You’re probably familiar with the famous Benjamin Franklin quote: by failing to prepare, you are preparing to fail. Nowhere is this wisdom more relevant than in the world of entrepreneurship.
Every successful business venture begins with careful planning and strategic foresight. At the heart of this preparation lies the business plan.
A business plan serves as your roadmap. It helps you articulate your vision, define your objectives, and outline the steps needed to achieve them.
However, for many aspiring entrepreneurs, the prospect of writing a business plan can be daunting. What should you include? How do you make your plan compelling enough to attract investors?
This guide will show you everything you need to know about how to write a business plan. By the end, you’ll clearly understand how to develop a business plan that make your brand stand out from competitors.
What Is a Business Plan?
A business plan is a comprehensive document that outlines the goals of a business and the strategies and operations it will use to achieve them.
It typically includes sections on the company’s mission and vision, market analysis, products or services, marketing and sales strategies, organizational structure, and financial projections.
Business plans are popular with entrepreneurs who want to secure funding to start a new business. Investors and lenders want to look at these documents to determine the viability of the idea, potential return on investment, or the borrower’s ability to repay the loan.
Established companies also use business plans to set goals and track progress when launching new products or entering new markets.
How to Write a Business Plan
Before writing a business plan, you must first understand that there are two main types of business plan:
- Traditional business plan,
- Lean business plan.
Let’s take a closer look at the steps involved in creating each business plan type:
Traditional Business Plan
Traditional business plans are often used by entrepreneurs seeking funding from investors or loans from financial institutions. These plans are usually extensive and detailed. They offer a thorough overview of the business, its objectives, and financial forecasts.
Here are the different sections of traditional business plans and how to write them:
1. Executive Summary
This section summarizes the entire business plan. It highlights key points such as the business concept, target market, financial highlights, and goals. Begin with a powerful opening sentence or two that grabs the reader’s attention and clearly states the purpose of your business, then the rest can follow.
2. Company Description
This part provides an overview of your company, including its mission statement, history, legal structure, location, and key milestones. When writing this section, start with a brief introduction of your company, including its name, location, and industry. Next, write your company’s mission statement and offer a brief history of your company.
MORE: Step-by-step guide to writing your vision and mission statements
3. Organization and Management
Here is where you write about your business’s organizational and legal structure (whether it’s a corporation or LLC). Use an organizational chart to show management team roles, profiles, and any advisory boards or partnerships. State their names, titles, and roles, and highlight relevant experience and qualifications that make them valuable contributors to the company.
4. Market Analysis
The market analysis section is where you detail your findings on research conducted on your industry, target market, competitors, and market trends. This section demonstrates your understanding of the market landscape. Profile your ideal customers, divide them into segments, and discuss any barriers to entry, such as regulatory requirements or intellectual property barriers.
5. Products or Services
Describe your products or services in detail. Discuss how it solves a problem or makes life better for your customers. You also have to talk about the pricing strategy, such as whether you’re positioning your offerings as premium, mid-range, or budget options.
Highlight any intellectual property, patents, or proprietary technology that sets your offerings apart. If you’re selling a product, it’s important that you know how your product was produced down to the grassroot. This positions as one that knows your onions and has the potential to break into an existing market.
MORE: How to develop a product
6. Marketing and Sales Strategy
This section explains who your customers are and how you plan to reach them. Conduct market research to identify your target audience’s demographics, preferences, and purchasing behavior. Then, outline the best marketing practices for your new business. Will you use social media, content marketing, email campaigns, or traditional advertising?
7. Financial Projections
Where do you see the business in the next three to five years? Create detailed forecasts for revenue, expenses, and profits over a specific timeline. Break down your projections by month or quarter for the first year and annually for subsequent years. Also, explain the assumptions and methods you used to develop your projections.
8. Funding Request
If you’re seeking funding, specify the amount needed, how it will be used, and the potential returns for investors. Justify your funding request by explaining how it will support your business goals and growth plans. If you have any existing funding sources, you’ll have to mention them and their terms.
9. Appendices
Use this section to provide additional documents or supporting materials, such as resumes of key team members, market research data, or legal documents. Include additional market research, detailed financial spreadsheets, legal documents, or technical specifications.
While a traditional business plan offers a thorough overview of a business, it may not be suitable for businesses in emerging industries or those dealing with changing technology trends and consumer preferences. In these cases, a lean startup approach may be more appropriate.
Lean Business Plan
A lean business plan focuses on the essential elements needed to guide a business toward success. Unlike traditional business plans, which can be lengthy and detailed, lean business plans are concise and dynamic. It’s best for startups and entrepreneurs operating in fast-paced and uncertain environments.
Here’s how to make a business plan with the lean format:
1. Problem
Describe the problems or pain points that your target customers encounter in their daily lives or business operations. Explain how these problems impact your target customers’ lives or businesses and support your assertions with market research data or industry reports.
2. Customer Segments
List the different groups of customers or market segments you intend to target with your product or service. Your customer segments could include demographic, geographic, psychographic, or behavioral characteristics. Describe the needs and pain points of each customer segment and how your offering addresses them.
3. Unique Value Proposition
This section is where you state the unique value your product or service provides to customers and why it’s better than alternatives in the market. What benefits or outcomes will customers experience by using your product or service?
4. Key Metrics
Define the key performance indicators that you’ll use to measure the success and progress of your business. These metrics should be aligned with your strategic goals and objectives. Popular key metrics include customer acquisition cost, customer lifetime value, conversion rates, and monthly recurring revenue.
5. Channels
Describe how you will communicate and engage customers throughout their journey with your business. Your channels may include direct sales, online marketing, retail partnerships, or distribution networks.
6. Cost Structure
Make a list of all the costs associated with operating your business and delivering your product or service. Break down your cost structure into categories such as production costs, marketing expenses, personnel costs, and overhead.
7. Revenue Streams
Explain how the business makes money. Your revenue streams may include one-time sales, recurring subscriptions, or licensing fees. Explain which pricing model you plan to use and the expected revenue streams from each sales channel.
Business Plan Templates
A business plan template is a document that streamlines the process of creating a business plan. It simplifies the process by providing predefined sections for entering essential information. With predefined business plan outlines, the template takes care of the organization and structure of the document, so all you have to do is fill in the blanks.
The most straightforward business plan templates are usually in Microsoft Word or Google Docs format. However, these templates cannot handle mathematical inputs. So you may need Excel or Google Sheets templates to create financial projections and budgets within the business plan.
Starting with a template can save time and ensure you cover all aspects of the business plan. It also helps maintain consistency and clarity in the business plan.
Why Do Business Plans Matter?
We interviewed Sabrina Parsons, CEO of Palo Alto Software – the maker of LivePlan about her thoughts on why business plans matter. She said: ” The benefit of writing a business plan is not the document you end up with, but the ideas and knowledge about your business that you generate through the process.
Parsons continues “The planning process helps you focus on a winning business strategy, a marketing plan that will bring customers in the door, and a detailed understanding of your customers. The document is just a byproduct of the process. The knowledge that you gain is what’s truly valuable. “
Here are some other reasons why business plans matter:
1. Clarity and direction
They provide a roadmap for the business. With a clear understanding of the business objectives, strategies, and action plans, the business can stay focused and on track toward its goals.
2. Communication
Business plans convey the business idea, market analysis, financial projections, and other key information to investors, lenders, partners, and employees.
3. Decision making
When you have a clear understanding of what lies ahead, you can make the right decisions, allocate resources effectively, and
4. Attracting investment
A well-written business plan can attract investors by demonstrating the viability and potential of the business idea, as well as outlining the expected return on investment.
5. Risk management
Business plans often state potential risks and challenges, so businesses can develop strategies for mitigating those risks and improving the chances of success.
Tips for Creating a Business Plan
Here are some best practices to guide you on how to create a business plan that works:
1. Start with research
Conduct thorough research on your industry, target market, competitors, financial forecast, and potential challenges. Understanding the market landscape will help you create better strategies and projections.
According to Parsons, “Make sure you invest the time to create a detailed financial forecast so you have a solid understanding of how your business works. Without a forecast, you won’t know what it takes to become profitable and how much cash you’ll need to get the business going and keep it alive through the early stages.”
2. Follow a structure
Use a standard business plan format. All the necessary sections should be included. Using a business plan template will help you keep things organized.
3. Be concise and clear
Keep your writing concise and to the point. Avoid jargon and overly technical language. Keep unnecessary details out and focus on providing relevant information. Use charts and graphs to illustrate key points and make the plan easier to understand.
4. Include supporting evidence
Back up your claims and assertions with data, research findings, or case studies. These pieces of evidence give more credibility to your claims.
5. Be realistic
Base your assumptions and projections on thorough research and realistic assessments of market conditions, competition, and your own capabilities.
6. Seek feedback
Get feedback from trusted advisors, mentors, or peers. They can offer valuable insights and help identify blind spots in your plan.
Common Business Plan Mistakes
Making a business plan is a delicate process. Here are some mistakes to avoid:
1. Insufficient market research
Without thorough market research, businesses will miss important insights. This problem can lead to misguided strategies, ineffective marketing efforts, and missed opportunities for growth
2. Lack of clarity
Unclear or vague language can confuse stakeholders or make them misinterpret information. It can kill their confidence in the business’s leadership and potential to succeed.
According to Sabrina Parsons, CEO of Palo Alto Software that created LivePlan “Businesses who say that “everyone” wants to buy their product or service. Successful businesses usually have narrow target markets – at least to start. Imagine starting a shoe company and saying that your target market is “everyone” because everyone has feet. This just isn’t realistic. Instead, focus on a specific target market to start and then grow from there.”
3. Ignoring the competition
Underestimating or overlooking competitors can be detrimental. When you don’t understand your competitors, you’ll find it hard to develop effective strategies to differentiate your business and capture market share.
Parsons continues: “Too many businesses say that they have no competition. This is never true. Every business has competition, it just might be indirect competition. “
4. Unrealistic financial projections
Overestimating revenue or underestimating expenses can mislead stakeholders about the business’s potential profitability and growth prospects.
5. Incomplete operational plan
Failing to explain how your business will operate on a day-to-day basis can leave readers wondering about your ability to execute your strategy.
6. Overlooking legal and regulatory considerations
Don’t forget to address legal and regulatory requirements relevant to your industry. Otherwise, it can lead to compliance issues down the line.
How to Update a Business Plan
The business landscape won’t remain the same forever. As new technologies, market trends, and regulatory changes transform your industry, you must update your business plan to ensure that it remains relevant and aligned with the current business environment.
Here’s how to update a business plan effectively:
1. Review the current plan
Go through your business plan carefully to see if the information accurately reflects your current business situation and strategies. Take note of any areas where your business has evolved or changed since the plan was created and determine if adjustments are needed to reflect these changes.
2. Assess changes in the market
Do a thorough research to uncover recent developments in your industry and target market. Are there any emerging opportunities or threats in the market that could affect your business’s growth prospects or competitive position?
3. Evaluate business performance
Check your key performance indicators to see how your business is doing. Compare your actual results to the projections and milestones set out in the plan. Consider any factors that may have influenced your business’s performance. Then use this insight to identify areas requiring adjustments.
4. Update financial projections
Revise your financial projections based on actual performance data and updated market assumptions. Adjust revenue forecasts, expense estimates, and cash flow projections accordingly.
5. Revisit strategic priorities
Schedule strategic planning sessions with your leadership team or key stakeholders to revisit your business’s strategic priorities. Determine if you need to make any improvements to your business model, product offerings, pricing strategy, or distribution channels.
6. Update operational plans
Revise your operational plans to reflect any changes in staffing, production processes, supply chain management, or technology infrastructure. Make sure that your operational capabilities align with your strategic objectives.
7. Update marketing and sales strategies
Adjust your marketing and sales strategies based on changes in consumer behavior, competitive dynamics, and market trends. Brainstorm new tactics and channels to reach your target audience effectively.
8. Communicate updates to stakeholders
Once you’ve updated your business plan, communicate the changes to relevant stakeholders, including employees, investors, lenders, and partners. Explain reasons for the updates and encourage feedback on the new changes.
Takeaway Points
Having understood the benefits of using a business, you can’t afford not to create one. It can be the key to getting all the funding you need to bring your ideas to life. It also serves as a roadmap for your business journey, guiding you through the various stages of planning, execution, and growth.
Creating a business plan may seem daunting especially if it’s your first time. But you can get it done faster and easier with a business plan template. Take your time, research properly, and come up with a plan that compels investors to bet their money on you.