A business plan is your roadmap to success. Here are key tips for writing a good one
- Test your idea on customers and partners.
- Do your research.
- Consider software or a template to help you draft your plan.
- Include an executive summary, company description, management breakdown, market analysis and a financial plan.
Preparing a business plan is like outlining an itinerary for a road trip. You want a clear map that you can follow step by step while developing your business.
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How to write a business plan
"A business plan is absolutely vital as it navigates your business on the road to success," said Joel Klein, founder and producer of BizTank and the B-Tank platforms. "Only by setting a plan that outlines where you want to go, along with a plan of action on how you are going to get there, will a business owner know if they are heading in the right direction and how far they are from their final destination."
Your business plan should guide you throughout the startup process – it should serve as a resource for help for any problem that may arise. Based on advice from our expert sources, here are a few specific do's and don'ts to consider while formulating your plan.
What are the three main purposes of a business plan?
Before you write your business plan, it's important to understand the purpose of creating it in the first place. There are three main reasons why you should have a business plan:
Establish a business focus. The primary purpose of a business plan is to establish your plans for the future. These plans should include goals or milestones alongside detailed steps of how the business will reach each step. The process of creating a roadmap to your goals will help you determine your business focus and pursue growth.
Secure funding. One of the first things private investors, banks or other lenders look for before investing in your business is a well-researched business plan. Investors want to know how you operate your business, what your revenue and expense projections are and, most importantly, how they will receive a return on their investment.
- Attract executives. As your business grows, you'll likely need to add executives to your team. A business plan helps you attract executive talent and determine whether or not they are a good fit for your company.
What is in a business plan and how do I write one?
The specific details you include in your business plan largely depend on your audience. If you're trying to secure outside funding, providing a complete, detailed overview of your cash flow, expenses and projections is critical.
If your audience is intended for employees, create a shorter version with information that is relevant to them.
However, regardless of your audience, all business plans generally follow a similar format:
Executive summary. First and foremost, it should provide an overview for readers.
Company description. This section is especially important when securing funding as it provides a high-level overview of your history, business legal structure, your products/services, key partners, and summaries of your financial and business goals.
Products/services. Next, your business plan should include a detailed description of the products or services you provide. This section should illustrate how your product benefits your target customers.
Market analysis. In this section, you really only need to explain two things: the market need and how your products and services satisfy that need. This includes targeted customer segments, industry statistics, pertinent marketing data, and a thorough examination of your competitors' strengths and weaknesses.
Management team. Before anyone will invest in your company, they want to know who is running the business. Include an organizational chart with departmental descriptions and information regarding the owners, key employees, the management team, board members, advisors, etc.
- Financial plan. The last section of your business plan should be created with the help of a professional accountant. Include important financial statements, such as historical financial data from the past three to five years, realistic budget forecasts over the next five years and an analysis of your all financial data.
Do test your idea – don't jump into it
It's tempting to dive into your business after reading success stories of entrepreneurs who succeeded. However, if you're going to take a leap, test the water first.
"Don't get mesmerized by the attractive macro data you can find on the web," said John Mullins, Ph.D., associate professor at London Business School and author of The New Business Road Test: What Entrepreneurs and Investors Should Do Before Launching a Lean Start-up. "Before you start writing … talk with prospective customers, suppliers and others in your industry."
Even after you embark on your business endeavor, you want to ensure you're attracting and retaining customers before asking for capital, Mullins added.
"Raising money too soon is a distraction and has big downsides … not the least of which is eventually losing control," he said.
Do study your market – don't go in blind
As with any business project, research is critical to a solid business plan.
"Research is one of the big value adds of writing a business plan," said Joseph Ferriolo, director of Wise Business Plans. "Research forces companies to learn what they can expect to make and what the industry trends are."
Mullins advises asking yourself how large and attractive your market is, how quickly it's growing, and if there are any trends that will make it grow in the future. Pay close attention to the "five forces" – threat of entry, threat of substitutes, supplier power, buyer power and competitive rivalry.
Additionally, research critical success factors (CSF), or important areas to focus on when starting out. Some examples are finding the right location, competing with like companies and retaining efficient employees. Discuss your CSFs with your team to guarantee they are on board with your goals, said Mullins.
Do share your plan – don't keep it to yourself
For your company to succeed, all employees should understand the dynamics of the business plan. It is not a document that you should lock away.
"The business plan keeps an organization focused, [and] it needs to be shared," said Brian S. Cohen, an operating partner at Altamont Capital Partners. "Too many companies treat it as a confidential document to be kept away from the 'prying eyes' of the rank-and-file employees. I believe the business plan should be shared, discussed, and amended where appropriate, through an open loop of feedback and insights."
The more people who are involved, the more ideas you can circulate around the company, Cohen said. It is important to consider every worker's input to ensure that the outcome is pleasant for all stakeholders. [Interested in investing in business plan software or services for your small business idea? Check out our best picks and product reviews.]
Do be clear and concise – don't go overboard
You don't need to have an over-the-top, elaborate document with fancy formatting or flashy decor. However, what's written should be specific enough to cover all areas of concern.
Cohen advised starting your plan with a SWOT analysis, which stands for strengths, weaknesses, opportunities and threats. Create an executive summary describing the industry you wish to succeed in, and how and why you intend to do so. Then, list your company's strengths and weaknesses, opportunities for growth, and any threats that might hinder the achievement of those goals.
Klein stated that the document doesn't need pages and pages of text; rather, it can include images, infographics and specifics "so that it can be used as a point of reference at any point in time to ensure that the business is on the right path and is meeting its goals."
Do put it to use – don't file it away
Your plan is there for a reason. Don't be afraid to refer to it as much as possible – think of it as checking the map when you've made a wrong turn. There is nothing wrong with using your plan to get back on track or to make sure you're still on course.
"The biggest mistake people make is [that] they prepare the document and then put it in a drawer and never look at it again. That's self-defeating," Cohen said.
Remember to revisit your business plan as your company grows.
Templates and resources
Additional templates and resources are available at the following sites:
- U.S. Small Business Administration
- Business News Daily
- Read our reviews and recommendations of the best business plan software
Some source interviews were conducted for a previous version of this article.