When you're first getting serious about starting a business, the first thing you should do is write a business plan. Business plans serve several key functions that make them indispensable for successfully launching a new company. Not only do they serve as a roadmap to guide you in the early days of your business, but they also serve as an opportunity to research market conditions, competitors and potential pitfalls you might not be aware of.
Business plans are both an analytical and planning tool, two components that are essential for getting a new business off the ground. This guide offers you key insights into how to create a high-quality business plan that will serve your business now and in the future.
What is a business plan?
As with most ideas, the best way to execute them is to have a plan. A great idea for a startup isn't enough; it must be bolstered by a plan of action. [Interested in investing in business plan software or services for your small business idea? Check out our best picks and product reviews.]
A business plan is a written outline that you present to others, such as investors, whom you want to recruit into your venture. It's your pitch to these people, sharing with them what your startup idea is and how you expect to make money from it.
Why do I need a business plan?
Starting a new business comes with headaches. Being prepared for those headaches – and trying to get ahead of them – can greatly decrease the impact they could have on your business. One important step in preparing for the challenges your startup may face is writing a solid business plan.
Writing a business plan helps you understand more clearly what you need to do to reach your goals. The finished business plan also serves as a reminder to you of these goals. It's a valuable tool that you can refer back to, helping you stay focused and on track.
How do I present my business plan?
Your business plan can be written as a document or designed as a slideshow, such as a PowerPoint presentation. It may be beneficial to create both versions. For example, the PowerPoint can be used to pull people in, and the document version that contains more detail can be given to them as a follow-up.
What should a basic business plan include?
For a startup idea, according to Tim Berry, an angel investor and founder of Palo Alto Software, who wrote on Quora.com, "... the bones of it ought to include just a few pages to list key strategy points, key tactics, important milestones, metrics, tasks, and essential projections, including sales, spending and cash flow."
How detailed should my business plan be?
This depends on the nature of your idea and how complicated or simple it is. If you're writing a plan for a startup, it can be 10 pages or less, according to Berry. To appeal to investors, another version of this business plan can be put together later that has more details, such as charts, specifically targeted to potential investors.
How can I start my business plan with no money?
You can use Google Docs and Google Slides (both applications are free). The apps come with templates that you can use to create a business plan quickly.
What part of my business plan should I create first?
The technicalities and standard information that go into a business plan are easy enough to figure out. But there are other, more abstract things, to consider before you put pen to paper.
Make sure you take the following five steps before drafting your business plan.
1. Determine your purpose.
Having a plan to make a profit is important, but it's not the only thing that matters when you start a business.
"Business plans … encourage entrepreneurs to focus on what they are going to do," said Alan Williams, co-author of The 31 Practices (LID Publishing Inc., 2014). "This overlooks two more important questions: 'why' – why it exists and why employees would want to get out of bed in the morning, and 'how' – the values of the business, what it stands for, and how people representing the business will behave."
Williams advised entrepreneurs to take time to identify and articulate their business's core values and purpose – both will serve as your organization's compass for decision-making at all levels. Williams' co-author, Alison Whybrow, said that this "compass" can be discovered by having an honest, open conversation with your team.
"One thing that a team might want to do is engage in a formal assessment process – looking at habits, beliefs, values, and capability – so that they are working from a clear starting point and have a framework for discussion about working styles, strengths, and individual and collective blind spots," Whybrow said.
2. Build your vision.
The key to business success is having a clear vision of what you want to accomplish as a company, experts say. But before you write a business plan, you should come up with three to five key strategies that will enable you to achieve that vision, advised Evan Singer, CEO of SmartBiz, a provider of SBA loans.
"Sometimes, less is more," Singer said. "It's far better to do three things very well versus 10 things not so well."
An additional, imperative aspect of your business plan is the mission statement, which is the "why" you're doing what you do.
"The first sentence of the mission statement should be why you're in business," said Tina Bacon-DeFrece, president of Big Frog Franchise. "After you fully understand the why, then you need to define 'what' you are going to do and 'how' you're going to do it. The third and final part of the mission statement should be the 'who' you want as customers and how you are going to treat them."
Once you've completed the mission statement, said Bacon-DeFrece, it's an easy transition to develop your value proposition statement that defines what makes you unique in the marketplace and how you intend to differentiate and position your business.
3. Clarify your business model.
Alex Muller, senior vice president and chief product officer of GPShopper at Synchrony, said a good financial model includes many of the details you put in your formal business plan – for example, hiring, pricing, sales, cost of acquisition, expenses and growth. Like a business plan, your model should be revisited and updated as the realities of your business unfold.
"Start [answering] what-ifs," said Muller. "'If I sell this product at this price point and this is the cost of client acquisition, what rates of return can I get?' When you're done building [and testing] the business model, then you can go back [and] write a business plan."
4. Identify your target market.
Identifying a target market can be a tricky obstacle. To narrow down your market, Grant Leboff, CEO of Sticky Marketing Club, advised answering the question, "Why am I uniquely placed to solve the problem?"
"If you are unable to answer the question, you either have the wrong target market or the wrong offering," Leboff wrote in a blog post. "More work will need to be done before you start targeting your potential customers."
If what you offer isn't the most attractive to the type of client you want, you may need to change your offering or define your target market differently, Leboff added.
5. Test your business idea.
Entrepreneurs should talk to industry experts, potential customers in their target market and other entrepreneurs to determine their business's viability, said Kara Bubb, principal consultant at Kara Bubb Product Consulting.
"Talk to some real potential future clients [and experts], and ask for some honest feedback," Bubb said. "What do they think about your business idea? Who, specifically, are you targeting? How big is the market? Will your market buy what you are selling? Who is your competition?
Simply writing a business plan will not make your company successful, but it gives you a road map to get there. The forethought put into the plan identifies the milestones by which you can mark your progress.