So you’re ready to start your own business and you’re curious about your next steps – including how to write a business plan. In the same way you would want your resume to really “pop” for potential employers, you want your small business plan to be dynamic and compelling for yourself, your employees, lenders and anyone investing in the future success of your business. In fact, a business plan is a critical document that will be one of the main things a bank or lending institution will want to review before approving a business loan.
So, What Is a Business Plan?
A small business plan is a comprehensive picture of your business now and where you plan to take your business in the future. It is meant to be a living, breathing document that can be modified or changed as the market changes. One of the best ways to position yourself and your business for future success is with a business plan.
A business plan should not be something you write up in a day. It takes time and research and planning to organize your business in such a way that you know who you are, what you do, whom you serve, and where the future will take you. A good plan for your business involves all or many of the founders, leaders or manager of the business. Input from all sides will mean everyone is on the same page when it comes to the day to day operations of the business.
Your business plan should look professional although you should be wary about hiring an outside person to write it for you. It’s not a report about your business; it’s a very personal and intimate look at the inner workings of your business. It should be easy to read in a non-fancy font, with no grammatical errors (TIP: have multiple people proofread it before finalizing it!) Include a table of contents and break up the copy by using headlines and subheads. Graphs, maps, and other demographic data are wonderful additions to any business plan and can help add to the narrative of your plan.
A small business plan is a roadmap of your business intentions. It is a detailed plan showing the projected path of growth for your business, usually over the next three to five years. But first, you will need to understand the elements involved in order to know how to write a business plan.
Why You Need a Small Business Plan
Unless you’re financing your business all on your own, you will probably need financing of some kind. Banks and other lenders will look to your business plan, in addition to many other things such as your credit report, credit history and credit scores, to determine whether you meet the criteria needed for them to approve a loan. Having a solid small business plan is perhaps the determining factor that all lenders consider when deciding whether to extend a business loan.
How to Create a Small Business Plan
Step 1: Define your business in a company profile
Defining your business is a necessary first step in making a small business plan. You’ll want to answer questions such as: What is the nature of your business? What is the product or service you offer? What are the clearly defined markets that you serve? Who are your target audiences? How will your product or business fulfill a need? And what distinguishing characteristics set you apart from your competitors? All of these items make up your company profile. As with all parts of the business plan, your written tone should be formal and supplemented with detailed explanations to support your descriptions.
Step 2: Provide a Market Overview
Knowing the market in which you’ll be running your business is obviously one of the keys to your future success. After all, if there is no fundamental need for your product or service, then your business has little chance of succeeding. This section of your business plan should include basic demographic information for your market. Include things such as average household income, male/female ratios, average home price, crime rate, and other demographics that will assist you in operating a successful business. Be sure to also include projections for growth.
Identify Your Primary Market
You will want to identify and define your “primary market.” This is the audience you will be primarily targeting with your marketing and advertising. Is your primary market women ages 25 – 54? Single men ages 18 – 32? Retired men and women ages 65 and older? Find out and then adjust your marketing plan accordingly.
Note Any Marketplace Trends
Your small business plan should also include any relevant trends in the marketplace. Are manufacturing jobs on the way out? Are gas prices climbing? Is unemployment high? Is there now or will there be a demand for the product or service you offer? These and other trends are economic indicators that can heavily influence the short-term (and eventually long-term) success of a business. You’ll want to identify these upfront and have a plan in place to respond to these trends.
Identify The Competition
Within the market overview, you will need to identify the competition. Knowing who your competitors are and what they are doing to attract the same audience you desire, will be a key factor in the success (or failure) of your business. Include competitor’s information in your business plan as well as a plan for how you will position your business to compete successfully. TIP: If you have the funds, you may want to consider hiring an outside firm to conduct market research for you. The results are quite comprehensive and would serve you well in future planning. If you do not have the funds to conduct outside research, you can generally find economic data from your local town or county website. Either way, be sure to provide as much data as possible to justify the reason for your business.
Establish Your Pricing Structure
Do your research and find out what others charge for the same products or services you provide. Your rates and prices for services will, of course, will be different than other similar businesses. However, you want to be sure of what the so-called “going rate” is so you don’t price yourself right out of the market. Long story short, if a person can buy your product or service somewhere else for a cheaper price – they will do it. In addition to your pricing structure, you’ll want to build in your profit margins. Again, you’ll use the data you’ve acquired as a basis for your future business growth projections.
Know Your Niche
Don’t try to be everything to everybody. Small businesses that listen to and respond to niche markets are serving a need. Not sure how to find your niche? Conduct an informal focus group or survey online with some people in your target market. Listen to what they have to say and then adjust your business to fill the need. You can also create your own niche. If you know who your competitors are and what needs they are not fulfilling, you may discover an audience that has been largely neglected. Knowing your niche – or creating your own – shows innovation and entrepreneurial spirit, two qualities that will serve your small business in the long run.
Step 3: Explain Your Business Structure
Your business plan needs to explain the actual structure of your business. It should provide answers to questions such as: Do you own your own business? Do you have a few or hundreds of employees? Are you a franchisee of an existing and well-known company? Do you hire freelancers rather than permanent full or part time employees? Will you outsource some of your business? Do you rent or own your work space? Do you work from home? These and other questions should provide a comprehensive overview of your business structure.
If your business is large enough to have a Board of Directors or a prominent list of leaders, you will want to include their names along with their industry credentials. Headshots or links to web pages with more information is helpful as well. Having well respected local businessmen or women on your board on in your leadership only adds to your credibility. It will also present a strong business image to potential lenders or loan officers.
Step 4: Marketing, Sales, Public Relations
The old movie saying, “If you build it, they will come,” simply won’t cut it when you’re a small business owner. A good business plan will have a strategic and aggressive marketing plan that takes into account traditional as well as new small business online marketing, or social media. If your budget is tight, a solid social media marketing plan can make your dollars go further. If you have more leeway with your dollars, you will still need to choose wisely as traditional forms of media (such as newspapers and radio) are dwindling in readership. This section can be tricky because marketing is often one of the first areas to be cut in tough economic times. Be sure your numbers are lean and that you also include some form of measurement to indicate when goals have been met.
Once you’ve identified your marketing plan, you can move on to your sales plan. Show a realistic, but aggressive, projection of future sales. Include sales numbers, percentages for growth, projected revenue, etc. Make your sales goals realistic, aggressive and based in real data.
Step 5: Work Hard on Your Executive Summary – and then move it to the top of the business plan!
Ironically, the Executive Summary is the last component you’ll work on for your business plan, but it should be the very first thing at the top of your business plan. The Executive Summary is also the very first thing loan officers and other potential lenders will see. Don’t rush to finish the Executive Summary. Take your time and make sure it reflects everything you want to convey about your business. Your Executive Summary should be strategic, focused and thorough.
What is the Executive Summary?
The Executive Summary is just that: a summary of the details outlined in your plan. This section is particularly important if you are looking to secure financing. The Executive Summary will help loan officers and other lenders make a decision about whether to extend a small business loan to you. You will want to be sure your plan and your Executive Summary are both top notch.
Things to Include In Your Executive Summary
1. Your business name and important contact information. Include address, phone numbers, main contact person or people along with email addresses, social media information. (TIP: Be sure your small business has a LinkedIn profile. This is an excellent way to connect and network with similar businesses, peers, potential employees, investors, etc.)
2. Your mission statement. Don’t underestimate the power of a mission statement. Make it eye-catching, but not superfluous. It should directly reflect the values of your business.
3. A description of what product or service your business offers.
4. Demographic, economic and financial factors that will affect your business.
5. An analysis of your competitors and your primary market.
6. Your marketing, public relations and sales plan.
7. Your future revenue and cash flow projections.
8. Any current assets or capital
Remember: The Executive Summary should be at the very top of your small business plan; however, it should be the very last thing you write because it is a summary of the details you will include in the body of your business plan.
You can find several examples online of how to write a business plan as well as sample business plans. One great resource is the Small Business association’s website, which has many sample business plans. The Small Business Association also offers assistance with writing and drafting your small business plan.