You may believe that you do not require a step-by-step guide to create a business plan. Maybe you don't think you need a template to write a business plan. After all, some entrepreneurs succeed despite not having written a business plan. Some founders build thriving businesses without even creating an informal business plan, thanks to great timing, solid business skills, entrepreneurial drive, and a little luck.
However, the chances are that those entrepreneurs will fail.
Is it true that having a business plan ensures the success of a startup? Certainly not. Great planning, on the other hand, can mean the difference between success and failure. When it comes to your entrepreneurial dreams, you should do everything possible to set the stage for success.
That is why a great business plan assists you in succeeding. #TWN
A business plan can make or break a small or growing business. A solid, detailed plan provides a clear road map for the future, forces you to think through the viability of a business idea, and can provide you with a much better understanding of your company's finances and competition.
A business plan typically spans three to five years, outlining all your objectives and how you intend to achieve them. “According to Craig Allen, a financial advisor who teaches business plan writing classes at Southern New Hampshire University, a business plan shows you're prepared and have thoroughly vetted your business idea if you're applying for a loan or looking for investors.”
A failure to plan is a plan to fail, as the old cliché goes. In fact, there is now a wealth of data on the impact of a written business plan, particularly for small and growing businesses.
I will walk you through everything you need to know to write a successful business plan and turn your idea into a reality. If you are pressed on time, here is the list of ten steps to creating a business plan:
But, first things first.
A business plan is a comprehensive road map for the growth and development of your small business. It expresses who you are, what you intend to accomplish, and how you intend to accomplish it. It also aids in the recruitment of talent and investors.
But keep in mind that a business concept or idea is not the same as a plan.
A business plan is a necessity because the majority of venture capitalists (VCs) and all banking institutions will not invest in a startup or small business unless it has a solid written plan. A business plan not only helps you focus on concrete goals but also reassures outside parties that you've planned ahead of time.
Bplans, an entrepreneurial resource center, collaborated with the University of Oregon in 2018 to collect and analyze research on the benefits of business planning. Here's what they discovered:
Begin with a clear picture of the target audience for your plan. Is it a room packed with angel investors? Is there a venture capital division at your local bank? Is it you, your executives, and your employees?
Defining your audience allows you to determine the language you'll need to propose your ideas, as well as the depth to which you'll need to go to assist readers in conducting due diligence.
Now, let's look at the ten most important components of your business plan. Here’s a step-by-step process to creating a business plan:
Even though it appears first in the plan, write your executive summary last so you can condense key ideas from the other nine sections. For the time being, consider it a placeholder.
The executive summary summarizes all the important information about your company in a short amount of time. A typical executive summary is one page or less. It provides a high-level overview of everything and summarizes the remaining sections of your plan. In a nutshell, it's an overview of your company.
Below is an example from a fictional business, Laura's Landscapers. (To make each step practical and easy to replicate, we'll use the same company throughout this guide and in the downloadable template.)
This executive summary focuses on what is commonly referred to as the value proposition or unique selling point: a lengthy motto aimed at customers, investors, and employees.
You can use a simple "problem, solution" format or a fill-in-the-blanks framework:
This framework is not intended to be rigid but rather serve as a starting point.
According to market research, an increasing number of wealthy Richmond residents are interested in sustainable landscape architecture. However, high-end businesses are scarce in the area. There are currently only two, neither of which focuses on environmentally friendly planning nor is certified by green organizations.
Laura's Landscapers offers a high-quality, long-term service to customers with disposable income, large yards, and a love of nature.
Your company description contains three elements in a business plan:
These elements provide context to the larger picture in your business plan, allowing investors to understand the reason for your company's existence and, thus, the goals to make sense.
A mission statement explains why your company exists. It's not just about what you do or what you sell; it's about why you do it in the first place. The following are examples of good mission statements:
Less is more in every aspect of your strategy. Your mission statement epitomizes this sentiment. Consider what motivates you, what events and circumstances led to the establishment of your company, the problems you solve, the larger social issues you care about, and so on.
Tip: Check your mission statement regularly to ensure that it continues to reflect your company's mission as it evolves. A statement that contradicts your core values or what you actually do can sabotage your marketing efforts and undermine your credibility.
Don't worry about making your company's history too complicated. Instead, write it as if it were a profile:
Business objectives provide you with clear goals to focus on. These objectives must be SMART, which stands for:
They must also be linked to key results. When your objectives aren't clearly defined, it's difficult for employees and team members to work together toward a common goal. Worse, hazy goals will not inspire confidence in investors or have a profitable impact on your business.
Laura's Landscapers' mission is to help you create the outdoor living space of your dreams while also changing the face of our city through sustainable landscaping.
We have over 25 years of combined landscape architecture experience, having been founded in 2021 by sisters Laura and Raquel Smith. Our four employees work in two-person teams and have completed ten projects for some of Richmond's most powerful business and community leaders.
Over the next three years, our goals are to:
The following step is to define your ideal potential customer as well as the current and potential size of your market. Target markets, also known as personas, identify demographic data such as:
You will demonstrate expertise and generate confidence by being specific. Investors may raise an eyebrow if your target market is too broad.
The same is true for your market analysis when estimating the size and monetary value of the market. Drill down into your company's addressable market, which means local numbers or numbers that apply the total to your specific segments, in addition to big numbers that encompass the entire market. You could even map your customer's journey to better understand their wants and needs.
The first step in competitive research is to identify other companies that currently sell in the market you want to enter. The idea of devoting enough time to learning about every potential competitor may appear daunting, but it can be extremely beneficial.
After you've identified your main competitors, answer the following additional questions:
Spend some time considering what makes you unique. If your concept is truly novel, be prepared to explain the customer pain points that your company intends to address. If your company does not have any direct competitors, look into other companies that offer a similar product or service.
Next, make a table or spreadsheet with a list of your competitors to include in your plan, also known as a competitor analysis table.
This section describes the benefits, manufacturing process, and life cycle of your products or services, as well as how your company differs from competitors.
When describing benefits, keep the following in mind:
For the production process, answer how you:
Within the product life cycle section, map elements such as:
Your marketing strategy or plan can mean the difference between selling so much that your business expands rapidly or getting no business at all. Your business plan's growth strategies are essential.
You should briefly restate key points such as:
Then, add your:
You can also use this section of your business plan to highlight your strengths and what sets you apart from the competition. Make it a point to demonstrate what you've already done, what you intend to do given your current resources, and what results you expect from your efforts.
If your company is new, it may not yet have financial data, financial statements, or comprehensive reporting. You will, however, need to create a budget and a financial plan.
If your company has been around for a while and you're looking for investors, make sure to include the following:
Other figures that you can include are:
You should ideally provide at least three years of reporting. Before going over your past statements for justification, make sure your figures are accurate and don't provide any profit or loss projections.
Costs, profit margins, and sale prices are intertwined, and many business owners set their prices without taking into account all costs. This error is especially dangerous for new business owners. All your costs, including overhead, must be included in the price of your product or service. If it doesn't, you won't be able to determine a sale price that will generate the desired profit level.
Cost underestimation can catch you off guard and slowly eat away at your business.
Your company is only as good as the people who run it. Identify your team members and explain why they can help you turn your business idea into a reality or grow it. Highlight your management team's expertise and qualifications throughout—this section of your business plan should highlight your management team's superstars.
You should also keep in mind:
You may need to budget for a bookkeeper, a CPA, and an attorney to make informed business decisions. CPAs can assist you in reviewing and preparing your monthly accounting transactions as well as your annual tax return. Client agreements, investor contracts (such as shareholder agreements), and any legal disputes that may arise can all be helped by an attorney.
Request referrals (and their fees) from your business contacts, and make sure to include those costs in your business plan.
Try to be as realistic as possible when estimating how much money your small business will require. If you don't want to provide an exact number, you can provide a range of numbers. Include both a best-case and worst-case scenario, though.
Because a new business doesn't have a track record of making money, you'll likely sell equity to raise funds in the early stages. When you sell equity to raise capital, you're effectively selling a piece of your company.
The majority of small business equity sales are private. The investor may also expect to be paid a dividend, which is a portion of the company's profits, and they will want to know how to sell their ownership stake. You can also raise capital by borrowing money, but you must repay creditors both the principal amount borrowed and the interest on the debt.
When you examine the capital structure of any large company, you'll notice that the majority of them issue both equity and debt. Before selling equity in your business, consider whether you're willing to accept the trade-off of losing total control and profits when writing your business plan.
Tip: Make a timeline for your potential investors; so they know what to expect. Some customers may not pay for 30 days or more, requiring the company to maintain a cash balance.
The founder can obtain cash by putting their own money into the business and obtaining a line of credit (LOC) from a bank or applying for QuickBooks Capital. If you obtain funds through a LOC or another type of loan, it must be paid off as soon as possible to reduce the interest cost on debt.
Finally, create a well-organized appendix with everything readers will need to supplement the information in your plan. Consider any information that:
Useful details you must cover in an appendix include:
Whether the plan is a document for internal reference only or an external call for investors, your appendix should be a living section of the business plan.
Tip: As you add documents to the appendix, create a miniature table of contents and footnotes throughout the plan to link to or draw attention to them.
Creating your business plan will be much easier with the right online business plan tool. However, as with many business software solutions, there are a variety of business plan software options available, each with its own set of features, user experience, and price.
As a result, if you're looking for a place to start your search for the best business plan software, take a look at my five top choices below:
These are my best picks for writing your business plan online. I’ll do a blog soon with a detailed review and analysis of these tools alongside other effective ones.