Why do I need to write a business plan?
How do I get started writing a business plan?
I don’t need a plan! My business will make money because I’m amazing.
These are common questions/statements every entrepreneur thinks about because they have never written a business plan before. Fair enough, writing a 20-40 page document is a daunting and time-consuming process but is necessary for long-term success. I am going to explain why a business plan is necessary and how you can start writing one today.
Why do I need to write a business plan?
1.) Keep the business organized
With carefully written components of the business such as the mission/vision statements, finance, operations, and marketing, the founders have a sense of direction. Rather than blindly composing a marketing campaign while shying away from the mission of the company, the founders can rely on the business plan to guide the company in the direction originally established for success in the long-term.
2.) Secure financing
Starting a business can be expensive and most likely requires financing. Whether it be debt financing (loans) or equity financing (investors), a business plan will give your financiers confidence that you will succeed. Think about it, if you were giving money to somebody expecting a return would you give money to a person who is dependable or somebody with no plan to return your money?
How to write a business plan…
Every book, online article, teacher, and entrepreneur talks about what information is critical in a business plan meaning there is no formula for a perfect plan. Some people use shortcuts while others spend hours collecting unnecessary information, but if it works then hey, more power to them.
My goal is to offer the perfect amount of information required in a business plan which can keep your business on track and secure the financing you need. Note: page lengths are only a rough guide, feel free to deviate when it comes to page length for each section.
Introduction (1 page)
Start by introducing the problem your business is addressing, then propose your solution. This is what is known as the 60-second elevator pitch. If somebody asks what your company is about or you want to explain to others what you’re doing you should reference the introduction section.
Take about ⅓ of the page to explain the problem, and about another ⅓ to talk about how your company creates value for others. Spend the last ⅓ of the page briefly explaining the industry. Mention key competitors, industry size, and the yearly growth rate. Is your industry a $1 billion industry with yearly growth at 5%? Remember, the introduction is the first section investors will read so make sure it’s concise and interesting.
Executive Summary (5 pages)
The executive summary is the most important section of your plan because it summarizes the key points from each section of your business plan.
I’ll be honest, most investors never read an entire business plan, they only look at the executive summary because it is a shorter version of the entire plan. This is the section you want to perfect, make sure no word is wasted because investors value their time. They want an easy-to-read and easy-to-understand summary of your business.
Ideally, this will be about five pages long and comprise all the following sections: Product/service details, industry and market summary, marketing plan, operations, the team, and financing. Because this section contains a summary of all other sections you must write it last.
Company Summary (1 page)
Explain where your company is located, what type of legal entity it is (sole proprietor, LLC, Corporation), how the founders realized there was a problem, one sentence about each team member, and how your company operates (online, brick and mortar shop). This section is mainly concerned with the history behind the company and doesn’t need to be too detailed. Just give the reader a brief idea of how you stumbled upon a problem and how the company is comprised.
You can also add a mission and vision statement in this section. Mission explains why your company exists and vision explains where the company is headed.
Industry Analysis (6 pages)
Get ready to create easy to read graphs, and do a fair amount of research. Listen, research isn’t the most interesting thing in the world but it’s absolutely necessary for business success. Do you want to walk into a cave full of gold or one filled with poisonous snakes?
Believe it or not, the industry you are in may be declining and that is something investors especially care about because they want to see growth. I’ll be damned if somebody gives you $1 million in an industry that has no return potential.
Start by giving historical data of the industry and future predictions. What was the size of the industry each year for the past 20 years and where is it headed? What is the growth rate each year? Google is a great resource to find all information.
Explain who your competitors are and explain their strengths and weaknesses. Conducting a SWOT analysis of your company will give the reader a good comparison of your company and the competition.
Briefly mention the market segmentation of the industry. Are consumers in the industry primarily male, female, aged 20-40? Showing an investor that you understand the industry you are in will give them high-confidence to invest in you. In addition, you yourself sure as hell want to know what’s going on around you so you can be prepared for external influences.
Market Analysis (3 pages)
Remember how you briefly mentioned the market segmentation in the last section? Do the same thing but in more detail in the market analysis section. Create a graph that looks similar to this:
Explain who your customers are according to geography, demographics, psychographics, and behavior. If you have an understanding of your target customer, you will have a higher chance of success because you can market to them efficiently. Layout your market segments in an easy-to-read chart with four columns containing the information for the categories above.
Point out the current trends of your target market. What are they currently doing and how can you capitalize? Be convincing and specific about your target market. If you say your market is “college students” that is too broad. Instead, you should say “my target market is college students aged 21-23 living in Madison, WI who go out drinking at bars every weekend.”
Lastly, talk about potential future markets you could penetrate. Perhaps there is a great opportunity to target another group in the future who could provide growth for your company.
Products and Services (2 pages)
This is where you show off what you have to offer, illustrate a concept. If you have a mobile application or product, start off by showing a photo, sketch, or screenshot. Words are one thing but if an investor can visualize your product/service it just gives him more reasons to throw money your way.
Next, you want to describe your product/service. This doesn’t have to belong, just write a concise and detailed paragraph about the product or service. You should also include a diagram about the consumer process from beginning to end which in turn gives clarity to your value proposition. If you are making a mobile application detail everything the user must do starting with downloading to exiting the application.
Next, talk about future products and services you could offer. Mention all the great possibilities yet to come, how far your product or service can truly go. No company sells the same thing throughout their existence, they are always changing to meet customer needs.
Operational Plan (3 pages)
In the operational plan mention the areas of your business that are vital to your success. Mention things such as business location, accounting, customer service, staff scheduling, external resources required, and any technology being used in the business.
Every business starts small, typically only one or two people are the entire marketing department. As you grow you can hire more people and expand operations. Explain your initial operating process here, how does your business function?
Marketing Plan (6 pages)
Product, price, place, and promotion. Use the marketing mix (four P’s) in your marketing section to give a holistic overview of your required marketing efforts.
Product: How do you want consumers to view your product? Luxurious, for the everyday person, simplistic? Brand perception is key.
Price: Which pricing strategy will you use? Cost-based, competitor-based, or value-based? Cost-based derives pricing from the cost it takes to produce a product/service. Competitor-based pricing means you set the price relative to the competition. Value-based indicates you set pricing based on the perceived value the customer is getting.
Place: Where will you sell your product and who will you partner with? Who can help make the product/service available? You can even talk about the store decoration here, try to link store decoration to the type of product you are offering.
Promotion: Communicate your product/brand. Use advertisements, sales promotions, digital marketing etc.
For in-depth marketing information, check out our article on Marketing Fundamentals.
Organizational Plan (2 pages + resumes)
Diagram the organizational structure. Designate the roles of CEO, CFO, CMO, etc. and divide up company equity. Describe the duties of each person and how much equity they get. As a tip, it’s always good to make sure there is a clear leader, a decision-maker. Dividing the equity equally may make investors believe there is no leader, give the leader the most equity. Who actually makes decisions? You can also add the resume of each person in this section. Diagrams can look similar to these:
Assessment of Risk (1 page)
Your business won’t operate smoothly, there will always be challenges to overcome. Explain the weaknesses of your business and potential threats. Technological change and consumer behavior are common things to mention, you can even pull information from your SWOT analysis. After explaining the weaknesses and threats mention what you will do to overcome them.
Lastly, explain your harvest plan. What happens when the company grows? Will the founders continue to operate as is? Will your company merge or be bought out? Make sure everybody in the company is on board with your harvest plan so no problems arise when the time comes.
Financial Plan (4-5 pages)
Number, numbers, and more numbers. Most investors like to see a five-year plan regarding financials. I’ll tell you right now five years is impossible to predict so years 3-5 might be relatively inaccurate compared to years 1-2, but investors still like to see numbers for the future. Here you want to list all financial assumptions, proformas, and break-even analysis. A good method is to state financials by month in the first year, quarterly in the second year, and yearly thereon after.
Although complicated, every member of the founding team should understand finances. In the business world, everything revolves around finances and everybody must understand the financial parameters of the company to have positive cash flows. Below is an example of financial assumptions:
Sources (1 Page)
Simply reference any sources where you found information. Investors like numbers but they want information that is truthful, not pulled out of thin air. Give credit where credit is due.
Finally, you’re done…almost.
Now you simply need to revise. Format your business plan so it is easy to read, especially your executive summary as that will be the go-to section for most readers. Include graphs, photos, diagrams, headings, concise wording, and a cover page to have the ultimate business plan.
Finally, you’re done!
Are you sick of repeating yourself? As you work through your plan you notice that you repeat yourself quite often but this is normal. It’s imperative you keep explaining your company to get the idea in the head of investors. As mentioned earlier, no business plan is perfect but if you follow this outline you should have no problem getting financing as long as you can compliment the plan with a well-executed pitch.
On top of financing, the founders of your company can reference the business plan when things start to feel as though they are changing. Remember, always stick to your guns. If you notice your company is moving further from your original vision look at the business plan and stay on the path.
I will help you write a business plan following the formula above. Check out my gig on Fiverr if you want to bring your business to life.