Welcome! If you’re reading this today, odds are, you’re interested in how to write a business plan. If that’s the case, first off, we want to congratulate you on your new business endeavors. Starting a new business is a big undertaking, and at times it can definitely feel overwhelming… But like anything else, if you’re willing to put in some diligent, hard work, it will pay off in the long run, tenfold!
There are few better ways to ensure your business will be successful than by writing a thorough, comprehensive business plan. A business plan ensures your company is clear on your missions, goals, motivations, target audience, startup costs, and more. Think of it as a single document that encompasses your entire business venture, which is extremely important for multiple reasons. First of all, by writing a business plan, you make sure that you’ve considered all facets of a company that must be figured out. This is important as oftentimes business owners are so eager to jump straight into sales or generating revenue that they forget to lay down a strong foundation, aka a business plan, which is the key to any business’ long-term success.
Secondly, business plans can be referred to time and time again as your company expands, evolves, and grows, to make sure that all business decisions are in line with your company’s original intentions. This might seem like a long time away now at the inception of your company, but trust us, you’ll be so thankful you have a business plan when a year or more down the road you are hiring new staff or looking for new marketing strategies, and know exactly where to look to verify information and gain inspiration.
Finally, a business plan is so important to put in place if you hope to seek monetary assistance to start or continue your business. Whether this means a private loan or taking on an investor, anyone risking money for your company is going to want to see a thorough business plan to ensure their money is going towards a business that seems logical, thoroughly researched, and profitable.
So now that you know you NEED a business plan, let’s break down exactly what you need to include in yours!
You will want to start off your business plan with an executive summary. (For a more in depth explanation of what this is and how to write one, check our other article: “How to Write an Executive Summary“). This introductory section of the business plan document should give basic information that any future customer, investor, or employee would want to know about your company. Including what your company does, what product or service you provide, where you’re located, how many employees you have, who is on your leadership team and what they’ve accomplished/what makes them qualified to be in a high level position at this company. Including your company’s mission statement in this first part of the document is also crucial. Think of your executive summary as the hook of your business plan. It has to lay out all the facts while also enticing the reader to read more!
Next, you’ll want to write up your company description. This section should be quite detailed about what makes your company unique. Who is your target market? Why do they want your product or service? What makes your company different from the competitors? Is your business model business to business or business to consumer, etc.? Answering these questions in great detail will put any reader’s mind at ease that this business is legitimate and has good potential for profit.
After these two introductory sections have been written out, you’ll want to dive into market research. This is arguably the most important section of your business plan. Maybe your friends, family, and neighbors all say your product is amazing…but what proof do you have that there is a real need for it beyond your very own social circle? The term “market research” may sound overwhelming at first, but with a little bit of guidance, we promise it’s nothing you can’t accomplish.
One common misconception about market research is that it must be done by you or your team directly speaking to your target audience via surveys, focus groups, questionnaires, or interviews. While this information may be helpful to a certain degree, it’s also costly and time consuming. Additionally, this type of research is called “direct research,” and is better done for more concrete facets of your business, such as your logo, a new advertisement campaign, your market’s preference for your company’s product or service versus a competitor’s, and/or improvements that could be made to the customer experience.
However, in order to conduct market research, which must be included in your business plan is meant to gather demographic information in order to understand the consumer behaviors of your target market, you can use resources that already exist. For example, go to https://www.sba.gov/business-guide/plan-your-business/market-research-competitive-analysis#section-header-5 for free demographic statistics about employment, income, interest rates, unemployment rates, and more. This type of information will let you know where your target market is, their buying behaviors, and their current economic and employment standings which will let you know early on in your business’ development whether or not your target market seems profitable.
Other questions you’ll want to research and ask yourself in regards to your target market is market size (how many people might be interested in your particular product or service); economic indicators (how much money does your target market typically make and are they generally employed or not); demand (do people actually want your product/service); market saturation (how many businesses similar to yours are already in existence for customers to choose from); location (is your business accessible to your target market); and pricing (how does your pricing compare to similar goods or services- and if the pricing isn’t comparable, is there a justifiable reason as to why).
As you can see, this type of market research goes far above and beyond a few customer testimonials. It ensures the long-term success of your business with concrete, reliable statistics.
The next crucial part of your business plan should be competitive analysis. In essence, competitive analysis is exactly what it sounds like: analyzing your company’s competition. One mistake many first-time business owners make is believing that their good or service is so unique, it has no competition. Unfortunately, oftentimes this is not the case and ends up being the downfall of the new company.
Instead, be honest with yourself and the reader. Odds are your company will have competition, but as long as the market isn’t already oversaturated with this good or service, this is not necessarily a bad thing. As you already know, America is founded on the economic concept of capitalism, which thrives on competition; and, the key to being successful in such competition is knowing where you stand and how you can get the upper hand.
To do this, first ensure that your company can differentiate itself in some way from the competitor. Whatever you sell or do, why or how is it better than the competitor’s good or service? Is your good high quality? Is your service faster? Are you able to provide to the consumer at half the cost? Whatever makes you stand out, let it be known and keep this facet of your business consistent so that you always hold this differentiated place in the market.
Additionally, you’ll want to consider an old tried and true method, known as “Porter’s Five Forces” that shape competition in industries. They are: competitive rivalry (is the competition in this space between businesses so high that price wars can threaten your future business’ profitability, and/or can customers easily switch to the competitor for little to no cost to them); bargaining power of customers (in this space, are there so few customers but so many business options that customers can easily come and go to different companies as they please); bargaining power of suppliers (are you entering a space where there is only one or few raw material suppliers that get to control the cost of materials and therefore your profit); the threat of alternative goods or products (could your business be threatened by the quality or cost of competing services or products, or do competitors have such a high profit margin that they can reduce their prices easily); and the threat of newcomers (is it easy for another business to enter this space, and if so is your brand identity strong enough that this will not pose a real threat).
Evaluate Startup Cost
The next part of your business plan will be calculating your startup costs. Not only should this be included in your business plan for future investors to reference, but it is also crucial for the success of your business. Time and time again, new entrepreneurs underestimate what it will cost to start their unique business. This then leads to launch delays, economic hardships, or struggling to break even, let alone make a profit. To reduce the risk of any of these unfortunate outcomes, take the time to accurately predict your startup costs. Additionally, doing so up front will save you plenty of money in the long run for so many reasons, including better understanding your eligibility for tax deductions.
To begin calculating your business’ startup costs, compile a thorough list of what costs are associated with opening and running your business. While every business is unique i.e. real brick and mortar store locations versus online businesses, many have similar, shared costs. Here are just a few that we can think of: building and designing a website; printing and distributing marketing materials; office space; office supplies and equipment; utilities (such as phone lines, internet, electricity, etc.); licenses and permits (such as liquor licenses, fire department permit, air and water pollution permit, etc.); lawyer and accountant fees; insurance; inventory (initial supply and daily/weekly/monthly restocking fees); and employee salaries.
However, as you probably guessed, using this list is not enough. Once you have your estimated cost list (consider consulting another entrepreneur or business partner to ensure you’ve thought of everything), begin to research what the actual costs are. It’s important not to guess here. Many items on this list will have fixed costs, such as licenses and permits which are distributed by your state or local governments. Other costs, such as designing a website, may vary depending on who you hire to do it. In these cases, price out at least three different options to make sure your startup estimation is accurate and doesn’t include any over or under priced outliers. Additionally, don’t forget to consider sales tax for many of these purchases!
Once you’ve laid out all these costs in a spreadsheet, ideally you’ll want to have this much money available, plus at least one additional year worth of operating costs. Remember, your business isn’t guaranteed to make profit on day one, month one, or even year one. The more money you have stashed away the better the chance you have at making sure your business survives the early “break even” phase, which may end up lasting longer than you hoped.
Find A Business Plan Template
Now that you understand the main components of a business plan, let’s talk about how you’re going to put them all together: in a business plan template. Just like when you write a cover letter or resume, there are a few traditional, accepted formats for laying out your business plan. And remember, the more your business plan follows these tried and true templates, the more reliable and trustworthy your business looks to potential investors and big accounts.
Basically, there are two different types of business plan templates. The first is a “traditional business plan.” This is a thorough document that should be comprehensive, and several pages long (at least 20). It’s the business plan you’ll want to hand potential investors or lenders so they can feel confident about the profitability of your business. Graphs, statistics, and business projections are standard and expected in this type of business plan.
To be more specific, a traditional business plan should include: an executive summary (has your mission statement, business’ location, leadership team, what good or service you provide, and why you think you’ll be successful); the company’s description (details about what problem your company solves, intended consumers, and what sets your business apart from other competitors in this space); market analysis (research and statistics that prove your good or service has a real market that wants to purchase your product and can afford to do so regularly); organization and management (explains the structure of your company and who will be running it); a description of your service or product(s) (explain why your customers want your particular service or product and any copyright or patents you might have on it); marketing and sales (your basic strategy for getting, keeping, and growing a customer base); funding requests (this section should only be included if you are intending on asking a lender or investor for money for your business- it should also discuss how much money you’ll need and specifically what it will be used for); financial projections (put past balance sheets and cash flow statements here if your company already has them, or if not, include your forecasted income and profit for the next five years- the more specific and thorough the better); and finally, the appendix (a place to put supporting documentation like letters of reference, patents, permits, legal documents, etc.).
Conversely, a lean startup plan is more focused. It distills the components of a traditional business plan down to the key, necessary elements. This isn’t the best document to hand over to potential lenders or investors, but more so better to have on hand for quick reference later in the business’ life cycle or for future employees to understand at a glance what you do and why you do it so well.
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Now that you have all the knowledge you need to write your business plan the only thing left to do is sit down and do it! Like we said before, this is definitely a tedious task, but is certainly not one to skip or take short cuts with. You’ll be thankful in a few short months when thanks to this business plan, you have a solid, reliable customer base, plenty of money to afford launching your business, a spot in the market amongst competitors, and interested investors and lenders.
Just like building a house, it all starts with a strong foundation that is your business plan. So, what are you waiting for? Carve out 30 to 60 minutes each day where you can really focus on putting your all into this document, and in as little as 30 days you’ll have a foolproof business plan and a promising, profitable future!