However, according to research, 70% of business owners say that a well- articulated business plan is the recommended way to start. Like the wise saying goes, “Failure to plan is a plan to fail”.
The good news is, we’ve developed a comprehensive, step-by-step manual for writing an effective plan so that you can turn your entrepreneurial dreams into a tangible reality.
What, why, When?
Before we dive into the details, let’s begin with the basics: what, why and when?
What is a Business Plan?
This is a targeted document that outlines the financial objectives of your business and details the strategies you’ll employ to reach them. A well-written plan serves as a road map for your business’s next three to five years. You can present this plan to potential investors, lenders, or other important partners, offering them insights into your business’s direction and prospects.
Why Do You Need a Business Plan?
A business plan does more than you might think – it helps you set clear goals and give external parties the reassurance that you have planned.
Did you know the majority of venture capitalists (VCs) and all banking institutions hesitate to invest in startups or small businesses lacking a solid, written plan?
Drawing from research on the benefits of business planning, here’s what we found:
- Entrepreneurs with a business plan have a 129% higher chance of progressing beyond the startup phase and a 260% greater chance of moving from the “idea” stage to launching a new business.
- Businesses with a plan tend to grow 30% faster compared to those without.
- Owners who have a business plan are twice as likely to expand, attract investments, or secure loans than those without.
Another study in the Journal of Business Venturing’s confirms that business planning increases the performance of both new and established small firms.
When Do You Need a Business Plan?
A business plan becomes crucial before you leave your nine-to-five income, as it can determine your readiness for such a transition. Over the long term, this plan will keep you focused on what needs to be accomplished.
Writing a business plan is essential when:
- Seeking funding, investments, or loans
- Experiencing slow growth and need a change.
- Looking for a new partner or co-founder
- Aiming to attract, hire, and retain top talent.
How to Write a Business Plan
Since an outline is such an important step in the process of writing a business plan, we’ve put together a high-level overview to get you started.
We’ve divided it into sections to guide you through the process of building your plan.
Step 1: Executive Summary
The executive summary is possibly the first and only thing that investors and lenders will read about your business. Its purpose is to condense all that follows and offer time-crunched readers a concise overview of your business operations, strategy, and goals.
Remember, this is a summary, so highlight only the key points. This section shouldn’t exceed a page or two. While it comes at the beginning of your plan, its best to write it after you have finished the other sections. This way you can easily summarize your work.
Here’s what your business plan’s executive summary should include:
- Problem Overview: Explain the significance of your business and the specific problem you can address for customers.
- Solution Overview: Outline the main offerings your business provides.
- Target Market: Identify your intended audience or specific market segments.
- Competition: Shed light on your primary competitors.
- Team: Introduce your team members, managers, and advisors.
- Projections: Specify your financial aims and sales objectives for the year.
- Financial Highlights: Outline your long-term sales targets.
- Funding Requirements: State your fundraising goals and any external funding you’re seeking.
Step 2: Company Overview
Moving on to Company Overview, this section contains five elements:
- Mission and vision statement
- Company History
- Business Objectives
- Market Problems
- Business Solutions
These pieces give the context for your overall business plan. They help investors understand your company’s purpose and how your goals fit into the big picture.
What is a mission and vision statement?
Describes the current purpose of your company. This includes its function, target audience, and key offerings.
This is a look into your company’s future or what its overarching vision is. The same elements from the mission statement can be included in a vision statement, but they will be described in the future tense.
To put it simply, a mission statement is a roadmap for the company’s vision statement. Now that we know what they are, let’s dive into a useful example of each:
Mission statement: To create the most compelling car company of the 21st century by driving the world’s transition to electric vehicles.
Vision statement: To accelerate the world’s transition to sustainable energy.
The mission and vision statements of Tesla are truly remarkable. Their mission clearly outlines their primary objective: “To become the most influential car company of the 21st century.” It then explains their strategy to achieve this: “By driving the global transition to electric vehicles.”
This simplicity is effective.
The use of the word “accelerate” adds vibrancy to their ambitious goal. Their vision also reflects their commitment to sustainable energy and how it guides their business endeavors. This also offers them the flexibility to innovate and expand their array of energy solutions, including Powerwall, Powerpack, and Solar Roof.
Tip: Review your mission and vision statement often to ensure it matches your company’s purpose as it evolves. A statement that doesn’t align with your core values or actual work can undermine your credibility and marketing efforts.
How do you describe a company’s history?
Don’t worry about making your company history too long. Think of it like creating a profile:
- When it was founded.
- Major achievements.
- Where you’re located.
- How many people work there.
- Key leadership roles.
- Main products or services.
Why are business goals important?
Business goals give you clear targets to aim for – like the North star. These goals should be SMART:
They should also connect to important outcomes. When your goals are clear, your team knows what to focus on. Unclear goals can make it hard for your team to work together, and it won’t impress investors or help your business grow.
In this section, dive into more details about the problem your business aims to solve. Understand what your customers truly need- whether it’s a better product, a more affordable option, or a convenient location. Explain why customers will be motivated to choose your business over others.
Offer additional insights beyond your executive summary regarding your product or service. Highlight what makes your company distinct and exceptional, setting it apart from competitors. Emphasize the unique features or benefits that will attract customers to your business.
Step 3: Outline Management
Within your business plan, the section focusing on management and organization should introduce the individuals leading your company. Outline the legal structure of your business.
If you possess a management team, employ an organizational chart to visualize your company’s internal framework. This chart should depict the positions, duties, and connections among team members. Explain the ways in which each individual will contribute to your startup’s success.
Step 4: Market Analysis
To ensure your product’s success, it’s important to choose the right market. A market with plenty of customers who understand and need your product will give you a head start. However, if you choose the wrong market, or the right market at the wrong time, you may find yourself struggling to make sales.
A SWOT analysis is a tool for identifying and analyzing the strengths, weaknesses, opportunities, and threats of a business. It is a valuable tool for strategic planning and decision-making.
- What are the best things about your company?
- What are you good at?
- What do you do better than your competitors?
- What are you not so good at?
- What could you improve on?
- What strengths do your competitors possess that you currently lack?
- What market or industry shifts can you take advantage of?
- What new trends could boost your business?
- What are the growth opportunities in your industry?
- Are there external factors such as laws or regulations that could threaten your ability to succeed?
- Are there new entrants to your market that could challenge your dominance?
- Are there changes in technology that could make your products or services obsolete?
The SWOT analysis can be presented in a grid, with strengths and weaknesses listed first, followed by opportunities and threats. This visual presentation makes it easy to see the factors that may affect your business and determine your competitive advantage in the market.
Step 5: Target Market
The potential market is an estimate of how many people needs your product. It’s important to have a good understanding of your potential market size before you launch your product or service. This will help you to set realistic sales goals and allocate your resources effectively.
There are a few things you can do to estimate your potential market size:
- Understand your ideal customer profile.
Who is your target customer? What are their demographics (age, gender), psychographics, and needs? Once you understand your ideal customer profile, you can start to estimate how many people there are in your target market.
- Research relevant industry trends and trajectory.
What are the current trends in your industry? How is the market growing or shrinking? What are the future prospects for your industry? By understanding the trends in your industry, you can get a better idea of how big your potential market is.
- Make informed guesses.
It’s impossible to have perfect information about the size of your potential market. However, you can make informed guesses based on the data you have available. Use your research to identify the most reliable data points and make your estimates as accurate as possible.
Here are some sources of market data that you can consult:
- Government statistics offices
- Industry associations
- Academic research
- Respected news outlets covering your industry.
By following these tips, you can estimate your potential market size with a fair degree of accuracy. This will help you to make better strategic decisions for your business.
Step 6: Competitive Analysis
Competitive analysis is the process of gathering information about your competitors and understanding their strengths, weaknesses, opportunities, and threats. This information can be used to develop strategies for your own business and to identify areas where you can compete effectively.
Here are some steps you can take to conduct a competitive analysis:
- Identify your competitors:
Who are the other companies that sell products or services similar to yours? Once you have a list of your competitors, you can start to gather information about them.
- Gather information about your competitors:
There are a number of ways to gather information about your competitors, including:
- Websites: Most companies have a website that you can visit to learn about their products, services, and pricing.
- Social media: Many companies use social media to connect with customers and promote their products. You can use social media to learn about what your competitors are doing and how they are positioning themselves.
- News articles: You can search for news articles about your competitors to learn about their latest developments.
- Industry reports: There are a number of industry reports that can provide information about your competitors, such as their market share, financial performance, and customer satisfaction.
- Analyze your competitors:
Once you have gathered information about your competitors, you need to analyze it to identify their strengths, weaknesses, opportunities, and threats. This information can be used to develop strategies for your own business.
- Identify your competitive advantage:
What sets your business apart from your competitors? What are you doing better than them? Once you have identified your competitive advantage, you can focus on promoting it to your customers.
- Develop strategies to compete effectively:
Once you have analyzed your competitors and identified your competitive advantage, you can start to develop strategies to compete effectively. This may involve developing new products or services, changing your pricing, or improving your marketing.
By following these steps, you can conduct a competitive analysis that will help you to develop strategies for your own business and to identify areas where you can compete effectively.
Step 7: Marketing and Sales Strategy
Your marketing and sales strategy is the plan for how you will reach your target customers and convert them into buyers. It is an essential part of your business plan and should be based on a thorough understanding of your target market, your product or service, and your competitive landscape.
Here are some key elements to consider when developing your marketing and sales strategy:
- Your target market: Who are your ideal customers? What are their needs and wants? What are their pain points?
- Your product or service: What makes your product or service unique? What value does it offer to your customers?
- Your competitive landscape: Who are your competitors? What are their strengths and weaknesses? How can you differentiate your product or service from theirs?
- Your marketing channels: How will you reach your target customers? What marketing channels will you use?
- Your sales process: How will you convert your leads into customers? What sales process will you use?
Once you have considered these key elements, you can start to develop your marketing and sales strategy. It should be flexible enough to adapt to changes in your target market, your product or service, or your competitive landscape.
Here are some tips for developing a successful marketing and sales strategy:
- Start with a strong value proposition:
Your value proposition is what makes your product or service unique and valuable to your customers. It should be clear, concise, and easy to understand.
- Target your marketing efforts:
Your marketing efforts should be targeted to your ideal customers. You can use demographic data, psychographic data, and behavioral data to identify your target market.
- Use a variety of marketing channels:
There are many different marketing channels available, including online marketing, offline marketing, and social media marketing. You should use a variety of channels to reach your target customers.
- Track your results:
It is important to track the results of your marketing and sales efforts so that you can see what is working and what is not. This will help you to improve your strategy over time.
- Be creative:
Don’t be afraid to think outside the box and come up with new and innovative ways to reach your target customers.
- Be persistent:
Don’t give up easily. Marketing and sales can be a long and challenging process, but if you’re persistent, you will eventually see results.
Step 8: Logistics and Operations Plan
The logistics and operations plan outlines how your business will get its products or services to market. It covers all aspects of your operations, from suppliers to production to fulfillment.
A well-crafted logistics and operations plan is essential for any business, but it is especially important for businesses that are just starting out. A good logistics and operations plan will help you to:
- Identify your suppliers: Who will you be getting your raw materials or products from?
- Determine your production process: Will you be making your products yourself, or will you be outsourcing production?
- Choose your facilities: Where will you be operating your business?
- Acquire the necessary equipment: What tools and technology will you need to operate your business?
- Manage your inventory: How much inventory will you keep on hand?
- Fulfill orders: How will you get your products to your customers?
- Inventory: How much inventory will you keep on hand? How will you manage your inventory levels?
By considering all these factors, you can create a logistics and operations plan that will help your business to run smoothly and efficiently.
Step 9: Create a Financial Plan
No matter how great your idea is, and no matter how much effort, time, and money you put in, the success of a business depends on its financial health. At the end of the day, people want to partner with a business they believe will stay strong in the future.
The level of detail you need in your financial plan will change based on your audience and goals. However, generally, you should include three main views of your finances: an income statement, a balance sheet, and a cash-flow statement. It might also be a good idea to add financial data and forecasts.
An income statement lets readers see where your revenue comes from and what you spend it on over a specific time. This helps them figure out your bottom line – whether your business made a profit or loss during that period. If your business hasn’t started yet, you can predict future figures for the same info.
Your balance sheet gives an overview of your business equity. One side lists your business assets (what you own), and the other side lists your liabilities (what you owe). This snapshot shows your business’s shareholder equity, calculated like this: Assets – Liabilities = Equity
Cash Flow Statement:
Your cash flow statement is a bit like your income statement, but with a key difference: it considers when money comes in and when it goes out. When more money is coming in than going out, your cash flow is positive. When it’s the other way around, your cash flow is negative. Ideally, your cash flow statement helps you see when you might have less money, when you might have extra, and when you might need a backup plan to get funds and keep your business afloat.
It’s useful to predict your cash flow to spot any gaps or negative flow and adjust things if needed. You can find a complete guide to figuring out cash-flow predictions for your business.
You can use this financial plan to help you keep your business on track and understand where you stand financially.
Step 10: Funding
When you’re laying out the amount of money your small business requires, it’s best to be realistic. You can give a range of figures if you’re not sure about an exact amount. It’s a good idea to present both a best-case and a worst-case scenario.
Since a new business doesn’t have a history of making profits, you’ll likely raise capital by selling equity during the initial years of operation. Equity means ownership – when you sell equity to gather funds, you’re selling a part of your company.
Remember: An equity holder might expect to have a say in business decisions, even if they don’t hold the majority of ownership.
Most small business equity transactions are private. The investor might also anticipate receiving dividends, which are a portion of the company’s profits. They’ll also want to know how they can sell their ownership share. Additionally, you can raise funds by borrowing money, but you’ll need to repay the borrowed amount along with the interest.
If you look at how big companies are financed, you’ll notice they often issue both equity and debt. When creating your business plan, consider if you’re willing to trade off complete control and all profits before selling equity in your business.
- Tip: Create a timeline so potential investors know what to expect. Some clients might not pay for 30 days or more, so the business needs enough cash on hand to keep operating.
Get Started on Your Business Plan Now
Crafting a business plan offers you the chance to outline well-defined, intentional future steps for your business, regardless of whether you’re aiming to attract investors. This plan acts as a safeguard, helping you detect potential gaps before they evolve into actual problems.
Whether you’ve penned a business plan for an innovative online business concept, a physical retail store, the expansion of your current business, or even the acquisition of an existing enterprise, you now possess a comprehensive roadmap and the necessary information to embark on the next phase of your business journey.
To make your journey even smoother, we’ve created a downloadable business plan template for you to fill in. This template will guide you through the process, ensuring that you cover all the important aspects of your business strategy. You can access the template here. So, don’t delay any further—take the first step towards shaping your business’s success today.