Writing business plans is like creating the crucial roadmap you draw when starting a business. An unknown author said: “When you fail to plan you plan to fail.” The biggest reason for failing to plan is the perception that one doesn’t have enough time. Unfortunately for those who think that way, they will pay many times later on in terms of time spent for their failure to find time to write business plans.
The best way to show bankers, venture capitalists, and angel investors that you are worthy of financial support is to show them that you have written a great business plan. Make sure that your business plan is clear, focused and realistic. Then show them that you have the tools, talent and team to make it happen. Your written business plan is like your calling card; it will get you in the door where you’ll have to convince investors and loan officers that you can put your plan into action.
Once you have raised the money to start or expand your business, your plan will serve as a road map for your business. It is not a static document that you write once and put away. You will reference it often, making sure you stay focused and on track, and meet milestones. It will change and develop as your business evolves.
Purpose of a Written Business Plan
Writing business plans for your startup business has several purposes in addition to the fact that you are building the road map for every facet of your startup business.
- The planning process for a new business (thinking, exploring, researching and discussing) is a crucial step in starting your own business. A business plan ensures that you actually do the necessary preparation.
- There will be interested parties who are going to want to see your business plan. Among them will be potential partners, providers of equity capital and lenders. You must answer for yourself the difficult questions they will ask. The business plan is your way of doing that.
- A business plan should make obvious any weaknesses you may encounter once you start your business. The act of researching, thinking about, and writing business plans will force you to look at all your facts, your assumptions, and all your projections in a methodological and thorough manner. It’s better to anticipate and plan for these weaknesses before you actually encounter them and are managing the crises.
- You will show your business plan or parts of it to consultants, others in the industry, potential suppliers, and other experts. Your plan can be a basis for further ideas and new options you or they may come up with.
Do you Need to Write Business Plans?
Not everyone who starts and runs a business begins with a business plan, but it certainly helps to have one. If you are seeking funding support from a venture capitalist, you will certainly need a comprehensive business plan that is well thought out and contains sound business reasoning.
If you are approaching a banker for a loan for a start-up business, your loan officer may suggest a Small Business Administration (SBA) loan, which will require a business plan. If you have an existing business and are approaching a bank for capital to expand the business, they often will not require a business plan, but they may look more favorably on your application if you have one.
Back when you were “Evaluating the Potential” on Step 3 of this “How to Start a Business Guide”, on the page entitled Independent, Franchisee, or Associated with a Large Company, you decided whether you wanted your business to be completely independent, a franchisee, or associated with a large company. The decision you made at that point will determine whether you need to write business plans.
- If your business is completely independent, then you need to go through the process of writing business plans. You will benefit greatly from the exercise. If you are going to approach angel investors, bankers or venture capitalists you need to have a professional plan. Find our more from this article.
- If your business is a franchisee, then the franchiser should give you a complete business plan. Your task is to evaluate that business plan. Have your accountant and your attorney review your business plan and any contracts the franchiser wants you to sign.
- If you are associated with a large company, review carefully the business plan provided by the company or your sponsor. Follow the instructions below for a guide to how detailed your plan should be.
The detail of your business plan will vary with the financial commitment and the time commitment you will give to your business. The larger the commitment, the more detailed you will want your plan to be.
The most efficient and effective way to write business plans is to use a business plan template. There are free business plan templates available but they don’t compare to business plan templates you can buy for very little money. The gold standard for business plan templates are those written by a company called Palo Alto Software. They offer two low-cost options depending on the complexity of your business.
Elements of a Business Plan
There is no one fixed way to write a business plan. The nature of the business, its state of development, the need for outside capital and other factors will determine the exact outline of the plan and will also determine how specific the plan must be.
However, there are elements of a plan that are universal:
- Your business concept. This is the concept you came up with in the Small Business Ideas section. Go back to it if you aren’t entirely sure that you have picked well.
- Supply and demand for your product or service. What is the niche you are filling? How large is it? How will your customers find you? What about competition, today and in the future? What is your competitive advantage?
- The management structure you anticipate. Who are the key players? What is their experience in business? What is their experience in the industry? Will you have employees who complement your strengths and make up for your weaknesses?
- The financing for your startup. What is your overhead? What are your fixed costs and your variable costs? Where is your break-even point? What will be your cash burn rate? If these concepts are foreign to you now, you should be an expert by the time the business plan is written.
As you write your business plan, you will rework your plan again and again. Give yourself several weeks to formulate your business plan.
Business Plan Outline
The following outline can be used to write a plan for most small businesses:
I) Executive Summary
C) Keys to Success
II) Company Summary
A) Company Ownership
B) Start-up Summary
C) Company Locations
III) Products or Services
A) Product/Service Description
B) Competitive Comparison
C) Sales Literature
D) Fulfillment and Delivery
E) Technology to Support Sales
F) Future Products/Services
IV) Marketing Plan
A) Market Segmentation
B) Target Market Segment Strategy
C) Target Market Analysis
D) Competition and Buying Patterns
E) Main Competitors
G) Business Participants, Partners, Affiliates
V) Strategy and Implementation Summary
A) Pricing Strategy
B) Sales Strategy and Sales Forecasts
D) Strategic Alliances
VI) Management Summary
A) Organizational Structure
B) Management Team
C) Personnel Plan including Planned Pay Structure
VII) Financial Plan
B) Key Financial Indicators
C) Important Assumptions
D) Starting Costs
E) Break-Even Analysis
F) Projected Profit and Loss
G) Projected Cash Flow
H) Projected Balance Sheet
I) Business Ratios
VIII) Appendices (as appropriate)
Specialized Business Plans
There are a myriad of related plans, projections and forecasts that are appropriate as companies grow. These days there are sophisticated computer programs that serve to:
- Save time
These programs include:
- Financial projection software—Excel templates for comprehensive financial projections (profit and loss statements(P&L), cash flows, balance sheets, ratios and charts) for 3-5-7 years ahead.
- Cashflow forecasting software—Excel templates for projecting cash flows and improving cash management. With rolling 12-month and 12-week forecasts (cash flows plus P&Ls, balance sheets, ratios and charts).
- Business Plan Software—Software for writing comprehensive business plans with optional expert systems to assess strategies prior to drafting the plan.
- Marketing Plan Software—Software for preparing marketing and sales plans and expert tools for determining strategies, penetrating hi-tech markets, setting prices and improving sales conversion rates.
- Strategic Plan Software—Expert software for assessing new business ideas and evaluating and enhancing business and marketing strategies and tactics.
This more sophisticated business software can be purchased from an excellent company with many years of experience, a true leader in the field; visit Palo Alto Software.
Free Sample Business Plans
There are also sophisticated free sample business plans available. You can customize and copy these plans. Read some strategies on getting help for customized plans including where to get free sample business plans.
You Now Know…
A business plan is the crucial roadmap you will follow in creating your business. You now know:
- The purpose of a business plan.
- The need for a written business plan increases as your business is more independent.
- The elements of a business plan. You now have an outline of a business plan.
- Where you can find business plan templates written specifically for your industry.
- Where you can find help in writing a sophisticated business plan.