One way to help your business succeed is to plan for success by developing a business plan – a written document that outlines the steps you and your business need to take in order to reach profitability. By plotting out this process, you'll be able to identify potential opportunities and avoid some pitfalls.
Having a business plan will also assist in providing you credibility among potential investors. It shows that you've analyzed and weighed options, so investors can move forward with full confidence in you and your enterprise.
That's not to say that once you write it all down its set in stone. Your plan, like your business, should be evolving and flexible.
Prepare, prepare, prepare
A good business plan helps you better understand your company so you can run it more effectively. It can be a powerful tool for creating achievable goals and keeping track of your progress. It can also help you make future decisions and measure your results.
More importantly, putting your entire business strategy in writing will create a comprehensive overview of all the components necessary for success:
- Goals and objectives. What do you hope to accomplish? How can you get there in 3-5 years?
- Value proposition. What's unique about your business? What compelling feature sets your company, product or service apart from the competition?
- Marketing and operational forecasting. Setting goals now will help you target customers more effectively as your business grows.
- Finances. Consider the amount of cash flow you’re likely to need, how much you’re willing to accept and (potentially) how much control you’re willing to give up to succeed.
- Staffing. An established and well-thought-out plan can be the key to attracting – and keeping – the right talent.
There are also helpful programs and apps available that can walk you through the process of creating your plan.
What to include in a business plan
Here is a list of essential topics for your business plan.
- Executive summary
- Company description
- Competitive analysis
This is a quick snapshot that captures the essence of your business. What do you plan to achieve? How will you get there? Will you need financial backing? What outcomes will you deliver? All of this and more should be condensed into a brief description – from a couple of sentences to a maximum of 1 page long – that is easily understood and limits the use of insider jargon.
You might want to write this section last, after you’ve determined the overall strengths and details of your strategy, but make sure it appears first in your document.
Now it’s time to provide more detail. Provide a history of your company and your experience, as well as a look ahead. What industry will your business serve? Describe the nature of your industry now, as well as how you see it in 3-5 years.
Identify your target audience. What needs do they have that your company will satisfy? What products and services will you provide to meet those needs? Figure out what sets you apart from – and makes you better than – other companies in your industry.
Your company description is where you list the reasons to believe in your business’ success. Call out specific advantages such as a prime location, expert staff, better system, superior products and services or any other tangible benefit that can differentiate you from your competition.
Start by determining the size of your market. Then focus on your competitors and provide an objective summary of each. Include basic, measurable identifiers such as:
- Market share
- Age of the business
- Demographics they serve
- How they position themselves
- Type of products they offer and how much they sell
- What differentiates them from other companies in your market
- Strengths and weaknesses
Now do the same for your business. Never be afraid to show that one of your competitors is profitable; after all, potential investors are going to want to know that your industry is a viable one and that success is not only possible, but probable. Also include any opportunities (and threats) that may potentially affect your progress, as well as any rules and regulations your market has to follow.
Prove your business is more than just a good idea by presenting a team of individuals who bring experience, enthusiasm and credibility to the table. Also demonstrate your commitment to these people (capital and expense requirements for the next 3 years) so that potential investors get a feel for your commitment to success. This section should include:
- Profiles of your board members and management team. If you have a board of directors, create a profile for each in order of their position, including how involved they are, their history, how they have contributed thus far and will contribute in the future to your company. Most small businesses don’t have a board, but an unpaid advisory board can provide much-needed expertise and credibility to your business.
- Organizational structure. One of the simplest and most effective ways to convey the team concept is with an organizational chart. Give a brief description for each person on the chart demonstrating that there’s someone committed to every part of your company’s operational process.
- Legal information. Are you a sole proprietor? Is your business incorporated? It is a C or S corporation? A general or limited partnership? Here’s where you disclose that type of information, along with the resulting structural descriptions.
Describe what your product line is, its specific benefit, how it will meet customer needs and how it stands apart from the competition. Share its history and where you see it going, including future opportunities and possible barriers. List copyrights, patent filings and other facets of intellectual property here, as well as any existing legal matters such as nondisclosure or non-compete agreements.
Focus on these 4 areas in your marketing plan:
- Market penetration. How do you plan to enter your market, make an immediate impact and gain customers?
- Growth. Describe the strategy for building your business once it has entered the market, for example branching out, targeting different users or acquiring other businesses.
- Channels. How will you distribute your product? There are many directions you could go, from original equipment manufacturers to an internal sales force to established retailers.
- Communication. How will your message build customer awareness? Consider online promotions, printed brochures or catalogs, packaging, public relations and other forms of advertising.
How are you going to sell your product? Here are some options to consider:
- Sales force. If you’re using a sales force, will they be internal or independent? What’s the head count? How will you recruit, train and compensate those who will be the public face of your business?
- Retail. How will you get your product to customers? A brick-and-mortar store? Will you sell products directly to a retail business?
- eCommerce. If you decide to sell through an online presence, make sure it’s thoroughly professional and transactions are completely secure. It should be simple to use, rich in content and hosted by a reputable company with a history of minimal downtime. Is the purpose of your site to gather leads or sell products? Design it with that in mind. Consider hiring a professional website designer; the time you save versus learning how to do it yourself could be well worth it.
- Pricing. Follow these basic guidelines
- Make sure the price covers costs
- If you want to lower prices, lower your costs first
- While your main priority is making the sale, never focus solely on your competition when setting your price. You must also take into account factors like changes in the market, the practical uses for your product and how long it will last.
- Sales projection. A quantitative forecast of your sales will help investors gauge your potential.
If you need to procure funding to support your business, here's information to include in the request:
- Amount requested
- The type of funding you prefer, such as equity or debt
- The terms you require
- Any additional funding needs necessary over the next 3-5 years
- Details on how you plan to use the money
- Future possible strategies, such as buyouts, being sold or debt repayment plans
If your small business is self-funded, keep in mind that it’s very important to keep a detailed financial plan, even if you’re not required to validate it with your investors.
This is one of the most critical elements of any business plan.
There are 3 major forecasts your plan should contain, and you should make sure that each lines up with the funding request, should you choose to include one:
- Cash flow. Create a comprehensive view of how money comes in and goes out on a day-to-day basis. This will provide an overview of your financial peaks and valleys that have a direct effect on how you pay bills, buy stock, cover unexpected surprises and more.
- Profits and losses. Otherwise known as an income statement, this is a simple scorecard that shows exactly when sales and expenses happen. By combining elements such as revenue, expenses, capital and costs, investors will have a birds-eye view of how much money your company makes or loses over monthly, quarterly or annual periods.
- Balance sheet. This provides a snapshot of your business by breaking it down into 3 sections
- Assets. Tangible objects you own that can be converted to cash.
- Liabilities. Any debts owed.
- Equity. The difference between the 2 (assets – liabilities = equity).
As a rule of thumb, keep certain things on hand that aren’t included in your business plan such as credit history, resume, letter of reference or any other relevant information that lenders might request.
Put your business plan into action
After putting a plan down on paper, run it past your banker or other trusted advisor. Get impartial, knowledgeable feedback and have them confirm the basics: your management skills, familiarity with and a strategy for your market, available funds, a balanced operation and a commercially viable product.
Once you're confident, take action one step at a time. Follow your plan. Meet planned targets and deadlines. Evaluate outcomes, both good and bad. Build on your successes. Likewise, build on mistakes.