Starting a business is an exciting yet often equally overwhelming undertaking.
After the initial thrill of having that brilliant business concept or idea pop into your head, your next question is likely to be: Now what?
Developing a business plan is the logical next step. Business plans breathe life into your idea, turning it into a solid action guide.
Never written a business plan before? Don’t worry. We’ve got you covered.
Let’s go over what a business plan is, why you need one and how to go about writing it.
Business plans 101: Understanding the basics
A business plan is a document that defines your business objectives and charts a course for achieving those objectives.
At its core, a business plan is a formal, well-written document that lays out the what, when, where, how and why of your business. Think of it as a roadmap for your business journey. It describes the current state of your company, outlines your objectives and maps out a strategy to achieve those objectives.
There are two general types of business plans: traditional and lean startup business plans.
This is the most common type of business plan. It is exceptionally detailed, covering almost every aspect of the business. As a result, it typically requires more time and effort to prepare and can span multiple pages.
The comprehensive nature of the traditional business plan also means it’s the type most lenders or investors request when deciding whether to invest or lend you capital.
This type of plan is less formal and detailed than the traditional version. It shuns excessive details in favor of highlighting the key components of the business — like its value proposition, target market and customers, core infrastructure and finances. A lean business plan is quick to prepare and can be as brief as a single page.
It’s the preferred type of plan when the business is relatively simple or when the plan is still being developed.
Business plans serve several useful purposes. Let’s take a look at each of them in greater detail below.
Imagine setting off on a cross-country adventure without a map or GPS. The journey would be riddled with uncertainty and missteps. That’s what it’s like to start a business without a plan.
A business plan helps guide your company’s strategic direction. Firstly, it clarifies your mission and vision, which together determine the overarching direction. Then, the business plan describes the specific business goals and objectives you hope to achieve and the strategies for doing so.
By charting out these specifics, the business plan acts as a continuous reference point for guiding your strategy. When faced with decisions, dilemmas or opportunities, you and other team members can refer back to this “map” to remind yourself of your core objectives and thus align your actions with them.
Starting and maintaining a successful business requires capital. Sadly, securing funding is one of the main hurdles that aspiring entrepreneurs and new business owners face.
Whether it’s banks, venture capitalists or individual investors you’re approaching, they’ll want assurance that your business is a sound investment before they part with their cash.
A well-crafted business plan provides this assurance. It demonstrates you have a clear vision, have done the necessary market research and have strategies in place to overcome any potential challenges.
In essence, a business plan provides a tangible measure of your business’s viability and potential for success. It instills confidence among lenders or investors that backing you is a wise decision.
A business plan also serves as a performance monitoring and evaluation tool.
By defining clear milestones, key performance indicators (KPIs) and targets, you can use your plan to help gauge the health and progress of your business. Regularly comparing actual performance against these predefined metrics allows for timely interventions, course corrections and strategic pivots.
Finally, a business plan also functions as a risk mitigation tool. The very process of crafting a business plan requires you to think critically, not just about the opportunities that lie ahead, but also about the risks and pitfalls.
Identifying these risks in advance gives you more time to prepare for them, ensuring you’re not blindsided later on.
How to make a business plan
Having defined what a business plan is, its purpose and the main types, it’s time to learn how to create one.
The executive summary is the first part of a business plan, providing a one- to two-page overview of your entire plan.
It’s arguably the most vital part of the document, as it’s the only one that almost every reader is likely to read. If it fails to captivate the reader, they might not proceed further.
Some of the main components to include in your executive summary are:
- Mission statement
- Value proposition
- Product and service description
- Market description
- Marketing plan
- Key company members
- Financial plans and forecasts
- Investment or capital needed
You’ll delve deeper into the above components in later sections of your plan, so only highlight the most crucial points for each. Ideally, your summary should be concise enough that one can read the entire thing in less than five minutes.
Pro tip: Although it’s the first section of your business plan, write the executive summary last, as you’ll have a better idea of your plan’s major takeaways after fleshing out the rest of the document. Remember, it’s about condensing the other parts of your plan into a summary, not expanding the summary to fill the plan.
The company description section introduces your business in detail, clarifying its purpose, mission and unique edge. It tells the audience what your company is and what it does.
Start with the basics, like your company’s registered name and location. You can also include a short history and background, like when and how it was founded.
Next, describe what your company plans to do, with emphasis on the problems you plan to solve. For example, are you filling a glaring market gap by creating and selling a new product or are you improving on existing solutions?
Then introduce and define your target audience. Who are your ideal customers? Paint a clear picture of who they are and how they’ll benefit from your offerings.
Finally, briefly touch on your business’s competitive advantage. What’s the one main thing that separates your entity from others in the market?
This is where you explain how your organization will be structured and who’ll be involved in running it.
Start by describing the company’s legal structure. For example, will it be a sole proprietorship, corporation or limited liability company? Explain the reasoning for your choice.
After that, describe the internal organization structure. A visual, like an organizational chart, can be particularly effective here, providing a clear snapshot of the hierarchy, departmental divisions and reporting relationships.
Next, spotlight key managers and executives who’ll be involved in the day-to-day running of your business.
What will their roles and responsibilities be? Briefly narrate their professional journey, highlighting the work they’ve done in the past that makes them apt for your venture. If they have received any accolades, awards or achievements, you can mention them here.
This portion of your business plan is dedicated to a thorough examination of your products and services. The key items to capture here are:
Unique attributes or features: What are the core attributes of your products or services? What differentiates them from those of the competition? If there are any intellectual property protections for your products, like copyrights, trademarks, or patents, this is the place to mention them.
Benefits: This is where you bridge the gap between what your products are and why they matter. What needs do they fulfill or problems do they solve? How do they improve the target customer’s life or business? What value do they add?
Pricing strategy: Discuss the pricing model you plan to use — e.g., cost-plus, value-based or competitive. Explain why that particular model is the best choice for your products or services.
Other elements you can also include in the products and services section of your plan are the production or manufacturing process and the product life cycle.
A comprehensive understanding of the market you’re venturing into is crucial for success. The market analysis part of your business plan should provide a comprehensive overview of the market you’re entering and how your business fits into it.
Begin by defining the market you intend to serve. What is its current size in terms of volume and value? To substantiate your claims, provide concrete data and stats collected from credible industry sources.
Don’t stop at size — dive into the market’s character. Analyze the key themes and trends.
For example, is the market growing, stagnating or shrinking? What are the dominant customer behaviors or purchasing trends in it? What are the main challenges that businesses in this market face and that you might face too?
Next, describe the key players in the market, i.e., your competitors. Dissect their operations to identify strengths and weaknesses. Where do they excel and where are they lacking?
After reporting on your competition, bring the focus back to your business. What can you do differently or better? Perhaps you’ve identified a niche that competitors have overlooked. Maybe your products offer superior functionality or your business model is more sustainable.
Whatever it is, mention and explain it. In essence, expand the competitive advantage you mentioned in the “company description” part of your plan.
When you’re done, use a SWOT analysis (Strengths, Weaknesses, Opportunities and Threats) chart to summarize your findings.
Success in business hinges on more than just having a great product or service. It’s also about making sure that people are actually aware of the product and service and can easily get their hands on it.
The marketing and sales strategy part of your business plan is where you explain how your products and services will reach potential customers and how you’ll convince them to buy them.
Begin by describing your sales process, that is, the route your products will take to reach end users. For example, will customers buy directly from your website or eCommerce platform, through third-party retailers or face-to-face in a brick-and-mortar setting? Justify your choices.
Next, describe your marketing strategy — that is, the marketing channels you plan to use to promote your brand and products.
Are you going to focus on digital marketing methods like social media marketing, search engine optimization (SEO) and email marketing or will you use traditional methods like TV and radio? Again, provide a rationale for your choices, explaining why your selected marketing methods are ideal for your products and audience.
In this section of your business plan, explain your customer loyalty and retention strategies too. Discuss loyalty programs, feedback mechanisms, after-sales support and any other initiatives you plan to use to make customers stick with your brand and keep coming back for more. After all, it costs more to acquire than retain customers.
The financial projection section is where your business plan goes from theory to math.
Highlight key financial milestones that your business aims to achieve, including revenue expenses and profits for the next 3–5 years. You can break down your forecasts into monthly or quarterly segments for the first year, then annually for subsequent years.
To ensure accuracy and credibility, base your projections on thorough market research, historical data and realistic assumptions. Take advantage of the various market research resources available to you, like Google Trends, Statista and the Bureau of Labor Statistics.
If yours is an existing business, provide financial statements like income statements, balance sheets and cash flow statements from the past one or two years to back up your projections.
This section of the business plan is where you make your case for the financial support that’ll help launch or expand your enterprise. Describe explicitly the amount you need.
Important note: It’s not enough to simply state a figure; you must also justify this amount with clear reasoning and calculations. How did you arrive at this number, and why is that specific number essential for your business’s success?
Also, detail the time frame for your funding requirements. For example, is it a one-time infusion of capital, or do you envision a series of investments spread over a defined period? When do you need the funds, i.e., is there a deadline?
Present a comprehensive breakdown of how you intend to use the cash. For example, will funds be used to procure raw materials essential for production? Are they for buying equipment and machinery or covering operation costs like bills, rent and salaries?
If the money will go towards different segments of your business, state how much each will receive.
Finish off your business plan with an appendix. Use this section to provide any other relevant information or materials that weren’t included in the preceding sections but that you feel are important for a more holistic understanding of your business. You can also add any special information requested by lenders or investors here.
Items you can include are licenses, permits, bank statements, business (or personal) credit history and key employee resumes.
Here are some common mistakes that entrepreneurs and small business owners make when writing business plans that you should avoid.
Missing critical information: Omitting critical sections or details can leave potential investors with unanswered questions, damaging your chances of getting the funding you need.
Poor presentation: Typos, grammar errors and lackluster formatting can detract from the core message in your business plan and make you look unprofessional, negligent or simply unprepared.
Unrealistic projections: Overly optimistic financial forecasts can raise red flags for investors and lenders. Ensure your projections or assumptions are based on solid research to inspire trust.
Omission of key risks: Every business venture has risks. Ignoring or glossing over them is another red flag for investors. Addressing them head-on in your business plan demonstrates transparency but also shows that you’re prepared to handle them.
Weak market research or competitive analysis: A business plan lacking robust market data or a clear understanding of competitors is unlikely to convince stakeholders of your business’s viability. Take the time to conduct thorough market research and competitive analysis.
Developing a business plan is an important step on the road to starting a business. It serves as a bridge between your business idea or vision and the concrete actions required to turn it into reality. Hopefully, this guide has given you the necessary tools and tips to craft a winning business plan.
The next logical step after preparing your business plan is creating a website. In the current digital age, a professional online presence is crucial for reaching a wider audience, showcasing your products and establishing credibility.
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With the right business plan and a dynamic website from Bluehost to match, you’ll be well on your way to making a significant mark in the business world.
How to write a business plan: FAQs
The time required to write a business plan varies based on your business’s complexity and the research involved. For a standard small business, it takes anywhere from several days to a few weeks. For larger, more complex businesses, it can take months. Invest as much time as necessary to ensure accuracy and thoroughness.
You can absolutely write your own business plan — in fact, many small business owners and entrepreneurs do. There are a myriad of tools, resources and templates out there that can help make things easier. That said, seeking feedback or consulting with professionals for certain sections, like financial projections, can help enhance the accuracy and overall quality of your plan.
If you’re looking for external funding, then yes, a business plan is necessary. If you’re funding the venture yourself, a business plan is not mandatory, but it’s still highly recommended. Ultimately, your business plan serves as a roadmap guiding operational and strategic decisions and can be instrumental in driving success.