A business plan is a multi-purpose tool for your company — you can use it to secure funding from investors or lenders, as a guiding framework with milestones for you to follow, and to record your business strategies and market research.
Without a business plan, an owner would likely have no clarity around their goals and jump from one objective to the next. They could hastily enter a market that isn’t ready for their product because they didn’t take the time to complete a market analysis. Or they could blindly pursue a business opportunity without understanding its viability.
Additionally, the most important thing about a business plan is that it should be written from three different perspectives — the investor, the entrepreneur, and the market.
Investors help start or grow your business with financing so that you can focus on running your business while the market determines the success of your product or service by spending their money at your business.
If you’re just starting your business, it’s particularly important to consider perspectives other than your own. Without considering investors or the market, you likely wouldn’t have an accurate picture of the viability of your product or service, making it harder to succeed and receive funding from investors.
Now, let’s get into the practical side of how to create a business plan.
What is a business plan?
You can think of a business plan as a snapshot of everything about your company from its products or services to human resources. It also includes information on marketing strategies, income, goals and your industry.
Consequently, this document helps investors and lenders thoroughly understand your business while giving you a roadmap to achieve your short and long-term goals. It’s something you can continue to reference whenever you have key decisions to make or issues to address.
Why do you need a business plan?
A business plan is essential for several practical reasons, whether you're starting a new business or looking to grow an existing one. Here’s why a business plan is indispensable:
- Clarity of vision: It articulates your business idea, goals and the path to achieve them, ensuring that your journey is guided by a clear strategy.
- Securing funding: Investors and lenders seek confidence in your business's potential. A robust business plan demonstrates your venture's viability and profitability, making it easier to secure the necessary capital.
- Strategic planning: It enables you to outline your approach to market analysis, marketing strategies, financial forecasts and operational plans, turning challenges into opportunities.
A business plan acts as a roadmap for your business, guiding you through the early stages and beyond. It's crucial for making informed decisions and ensuring that your business moves towards its goals efficiently.
Whether you're seeking financial backing or just setting up your business structure, a well-thought-out business plan is your first step towards success.
Before you write your business plan
Before diving into the creation of your business plan, several foundational steps lay the groundwork for a comprehensive and effective strategy. These preliminary actions ensure that when you sit down to write your plan, you clearly understand your business's framework, goals and the market environment.
Here’s what you need to consider:
- Understand your business model: Define how your business will operate, make money and provide value. Identify your unique value proposition, main revenue sources and essential resources and activities.
- Conduct market research: Validate your product or service demand through market research. Analyse trends, identify your target market and assess your competitive advantage using tools like SWOT analysis.
- Set clear objectives: Establish SMART (Specific, Measurable, Achievable, Relevant, Time-bound) goals for both short-term achievements and long-term ambitions, covering financial targets and operational milestones.
- Financial forecasting: Begin with estimating startup costs, ongoing expenses and expected revenue to gauge your business's financial viability. This step is crucial for securing funding and understanding your financial needs.
- Identify your ideal customer: Determine who your ideal customers are to focus your marketing and product development efforts. Develop customer profiles that detail demographics, buying behaviours and motivations.
- Prepare for potential challenges: Anticipate and plan for potential business challenges by considering risks related to the market, finances, or operations and devising strategies to address them.
Business plan types
Various types of business plans serve distinct purposes, each tailored to specific needs and objectives. Let’s take a look at some of the most common business plan types:
- Startup business plans: These are vital for new ventures because they outline initial steps, market entry and growth strategies. Rich in market analysis and financial forecasts, they're comprehensive business launching guides.
- Internal business plans: Focus on internal strategy and short-term goals, guiding daily operations and financial planning. They streamline internal processes, emphasising immediate objectives over extensive company backgrounds.
- Strategic business plans: Long-term visions for a company, detailing market share goals and competitive strategies. These plans map out the path to long-term success, backed by in-depth market analysis.
- Feasibility business plans: Assess the viability of new ideas, focusing on market potential, financial needs and operational requirements. They're crucial for validating the feasibility of projects before full commitment.
- Growth or expansion plans: Strategies for scaling businesses, including entering new markets or launching new products. They outline steps for significant growth, supported by financial projections.
- Investment business plans: Designed to attract investors by showcasing the business's value, market opportunity and financial health. They highlight potential ROI and growth to secure funding.
How to write a business plan in 8 steps
Writing a business plan can be challenging, so it’s good to have a framework to follow, especially if it’s your first time. Here is how to make a business plan in eight steps:
1. Detail your market analysis findings
Product-market fit is incredibly important as it means your product (or service) fills a need for customers, making market analysis a key piece of business plan content.
If customers don’t have a need or want for your product, you’ll find yourself struggling to make sales — even if you sell your products at rock-bottom prices. That’s why you must understand everything you can about your target market. You want to know how big the market is, who your ideal customers are, what their buying journey might look like, and stay up to date with consumer trends.
This information will help you refine your offer and confirm the viability of your product, ensuring you don’t fall into the trap of planning for a business with no demand.
Tip: Create ideal customer profiles based on your research findings. These will help you with future marketing efforts and show investors how each aspect of your business ties back to your customers.
2. Undertake competitor analysis
While product-market fit is important, you must also understand the competitive landscape of your industry.
You could have an excellent product, but if the industry is teeming with competition, it may be difficult to stand out without planning. Get to know your competitors, understand who they are and what makes them unique. Write down what they do well and areas where they drop off. Figure out their focus in the industry — e.g. price, quality, niche, product range, etc. — and keep a database for reference.
Tip: Use this information to further refine your product and marketing so that you can find or grow your foothold in the market.
3. Create an overview of your products or services
For each product or service you offer, you must write down how it works so that anyone reading your business plan can understand how you operate.
Now, if you run a big e-commerce store, for example, you don’t need to write detailed overviews for every single product. Instead you can focus on the overall category, such as handbags or footwear.
For everyone else, especially if you offer just a handful of products or services, it’s a good idea to get detailed in your descriptions. You can explain how different products meet the needs of different customer profiles if you sell to a diverse audience. Additionally, you should record the pricing models and sources you use for your products.
Finally, you can explain new products or services launching in the future or changes that may happen in the near term.
4. Record your marketing, sales and distribution strategies
In this section, you’ll answer how you generate customers and distribute your products or services to them.
Let’s start with distribution since it’s the easiest. All you have to do is write down the channels that you use to sell your products. For example, a brick-and-mortar store, a Shopify store or relying on third-party intermediaries (resellers).
Next, is your marketing and sales strategy. Will you be using paid advertising? What about organic growth? What platforms will you use? What does your customer journey look like? Does your marketing funnel require customers to speak to a sales representative?
These are all questions you must answer in order to illustrate the full picture of your business to investors and other stakeholders.
Tip: If you want to go the extra mile, create a business continuity plan that addresses potential disruptions, such as natural disasters, product shortages, etc. Not only will this help you plan for the future, but it also shows investors you’re serious about protecting your business.
5. Provide an overview of current and future financials
If you haven’t started running your business yet, you won’t have historical financial information to input into your forecast so you’ll have to give it your best guess when creating a business plan.
You can do this by looking at the value of your total addressable market (every single potential customer for your business) and estimating your future market share. For example, if your TAM is worth $10 million and you believe you can win 10% of the customers in the market, then your financial forecast would be $1 million in revenue.
Keep in mind that, if you plan to use this forecast to attract investors, you must back it up with concrete data from your market and competitor analysis and your marketing plan to show that you can achieve the forecast.
For businesses that are currently operational, though, you’ll need to create an income statement, balance sheet and cash flow statement alongside a forecast.
- Income statement: Here, you’ll detail your revenue and expenses for the recent past — anywhere from three to five years is likely sufficient. The main thing investors (or you as the founder) want to see is growing or at least consistent profitability relative to overall industry growth.
- Balance sheet: Your balance sheet illustrates the equity you own in your business. A positive number means your business’ assets are worth more than its liabilities while a negative number means you owe more than you own. Debt isn’t necessarily bad, but the more you have, the less favourable it is to invest in your business — unless you have significant positive cash flow.
- Cash flow statement: This statement shows investors how money flows in your business. You want this number to be consistently positive as it shows your business is operating as it should. If there are times of significant negative cash flow, make sure you tell investors why this is the case and share how you plan to fix or navigate it (if necessary).
Once you’ve created these, you can calculate additional metrics to illustrate the financial health of your business:
- Current ratio.
- Net profit margin.
- Inventory turnover.
- Quick ratio.
- Accounts receivable turnover ratio.
6. Describe your company
There are two parts to this section, one focuses on your business’ story and goals while the other is concerned with facts such as your business structure and employee details.
For the first part, you want to talk about how you came up with the idea for the business, the goals you’ve already achieved and the goals you’re striving towards, and your industry experience and vision. If you were writing a small business plan, you could talk about the local neighbourhood and how you wanted to make a difference in the community, for example.
For the second part, you want to write down all your key personnel (including their roles, salaries, etc.), business location and address, how ownership is structured in the business and other relevant facts.
7. Write your executive summary
While your executive summary will be the first part of your business plan that people will read, it’s often easier to write it during the last stages of building your plan.
Why is this the case? You’ll have painstakingly reviewed all the key details of your business, so it’ll be much easier to summarise the information in an eloquent and persuasive way. After all, your executive summary is the elevator pitch that will help get the attention of investors or anyone interested in your business.
Your executive summary should include:
- Your business name.
- The products or services you offer.
- Your marketplace.
- A mission statement.
- High-level marketing strategy.
- SWOT analysis.
- Financial projections.
- Your value proposition.
Tip: Keep it simple and full of passion and you’ll have no problem keeping readers engaged.
8. Put it all together
While these eight steps are structured in a way that’s logical to follow when creating your business plan, they’re not currently in the order they should appear.
Although there are no concrete rules for business plan structures and what is included in a business plan, it’s a good idea to start with your executive summary and company description, then cover your products or services before moving into analyses, operations and financials.
This could look like:
- Executive summary.
- Company description.
- Products or services.
- Market analysis.
- Competitor analysis.
- Marketing and operations plan.
- Current and future financials.
If you’d like to see some business plan examples, check out Hubspot’s business plan templates.
The bottom line: writing a winning business plan
The bottom line when it comes to writing a winning business plan is to ensure you consider all perspectives — that is, consider your plan from an investor mindset while taking into account the true state of the market.
Ask yourself questions like:
- Does my financial forecast align with the market?
- Am I being too optimistic about market demand?
- If I was an investor, why should I care about this business?
These will help you further refine your plan and ensure you position your business in a positive and accurate light. Keep in mind that your business plan is a living, breathing document that you can update whenever you like. This means you don’t have to get it perfect the first time, instead, you can continually refine your plan based on the information in this article.
If you plan to use your new business plan for financing applications, ensure you check out our business financing guide which is packed full of valuable information to consider before looking for a lender.
Now, it’s time to take everything you learned in this article and get to work.
Good luck!
@Be_theBoss
