Some entrepreneurs may think a business plan is an irrelevant piece of paperwork that will just get lost in the shuffle, or a pointless exercise getting in the way of pursuing the fun part of running a business.
Nothing could be further from the truth.
Your business plan should be treated as a birth certificate or formal constitution. This document lays out, in explicit detail, every aspect of what you hope your business will be, the ethics on which it’s founded, and your specific plan for how to sustain and grow it over time. That’s incredibly useful info!
Sure, every business is different, and different businesses mean different approaches to business plans, but below we’ll walk you through eight essential items that every business plan should include in order to be effective.
What is a business plan?
In the simplest of terms, a business plan is a blueprint or guide showcasing your business’s goals and your detailed plan for how those goals will be met. Again, this isn’t just a feel-good exercise to do: Banks, potential partners, investors, and even the state where you register your company will want to see a copy of your business plan in this kind of detail.
This will often be the document that seals or breaks your ability to land an account, loan, or merger. Not having a business plan is like not having a photo ID; your business basically can’t get in anywhere without it. Don’t think of your business plan as a best practice but rather a founding, critical step in the successful launching of your idea.
8 Things to Include in Your Business Plan
The elements of a business plan can be every bit as unique as your business. You should spend the time to think about how you want your plan to reflect the core values and ethics of your company.
Detailed planning? Core values? Ethics? If this is starting to sound intimidating, don’t worry — you’ve got this! You can start by familiarizing yourself with the small business statistics related to your market. A bit of research like this will help you make educated decisions about the parts of your business plan. That said, there are key elements that you don’t want to forgo. Add these eight essential components to your business plan:
Business Plan Elements:
- Executive Summary
- Company Description
- Market Research
- Product or Service Description
- Marketing and Customer Acquisition Strategy
- Business and Team Structure
- Company Financials
- Request for Funding
Remember that you don’t need to be worried if you don’t have all the answers to these at the moment. You have time to find them and reflect on how you want to incorporate them meaningfully into your business plan.
1. Executive Summary
The executive summary should lead your business plan and appear directly after your title page. This is where you state what you want for your venture in clear and concise language. This document will ideally be no longer than a page in length and offer a good synopsis of the entire business plan. List your business’s previous accomplishments, current market position, and financial features where these items apply.
For example, if you are a fledgling graphic design business but have already done work for big-name, recognized clients, include evidence of that in your executive summary to highlight your company’s established positive connections. This section is meant to provide a road map of your company’s placement in your industry and its hoped-for trajectory.
2. Company Description
This is the section of your business plan to talk about the essential elements of your company’s objectives and prior accomplishments. Give the reader your company’s history and mission statement here. What kind of operation is your business — retail, manufacturing, service-related? What sort of format have you adopted: LLC, corporation, or sole proprietorship?
Name your company’s principals and leaders in your description and include any other support networks available to your business. For example, if you are running a small carpentry venture but have done work for major construction contractors in your area, let your readers know about these larger allies, as they lend your business further credibility in your field. It’s advisable to write this section more like a bulleted list or profile than in paragraph or narrative form.
3. Market Research
This portion of your business plan addresses your target and potential market. Here, you’ll paint a verbal picture of your ideal customer, including age, gender, vocation, education, and even hobbies. The more specific you can be in your market analysis, the better it looks to investors, as identifying too broad a market indicates too little research and too much risk. You need to offer an educated estimate of your target market’s size, monetary value, and stability, which you can determine through completing a thorough market analysis.
Use this section to showcase that you understand your competition and have sized up the opportunity related to your venture. For example, suppose you’re launching a boutique printing and graphics company in a town where there is already a larger printing group. In that case, you might detail that your operation will be positioned within walking distance of the town’s big university and offer scholastic demographics on the students who attend there to illustrate the demand for the work you’ll be doing.
Conduct a detailed competitive analysis of other businesses in your area based on your target market. What are their primary marketing channels and average costs per project? Is your industry sector affected by the gig economy? If so, how much? It’s helpful to present the information relating to your active competitors in a spreadsheet or table to be more immediately readable.
4. Product or Service Description
This part of your business plan is your chance to spotlight your company’s products or services. Provide highly specific details about your production process, the product life cycle of what you’re offering, and especially the benefits. What is unique about what you are selling? Do you have any patents or intellectual property protection in place? Where do you get the raw materials you use to make or supply your items? Do you currently have anything in the research and development pipeline?
Offering detailed info on these kinds of questions and addressing the assembly, quality control, supply chain logistics, and daily operations associated with your products or services helps demonstrate why your business is different from others in your market — and it’s also useful for you yourself to think through if you’re just getting started.
Use this space to show just how creative and vital your company’s work is. For instance, if you are founding a consulting agency for sustainable design, perhaps showcasing that your service plans make heavy use of local quarry rock would be wise here, as this is an element other green entrepreneurs might not have.
5. Marketing and Customer Acquisition Strategy
Documenting your revenue model is a crucial component of your business plan. This section outlines your sales strategy, helps position your brand, and reduces the risk of your company barking up the wrong revenue tree or timing your product/service in a disadvantageous way. This is the section of your business plan where you’re going to detail everything from the pricing to the predicted margins of your business. What marketing strategy will your company employ? How does it differ from or exceed those of other business models?
True, much of this financial information will be speculative if you’re just starting out. However, getting specific about how you’ll handle your revenue channels should be based on existing information at your disposal — remember, you’ll want potential investors to see you’ve taken the time to be realistic in your planning and projections. Has your company made any money to date? If so, how much, and how was it generated? What relationship does your cost of goods sold (COGS) have to your bottom line and market share? Does your marketing plan include payments from customers that will be collected on a one-time basis, recurrently, based on service time spent, or some combination of the above?
A good example here might be a small electrician’s company that, unlike its competitors, doesn’t charge a “come and see” or service fee for estimates. While this might initially seem to bring in less money for the company, the traction it will give the business with appreciative customers in the long run is likely to increase the company’s demand and revenue.
6. Business and Team Structure
The section of your business plan that addresses your management team is where you have the pleasure of introducing the people that power your business. This is a chance for you to further showcase your seriousness to potential lenders, investors, or partners by highlighting each of your team member’s qualifications, backgrounds, and credentials.
Create brief biographies of three to five sentences for each of your principal team members, including why this person is qualified for the role they play in your business. For example, your small business may have a co-founder who has obtained a law degree, but you’re going to run a freelance accounting firm.
Use this space to show how that person’s background in law makes them the perfect partner and will help your company comply with federal and local regulations. Remember that your goal is to prove, beyond a shadow of a doubt, that the team you have assembled to help run your business are not only professionals but also the best people for the job.
If you haven’t made many hires yet, you’ll also want to spend a moment in this segment of your business plan forecasting your staffing needs. Who do you still need to hire to make this business as good as it can be? What do you predict will cost to hire these experts? Will you outsource any component of your team? Take time here to show that you have thought ahead to potential staffing scenarios and your responses.
7. Company Financials
Demonstrating that you have a realistic understanding of your company’s financial needs is essential. Even if you have a new business idea and don’t have formal financial statements yet, this sector of your business plan should provide your business’s established budget, cash flow analysis, any income statements and balance sheets you have, and your debt-to-liquidity ratio. Don’t forget to factor in business taxes that will impact your company and gauge the frequency with which those taxes will be imposed (some are yearly; others are quarterly).
Let’s say you are starting a small IT consulting business. You may not have much financial data yet, but you do have a wealth of information from companies you have worked for in the past and their technological trends, needs, and financial projections. Take this information and make very thorough profit and loss projections for your company based on current, factual industry data.
Remember that every projection you make in your financial plan needs to have a direct justification. It’s also wise to project conservatively on profits and liberally on losses to account for the unpredictability in your target market.
8. Request for Funding
Now for the really fun part of your business plan: officially asking for money. Your request for funding should start with what the investor will get by partaking in your small business. Spell out your capital needs, why you need them, and why providing them is beneficial to the funder.
It’s imperative in this section for business owners to outline key milestones that investor money will aid in achieving. What are the long-range goals for this money? How will investors be rewarded in the short and long term?
For example, suppose you are founding a freelance landscaping company in a city showing a steady statistical uptick in suburban, residential development. In that case, you can couch your investor’s long-term benefits in terms of the exponential growth your connections to contractors/builders suggest. In short, your investors can get in on the ground floor of what your network will give you access to. Make your funding request all about positives, and you are much more likely to receive favorable results from it.
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A good business plan can help you understand your industry and customers more efficiently, help you mark business milestones, and focus your entrepreneurial efforts in the right direction. Setting yourself up for success early through this kind of planning is the smartest step you can take toward guaranteeing the life and growth of your business.