For all small business owners, a business plan is core to your company’s success. It’s a written description of your business’s plans for the future, and explains to potential partners and investors how you’ll get there. These documents usually look ahead three-to-five years into the future, and outline the path your small business intends to take to grow its revenues.
Get Started: Do Some Research and Thinking
Drafting a business plan is more than just filling in a template. While there is a formula to follow, it is critically important that you take the time before you write to think through your business’ true, factual goals, objectives, and projections. The big reason? Investors, bankers, and other funders will hold you and your company accountable to the projections and proposals that your business plan contains.
Some questions to consider before you start writing:
- Where do I envision my company in five years? How many employees will I have, and how much revenue?
- How much money will I need to achieve that five-year goal?
- What are my goals for geographic expansion (if any)?
- Do I want my company to remain privately owned, or would I like it to go public?
- What kinds of financing will I need? What would I be willing to accept?
- When will my business turn a profit? And long will investors need to wait to make their money back?
- What are the chances my business could fail, and how will that affect me, my lifestyle, and my family?
There are a lot of reasons why your small business is uniquely qualified to succeed. For example, it could be the quality of your service, or the unique talents of the people on your team. Or maybe you have a one-of-a-kind packaged or technology product. It’s important to understand those traits, so you can explain to funders how you’re different, and competitors can’t easily undercut you. Take the time to think about your strategy before you take pen to paper, so that you have a clear vision in mind.
So where do you start when you’re ready? The easiest part: the Title Page. This should include your company name, a logo if you have one, a title for your document, the date, and your address. Now, we’re ready to get into the meat of writing.
1. Executive Summary
The executive summary is considered the most important part of your business plan. It explains your company and its current state to your funders, as well as where you want to take it and why you’ll be successful. If you’re out there looking for financing, the executive summary is also your first opportunity to grab a potential investor’s interest. Within the overall business plan, the executive summary will follow the title page.
2. A Description of Your Business
This section of the business plan should start with a short description of the industry or market space that you’re planning to operate in. Discuss the present outlook of that industry or space, as well its future possibilities. Be sure to acknowledge your geography and its special attributes (i.e. demand, current business climate) when commenting on your industry, as your industry will likely be affected by its specific location.
3. Market and Marketing Strategies
Some things to include: the nature of your business and the market need that you’re filling; how your products and services meet these needs; the specific consumers or businesses that your company plans to market to; what your advantages are over your competitors; and the things that’ll make your small business a success such as location, unique offering, etc.
This section of the plan is the result of the market analysis that you should have undertaken before you started. It’s worth overemphasizing just how important this section is, especially to investors, because it shows that you’ve done your homework and truly understand the market landscape and your potential.
If you’re approaching this kind of assessment for the first time, the SBA has a great explainer. Some things to include in this section:
- Just who your target market is. Make sure you keep this as narrowly defined as possible.
- What are the critical needs of your potential customers? What are the demographics of that group and where are they located?
- Are there any seasonal or cyclical purchasing trends that may impact your business?
- How big is your market, and what’s their annual purchasing habit like?
- How much market share can you reasonably expect to gain in the next three-to-five years?
- How does your pricing structure work?
4. Competitive Analysis
This section follows on to the market landscape you’ve just set. The goal is to determine the strengths and weaknesses of your competitors, and to let your funders and investors know what strategies you’ll use to gain an advantage, and any barriers that could prevent you from entering the market. This is also where you should address any government regulations that could pose a hurdle your businesses.
5. Your Plan For Organization and Management
This section of the plan describes how your small business functions. It explains the logistics of the organization (such as the responsibilities of the management team), and capital and expense requirements related to the daily, quarterly, and annual operations of your business. It should also include your company’s organizational structure, details about the ownership of your company, and (if it’s relevant) the qualifications of your board of directors.
A simple but effective way to explain the structure of your company is to create an organizational chart. If you’re one of the hundreds of thousands of small business owners with only two or three employees, you’re probably getting a laugh out of that. But when you’re writing this section it’s important to hammer home that no aspect of your operations will fall through the cracks. To a potential investor, that’s very important.
You’ll also need to detail the ownership information. The things usually included in this section are as follows:
- Names of owners
- Percentage of ownership
- Extent of involvement with the company
- Forms of ownership (i.e., common stock, preferred stock, general partner, limited partner)
- Outstanding equity equivalents (i.e., options, warrants, convertible debt)
- Common stock (i.e., authorized or issued)
- Management Profiles
- Compensation basis and levels (pro tip: make sure these are reasonable)
6. Funding and Financial Projections
This should go without saying, but financial data is the backbone of your small business plan. If you own a business that’s been around for more than two years, you’ll be required to supply data on your company’s performance during those years. Most creditors request data for the last three to five years, depending on the length of time you’ve been in business. This includes income statements, balance sheets, and cash flow.
You’ll also be required to supply financial data related to where you expect your company to be within the next five years. This would include forecasted income, balance sheets, cash flow statements, and capital expenditures. It’s customary to supply monthly or quarterly projections for the first forecasted year. After that, you can stretch it to annual projections. One classic mistake you should take pains to avoid: if you’re asking for funding, make sure that funding request matches your financial plans.
Example Business Plan
It’s often said that a blank page is the hardest thing for a writer to get past. To help you get started, we’ve developed and attached a sample business plan. Remember, this is just a sample! Make sure to follow the strategies and steps above, and to make the plan true to yourself and your small business.
[gview file=”http://businessadvising.pcv.wpengine.com/wp-content/uploads/sites/2/2015/06/Sample-Business-Plan.pdf” save=”1″]Writing a business plan can be daunting but it’s an important cornerstone in your businesses’’ future, especially when it comes to securing investments and working capital. Take the time to do it right, and remember: there are mentors available who can help you though this process for free at BusinessAdvising.org
Photo “The Binder” by Eric, Creative Commons