So you’ve got a business idea! Every great business begins with an outstanding idea, and if you’re passionate enough about it, you may feel encouraged to pursue it. To do this, you’ll want to first flesh out your idea further. This will help provide a sturdy foundation on which to build your small business, allowing your idea to grow into a successful venture. The best way to do this is by crafting a business plan.
While business plans may not be for everyone, they are important for those starting their first small business. A business plan can help first-time entrepreneurs understand all of the components required to build a successful business. As a result, it helps paint a clear and realistic picture of how much funding is needed to turn your idea into reality. In this article, we’ll provide guidance on how to tackle the monumental task of putting together a business plan, so you can kick start your business smoothly. We’ll be here to help you with your small business banking needs when you build it.
Does Your Small Business Need a Business Plan?
As mentioned, not all business owners choose to create a standard business plan. Most seasoned entrepreneurs recognize that there is little flexibility in a detailed plan. Building a business is oftentimes an emotional (and financial) rollercoaster, and the universe pays no mind to what you want to happen. That being said, there are many good reasons to throw a business plan right out the window.
If this is the first business you’re starting or if you’re getting ready to ask for a large amount of funding from investors, having a well-thought-out business plan is something you’ll want to dedicate time to. This will help your investors understand how the money will be used and whether the business has a significant chance of success, making the investment low-risk. So step away from the window — we’re going to write a detailed business plan.
How to Write a Business Plan Step by Step
A standard business plan consists of about seven parts. It is best to divide them out into separate sections to keep your plan organized. You should expect to include the following sections in your small business plan:
- Executive summary
- Company description
- Market research and analysis
- Company structure
- Product or service
- Marketing or sales strategy
- Funding request or financial projection
Choose a Format That Works for You and Your Small Business
Traditionally, there are four different types of business plans: startup plans, feasibility plans, growth plans, and one-page plans. Feasibility plans help established businesses make business decisions to support successful growth. Growth plans help owners and investors understand the financial and capital needs for successful growth. Of course, you won’t need to worry about these two types of plans until your business is up and soaring. We will focus on standard startup plans.
How to Write a Standard Startup Business Plan
This plan is created for an external audience, meaning you’ll ideally be presenting your finished product to a lender or investor for funding. Use this plan to explain the framework of your business, the logistics of running it, and comprehensive information regarding its mission statement, product information, and financial needs of your startup.
If you are ready to request funding or spark a business partnership, you’ll want to start by building a standard startup business plan. This is an in-depth explanation of your business that should leave your audience with no questions unanswered. Check out examples of business plan templates from the SBA.
1. Write an Executive Summary
The executive summary should include an overview of what your company is, what service or product it provides, and why it will be successful. This section of the business plan should be concise and powerful, catching the attention of your audience. You’ll want to include the following information:
- An attention-grabbing opener
- A mission statement
- The problem your business will solve
- Your competitive edge over others attempting to solve the same problem
- The realistic opportunity for your business to thrive and grow
- Summary of your structure (size, location, number of people in leadership, etc.)
- High-level overview of the amount of funding you’re asking for
2. Craft a Detailed Description of Your Business
Your company description is the space to expand on your mission statement. Restate your mission statement and then go into detail about the specific problems your business solves. So, if the problem differs depending on the customer, also include detailed descriptions of each type of customer and their unique challenge.
Use this section to describe the competitive advantage of your small business and how this will support long-term success.
3. Conduct a Market Analysis
The market analysis provides your audience with concrete research that not only backs the claims you’ve made regarding your competitive edge, but also shows that you truly understand your new business’s industry. Investors will see less risk in giving funding to someone who has dedicated time to understanding the ins and outs of their prospective industry.
When conducting your market analysis, be sure to include:
- Industry outlook, including trends and growth rate
- Target market
- Findings and statistics related to the current reality of your industry
- Lead time (how long it would realistically take your business to fulfil the need of a customer)
- Competitive analysis
4. Map Out Your Business Structure
Use this section to help your audience visualize the structure of your business. This relates to its management team and job roles, from an entry-level customer service representative to the CEO. This space should also map out the legal structure of the business. Meaning, will your business be a partnership or a sole proprietorship? Maybe it will be an LLC. This is your opportunity to make that clear to potential investors and lenders.
It’s helpful to rely on visuals rather than just written descriptions. If you already have key positions filled, include those employees’ resumes or CVs to build credibility with your audience.
5. Pitch Your Product
Get into the nitty-gritty of your product or service. This is your chance to not only establish the “what” but also the “why” and “how” of your product. Why will consumers benefit from your product and how specifically will it meet their needs?
Include a product life cycle, which covers the following:
- Development (prototype testing, focus groups, etc.)
- Introduction (when the product is first launched)
- Saturation (competitors begin to enter the market)
6. Create a Marketing Plan for Your Product
It’s important to strategize how you will market your product or service and sell it to consumers. A marketing strategy is an important, actionable component to your plan that helps the audience visualize how your business will gain and retain traction. Marketing doesn’t have to be expensive either, there are plenty of ways to market your business on a budget.
7. Include a Formal Request and Financial Projections
When asking for funding, you’ll want to be incredibly detailed about how much you need and what it will be for. You’ll want to provide a clear breakdown of what percentage of funding will be used for what specific operation, ideally over the course of five years (at minimum).
If your business is established and you’re simply seeking out additional funding to support growth, include your financial projections. This is used to convince prospective investors that your business is currently stable and will continue as such for the foreseeable future. When creating your projections, include the following:
- Income statements
- Balance sheets
- Cash flow analysis
- A list of collateral you have against any existing loans
- Forecasted income statements
- Projections of balance sheets
- Estimated cash flow statements
Whether you’re just starting out or looking to grow your business, including forecasted financial statements is smart. You can use these to provide a well-rounded look as to how the requested funding will play out in the next five years, which can work in your favor.