Every entrepreneur has heard of a business plan. Don’t let those two words strike fear into your heart! It’s true that a formal business plan can be a complex document to put to put together, especially when you’re working hard to establish or grow your business. Our guide will help you put together a business plan that can serve as a roadmap for your business.
Why Do You Need a Business Plan?
According to the small business mentoring organization SCORE, a business plan has two primary purposes. First, it acts as an organized roadmap to help you analyze your plans for marketing, sales, production, distribution, etc.
The second purpose is the reason many entrepreneurs put together a plan-seeking funding from a bank, credit union, or other type of lender. Some financial institutions or other lenders will not invest in your company unless you present a business plan that demonstrates your steps to success. SCORE reports that banks want to mitigate their risk of default and private investors, such as Angel investors, want a realistic forecast for when they will get a return on their capital. (NOTE: SmartBiz does not require a business plan when you apply for an SBA loan or a bank term loan through one of our marketplace banks.)
Other reasons for creating a business plan include defining new business, outlining an agreement between partners, setting a value if selling your business, and to help you manage and track business planning.
On top of all of the reasons to have a business plan in place, the process of writing your plan can be a big help. You’ll see where you’ve been and have a plan for where you’re headed. Use our guide to help you get started.
Elements of a Business Plan
This is basically an introduction paragraph, preparing the reader for what’s to come. You’ll want to outline the elements of your business plan in a clear, concise, and positive way. Put yourself in your readers shoes and skip flowery language or padding with unnecessary words. Here’s an example of an executive summary for a fictional restaurant business:
XYZ Deli is a new restaurant retail establishment located in Los Angeles, California. XYZ Deli expects to capture existing deli customers in the area as several high-profile delis have shuttered in the last 5 years. The owners have extensive experience in the restaurant industry with close ties to the community. XYZ Deli expects to attract higher-income residents and tourists.
This section is similar to an elevator pitch. The company description tells the story of your business journey. Include the history of your business and give an overview of the products or services you offer. What problem are you solving and what are your goals as you move forward? Here’s an example of a company description on the website of SmartBiz Loans customer Roshambo Baby:
ro•sham•bo baby is owned and operated by San Diego family scott, julia and their baby girls, avery (4) and chloe (1). we started our little company after realizing that nobody was making high-quality baby sunglasses or stylish baby shades while at a baseball game with a friend’s four month old who was staring up at the bright sun with no protection. scott put his adult sunglasses on him and lightning struck: Little People Deserve Big People Shades. that means making our stylish baby shades in Italy instead of China. that means making them safe, durable, flexible, and chewable for little mouths. and that means making them just as stylish as designer adult shades.
Two years later, we had the world’s best high-quality baby sunglasses ready for your little one and ours! scott didn't want stop there though, he wanted to wear matching unbreakable pink shades with avery, so we made kids and adult sizes so the whole family can match!
Ready to research? To define your target market, research the consumers most likely to purchase your products or services. For example, American Bike Patrol Services (ABPS) is a SmartBiz Loans Customer. They have a very targeted customer base, servicing law enforcement and private security corporations with their bike patrol programs. Don’t make the mistake of trying to target everyone.
For example, if you have a restaurant with loud music, expensive and creative alcohol drinks and a casual atmosphere, you’re probably not going to add “senior citizens” to your list!
A market analysis is a detailed overview of your industry including statistics. You’ll learn if your business is solving a real problem and if the consumer base exists to support it. Your market analysis should include the following:
- Target market: Include demographic data on your target customer including age, gender, income, location, shopping habits, etc. Include the size of the market and how you intend to reach them.
- Market test results: Support your market research with details and statistics.
- Lead time: How long does it take for you to fulfill an order and what factors impact that time frame?
- Competitive analysis: Identify the strengths and weaknesses of the competition. You’ll also outline why you have an advantage, the problems you might face breaking into the marketplace and strategies you’ll use to gain the advantage.
Organization and management
This section has two distinct parts. First, you’ll describe the organizational structure of your company. Who reports to who, what departments exist, etc. Next, you’ll introduce the people who will help run and grow your business. This section is especially relevant if you have a partnership or a multi-member LLC. Even if you’re a one-man-show, you’ll want to outline your responsibilities and toot your own horn. Include your relevant business experience and education. You want to show that you have what it takes to run your business successfully.
Services or products
This section sounds simple but you need to do more than just list what you’re selling. Include the following:
- Pricing of your products or services
- Information about your website, marketing collateral, and sales tactics
- How orders will be processed
- What you need to create or deliver your product (vehicles, equipment, ecommerce software, etc.)
- Patents held or legal issues that you might come up against
- Products or services you hope to develop in the future
Here’s where you include in-depth information about pricing, sales strategies, advertising, and promotion. Although you don’t want to give away the “secret sauce” you should let readers know that you have solid plans in place to promote your products and services to your target audience. Cover your goals, strategies, and timelines for implementing your marketing and sales plan.
The break-even point is when your sales equal expenses and you can sell enough units of your product to cover your expenses without making a profit or taking a loss. From that baseline, if you sell more at the same price, you’ll make a profit; if you sell less, you take a loss. Visit Investopedia for in-depth information about how to calculate: Break-Even Calculation.
The financial plan section of your business plan should include financial statements indicating where your company currently stands and where it expects to be in the near future. A financial plan is one of the best ways to determine how much financing you might need in the future. A financial plan also helps lenders determine if lending you money is a wise use of their funds and can indicate the net worth of your business. Your financial plan should include:
- Income statement
- Balance sheet
- Cash flow statement (The SmartBiz Blog has Cash Flow Templates to help you with this step)
The SmartBiz Small Business Blog has an article that can guide you as you work on this section: How to Make A Financial Plan for A Business In 6 Steps.
The best way to get started on your business plan? Just get started! It may sound overwhelming but simply jumping off and getting going is the toughest part. Here are three things to keep in mind:
This isn’t the time for flowery language and high word counts.
Write for your audience
Avoid inside industry lingo and craft your plan to speak to the audience you’re interested in reaching. That could be investors, potential employees, or a lender.
There are plenty of tools available to help you write a business plan. Compare the top brands here: The 5 Best Business Plan Software and Tools in 2019 for Your Small Business.