and answer session. Here are some typical questions you could ask before starting out:
- Is the overall industry stagnating, growing, or declining?
- Is the demand for my specific products/services stagnating, growing, or declining?
- What customer segment am I targeting?
- What do customers pay, on average, for my products and services?
- Will I offer products service for less, more, or the same price as the market average?
- Is my price justified, and why?
- Can I distinguish myself from my competitors in a meaningful way?
- Have other businesses tried to do the same?
Asking these questions is critical to keep you on point. You can always refine your products and services later on, but you will still need to remain in the ballpark in terms of what the customers are looking for.
A key point here is that you need to distinguish yourself from competitors. Even in tough markets, you can do well if you offer a particular niche that is distinct from others. You will be the same, but different, though that is something of a contradiction in terms.
Investors will want to see that you are justified in asking for money and that you have given the issue a great deal of thought. Don’t get discouraged if you are in a tough and declining market. As long as you have a practical way of attracting a target market and the idea makes sense, then your business plan is solid.
A potential area of contention is that of creating a new market versus attracting an existing market. It’s entirely possible to create a market with new products. For example, nobody calls for new smartphones until they are released with new applications and features. When they find out about these new features, they ‘have’ to have them.
But as a general rule of thumb, you do need to give customers what they are already looking for. Creating a new market demand is for more ambitious types, and investors are typically very skeptical of these endeavors. Even the very best products may not sell if there is no market for them. It’s best to dig, do some research, and be very exact in terms of your target market and how you are resolving their problem.
The opportunity section will also include what your competitors are doing and how you can do it better. Differentiate yourself from your competitors as much as possible.
Component #3 – ExecutionExecution is the sales and marketing side of a business plan. You can invent the world’s best application, and nobody will download it if you don’t place it in front of them.
This is where many businesses can fall short. You have to sell your products and services hard and aggressively. ’Build it and they will come’ does not work anymore. ‘Build it, market it aggressively, and they will come’ is much more accurate.
By: Sarah Davis
Sarah Davis is a business executive specializing in mergers and acquisitions, corporate finance, and international law. She achieved her MBA from Cornell University after completing a legal undergraduate at UC Berkley. Sarah runs her own business consultancy firm in tandem with working alongside the FinImpact team.
Source: How to Write a Business Plan (Like a Pro) 2021..