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You’ve probably noticed that a lot of our articles are geared towards existing small business owners. But what about if you’re in the process of starting your business, or you’re about to take your first steps?
Starting a business is a thrilling adventure — but one that has a lot of “stuff” to navigate in the process. You already know that you have a great idea, the drive to succeed, and the passion to bring your vision to life. But before you dive in, there’s a crucial step you shouldn’t skip — writing a business plan (we know: booooring!). It’s not as fun as making your first sale, hiring your first employee, or hitting your first revenue goal, but a well-thought-out business plan is essential — here’s how to do it without it being (too) boring or, worse, painful.
The Foundation of a Business Plan
Let’s start with the basics: what is a business plan? Well, in short, it’s the roadmap for your business. It’s who you are, why you exist, what your goals are, and how you plan to achieve them. If you plan to raise money for startup costs, it is your ticket for getting in front of the investors, loan officers, or other partners who will decide whether to write you a check or not.
If you want to make the best impression and — especially if you are boot-strapping your startup — giving yourself all the tools you need to stay focused in one place, here’s what you’ll need:
1. Executive Summary:
The multitude of internet “gurus” differ about when you should write this, but they all agree that it should be the first section of your business plan. It’s the ‘elevator pitch’ and overview of your business. It should include your mission statement, products or services, target market and customers, and growth projections. It’s a delicate balance between being thorough but concise, precise but attention-getting.
Whether you write it first and let it guide everything else, or write it last and summarize everything else that will come after it, remember that this section should be able to be read independently of the rest of the document and still add value to the person reading it.
2. Company Description:
This part can be a little boring, but not too much. It’s where you will describe the “structural” foundations of your company: legal structure (e.g. LLC, S or C corporation, sole proprietorship, etc.), your industry, and value proposition (more high-level here than granular or sale pitch-y).
3. Market Research:
We’ve talked about this before and this is one of the places where it really matters. Understanding your market and your customer base is indescribably important to your success. This section is where you’ll summarize your market research, and we recommend attaching the full report as an appendix. The key elements to include in this high level review are those relating to your customers (no brainer), your competition (to show that you know what you’re up against and correlate your value prop to them), trends (got to be able to show you have thought through the near- and long-term business environment), and growth potential (correlated directly to the trends you’ve identified).
Trends and growth potential are the toughest two. How do you know what trends are happening in the marketplace? A lot of it is more intuitive than you might realize. You already have your product or service in mind, so think about why your customers need it. Are existing offerings sub-standard, causing customers to look for better quality? Are customers becoming more cost-conscious and your offering creates a value option for them? What about economic conditions and affordability? What you think about your current situation is likely what others are thinking, too (unless your target customer is dramatically different than you are). Either way, information abounds. If you’re not sure, think about industry information (product and service trends), government data and reports (economic conditions, consumer sentiment, etc.), and internet/social media sources (competitors, general opinions, etc.). You can engage third-party firms to help you conduct market research.
4. Organization and Management:
This one is pretty cut and dry. If it’s more than just you, then you can talk about your organizational structure and introduce your team and their experience. If it’s just you, then a short bio that highlights your experience and skills — think of this one as an elevator pitch for your people.
5. Products or Services:
This is where things start to get meaty (we were going to make this article one giant sandwich pun, but decided against it — you’re welcome). It’s your chance to take a deeper dive into your products and services. What are the features, benefits, and pricing? How did you arrive at that pricing and what are the gross margins you expect? If you’re selling products, what is the product’s lifecycle and will customers replace it at its end of life? (Think about a refrigerator: most last for 5 years and customers will replace them, while a bicycle might last 10+ years and customers should replace them, not all do).
6. Marketing and Sales Strategy:
More meat here, but less excitement. How you market your business is how you will attract your ideal customers. So how are you going to do that? What does your branding look like? What about social media personality (yes, your brand has a “personality” of its own)? Be sure to outline these considerations and include your sales strategy and, if you’re selling physical products, your distribution channel(s).
7. Financial Projections:
If you’re looking for financial backers, this is the section that will be most heavily scrutinized. You have to be thorough and optimistic, but balanced with realism. Unless you’ve already started selling before officially organizing, you’ll need to project income and cash flow for the first 3-5 years. If you’ve already sold, then you should talk about your sales to date and extrapolate what those numbers should (remember to be realistic here) look like when you hit the ground running as an “official” company.
If you’re looking for funding, discuss how much you need, how you plan to use that funding, and the investor’s return on investment (again, be realistic here). Make sure you touch on how much you will need to sell to break-even.
8. Appendices:
This is where you put that supporting information like your market research, product photos, resumes (if you have a team), and other “stuff” (think lease agreements, permits, etc.). The goal here is to have it available while not distracting from the rest of the document.
Revising Your Business Plan: A Must for Existing Business Owners
We’d be remiss if we didn’t point out that a business plan can (and should) be a living document that you revise periodically. What was in your business plan in Year 1 will be totally different than what you would put in for Year 5, or 10, or 20. If you have a “strategic plan” then, guess what: you have a business plan (it’s just got a cooler name).
Updating your “strategic plan” (yep, we’re sticking with the cooler name now) helps you stay abreast of market changes, new opportunities (like new products, markets, and new partnerships), funding or investment changes (think sale, funding, or even an IPO), and refocusing your company based on results realized since the original business plan was drafted. As an example, we revise ours every three years (so we just converted from a business plan to the much cooler strategic plan).
Bringing it all together
Your business plan is more than just a piece of paper (or, rather, several pieces of paper). It’s a guide for your company and where you want to take it. It’s how you set yourself (and your business) up for success.
Not sure where to start? We can help.
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