Creating a business plan seems like boring work, but it is very necessary.
One of the most important things to do when starting a new business is creating a business plan.
A business plan helps you to think through all the necessary questions and hurdles that might come up on your entrepreneurial journey.
What is a business plan?
This a document that summarizes the operational and financial cost of running a business.
It would contain a detailed marketing plan, budget for the business and how the company’s objectives would be realized.
A business plan is the road map of any successful business.
It ensures that there is planning and organization.
Why do startups need a business plan?
While some studies show that startups that do not require loans to get started might not need a business plan, the same research shows that startups who start with a business plan are 2.5X likely to achieve success.
One reason this success happens is because going through the process of creating business plans sharpens entrepreneurial skills.
The reason for starting a business is to become profitable.
A business plan would help you determine early if your business idea is profitable.
You wouldn’t want to go through the process of developing a product, finding your target audience, raising funds and the business ends up failing.
With a business plan, you would be able to evaluate your chances of success.
There are several sections of a business plans.
We would discuss that later in the article.
Most startups do not have the necessary funds to kick off. You would need an investor-ready business plan to raise the funds.
It is this plan that you would use in convincing investors to put their resources in your business.
So in essence, a business plan would save you from investing resources in a startup that would eventually fail.
How does a business plan differ from investment proposal?
They are pretty much the same thing.
The key difference between the both of them is that they are created for different audiences.
A business plan is designed for internal purposes. Its helps to keep your business on course.
An investment proposal is created for external agencies. It is used during pitches and fund raisers.
Additional reading: What is the best paid and free podcast hosting services?
Advantages of creating a business plan
Here are some of the benefits:
1. You get a glimpse of the future
A business plan helps you evaluate your idea and see if it can be profitable.
Even if you cannot be 100 percent certain of what the future entails, you would still have an idea of what to prepare for.
2. Proper allocation of resources
You would be able to answer important questions like:
What should my budget be like?
How much inventory should I have right now?
What are the scarce resource my business would need and how can I get them?
When you plan ahead, you can fine tune your financial allocation to increase your chances of success.
3. Necessary to collect credit
Before a financial institution can offer you credit, you must have a business plan.
This would show the institution how organized you are and what they might risk investing in you.
A business plan is a necessity when creating a loan proposal according to sba.gov.
4. Puts all partners on the same page
It is possible that your startup might have different partners working together.
They would be different individuals with different views on how to run the company.
A business plan would harmonize all their view points.
If there is no structure, there would be a lot of clashes since everyone involved are not on the same page.
5. It makes others take you and your business serious
It is one thing to have a killer idea, it is another thing to put in the required effort to achieve success.
A business plan would show people that you are serious about your startup.
It would relay the idea that you are confident in your product and that they can back you up.
6. It makes it easy for you to find your target demographic
Customers are needed for any business to become successful.
You would need to identify who your prospects would be and one way to go about this is by creating a business plan.
I have written a complete guide on how to find your target demographic. You should check it out.
7. Optimizes your marketing campaign
With an in depth business plan, you would be able to determine how you would reach future markets with your products and services.
The Disadvantages
There are certain disadvantages with a business plan.
Knowing these disadvantages can help you walk around it and find solutions.
1. It can turn out to be inaccurate
This can be the biggest mistake you can make when starting out.
It might be impossible to come back from this.
To avoid it, ensure that you involve the right people in this process.
It requires the skill of an experience individual in your field.
Even if you are a small business, it is important that you hire somebody to assist you in creating your business plan.
2. You spend too much time on analysis
Ever heard the phrase “paralysis by analysis”?
While creation of a business plan is important, you shouldn’t spend all your time on it.
Focus on the essential things.
Don’t waste time pondering on the kind of chairs you would place in the office when you should be thinking of how to get customers.
3. It requires an efficient implementation process
Creating a business plan and abandoning it on a shelf collection dust won’t help you in anyway.
It is the same thing as not creating one in the first place.
Your business plan should be an integral part of your business.
It should be a reference point to keep things in check.
4. It can create an environment of false certainty
Remember that a business plan is akin to a forecast.
The predicted weather can change at any time.
If you are 100% certain in your plan, it would be difficult to adapt when changes are required.
Worse still, it can stop you from embracing new exciting technologies.
Business Plan Outline
There are different variations of business plan available.
This is the recommended outline of categories that would form the bases of business plan:
1. Executive Summary
An executive summary is a general overview of a business plan.
The essence of this summary is to prepare the readers for upcoming content in the rest of the document.
A good executive summary should create an urge in the reader to read the rest of the business plan.
You should take great care in creating this section because it is the most important part of the plan.
If the first few lines of the plan does not draw in the attention of the reader it can be a huge problem.
The reader might get bored and set it aside. You can lose a potential investor because of this singular issue.
What should you include in your executive summary?
The business opportunity – You describe the product or service that you want to sell.
Explain what need your product would serve to the market.
Target market – describe your target market. This should include their gender, age and geographical location.
Business model – describe what would make your product appealing to the target market.
The Competition – describe who your competition is and your plans on how to compete with them.
This should include what makes you different. The things you would bring to the table that they don’t.
Financial analysis – give a summary on what you project your finances to be like in 3 – 5 years.
Owners/Staffs – describe the owners and the staffs in the company right now. This should include the different ways they contribute to the company.
Implementation plan – detail the steps you intend to take to drive the business from being a startup to becoming a profitable business.
Tips for writing an executive business plan summary
You should remember that the business plan summary is the first thing the reader would read.
Ensure that you put in your time and effort to make it perfect.
If you do it wrong, they might not bother reading the rest of the article.
2. Business/Industry Overview
At this this stage, there are two sections you would need to answer.
- An overview of your industry.
- What is your current position within this industry?
These are some questions you can ask to write this overview efficiently:
- How big is your industry?
- What are the various sectors within this industry?
- What are the biggest brands in your industry?
- What is customer demographic in this industry?
- How much sales did this industry make in the past year?
- Has any economic trends affected the industry and how?
- What is the long-term future of the industry?
- What are the products or services you would be offering in this industry?
- What is your unique business proposition. (What is it that makes you different from other brands in the industry)?
- What are the barriers that you can face in the industry?
- Do you have a business competitive business advantage (i.e your market niche or estimated market share)?
- Do you know your target market? And if you do, what is it?
- Do you have patents, copyrights or trademarks?
The next step would be to answer all these questions in short paragraphs.
Do not make each answer too long. Be concise and get straight to the point.
Make sure you use the appropriate headings so that you do not confuse the reader.
There are several resources that you can use to find information concerning your industry.
You can check out the Chamber of Commerce, Economic Development Center, business section of your local library or Women’s Enterprise Center.
Also ensure that whatever information you add to the business plan is current.
Always check the date before adding.
Also remember to cite your sources in the business plan.
3. Market Analysis
The market analysis section would be a thorough overview of your target market.
This would include the individuals you plan on selling your products and services to.
The foundation of market analysis includes knowing the people that would be interested in your product, where they reside and how to target them.
These are some questions you would answer to help you write the market analysis section:
| Age | What is the age range of people that would be using your service? Would they be babies, teens, adults or senior citizens? |
| Gender | Would your service be used by primarily males or females or would you be targeting both sexes? |
| Marital Status | Would you be targeting married or single individuals? |
| Family | Would your product be used by a nuclear or an extended family? |
| Location | Where do you plan on selling your products? Do you plan on dealing locally or would your products be available internationally also? |
| Education | Is there a certain level of education customers must reach before they can use your product? |
| Income | What is their annual income? |
| Occupation | What do your intended customers do for a living? |
| Religion | Are they customers of a certain religion? |
| Language | Do your customers belong to a certain language group? |
| Lifestyle | What kind of lifestyle do they live? |
| Motivation | What’s their motivation and driving force? |
| Size | What is the estimated size of your target market? |
These are some of the resources you can use to do market research.
Online tools for market research
Keyword Searches: It would give you an idea of the potential demand for your product or service.
Google Trends: It would tell you how searches in your industry have changed over time.
Doing social media campaigns and polls can help you evaluate potential customer interest in your business idea.
4. Product & Services
In this section, you would list the products and services that your company has developed.
These are the questions that it should answer:
- An overview of your core product or service.
- What stage of development is it in?
- Add an image or screenshot of the product.
- Your current and estimated future pricing.
- Your beta test results.
- If you have any future products that you plan on developing, list them also.
5. Marketing Plan
Even though your business is not yet developed, it is important that you add a marketing plan when creating a business plan.
Financiers and investors are very interested in this section.
Not only does it help you when making pitches, it also assists you and your team to know what needs to be done and how to go about it.
This is what you should add to the marketing plan section:
- Do competition and market research
- Research on SWOT analysis (Strengths, Weaknesses, Opportunities & Threats)
- How would you go about brand and product positioning?
- What would be your tagline?
- What is your target market personas and personal profile?
- What are the results of the marketing tests you have conducted so far?
- What are the channels that you would use in your marketing campaign?
- What is your estimated marketing budget?
- What is the estimates of your cost per actions (CPAs)
6. Operational Plan
This is the section where you show that you have a good knowledge of your industry.
This would include:
- The facilities and spaces that your company would need.
- What kind of technology would you need?
- What kind of equipment would you need?
- What supply chain would you make use of?
- Your order and fulfilment process.
- What is your quality control checks process?
- What would be your legal and accounting needs?
7. Management & Organization
This would include:
- Who are the founders and executive team?
- Do you have owners or share holders?
- Who are your board of directors?
- Consultant and special advisors if you have any.
- Who are the key team members and departmental heads?
8. Financial plan
Give a sincere overview of where you are at the moment and where you hope to be in the future if you can get funding.
This would include:
- What is your current balance sheet?
- If you have your financials for a year or two, include them.
- What are your financial projections for the next 12 months. Also include your projections annually for the next 5 years.
- Break even analysis.
- What is your cash flow projection?
- Startup cost if it is a startup along with capitalization requirements, or funding and loan requests.
If you are trying to raise funds, you should add this to your business plan.
- How you would make use of the funds
- How you plan on repaying the loans
- How you plan on following up fund raising rounds
- The milestones and objectives you would love to achieve.
9. Appendices
This is where you write important documentation like your references.
You would also write required documents like:
- Article of incorporation
- Resume of founders and key team members
- Copies of your insurance
- Your licenses
- Trademark and patent registrations
- Contracts
- Appraisals
- Links to references.
Conclusion
Creating a business plan is one of the most important steps you would take when you are launching a new business.
Without a business plan you might not notice the gaps in your ideas.
You might also find it difficult to answer questions directed to you from an investor during your pitches.
If you use the steps written in this article, you would find it easier to go about this process.
Wish you good luck.