It’s no secret that having a written business plan increases an entrepreneur’s chance of success. Whether you use it to secure financing or to document the direction you want to take your startup, a business plan helps you identify goals for your business and devise a strategy for reaching them. But the thought of writing a business plan can be daunting, at best but it’s one of many challenging moments all startups experience.
12 Steps to Writing a Business Plan
Business plans are fairly standard so you should be able to utilize templates to ease the process. That said, anyone who has read a business plan before will expect a few key things, so be sure to include all relevant information as it pertains to your business.
Make sure you don’t get too caught up with just getting your business plan done. The process of writing it is really where you’ll benefit because it allows you to think through your ideas and put pen to paper in a way that will force you to evaluate those ideas as you write them out. The process is invaluable as an entrepreneur and may help you identify weak points or areas for improvement you did not see previously.
By taking the following steps you’ll have completed a critical exercise as an entrepreneur and come out of it with a solid business plan that could help you get funding from investors.
Here are 12 steps to take when writing a great business plan:
1. Decide on a Business Plan Format
The type of format you need depends on your business plan’s audience. A “lean” startup plan consists of a chart that touches on major points, notes the Small Business Association, and it might be a good choice for a business plan you’ll use internally. But it doesn’t provide enough detail for lenders and investors. A traditional business plan, which is far more comprehensive, is the way to go if you’re trying to raise funds from investors.
The SBA advises entrepreneurs to include some or all of the following nine elements in a traditional business plan:
- Executive summary
- Company description
- Market analysis
- Organization and management
- Service or product line
- Sales and marketing
- Funding request
- Financial projections
The SBA lists these sections for a lean plan:
- Key partnerships
- Key activities
- Key resources
- Value proposition
- Customer relations
- Cost structure
- Revenue streams
2. Choose a Strategy — Start from Scratch or Use a Template
If you’re really intimidated by the process, consider using a business plan template, such as the template offered by SCORE, an SBA-funded organization that mentors and educates small business owners. But understand that a template is a one-size-fits-all tool that might not be a perfect fit for your company so modify it as needed.
Another possibility is using a business plan sample for guidance. You can find free samples for a variety of industries online, but there’s no guarantee of the quality.
Your best bet is to bite the bullet and write your own business plan from scratch. If you get stuck at any point, you’ll find plenty of assistance online. The SBA is an excellent resource, and it even has business plan examples you can use for inspiration.
3. Pick the Right Time To Write Your Business Plan
Timing is important. Jumping in too soon, before you’ve begun making adjustments to conform to the realities of your business versus the assumptions you made going in, can veer your startup off-track. A study by the Harvard Business Review found the optimal timeframe to be six to 12 months after you decide to start your business.
The activities you’re engaged in while you write the plan matter, too. The Harvard Business Review study concluded that you’ll increase your chances of success by over 25 percent by writing it while you prepare to take your product or service to market rather than while you’re still researching your market.
4. Write Your Executive Summary
The executive summary is a company overview that summarizes the business plan and piques readers’ interest. Although it’s the first section readers see, it should be the last one you write, the SBA’s Arizona District Office advises. Include your mission statement as well as the following information:
- The date you founded the business
- List of founders and their roles in the company
- Number of employees
- Descriptions and locations of your facilities
- An overview of your products and services
- A brief description of your relationships with lenders and investors
- Important milestones in your company’s history
- Description of funding needed, if applicable
5. Create a Company Description for Your Business Plan
Use this section to go into more detail about your company — what you do, why you do it and why it matters. This is the place to tout your advantages over your competition and discuss your startup’s strengths.
6. Present a Market Analysis
A market analysis defines the market for your product or service and your place in it. This section should include a discussion on industry trends, competitor analysis and a detailed description of how you stack up in terms of market share, customer demographics, and differentiating factors that give you an edge or pose challenges. Be brutally honest about your company’s strengths and weaknesses.
7. Explain Your Organization and Management
This section discusses your company structure — LLC or sole proprietorship, for example — and lists the individuals who’ll manage it. The SBA recommends including an organization chart and resumes of key team members.
8. Describe Your Service or Product Line
In this section, tell your audience exactly what you sell and how your products or services benefit your customers. Include information about existing or pending patents and trademarks as well as legal issues like nondisclosure and non-compete agreements, Bank of America advises.
9. Detail Your Sales and Marketing Strategy
Use the sales and marketing section to detail how you’re going to get your product or service into the marketplace. Here are some important elements to include:
- Customer segmentation: What are your target customer’s demographic and sociographic characteristics?
- Marketing strategy plan: How will you acquire and retain customers?
- Pricing: How much does your product or service cost to produce, and how much do you need to charge to turn a profit?
- Distribution: How will you deliver your product?
- Sales forecast: How much do you expect to sell, and what are your projected earnings on those sales?
10. Make Your Business Plan Funding Request
If the purpose of your business plan is to secure a business loan or attract investors, you’ll need to explain exactly how much you need you’ll need over the next several years, your preferred terms and how you plan to use the money. Also include a description of your future strategic financial planning, like paying off debt or selling your business, the SBA recommends.
11. Present Your Financial Projections
This section is critical no matter how you’ll use your business plan because it provides a snapshot of your finances, but it’s absolutely vital if you’re looking for money. Bank of America breaks down what you’ll need to include to support your funding request:
- Cash flow statement: Shows what came in and out and where it came from, whether operations, investments, debt payments or equity
- Balance sheet: Lists your company’s assets and liabilities and your equity, which is the amount that remains after you subtract your liabilities from your assets
- Income statement: Shows profits and losses over a specific period, like a month or quarter
12. Assemble the Appendix
The appendix is a catch-all for documents you want to accompany your business plan. These items might include background research you used in your market and competitor analyses, the organization chart and key staff resumes supporting for your Organization and Management section, contracts and examples of your marketing pieces. It’s also a good idea to add credit reports and other financial documents not included in a business plan that a lender or investor might want to see.
An Alternative to the Traditional Business Plan: Lean Startup Plan in a Nutshell
A lean startup plan can fit right into a chart, with each section having a box on the chart. Each box includes the section name as a heading plus a couple of sentences or bullet points summarizing how the section applies to the business. The “Key Activities” section, for example, is your opportunity to list the things you do to give your company an edge over your competitors or differentiate your business within your market.
Although a lean plan is much less formal than a traditional business plan and has only a fraction of the information, it might be all you need to attract talent to your organization, help staff see your vision for your company or entice compatible businesses to enter into strategic partnerships with you.
A final piece of advice — take the time you need to write an effective business plan, but don’t stretch it out too long. The Harvard Business Review found the optimal time from start to completion to be three months. The lesson here is to strategize, not agonize.