A business plan is an essential part of starting your own business. It’s a roadmap that outlines your business goals and how you plan to achieve them. A well-written business plan can help you secure funding, attract customers, and establish yourself as a credible business owner.
5 Reasons You Need a Business Plan
Writing a business plan may seem like a daunting task, but there are several reasons why it’s important to have one. Here are five of them:
1. It helps you focus on your business goals.
A business plan forces you to think through your goals and how you plan to achieve them. This can help you stay focused and avoid getting sidetracked.
2. It improves your chances of securing funding.
If you need to borrow money to start or grow your business, a business plan can help increase your chances of getting approved for a business loan. Potential investors and lenders will want to see how you plan to use their money and how you’ll generate a return on their investment.
3. It helps you attract customers.
Customers want to know how your product or service will benefit them. In a business plan, you can show how your business meets customers’ needs and how it fits into the current market.
4. It establishes you as a credible business owner.
A well-written business plan shows potential customers, investors, lenders, and even staff members that you’re a serious business owner with a solid business sense who has thought through how to achieve business success. For some people, this is just as important as how the actual business makes money.
5. It forces you to research your competitors and market trends.
Writing a business plan forces you to do your homework on the competition and understand how demand for certain products and services may change in the future.
Here’s how to write one that will help you succeed.
How to Write a Business Plan
When you write a business plan, incorporate these 9 key elements to give your business the best chance of success.
A business plan executive summary is where you impress the reader by highlighting your business’s strengths and success. In one-to-two pages, establish a reason for the investor or lender to consider your funding request. Because the executive summary is an overview, you’ll write it last.
An effective business plan executive summary defines how capable your business is and lays out how well your business will be doing in the market. It also explains how an investor or lender can benefit from what you want them to do with your business. But most of all, the executive summary captivates the reader’s attention and persuades them to strongly consider becoming invested in how well your company will do so that you receive the capital you need.
When describing your business, you’ll want to capture the essence of what you do and how you do it. This includes your company’s history, structure, and achievements. You’ll also want to highlight what makes your company unique and how you can help achieve your customer’s goals.
You may also want to include a mission statement in your company description. This statement tells what your business is about and how it affects other people.
For example, you may find the following mission statement in a record label business plan:
“We focus on finding talented artists, providing them with an excellent management team, and capturing their stories through design to reach new audiences across the world.”
When writing a business plan, it is important to include a section on your company history. This includes key information such as your inception date and location. The value of this section lies in sharing your origin story with investors. They are interested in knowing how you developed the business concept and took it to market. For start-ups, this section may be brief. Established organizations can expand this section to highlight major accomplishments since inception.
This company overview is where you will also specify the legal structure of your company. A business can be a sole-proprietorship, a partnership, a corporation, a limited liability firm, or a non-profit organization.
When writing a business plan, it’s important to remember that your company is not operating in a vacuum. Your business’s success or failure will be affected by socio-economic factors in the marketplace. That’s why it’s important to conduct a market analysis as part of your business plan.
This section will outline how your business is performing compared to other companies in the same industry. It will also identify recent developments that must be considered when creating your business strategy. To research this information, be sure to consult credible sources. Review both past and present reports to form the broadest understanding of all external factors.
Include statistics on the total and relevant market sizes, as well as historical and future growth estimates. You’ll also need to estimate your market share. While many sources report on the total market size, you’ll need to calculate the relevant market size based on your niche or market segment.
Your relevant market size for a business is an estimate of the annual revenue that could be attained if the business realized 100% market share. This is calculated by multiplying the number of people who might be interested in purchasing the products or services each year by the dollar amount these customers might be willing to spend on products or services annually.
Let’s examine a sample industry analysis from a startup food truck business plan:
“The food truck industry is an expanding market that has seen substantial growth in recent years. This growth is supported by the rising popularity of “street food” and the increased demand for healthier, on-the-go dining options. While some food trucks are operated with traditional restaurant equipment, most use small cooking equipment designed for lighter-duty usage with limited space.
The current industry size for mobile food trucks is estimated at $2 billion annually, but there’s plenty of room to grow. As the population continues to migrate to urban areas over the coming decades, consumers will need more convenient access to healthy foods than what they can find at home or in traditional brick-and-mortar restaurants. The convenience and affordability of mobile food trucks combined with the variety of menu options will continue to drive growth in the industry.”
An effective customer analysis should be done to determine how well you know your customers. The first step is determining the buying behaviors and patterns of your customers. Potential funding sources will also ask about the proximity of your business to them, as well as the size of the potential customer pool.
The customer analysis section answers two key questions: what is the problem your customer is experiencing and how are you solving it? Problems, or pain points, can be multifaceted. You’ll need to identify what will make them feel most satisfied with your products or services. For instance, customers may want to reduce time or cost in projects, or they may want to work with an organization that has a good reputation for customer service.
One approach to understanding your customer base is developing an ideal client persona. This involves creating a figure that represents your average customer- typically by age, business experience, values, and needs. Doing so allows you to better understand their behaviors and how to appeal to them.
Here’s an example of a client persona from a nail salon business plan:
“Marie is a woman in her 20s who works as a receptionist. She lives in the city and has been looking for a new salon because her last one closed down. She’s looking for a salon that is close to her work, has an easy-to-follow menu, and provides services at a reasonable price.”
A competitive landscape analysis is a key section of any complete business plan. This section outlines your strengths in comparison to other similar companies targeting the same market, and answers the question, “why this business?” for prospective customers and investors.
Your competitive analysis should include a review of your direct and indirect competitors, as well as an evaluation of each competitor’s strengths and weaknesses. It should also identify what opportunities exist in the market that you can capitalize on.
In order to create an effective competitive analysis, you need to thoroughly research both your direct and indirect competition. This means gathering data on things like their marketing efforts, target markets, and product offerings. You’ll also want to know about their financial stability and how they’re perceived by customers.
Once you have this information, you’ll want to create a table that outlines each competitor’s strengths and weaknesses, as well as the opportunities and threats they pose to your business.
You will use this information to determine your competitive advantages. These are strengths that you will use to beat your competition. Here’s how we recommend using this information in your business plan:
Think about the problems, needs, and wants of your customers and how you solve them better than any other business. You can refer back to your ideal client persona for inspiration when identifying these points, which should appear throughout the rest of the business plan in your marketing and sales plan.
Here’s an example of a competitor profile from a real estate agent business plan:
“XYZ Realty is a local real estate company that has been in business for over 30 years. They have been able to maintain a steady customer base due to their expert knowledge of the area and the fact that they have received positive reviews from previous customers. XYZ Realty is considered one of the frontrunners in the real estate industry due to its dedication to quality service and attention to detail.
The main competitors for XYZ Realty are larger national companies that have expanded into smaller areas with a limited number of agents on staff. These big-box companies offer cheaper rates but cannot provide the same level of expertise as XYZ Realty due to their lack of local information or customer support team. One advantage that these bigger companies do have is their economies of scale, which allows them to offer lower prices.”
Marketing Strategy & Plan
Creating a marketing plan is essential for letting people know about your business. The plan should outline your strategy for communicating information about your products and services to potential customers. It can also help convince investors and lenders that you have a solid understanding of how to reach your target market and generate sales. In some cases, your marketing plan may be a separate document from your detailed business plan.
In a marketing plan, you’ll need to include details on your target audience and how you will reach them. This includes discussing the competition within your industry and what makes you unique in comparison to other companies.
You should also list out specific business objectives for things like developing a brand identity, creating a website, reaching out to customers through email campaigns, and more. You may also want to discuss your pricing strategy that capitalizes on the strengths of your business.
Here’s a partial marketing plan example from a daycare business plan:
“Sunshine Daycare provides care for children ages 8 months to 5 years.
We offer the children the chance to have fun and be educated in a nurturing environment with lots of space to learn and play. Our hours are from 7:00 AM-6:00 PM Monday through Saturday, closed Sundays except by appointment only. We also offer a low price; a one-time registration fee of $100 and weekly fees start at just $180 for an infant and decrease incrementally as the child gets older. We also provide a discount for siblings.
One of our nearest competitors is ABC Daycare, which is open 6:00 AM-6:00 PM Monday through Friday and charges $40/day for a single child or $75/day for two children. They do not offer discounts for siblings.
Our marketing strategy is to emphasize our lower prices, extended hours, sibling discount, and focus on the nurturing and educational environment.
- Create an online presence via a website and social media platforms
- Generate word-of-mouth referrals from current and past customers
- Recruit families to attend our open houses/workshops
Age: infants, toddlers, children up to 5 years old
Parents looking for a safe and affordable child care option in the area
Families who may work a nonstandard schedule, such as parents in the service industry or students with part-time jobs. These groups often face difficulty finding infant care due to limited availability during evening hours when they’re working.”
A strong operations foundation is essential for any business. As a result, your operations plan is a key part of the business planning process and your traditional business plan.
Processes, metrics, and milestones define how you will effectively manage the business and its associated costs. A thorough operations plan conveys to investors that your business results are intentional. It also demonstrates that you’ve considered what could go wrong and have preventative and recovery plans in place.
Your operations plan should include the following:
- Description of your business model
- How you will produce or deliver your products or services
- Details on your organizational structure, including an organizational chart
- Plans for human resources, including hiring, training, and retention
- Information on systems and technology needed to support your business
- Policies and procedures in place to ensure quality control and compliance
Here’s a partial operations plan excerpt from a juice bar business plan:
“Maple Juice Bar has one key goal in its operations plan: provide the freshest, highest-quality juice in the city. Juice is made fresh every morning to ensure quality and taste. Our retail store hours are from 8:00 AM to 6:00 PM Monday through Friday because of this production schedule. We also offer online ordering via our website so that customers have access to our range of products regardless of their location or the time of day.
We have 5 employees that work part-time (16 hours/week) at Maple Juice Bar. This allows us to keep labor costs low while still maintaining a relatively high level of customer service. All employees receive on-the-job training during their first week, with additional training provided as needed. Employee retention has not been an issue to date.
Systems and Technology
We have a Square credit card reader to accept debit/credit cards for all transactions. We also have a computer on-site so that customers can access our website or social media platforms if they don’t feel comfortable using their mobile device in-store. All employees are trained on the website interface so that they can assist any customer with online orders.”
Investors are looking for businesses to invest in, and it’s of extreme importance for you to show them that your company is of good standing. One way to assure investors that your business is worth investing in is by providing plans of what you plan to do with the money. While the execution of these plans falls on your employees, this doesn’t mean that investors aren’t interested in who you have on your team. Investors need to know about your team members, their credentials, and what expertise they bring to the table.
You’ll include the names and biographies of your management team members as well as any managerial gaps below. You may also recognize your Board of Directors if appropriate. The background information may cover things like an individual’s educational achievements, work experience, abilities, and accomplishments. It allows investors to get to know your team members in addition to providing another level of transparency.
It’s possible to have openings on your team at the time you write your business plan. In this instance, you’ll describe the job duties and specify the essential qualifications for a successful applicant.
For example, the background for a residential cleaning company’s president may read:
“Jane Doe is a lifelong resident of the Hampton Roads area and has over 12 years of experience in residential cleaning. Jane understands that businesses need to provide top-notch customer services while saving time, energy, and money. She was born with an eye for detail, which she applies to her cleaning activities each day.”
Financial Plan & Projections
A financial plan is a key element of your business plan that provides strategies for acquiring financing and making it sustainable. In addition to presenting your revenue model, projections, and funding requirements, the financial plan also outlines ways to procure financing.
The revenue model is a way that you make money. There are many different kinds of revenue models, including subscription, advertising, affiliate marketing, markup, direct sales, and commissions.
Financial projections are important for your business plan. Your plan should include a three-to-five-year financial forecast that outlines your projected income and expenses while realistically portraying your profitability. This section will showcase several reports with details included in your Appendix. The financial statements include your projected income statement, balance sheet, and cash flow statement. Established businesses may choose to include historical financial data. Charts and graphs are an effective way of depicting your financial highlights.
Finally, you’ll describe your funding request. Describe how much money you’ll need and how you’ll use it. Some potential applications include, among other things, purchasing equipment, paying bills and salaries, leasing office space, researching the market for product development, and conducting market research for product creation.
Here’s an example financial plan summary from a car rental business plan:
|FY 1||FY 2||FY 3||FY 4||FY 5|
|Expenses & Costs|
|Cost of goods sold||$64,800||$142,871||$157,501||$173,629||$191,409|
|Total Expenses & Costs||$291,815||$416,151||$454,000||$483,240||$514,754|
|Net Operating Loss||$0||$0||$0||$0||$0|
|Use of Net Operating Loss||$0||$0||$0||$0||$0|
|Income Tax Expense||$6,147||$115,461||$131,687||$153,840||$178,408|
|FY 1||FY 2||FY 3||FY 4||FY 5|
|Total Current Assets||$184,257||$381,832||$609,654||$878,742||$1,193,594|
|Net fixed assets||$153,790||$126,630||$99,470||$72,310||$45,150|
|LIABILITIES & EQUITY|
|TOTAL LIABILITIES & EQUITY||$338,047||$508,462||$709,124||$951,052||$1,238,744|
Cash Flow Statement
|FY 1||FY 2||FY 3||FY 4||FY 5|
|CASH FLOW FROM OPERATIONS|
|Net Income (Loss)||$11,416||$214,427||$244,562||$285,703||$331,329|
|Change in working capital||($19,200)||($1,966)||($2,167)||($2,389)||($2,634)|
|Net Cash Flow from Operations||$19,376||$239,621||$269,554||$310,473||$355,855|
|CASH FLOW FROM INVESTMENTS|
|Net Cash Flow from Investments||($180,950)||$0||$0||$0||$0|
|CASH FLOW FROM FINANCING|
|Cash from equity||$0||$0||$0||$0||$0|
|Cash from debt||$315,831||($45,119)||($45,119)||($45,119)||($45,119)|
|Net Cash Flow from Financing||$315,831||($45,119)||($45,119)||($45,119)||($45,119)|
|Net Cash Flow||$154,257||$194,502||$224,436||$265,355||$310,736|
|Cash at Beginning of Period||$0||$154,257||$348,760||$573,195||$838,550|
|Cash at End of Period||$154,257||$348,760||$573,195||$838,550||$1,149,286|
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