Every business starts with a plan, whether it is one mapped out in your head, jotted down on a paper napkin or formalized into a business plan. A business plan essentially describes your company, what you plan to do and how you plan to do it. It expresses your company’s objectives, goals, strategies, potential problems and how to address those problems, and what it takes financially to run your business (think a SWOT analysis on steroids).
According to data gathered by the Panel Study of Entrepreneurial Dynamics and analyzed by Clemson University entrepreneurship professor William B. Gartner, you’re two-and-a-half times more likely to start a business simply by writing a business plan.
Why do you need a business plan?
Business plans serve a number of purposes, which can dramatically impact how robust your plan is or what it contains. Mostly, business plans are used to:
• Convey your vision to potential investors in order to attract funding.
• Prospect for new business.
• Understand how to manage your company better by getting everyone on the same page (i.e., everyone knows the target audience and sales/marketing process).
• Think through the viability of a business. Many entrepreneurs put their ideas on paper, run it by a mentor to see if it has legs, and adjust and modify it from there.
What types of business plans are there?
There are two primary types of business plans, and while they have technical names, an easy way to think about the two is the traditional business plan versus the one-page business plan. There are merits to both, but if you’re looking for investors, go with the more traditional business plan. These tend to be about 10-15 pages, on average, and they provide a deeper level of detail about your company.
If you merely want to get everyone on the same page or have a place where all your thoughts are put in one place and have something you can quickly update as your business cycle and learnings change, a short, one-pager could be the way to go.
What should a business plan contain?
Regardless of what format you choose, your business plan should contain the following:
Executive summary: Think of this as a more detailed elevator pitch. Provide an overview of your business and your vision for its future. This should cover the highlights of your entire plan. For that reason, it is often written last.
Opportunity: What problem are you solving? Why should people care? Who would buy your product or use your software? Who is your target audience? Who is your competition, and how is your product better than what currently exists? What is the total addressable market? What is your share of the market?
Market strategies: How do you plan to make money? What are your marketing and sales plans? How are you going to measure success? What operations do you need to put in place to be successful? If you need to create your product from scratch, what is the timeline for bringing your vision to life? What steps do you need to take to make it happen?
Your team and company milestones: Who do you have in place already to make your company successful? Who do you need to hire? What have you already accomplished?
Financial plan: Basically, this is the financial forecast for your business. How much do your operations cost? How much does it cost you to pay employees? How much does it cost you to build your product? Think through all your business expenses and how your company makes money to create a comprehensive break-even analysis, balance sheet, cash flow statements, income analysis and other financial ratios.
If you plan on asking for funding, this section can help you determine how much investment you’ll need over the next three to five years. If the only reason you created a formal business plan in the first place is to get funding, you may need to break it out into its own section and provide a more detailed analysis of your numbers and goals.
Common Mistakes To Avoid
When first starting a business, estimating your revenue potential, your product’s price point or even identifying and quantifying the risks and opportunities your company will face can be a huge challenge — especially if you don’t have customers yet. It can also be hard to determine how much capital you will actually need. Don’t be afraid to seek guidance from others who have been there or done that. Involve your mentors or even potential investors. Often, they know what it takes to succeed and can provide a much more accurate picture of what your expectations should be starting out.