Going through the process of writing a well-thought-out business plan for your small business is one of the most important things you can do.
But it doesn't need to be overwhelming. A solid understanding of a business plan's key components can help lay the groundwork.
What's a business plan?
A business plan is a written document describing in detail how a business, usually a new one, will achieve its goals.
It lays out a written plan from a marketing, financial, and operational standpoint. Sometimes a business plan is prepared for an external party, such as investors or banks.
A business plan defines the key elements of your company in a single document, covering its present position and future prospects. Review your business plan regularly and update it whenever your circumstances change.
When writing a business plan, it's important to include a section about your employees. This will give potential investors an idea of how you plan to staff your business and how much it will cost.
Why is a business plan important?
A business plan can help you map out your company's path to success. By outlining your goals and how you intend to achieve them, you can help ensure your business is heading in the right direction.
A business plan is also important if you're looking for funding from investors. They will want to see that you have a well-thought-out plan for how you're going to manage cash flow and grow your business.
Having a business plan can also help you spot potential problems with your business before they happen. By doing a SWOT analysis (strengths, weaknesses, opportunities, threats), you can identify areas where your business might run into issues and make plans to avoid them.
Elements of a Business Plan
Here are a few key elements to include in a business plan.
1. The Problem and Opportunity
When writing a business plan, it's important to focus on both the problem and the opportunity. Identify the current problem (need) and the solution your business is providing.
The problem is what your potential customers are trying to solve. The opportunity is how your business can help them solve it. By focusing on both the problem and the opportunity, you'll be able to create a compelling case for why your business is worth investing in.
Things to consider:
- Who is the customer? What is their problem?
- What's your solution?
- Why is it better than other solutions on the market?
- What’s the market opportunity?
2. Business Model
Your business model is how the business turns an idea into ongoing sales.
A typical example of a business model is “the razor and the razor blade.” Razor companies sell razors inexpensively, because what they really want to sell you are the razor blades now and in the future.
- What's your unique business model?
- What makes it unique? Why are you different from the competition?
- Do you have intellectual property that gives you an advantage?
3. Competitive Market Analysis
Market research is the key to a solid business plan. The market analysis is a detailed look at the industry you're entering and your competition. This section should include information on your target market, growth potential, and industry trends. It should also include an analysis of your competition and how you plan to differentiate your business.
Things to consider:
- Who are your competitors?
- What do they do better than you do?
- How will your business be able to take a piece of its market?
- What is your product's pricing compared to competitors?
4. Sales and Marketing Strategy
The sales and marketing strategy is a detailed plan for how you will reach your target market and generate sales. This section should include your sales goals, pricing strategy, promotional activities, and how you plan to distribute your products or services.
Be specific: design a detailed plan that can be implemented easily and aligns with your budget.
Things to consider:
- How do you plan to market your product or service?
- How will you get the word out and create demand?
- How will you turn a prospect into a customer?
- If that doesn’t work, what else will you try?
5. Operational Strategy
This section outlines how the business will function daily, including everything from the company's organizational structure to its policies and procedures.
The operational strategy should be designed to support a business's overall goals and objectives. It may shift as needed to the company's evolving needs.
Things to consider:
- How will you run this business on a day-to-day basis? Who will do what?
- What operational metrics will you track to ensure the plan works?
- Clearly address business risks and how you will deal with them if they arise. Don’t forget external risks you don’t have control over (interest rates, the economy, etc.).
6. Your Team
Your people can be your most important asset. When writing a business plan, it's important to include a section about your employees. This will give potential investors an idea of how you plan to staff your business and how much it will cost. It also shows them you've thought about the skills and experience your team will need to succeed.
Things to consider:
- Include short bios of your employees and outside advisers to highlight their expertise.
- Add their detailed resumes to the appendix.
- Include an organizational chart.
7. Timeline
A timeline provides a roadmap for the business and can help keep everyone on track. This is a critical component for any business, as it will help to ensure essential milestones are met on time. It's also a valuable tool for raising capital, as investors will want to see how the business is expected to progress over time.
Things to consider:
- Be realistic about how long each milestone might take.
- Build in some flexibility and contingency plans to work around unexpected delays.
- Be specific about when you'll execute the various pieces of the plan. You need this for the financial projections as well.
- Include contingency plans in case certain tasks take longer than expected.
8. Financial Goals and Projections
A business plan includes three to five years of financial projections. If you lack a solid financial background, it’s a good idea to get professional assistance with this part of the plan.
Things to consider:
- Include projected income statements, balance sheets, and cash-flow statements.
- The projections should include expected investor returns and/or clearly show plans to repay loans. Include the money you've put into the business in these calculations.
- The results of the projections should make financial sense with the rest of the plan.
9. Executive Summary
This should be a one-page synopsis of all the above. Write it after solidifying the other elements, but present it at the front of the published plan.
Things to consider:
- Why this business? Why now?
- Why should an investor, including yourself, put time and money into this venture?
- Include key financial highlights.
The Takeaway
Once you’ve learned how to write a business plan, you’ll have a great roadmap to follow as you manage your business, obtain financing or investment, communicate with employees, and continue planning for the future.
But most importantly, what you learn about yourself, your team, your idea, your competition, and your business strategy can help you succeed. It’s one of the best investments of time and effort for a small-business owner.
A version of this article was originally published on April 19, 2011.
Photo: Getty Images
