Approximately 70% of entrepreneurs who have been there recommend having a business plan before starting a business. Having a business plan backs the old cliche that states, “Failure to plan are planning to fail” No business will be successful without a solid business plan.
A good business plan will help you clarify your strategies, identify potential roadblocks and understand what you need in terms of resources. It also enables you to evaluate the viability and growth of your business before starting it.
What is a business plan?
A business plan is a document describing your business, the products and the services it sells, how it will earn money, staffing, and its operation model. It is a comprehensive roadmap explaining your business and marketing strategy, competitors, and how you will build and grow it. A business plan can include your financial forecast, expense budgets, and cash flow predictions.
Note that a business plan is not just a document to write when starting your business and forget about it later. Instead, it is supposed to guide you into achieving your business’s goals and objectives.
Types of business Plans
There are three primary types of business plans. These are:
Traditional business plan
Traditional business plans are the most common and comprise seven elements; a title page, executive summary, business description, marketing strategies, management and personnel, financial documents, a competitive analysis page, a design and development plan, and an operations and management plan. Lending companies and venture capitalists ask for this plan.
Lean business plan
A lean business plan is a shorter version of the traditional business plan because it has a similar format but only includes important information. Most businesses use this plan when onboarding new employees or modifying an existing plan for a specific target market.
Nonprofit
A nonprofit business plan is for entities that operate for social or public benefit. It comprises a traditional business plan and an additional section on the impact the company intends to make. Donors mostly request this business plan.
Benefits of writing a business plan
If you are planning to start a business or pitch your ideas to investors or venture capitalists, having a business plan will improve your chances for success. Below are some compelling reasons why you should invest in a business plan.
Strategic planning
Writing a business plan will help you understand the scope of your business, and the time, resources, and money required to start the business. If you have multiple ideas, a business plan will help you settle on the one with the higher chances for success.
Requirement by lenders and investors
If you are starting a business or growing an existing one, you may require funding from investors or take a business loan. Most lenders and investors will request a business plan before trusting you with their money. However, some may not require the actual document but will ask questions that only a solid business plan can answer.
Partnerships
If you are looking forward to working with other businesses, having a clear overview of your vision, audiences, and business strategy will make it easy for them to identify whether you are a viable partner, especially when they are ahead of you in the growth trajectory.
Helps you grow faster
Research on business planning indicates that organizations that take their time to write a business plan and review it regularly grow 30% faster than those that do not. They also perform better and are less likely to fail.
Recruiting
A business plan makes it easy for you to communicate your vision to potential employees. It also helps them build their confidence in the business, especially if they are joining in its early stages.
Step-by-step guide on how to write a business plan
Now that you understand the types and importance of creating a business plan, it is time to create one. The following is a step-by-step guide that will help you create a good business plan for your business.
Draft an executive summary.
An executive summary is an overview of your business and plans. It comes at the beginning o your business plan and takes one or two pages.
Your executive summary should include the following:
- A business concept. What does your business do?
- Goals and Vision. What does your business want to achieve?
- Product description. What products or services do you sell?
- Target market. Who do you/ who are you planning o sell to?
- Marketing strategy. What is your plan for reaching customers?
- Finances. What is your current revenue?
- The ask. How much money do you want?
- The team. What are the parties involved in the business?
Business description
A good business description describes the industry, its current outlook, and future possibilities. You should also add information on the various markets in the industry, including new products and developments and their impact on your business.
Some of the other components to include in your business description include:
- Your business structure
- Business model
- Mission, vision, and values
- Business History
- Long-term and short-term objectives
- Your team, key personnel, and their salaries
Market analysis
A market analysis ensures you are familiar with market aspects and defines the target market ensuring your business positions itself rightfully. Choosing the right market for your products is a headstart for your success, while choosing the wrong market or the right market at the wrong time may make you struggle to make sales.
Competitive analysis
The competitive analysis begins by identifying others currently part of the market you are about to enter. Learning about your competitors can be overwhelming, but the information is beneficial.
After identifying your competitors, ensure you have answered the following questions:
- What are their sales and pricing strategies?
- Where do they advertise most?
- What is their rank on third-party ranking platforms?
- How is their customer service?
The competitive analysis will help you determine your competitor’s strengths and weaknesses to help you develop distinct strategies that will give you an advantage over them.
Design and development plan
A design and development plan will provide your investors with a product design description and its development chart in the context of production and marketing. When describing the products, focus on their unique features, practical payoffs to customers, and patents that protect them from differentiation.
For the production process, explain how you will:
- Source raw materials
- Maintain quality control
- Assemble them through manufacturing
- Manage your daily operations like bookkeeping
Operations and management plan
The operations and management plan will explain how the business will function continuously. It should highlight the organization’s logistics, including the responsibilities of the management team, tasks assigned to different departments in the organization, and capital and expenses incurred during the operation of the business.
Financial factors
You must indicate your business’s previous performance and future prediction if you are requesting funding. Investors want to put their money into a viable business; therefore, you must paint stability in the company.
If your business is new, be clear and realistic with your predictions. This will require you to research business norms and how comparable companies have performed. Project your vision for at least five years when creating your financial outlook. State the logic behind your predictions and tie this to the section on raising capital, where applicable.
Bottom line
Having a business plan is crucial for the growth of your business. It helps give direction, motivate employees, and mitigate risk and is a requirement by lenders and investors. Before you run your business, consider creating a business plan following the steps above.