How to Write a Business Plan, For Small Business
Learn how to write a business plan. It’s important. Having a working business plan in place is a top indicator of a new business’ future success. We’ll walk you through all the steps, clear up the confusing jargon, and set you on a clear path to putting a great business plan in place for your small business.
Table of Contents
What is a Business Plan and Why Do You Need One?
A business plan is a living document that gives shape to your business’ origins and it’s future. It will help keep you accountable to your goals and clarify your business’ potential to lenders and investors.
Forming an LLC is easy. The hard part of starting a business is the strategic planning and systems you’ll need to set in place to make your LLC successful. This is what no one will tell you, or explain how to do well. And this is what we want to help you with.
Start by learning how to write a business plan. We’ll show you how.
Why Do You Need to Learn How to Write a Business Plan?
When you start a business, it’s like going into battle. The unexpected is guaranteed. Sure, your plan will likely require adaptation. But don’t think that doesn’t mean you don’t need a plan going in. A good business plan is going to be your guiding light when you’re mired in the fog of your first year and not sure which way is up.
First, let’s get to know the purpose of a business plan.
The Two Purposes of a Business Plan
A business plan serves two purposes.
- To attract investors and lenders
This is what people typically think of when they think of a business plan. If you are applying for a loan, a grant, or for startup money, the first thing a professional will want to see is your business plan. - To focus and guide Your decisions
The most important purpose that a business plan serves for most small businesses is to help you, the business owner, clarify and organize all of your plans.
Writing a business plan can help you understand your own business better. It can help you identify weak points in your strategy. Many of us started our first business without going through this crucial step and have lived to regret it.
Much of the information need for your business plan is probably already floating around in your head, but a business plan will help you organize those thoughts. Your business plan will force you to reckon with difficult subjects that you may have been avoiding dealing with until now.
Business Plan Executive Summary
An executive summary takes all of the most important information in your business plan and puts it right up top. Write it at the beginning of the process, and then go back and write it again at the end. If you’ve done things right, there’s a good chance your ideas about it will change.
The executive summary will be the most read portion of your business plan. A good one can entice an investor to read on, and a bad one get get your business set aside.
Identifying The Opportunity
Every business big or small must solve a problem that exists in the market. This is a universal truth. Your business does not have to involve an invention for this to matter. Perhaps you are starting a contracting firm that will be meeting a high demand market. Here are some problems a business might solve:
- Meeting a demand surplus in the market.
- Finding a specific niche that has not been satisfied in the market.
- Improving on an existing product/service by making it faster/cheaper/better.
- Solving a problem the market didn’t know existed by introducing a completely
novel product or service.
Capitalizing on the Opportunity
Whichever of these problems your business solves, name it. Describe in detail how your business will solve this problem and how that solution will translate into revenue.
Product or Service Description
Describe your product or service. What are it’s specific strengths and how will it appeal to your target audience. What gives your product/service an edge in the market?
Marketing and Sales
Dedicate 7-10% of your revenue to marketing. It pays long-term dividends. You might be entering a market that appears to have an unlimited demand right now, but business cycles turn, and when they do, the people just bopping along counting on high-demand to replace marketing investment will be left out in the cold.
If it seems like a lot, that’s because it is. But don’t worry about getting it all perfect the first time. This has hopefully got your gears turning for the next sections. And remember, you’ll come back to the executive summary when you’re done and refine it.
Company Description
In detail, describe exactly what your company does and why it will succeed in the market.
Describe your company strengths. What separates your company from the pack? What is it about your company that will help it succeed? Describe your business’ short and long term goals.
- Company Name: The legal name of your company.
- Vision/Mission Statement: This should be one or two sentences that sum up what your business is about and what it hopes to achieve.
- Goals: This should cover both short and long-term goals.
- Business Legal Structure: Sole Proprietorship, LLC, Corporation, Partnership.
- Ownership/Management Structure: List the owners of the company and any key management figures. What will their titles and basic responsibilities be?
- Business Location: Where is your company located and what is the scope of its geographical coverage. Is this location a benefit or a challenge to your business.
- Company Story and Owner Bio: How did you arrive at this particular business. Do you have a background in the industry or with the particular product. What is your expertise, and how will it help your company survive?
Market Analysis
Market analysis is the collection and analysis of data regarding your company’s:
- Customers
- Competitors
- Industry at large
- General economic climate in which the business is to enter
This is a hard section for most small businesses to complete. You’re probably not a marketing expert. Collecting demographic data probably sounds horrifying. Just take your time with it. Regardless of what type of business you are starting, it is actually very important that you begin to build an understanding of the market you will be operating in. Here are a few sites you can use for research:
Market Demand
What is the existing demand for your product or service. What evidence do you have to demonstrate this? Is demand for a business like yours new or has it been around a long time? Is demand for a business like yours growing? If there is a demand then it’s because your business is solving a problem for the market. Make a connection between that problem in the market and how the solution your business offers will result in demand for your product or service.
Target Market
A target markets refers to the identifying characteristics of the people most likely to buy your product/service. Who are the people that will buy your product or pay for your service? You can break this down by demographic, income group, and geography. Is it middle-aged people interested in model trains? Is it upper middle class homeowners on the south side of town? Identify it.
Market Location and Size
What is the geographical location of your market. Is it bound by geography or not?
Market Advantages
What is it about your business that complements the market you’ve described above. How is your business better able to meet the demands of that market than your competitors?
Pricing
How much will you be charging for your product or service? If you carry many products, list the prices for each. If you’re providing a service, what is the fee schedule for those services? How did you arrive at those prices? How do they compare to your competition? Don’t make the mistake of simply matching your competition’s prices. Look at your total costs for completing a project or product, and then set your price at a certain marginal rate about those total costs.
Marketing and Sales
Marketing attracts potential customers and sales turns them into clients. You need to have a plan for both. How this plan works will vary wildly based on what type of company you are. Are you providing a service or a product?
Marketing
- Traditional advertising (print, tv, digital).
- Brand marketing.
- Viral marketing.
- Cold calling/door knocking.
Different Sales Strategies
How are you going to get your product or service in front of customers? Here are the basic sales techniques. Think about which will work best for you.
- One-on-one meetings.
- Cold calls.
- Networking.
- Promotional Events.
- Retail Interactions.
- Direct Sales.
The key here is to make a cohesive connection between marketing and sales. How are you going to reach customers and how are you going to close? Selling stuff online? Then you should probably have a pay-per-click budget, or be really good at search engine optimization. Are you a contractor who works by word of mouth? When you’re bidding on a project and meeting with the client, how are you asking for the sale? Are you asking for referrals?
Funding Request
A business plan is necessary to apply for a loan, but remember that the following factors are going to be more important to a bank:
- Your personal credit score.
- Your ability to collateralize the loan.
- Your ability to secure 20-25% of capital loaned.
- Projected cash flow of 1.5 times the annual debt services
*Skip this section if you do not anticipate requiring a loan or seed money for your business.
The information provided in a funding request section is going to need to be tailored to the type of institution you’ll be submitting it to.
A Summary of the Business
Exclude this section if using the funding request is already part of the larger plan. But if you are presenting this section separately to a lender, include it. Briefly explain the company’s function, location, what is sold or what services are offered.
How Much Money You’re requesting
Be specific. How much money will you want to borrow and for how long.
What you will use the money for
Detail exactly what this money will go to? Appreciating or depreciating assets? Will you be hiring employees, buying real estate, or purchasing equipment.
Financial Information
Established companies will need to provide income statements, balance sheets, and cash flow statements for the last 3-5 years. Conservatively estimate projections for future earnings. Include annual forecasts income, balance sheets, cash flow and capital expenditure budgets five years out.
Explain how you plan to pay your loans back. If seeking a loan, what is the length of the loan you seek. If seeking investors, what rate of return will you offer? What liquidity events will you make available for investors.
That’s it! That’s your business plan. It doesn’t stop here, though. It goes on. Goes on forever. It never really stops.