How to Write a Small Business Plan
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Why Write a Business Plan?
A business plan is like a business swiss-army knife. It’s a multi-tool that makes a business much more attractive to its readers while also serving as a reference guide for most of your management needs.
If you put enough time into the research and planning, your business plan can guide you to success both internally and externally.
What Should Your Business Plan do?
At the bare minimum, your business plan should prove that your company will be profitable and that your product makes sense. Potential investors or lenders will often require you submit a business plan as part of their decision-making process.
As such, most businesses will create business plans solely for that purpose. That doesn’t mean you can’t or shouldn’t go above and beyond and utilize the time spent drafting it out to also:
- Provide an objective overview of your business and where it fits in the current market.
- Define the company’s purpose and vision.
- Guide the business through its early years with sales and marketing strategies.
- Outline the company’s internal structure.
- Explain the basics of the company’s logistics.
In order to create an effective summary of all of these factors, you need to know your business inside and out. Having a deep understanding help make it worthwhile beyond just the initial need to prove your business status to investors.
- While there’s no set format for business plans, most will include:
- Company Description
- Products and Services
- Business Goals and Objectives
- Market Analysis
- Marketing and Sales Strategy
- Organization and Management Plan
- Financial Projections
Writing an Executive Summary
An Executive Summary should summarize the key information of the entire business plan in one to two pages. A good Summary outlines the company’s objectives, provides a brief market overview, details the company’s products and services, and projects future growth.
While this may seem like a lot for two pages, remember that this is a summary. You just need to touch on the basics of each concept to let the reader know what they’re getting into before they read the rest. That means presenting the information in an easily digestible manner so that someone reading it can absorb everything they need to know without having industry experience.
It’s also important to keep it objective. A hyped-up Summary won’t convince anyone that your business model is successful and will only detract from the quality of the report.
Writing a Company Description
Ultimately, the Company Description provides a broad overview of what the company does and how it does it.
It helps to imagine that you’re explaining your business to someone at a party. They don’t need to know the nitty gritty, industry specific details; however, it’d be helpful to know where you intend to set up your business, who you’re selling to, and what you need to be successful.
If you’re still struggling describing it, it may be helpful to take a step back and focus on the very fundamentals of your business:
- What are you selling?
- Who are you selling to?
- Where will you sell it?
- What makes your business unique?
Answering these questions will give you most of the information needed to write an excellent Company Description. If you struggle to answer any of these, then you may have more pressing issues at hand than writing a business plan.
Your Products/Services section is your opportunity to nerd out about what your product or service is and why it’s marketable. This section should be less about how your product or service works on mechanical level, and more about how it will be successful.
For example, if you have a product or service that is nearly identical to the most popular comparable product or service, then this section probably shouldn’t focus on its features alone. Instead, it’d be better to focus on its peripheral benefits like if you have a more convenient business location than your competitors, or faster shipping, or better customer service, etc.
Customers find value in products and services for reasons beyond the intrinsic features. While it may not seem like it, those external values are a part of your product or service and should be marketed as such.
Defining Business Goals or Objectives
Every company needs a motive for operating beyond just making money. There needs to be a specific goal or goals that differentiate the company – if for no other reason than to inspire investors, lenders, and potential employees to believe in your company. People want to see that you’re motivated beyond income and have thought through your company’s future enough to give it a guiding goal.
Now it’s also important to not fall under the assumption that this means your Business Goals section should reach for the stars. Not every business needs to aim to grow to insane heights. It just needs to include well written goals that make sense for your industry.
A great way to set goals is by following the SMART model:
- Specific – what exactly you’re trying to achieve. Typically involves numbers.
- Measurable – there needs to be a way to measure success. Something like “become a popular business” isn’t measurable. Instead, something like “reach 1,000 followers on Facebook” is much more appropriate.
- Achievable – Pretty straightforward. Is this goal achievable within the timeframe you’ve established? How do you know this?
- Realistic – Similar to the “achievable” part of the acronym, your goals must be realistic. Do they consider outside factors? Are these goals consistent with your direction? Do any of them clash with each other?
- Timely – Give these goals an end date, even if you don’t want to include them in the business plan as to not date it.
A business goal that follows the SMART model would look like this:
Reach 70% of the industry market share in our city by the end of Q4.
Making a Market Analysis
The Market Analysis is the place to show you’ve done your research. It’s where you tell the reader everything they need to know about the market, where your business fits in that market, and what the opportunities are.
One of the most useful techniques for market research is framing it around a SWOT analysis. A SWOT analysis defines where a business fits in its market by identifying positive and negative factors that influence your business from internal or external forces.
- Strengths – What your business does well.
- Weaknesses – What it doesn’t.
- Opportunities – What external factors may be positive for your business.
- Threats – What external factors may negatively influence your business.
An example would look like:
Strengths: Our product is 15% cheaper than our competitors’ for the same level of quality.
Weaknesses: We don’t have enough inventory to meet customer demands. To cover this, we’ll offer customers an incentive to return unused inventory so that we can refurbish it and resell it.
Opportunities: The market is expected to grow nearly 14% in the next 3 years.
Threats: Our products require a specific mineral that can only be found in one region of the world.
With the information you’ve discovered while building your SWOT analysis, you can reliably answer these primary questions in your Market Analysis:
- How does your business fit in the larger scope of its market?
- Where can you expect your market to grow or shrink?
- How big is the market?
- What segment of your market do you intend on targeting?
- If your Market Analysis answers all the above questions thoroughly, you should be in a good place.
Creating a Marketing and Sales Strategy
While you can create your Marketing and Sales Strategy at any point, it’s a lot easier once you’ve done your market research. The most important thing to know before getting started is who your audience is. One of the most reliable ways to do that is by building your audience profiles. Once you’ve created these profiles, you can start planning how you’ll reach them.
How much detail you include in your Marketing and Sales Strategy depends on your product and audience. If your product is far superior than your competitors or one of a kind, you’ll likely not need to put much of an emphasis on marketing.
Regardless of how much you’ll need to plan, your strategy section should at least include:
- Your audience profiles.
- Where your audience is spending their time.
- What channels you’ll use to reach your audience.
- Your marketing and sales budget and how much you can realistically spend on content strategy, advertising, etc.
Designing your Organization and Management Plan
Luckily, you’ve already put in most of the work in creating an Organization and Management Plan before writing a business plan as its often the first step in creating a business.
This section should provide a high-level overview of how your business will be structured and how it will operate. That includes:
- Designating responsibilities on an individual or department level.
- Outlining your initial staffing needs.
- Detailing your supply and production logistics such as shipping, manufacturing, raw materials, and product distribution.
- Building logistics such as building size, taxes, power, parking, and interior and exterior designs.
- Legal logistics such as required licenses, insurance, trademarks, and regulations.
- Inventory logistics such as inventory management, delivery, facility and product maintenance, and sales.
- Having a detailed plan will help keep your business afloat and running smoothly and shows potential readers that your business is well organized and has a smooth supply chain.
Creating a Financial Projection
Perhaps one of the most important and most difficult aspects of planning your business is creating a solid financial projection. Your company’s financial success will influence your readers’ trust above all other sections in your business plan.
Most Business Plans include three to five reports in their Financial Projection:
- Income statement – a report of your projected revenue and expenses.
- Balance sheet – your company’s available cash which includes the value of its assets, earnings saved, and liabilities.
- Cash flow statement – how your company will receive and make payments.
- Operating budget – a detailed list of your company’s income and expenses.
- Break-even analysis – the amount of revenue required to cover all business expenses.
You can find plenty of templates online that can run these reports in a spreadsheet with the most common software such as Google Sheets and Excel. But no matter how good the math is, inaccurate estimates will still create inaccurate results.
While you can’t always know every single detail available, you can create multiple reports that cover conservative and liberal estimates.