Preparing a business plan is like outlining an itinerary for a road trip. You want a clear map that you can follow step by step while developing your business. A business plan is absolutely vital as it navigates your business on the road to success.
The plan outlines where you want to go,
along with a plan of action on how you are going to get there. Business owners know if they are heading in the right direction and how far they are from their final destination.
Your business plan should guide you throughout the startup process – it should serve as a resource for help for any problem that may arise.
What are the three main purposes of a business plan?
Before you write your business plan, it’s important to understand the purpose of creating it in the first place. There are three main reasons why you should have a business plan:
- Establish a business focus. The primary purpose of a business plan is to establish your plans for the future. The process of creating a roadmap to your goals will help you determine your business focus and pursue growth.
- Secure funding. One of the first things private investors, banks or other lenders look for before investing in your business is a well-researched business plan. Investors want to know how you operate your business, what your revenue and expense projections are and, most importantly, how they will receive a return on their investment.
- Attract executives. As your business grows, you’ll likely need to add executives to your team. A business plan helps you attract executive talent and determine whether or not they are a good fit for your company.
What is in a business plan and how do I write one?
The specific details you include in your business plan largely depend on your audience. If you’re trying to secure outside funding, providing a complete, detailed overview of your cash flow, expenses and projections is critical.
If your audience is intended for employees, create a shorter version with information that is relevant to them.
However, regardless of your audience, all business plans generally follow a similar format:
- Executive summary. First and foremost, it should provide an overview for readers.
- Company description. This section is especially important when securing funding as it provides a high-level overview of your history, business legal structure, your products/services, key partners, and summaries of your financial and business goals.
- Products/services. Next, your business plan should include a detailed description of the products or services you provide. This section should illustrate how your product benefits your target customers.
- Market analysis. In this section, you really only need to explain two things: the market need and how your products and services satisfy that need. This includes targeted customer segments, industry statistics, pertinent marketing data, and a thorough examination of your competitors’ strengths and weaknesses.
- Management team. Before anyone will invest in your company, they want to know who is running the business. Include an organizational chart with departmental descriptions and information regarding the owners, key employees, the management team, board members, advisors, etc.
- Financial plan. The last section of your business plan should be created with the help of a professional accountant. Include important financial statements, such as historical financial data from the past three to five years, realistic budget forecasts over the next five years and an analysis of your all financial data.
Your plan is there for a reason. Don’t be afraid to refer to it as much as possible. Think of it as checking the map when you’ve made a wrong turn.
The biggest mistake people make is that they prepare the document and then put it in a drawer and never look at it again. That’s self-defeating.