Budding small businesses face tough odds: Data shows that roughly 45% of new businesses fail within the first five years. However, adhering to a well-crafted business plan can increase the likelihood of success by setting clear guidelines and ensuring that new ventures operate within their means.
Regardless of whether you're in the ideation phase or have been in business for years, it's wise for every business to draft business plans, especially if they're heading in a new direction or seeking funding. Business plans expose what you don't know and should research, whether that is the product itself, the industry you want to enter, or your competition and market. They provide clarity and direction, helping to align your business operations with its goals.
Here's everything you need to know about writing a business plan, including why you should write one, what to include in your initial plan, and how and when to revisit and update it.
Why you should write a business plan
Business plans define your business's short and long-term goals and focus your efforts on essential aspects of the business. They also help you track your finances and forecast future needs. This ability is critical when seeking financing, as potential lenders and investors want to see how their funds will be used and an expected return on investment.
Though having a business plan doesn't guarantee a loan or investment, especially for owners with poor credit scores, it's valuable for small businesses lacking a solid financial history. It's an effective tool for planning and strategizing and can help to prove to investors that your business is viable and worthy of investment.
[Read more: How to Use AI Tools to Write a Business Plan]
Ultimately, your business plan should make it easy for the intended reader to see how being involved in the business relates to them and to compel them to take positive action.
What to include in a business plan
Many entrepreneurs believe business plans must be extensive documents, but they can vary in detail — from lean to in depth — as long as they address a few key topics. However, your business plan's specific content depends on your intended audience.
A traditional business plan typically covers several of the following points:
- Business at a glance: Describe your business's offerings and list relevant information, including a mission statement, a team overview, and a high-level overview of your business's financials.
- Business profile: Define the problem your business is trying to solve and specify its audience. Highlight what makes your business better than its competitors at solving this problem and prove why you'll be successful.
- Management and organizational structure: Define your business's legal structure, such as whether you’ll incorporate or act as a sole proprietor. Define your company's managerial structure and state team members' roles and responsibilities.
- Offerings summary: Explain what makes your product/service unique and describe any intent for securing intellectual property.
- Market research: Describe your target audience and provide an industry overview. Focus on market trends and analyze competitors to see how your business stacks up.
- Marketing strategy: Describe your plan for attracting and retaining customers, detailing how you intend to capture sales.
- Financial needs: Businesses asking for funding should detail their financial needs here, including their intended use of funds, preferred terms, and future repayment plans.
- Financial outlook: Demonstrate your business's viability by outlining a five-year financial forecast driven by your funding needs. Prove how this investment benefits both your business and your investors.
- Supplementary materials: Include supporting documents such as résumés, patents, permits, licenses, and so on.
Ensure your plan suits your audience by drafting a plan that works for different scenarios. For example, a business plan intended for employees requires different information than a plan designed for angel investors. Ultimately, your business plan should make it easy for the intended reader to see how being involved in the business relates to them and to compel them to take positive action.
[Read more: 5 Types of Business Plans for Startups]
When to update your business plan
A business plan is a living document that should be frequently revisited — at least once per year or before sending it to anybody for the first time. Ideally, businesses should conduct small-scale reviews every few months before new financial periods and more extensive annual reviews to ensure the plan is relevant to the core mission.
Other times your business may need to update its plan include:
- When a business needs financing: If you are looking for a new round of financing or are ready to plot a new course for your company, ensure your plan reflects accurate information.
- Releasing a new product or service: New releases require additional funding and marketing strategies, which should be highlighted in your business plan.
- Organizational or managerial changes: If your staffing needs have changed, your business plan should denote this new organizational structure.
- Milestone achievements: If your business has grown significantly since you created the plan, it should be updated to reflect its current state.
- Changes in the market: Shifts in competitor prices or products, as well as economic changes and new regulations, may cause you to reevaluate your products and pricing.
As your business needs evolve, you must make adjustments guided by new data. For example, if your budget has changed, you want to ensure your plan uses those new figures, not outdated information.
Creating a thoughtful and detailed business plan ensures that you will have a useful tool in helping launch or maintain a successful business, and updating it should be a fluid process.
[Read more: 5 Steps to Adapting Your Business Plan to Stay Nimble]
This story was originally written by Jeanette Mulvey.
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