If you are starting a new business or restructuring a business you already own, then one of your most important tasks is writing a business plan.
By breaking down what you must do to find financing, comply with legal requirements, create functional management and get market share in your industry, a good business plan will help you solve problems before they arise.
The following 15 tips will help you craft a business plan that will establish the company's goals, operations, strategies, and timelines.
Before you write a business plan, consider the function of a business plan document to a new business or company changing direction.
Investopedia defines a business plan as “[a] written document that describes in detail how a new business is going to achieve its goals.”
A comprehensive legal business plan includes sections about the company's budget, financing, projected revenue, marketing strategies, market analysis, expenses, costs, and operational objectives.
Many people think a business plan document is just a report that is created to attract potential investors or to secure a loan. While a business plan is definitely valuable for investors, it is also a tool to help the business owner understand how his or her business will operate.
The act of writing a business plan forces owners to examine their assumptions and identify areas that may have been overlooked. In addition, business plan documents will identify goals and milestones that the company can use as targets during the official launch and beyond.
Before you sit down to write your business plan, make sure you understand what areas are usually included in a business plan template.
The plan is a document that should guide your business for the first years of its operation, so plan to revisit your plan periodically to update your progress.
One of the common mistakes people make when drafting a business plan is opening with a dry description of the company and its objectives. Instead, your business plan should open with an attention-grabbing hook that describes why your business is an incredible idea.
An elevator pitch is a brief speech that you use to generate interest in what your company does. The reason it is called an elevator pitch is because it should be a statement you can deliver in the time it would take to ride down in an elevator.
When you make the company description section of your business plan read like an elevator pitch, you are defining the company in a succinct, memorable, and persuasive way.
Assume your audience is someone who has no experience in your industry. Use a three-step process:
Limit your pitch to no more than three quarters of a page. Once you have an engaging description of your company, you can move on to the next phase of your business plan.
If you've ever watched ABC's investor reality show Shark Tank, you know that one of the death knells for entrepreneurs is a failure to know their numbers. This is a common problem, but one that can easily be resolved by putting time into market analysis and financial projections in your business plan.
The market analysis section should always come before the financial projections section of your business plan document. Some business owners skip this step, going straight to financial projections without laying the foundation for where the data comes from.
These companies may struggle because they did not do their due diligence and do not have a thorough understanding what the numbers are based on.
A common mistake in business plans is relying on projections or guesses about what will happen in the future. Since investors can take six months or more to make decisions, make sure you can easily update your business plan documents to include the latest numbers.
There are many factors that should be analyzed when considering the market for your business. According to the Small Business Administration, the most important factors include understanding your target market and performing a competitive analysis.
Figure out what your target market is and narrow it down to a realistic size. Consider the following questions about your target market:
Identify your competitors in the market and consider their characteristics:
In order to run a business, you need to decide how your business will be legally organized. The first task is selecting the right legal structure for your business. Is it a sole proprietorship or a limited liability company (LLC)? Is it a general partnership or a corporation?
Be familiar with the legal business plan documents and requirements that apply in your state and consult a lawyer if you have questions. Wherever possible, use business plan templates that provide legally sound language to ensure that you have not overlooked any detail in corporate formation.
Once your legal structure has been completed, draft an organizational chart showing the complete hierarchy of the company. A good chart will:
Since some job functions will change and become more detailed after your company launches, remember to update your plan to reflect actual practice.
Use hard data to back up assertions you make in your business plan. Consider putting your data in easily readable form by using charts, graphs, and other visual formats to make your business plan more readable and easier to understand.
A line chart, for example, is an excellent way to demonstrate your company's projected growth.
Use software that imports data from QuickBooks directly into tables and charts so investors can see how actual sales, profits, and expenses compare to your projections.
For some business owners, having two business plans may be even more helpful, especially if this is the person's first business.
A public business plan is for lenders or investors. A private business plan document is closer to a personal road map on what should be done week by week and month to month. This is a good way to ensure you do not overlook important details.
When you are writing your private business plan, it is important to make your goals actionable.
It is fine to have a goal of achieving a 5% conversion rate after six months in business, for example, but you also need actionable steps to help you get there.
Using this example, make a list of actions you will take to achieve your goals, which in this case is to increase your conversions.
Writing a business plan can be a daunting task. Seeking out examples from other businesses or using business plan templates removes the guesswork and saves you time.
Speak to people you admire and seek out people in your network who have successful businesses. They are usually willing to offer you advice.
Ask them what part of the business plan was most helpful to their business, and what parts of the business plan they wished they had approached differently.
Business plan templates give your plan structure, but there is no generally accepted length for business plans.
Impose a page limit on your business plan documents, such as 20 pages, and stick to it. This will force you to use clear and concise language.
Include only the details that are most essential, which means you will avoid turning your plan into an endless to-do list.
There are other productivity apps you can use to manage your day-to-day tasks, so leave the minutia out of your finished plan.
To help you stick to your page limit, come up with creative ways to present information. As explained in tips 9 and 10, graphs and charts are an excellent way to convey data. The mark of a true professional is making the proposal easy for other busy professionals to digest.
A business plan is not a school test where you must do your own work and then turn it in to your teacher. Friends, family, employees, other business owners—all of them can provide important feedback about what you've written.
Your social network is the best test of your document's readability, clarity, and ability to generate interest. Take the opportunity to see what others think after they read your plan.
You also want to ensure that there are no errors in your document. A single spelling, numerical, or grammatical error can be devastating in a professional environment. Trust others to proofread your work.
If lenders and investors are an important audience for your business plan, then you need to explain how they will make money by investing with you.
Don't forget to investigate the people you are pitching to: What kinds of businesses have they funded? What things do they avoid? Why are they a good fit for your company?
The following is a non-exhaustive list of what investors want to see when they are reviewing a proposal.
After you've addressed these questions, then go back and write your executive summary.
It's important to have goals and dreams, but be wary of including your fantasies of world domination in your business plan.
For instance, assume you have started a company that is creating eco-friendly baby bottles and cups. Some first-time entrepreneurs will define their target market as all parents who have children under four years old.
Since there were about 22 million children under the age of two in the United States in 2014, a hopeful business owner may say that the market encompasses all 22 million kids and their parents.
If you have included calculations that look like this, then go back and re-do your market analysis because you have totally overestimated the market.
Determining the real available market is a necessity.
This process starts by creating a profile of your ideal customer. Figure out who is most likely to have the problem that your company wants to solve. Determine where this customer lives and works and where they are likely to buy products or services. Consider your ideal customer's purchasing strategies.
Once you have narrowed down the ideal customer, include a brief profile of this person in your business plan documents.
Take a look at the number of people that fit your demographic who live in a geographic area that is reachable by your company.
For example, do you have the capacity to create and ship products from New York to California? Does it make financial sense for you to focus on customers on the other side of the country?
Don't act on a hunch; always get numbers to back up your claims. Decide whether you can meet the needs of people in the area you are targeting.
Your business structure may be sound and your numbers all add up, but at the center of every business is a human story.
Lenders and investors are constantly receiving strong pitches. Your personal history can make you stand out. The same is true of your customers—telling your story and explaining why it enables you to solve their problems is the essence of sales.
Passion and excitement are infectious. A compelling story will explain why you are the one who deserves their attention and purchasing power.
Use the process of writing a business plan as an exercise to immerse yourself in what will make your company successful.
Begin with business plan templates that will give your report structure and then start your research.
Knowing your numbers, analyzing the market, and presenting your information in a compelling way will help create a business plan that makes sure your business is a hit with investors, employees and customers.
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