At the foundation of every strong business is a solid business plan. A business plan outlines important information regarding a company's operations and goals and serves as a blueprint for achieving those goals. This document helps entrepreneurs plan and research their venture thoroughly and demonstrates to investors the viability of the business.
If you're looking to develop a business plan for your new venture, including all the necessary information is important. Here are the nine sections to include in a strong business plan, as well as some best practices to make your plan work for you.
Executive summary
Your business plan begins with an executive summary, which outlines what your company is about and why it will succeed. This section includes your mission statement, a brief description of the product or service you are offering, a summary of your plans, and basic logistical details about your team.
Some entrepreneurs write their executive summary last, even though it's the first section of the plan. An executive summary is just that: a summary. Leaving it for last means you have a better sense of the information within the plan that needs to be highlighted right away.
Company description
Your company description should further detail the logistics of your business, such as its registered name, address, and key people involved. Here, you should also provide specific information about your product or service, including whom your business serves and what problem you solve for that population.
This section can also be an opportunity to describe some of the more intangible aspects of your business, such as your principles, ideals, and cultural philosophies. In your company description section write about your brand values, long- and short-term goals, and vision or mission.
"Your statement should explain, in a convincing manner, why your business exists, and should be no longer than a single sentence," wrote Shopify.
Market analysis
Conducting thorough market research can help you understand the nature of your industry as well as how to stand out from competitors.
"Simply put, your market analysis shows that you've done your research," wrote NerdWallet. "Overall, a market analysis will yield invaluable data if you have limited knowledge about your market, the market has fierce competition, and if you require a business loan."
Consider any emerging trends or themes, what other successful businesses in the field are doing (or failing to do), and how your business can do better. Include a summary of your research findings in this section.
[Read more: How to Conduct a Market Analysis]
Organization and management
This section should include your business's legal structure — for example, whether you are incorporating as an S or C corporation, forming a partnership, or operating as a limited liability company (LLC) or sole proprietor. Detail the type of entity you plan to form as well as what licenses you need, where you plan to register, and any permits you plan on getting.
Investors also want to know who is in charge of your entity. "Many investors say they bet on the team behind a business more than the business idea, trusting that talented and experienced people will be capable of bringing sound business concepts to life," wrote Bank of America.
If you have a leadership team in place, detail the roles and expertise of each member, including each relevant individual’s percent of ownership and the extent of their involvement. If you're still considering hiring, identify the roles for which you will hire and your timeline for doing so.
Products/services
Your product or service is the crux of your business idea, so you want to make a strong case for its purpose and role in the market. Use this section to elaborate on your product or service throughout its life cycle, including the following:
- How it works.
- Whom it serves.
- What it costs.
- Why it is better than the competition.
If you have pending or current intellectual property, include this information. In this section, you can also provide details of any research and development for your product or service.
As you write your business plan, think of it as a flexible road map built to adjust to your business journey.
Marketing and sales
In this section, explain your marketing and sales strategies and how you will execute them. (Note that these strategies will likely evolve, and you can always adjust as needed.)
This section is where you identify your ideal customer, discuss how you will reach them, and describe how your messaging will resonate with this audience. Describe how you will attract and retain your customer base, including what makes you stand out from competitors, and detail the actual sales process.
Use data from your market analysis section as evidence in your marketing and sales strategy. "Your marketing efforts are directly informed by your ideal customer. That's why, as you outline your current decisions and future strategy, your marketing plan should keep a sharp focus on how your business idea is a fit for that ideal customer," wrote Shopify.
[Read more: 5 KPIs to Measure Your Business's Marketing Success]
Funding request
If you're seeking funding, this section is critical so investors understand the level of funding you need. Specify what type of funding you need (debt or equity) and how much, as well as how that capital will be used.
Existing businesses should perform a financial analysis and provide key financial documents, including income or profit and loss statements, a balance sheet that lists your assets and debts, and a cash flow statement that shows how cash comes into and goes out of the company. You should also include information on future financial plans, such as selling your business or paying off debts.
Financial projections
The goal of the financial projections section is to show that your business is viable and worth the investment. Offer a financial forecast for the next five years using information from current or projected income statements, balance sheets, and cash flow statements to support it. Graphs and charts can be especially helpful in visualizing your business's finances.
Appendix
Finally, use the appendix for any information that could not fit or did not apply to other sections of the document. Information such as employee resumes, permits, credit history, and receipts are often included in this section. If you have a long appendix, consider adding a table of contents to make it easier for the reader.
Common mistakes to avoid in a business plan
The biggest mistake entrepreneurs make when they first start out is not having a business plan at all, so if you've started drafting one, you're ahead of the curve.
However, just because you make a plan doesn't mean you’re done. Business plans are meant to be living documents that you revisit as needed.
"Now more than ever, as we deal with the crisis of 2020 and 2021, stop thinking of the business plan as just a plan," wrote BPlans. "That conceptual mistake blocks you from the enormous benefits of planning as a process, with regular review and revision."
As you write your business plan, think of it as a flexible road map built to adjust to your business journey. That doesn't mean you should only do surface-level research, however. Another common mistake many entrepreneurs make is doing minimal research before writing their business plan.
"You don’t need to spend endless time researching, but your business plan should demonstrate that you truly understand your industry, your target market, and your competitors. If you don't have this core knowledge, it's going to show that you're not prepared to launch your business," wrote LivePlan.
Market analysis and defining your target audience are two crucial steps in your business growth process, so spend extra time getting your facts right and performing deep quantitative and qualitative research.
How to tailor your business plan to different audiences
Business plans are useful for a variety of stakeholders, from lenders to investors to your leadership team and first employees. As such, you want to tailor your plan to ensure it speaks directly to the interests of the reader. This reason is also why you'll want to consider your business plan to be a flexible, living document.
Put yourself in the shoes of your audience as you update your plan for different audiences. What's the most important information they'll be looking for, and how can you get it to them as easily as possible? Here are a few examples.
- Investors: This group reads many, many business plans while searching for the right investment opportunity. Time is of the essence when they pick up your plan. Therefore, provide a succinct, complete summary of your business idea, why it works, and who is on your leadership team.
- Banks: These lenders tend to be more structured and will care about the financials of your company before lending you money. Pay extra attention to your financial statements, including balance sheets and cash-flow statements.
- Suppliers: This group wants to understand why they should work with you versus one of your competitors. "They'll want, above all, to make sure you can pay your bills, so be sure to include adequate cash flow forecasts and other financial reports," wrote Entrepreneur.
- First hires: Before someone signs on to your startup, they want to know what you stand for (in addition to your product analysis). Your company mission, values, and business goals will be relevant to this group.
Make sure that as you update your business plan, you never misrepresent your core concept, financial projections, or values and mission. While different audiences have different interests, you should never completely change your plan to mislead an investor or lender.
Updating and revising your business plan over time
Your business plan should be updated regularly to reflect the current state of your business and the market. Regular reviews help you assess how well you are meeting goals, adjusting to changes in the market, or how realistic your financial targets are. Most experts recommend revisiting your plan annually at a minimum, although a market change or global event should also prompt a quick review.
"[As] long as your plan represents the current situation of the business landscape, the review can be carried out on an annual basis," wrote Upmetrics.
This article was originally written by Danielle Fallon-O’Leary.
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