Want to know how to write a business plan step-by-step? Find out all about the business planning process so you can learn how to make a business plan.
Why do almost half of all small business startups fail in the first year? The primary reason is that most inexperienced entrepreneurs lack business planning, management and marketing skills, and don’t have sufficient funds to launch and run a business.
Many new entrepreneurs are fly-by-the-seat-of-your-pants kinds of people who believe they don’t need a business plan. They think they can keep all the information they need in their heads and don’t want to be tied to what some piece of paper says.
But if you try to get a small business loan or go to an angel investor with a business proposal, they’ll want to see your business plan and get answers to some key questions before they decide to grant funding or not.
Most lenders and investors will simply refuse to consider your business proposal without a business plan. Writing a business plan is essential for anyone starting and running a business.
What is a business plan and why do you need one?
Starting and running a business without a business plan is like trying to navigate without a GPS signal. You’re very likely to end up losing your way and won’t know what your goal or destination is without a small business plan.
Writing a business plan may sound complicated, but it will give you a business roadmap for your startup or new venture. When you write down your goals you’re more likely to achieve them.
A business plan is a way of documenting your business goals so you can identify and reach your targets. Writing a business plan dramatically increases your chances of success as an entrepreneur and can help you:
- Evaluate your initial startup costs
- Determine what it will take to make a profit
- Analyze your competition
- Know their success and failures
- Investigate your market
- Know what works and what doesn’t
- Develop a business & marketing strategy
- Understand the risks
- Anticipate problems before they occur
- List all the people involved in the company
- Define a clear goal & exit strategy
- Convince investors to fund your business
Business plans are also required for financing your business and applying for loans because financial institutions and private investors won’t lend you any money without taking a look at your business plan.
Your business plan will also help you create an effective marketing plan to outline how and where you’ll promote your business and how much it will cost.
Business plans can help monitor your progress and give you something to compare your results with. They can help you identify weak areas where you need to improve or let you know when you need to hire someone to take over certain tasks.
Your small business plan should also include a feasibility study, so you know if your business is likely to succeed in the present market scenario. Business plans help you stay on track so you can avoid mistakes and plan for the future more effectively.
What’s the importance of business plans?
Some entrepreneurs believe that the traditional business plan is outdated, and has been replaced by pitch decks, clever presentations, or the one-page business plan.
But the fact is that every entrepreneur and startup company needs a business plan, especially if they want to attract funding or get a small business loan from government agencies.
According to the Harvard Business Review, it pays to develop a business plan because entrepreneurs who write business plans are more likely to succeed.
But writing a business plan should not be your first task in business, especially if you haven’t tested your business idea yet or know if it’s likely to succeed.
If you have to pivot your business model, rethink your products and services or your target audience, the business plan that you spent so much time and effort on will end up being worthless.
Research has found that the best time to write a business plan is between 6 to 12 months after deciding to start a business, once you’re talking to your customers and planning your marketing strategy.
Studies also recommend that you don’t spend more than three months on writing your business plan. So it’s much better to wait and synchronize your business planning process with other key startup activities.
But once you know that your business idea is likely to succeed, what products or services do you plan to sell. and who you want to sell them to, you can start putting these ideas down in your business plan.
What are the elements or components of a business plan?
A business plan is often written in a format that answers all the questions investors may have regarding your business goals and direction. Besides being a business roadmap, your small business plan should also contain a timeline for attaining those goals.
So what’s included in the business planning process? Here are some of the questions you need to answer in your business plan:
- Who owns equity in the business?
- What are your business goals and objectives?
- What is your mission statement?
- What makes you uniquely qualified to start this business?
- Have you completed an industry analysis, market analysis, financial analysis, break-even analysis, and competitor analysis?
- How do you plan to achieve your business goals?
- How long do you think it will take to achieve your goals?
- How much will it cost to achieve your business goals?
- What is your marketing strategy plan?
- What’s your management and organizational structure?
- What are your business and financial projections?
- How do you intend to finance your business?
- What sort of equity are you willing to offer investors?
As an example, if you want to start a home tiffin service and need a small business loan, your home tiffin business plan should provide answers to the type of questions that anyone who may provide financing would be likely to ask.
- What is your product or service?
The first step to writing a business plan is defining exactly what your product or service is as this is what you will approach a potential customer with.
You must explain in clear, concise language what products you plan to sell or what services you plan to provide.
How would you explain your product or service to a potential customer? What would you tell them about it? How would your product or service relate to other businesses?
For your home tiffin business, your product is clearly the homemade food products that you’ll deliver to your customer’s home.
- Who are your customers?
Defining your target market may be difficult if you believe that your product can be used by anyone. Simply putting “everyone on Earth” is not a practical target market. It’s about who needs your product and can afford and access it.
You must clearly identify your customers in order to design your advertising, packaging, and pricing so that your target market can see the benefits of your products and be willing to buy them from you.
For your home tiffin service, your customers may be middle-class families or single people in your building or housing society who require regular home-cooked food.
Defining your target audience is the key to setting up a proper marketing strategy. Without knowing who your potential customers are, you’ll be casting your line into a vast ocean rather than a stocked pond.
- How will you reach your customers?
How are you going to reach your customer? Advertising in the local paper? Word of mouth? Direct sales? Can you use digital marketing? Which social media channels should you use? What sort of content should you create?
Assess the costs of implementing your marketing strategy plan to reach your customer and client base. How much will it cost to get your products on shelves or to start an online store? How much will it cost to advertise online?
Advertising your home tiffin service may be as simple as posting your menu on your building WhatsApp group or sticking it on the notice board of your housing society. You can also share it on local Facebook groups and in local newspapers.
- Who are you going up against?
Analyzing the competitive landscape is an important part of determining if your business can succeed. You need to know your competition and how you will reach your target customer or client.
Failure to identify competitors in your business plan is a warning sign to potential investors that either you’ve not done enough research, haven’t acknowledged the competition you face, or that the market is not large enough to support any competition.
Find two or three competitors and evaluate them. Why are they successful? What is the primary source of their revenue? What is their pricing strategy? What things have they tried and failed?
What things do they lack that you will provide? You may even discover other areas that your product or service needs to focus on to have a chance of succeeding.
In the part of your business plan that addresses competition, you must also cover the area known as competitive barriers. Some businesses naturally have barriers that prevent new or upstart competitors from getting a hold.
This doesn’t mean new companies will never be able to start in that industry, but that they’re few and far between because the resources and expertise required to compete are high.
In your business plan, you must identify exactly what the barriers to entry into your business are and how you will prevent any actual or potential competitors from stealing a large chunk of your customers away from you.
You can also demonstrate how razor-sharp your competitive edge is by listing assets such as patented technologies and processes, a proven track record of success, and exclusive contracts with suppliers and customers.
Having a competitive edge in your industry will make it difficult for others to compete with you on the same terms.
- What makes you different?
You also need to identify the factors that set you apart from the competition. In the case of your home tiffin service, your competition could be other home tiffin services, nearby restaurants, and food delivery apps.
You could stress the benefits of your home tiffin service in terms of taste, health, and hygiene in comparison with meals from restaurants and food delivery services.
Don’t be discouraged if your research turns up the finding that your product or service doesn’t make sense or that you cannot compete with bigger or more established players.
It’s better to evaluate things early on and scrap a bad business idea or pivot your business than take money from investors and find out later that your business doesn’t stand a chance.
- How will you finance your business?
What are your initial expenses for starting your business? You need to analyze all costs for launching your business and know how much capital you’ll need to keep the business running. If you need employees, you’ll need to factor in the cost of salaries.
How much do you need to pay an accountant or company secretary for the legal costs you will incur incorporating and running your business? Do you need to purchase a food license for your home tiffin business and how much will it cost?
If you’re providing a product, what are the manufacturing and inventory costs? How will you fulfil orders? If you deliver via mail you’ll need to factor in packaging and shipping expenses. If you’re building an online store to sell products online you need to factor in delivery charges and expenses.
For a home tiffin business, your start-up expenses will include any equipment you need before you can get up and running, while your day-to-day expenses may be food supplies and delivery costs.
Since you’re using your own kitchen and making the food yourself, you have only two real expenses – the purchase of a high-end mixer and the day-to-day cost of supplies. You can get some tips on how to price your food for your home tiffin menu here.
Most businesses tend to underestimate how much initial expenses and ongoing monthly expenses they have. Once you’ve determined these two expenses, you can evaluate how much initial capital you will need and where you intend to get it.
Will your business be self-financed or will your financing come in the form of small business loans, angel investors, venture capital, or friends and family? Securing this financing could have additional costs that you may not have considered, so be sure to include these expenses as well.
Why do I need a marketing strategy plan?
Marketing strategy planning involves creating a road map to sell your product or service to your customers. It will help you outline your marketing goals and set targets so you can reach your goals in a definite time frame.
Creating a marketing plan will require answers to the following questions:
- Do you know who your target audience is?
- Have you created a bio persona for them?
- Which marketing channels can you use to reach them?
- What methods will you use to reach them (paid or organic)?
- How much do you need to set aside for your marketing budget?
- How will you measure your results?
It doesn’t matter if you need to change your marketing strategy plan a few months down the road to include a new marketing channel or eliminate an old one.
What matters is that your marketing plan should be flexible enough to consider possible advances in digital marketing technology and have a marketing budget that provides room for such flexibility.
How to prepare a business plan
The best way to learn how to make a business plan is to use sample business plans and study as many real-world business plan examples as you can.
This will help you get a feel for the dos and don’ts of a business plan and understand how much work is involved in putting your business plan together. To start creating a business plan, you need to learn how to write a simple business plan format or outline.
You can learn about business plan structure and how to write the elements or components of your business plan by studying a few simple business plan examples.
Do you want to know how to prepare a business plan for yourself or for potential investors? According to the Harvard Business Review, the best business plans deal convincingly with both marketing and investor considerations.
Investors are more interested in the potential of the product’s markets, sales, and profit than its attractiveness or technical features.
How long should a business plan be? While it will vary significantly with each business, somewhere between 12 and 25 pages seems to be the sweet spot.
So, where can I find free business plan templates? You can download some free business plan templates here.
What does a sample business plan look like?
Not only will using a business plan sample highlight any areas you haven’t fully thought through, but it will also provide you with a good idea of what makes a good business plan and what doesn’t.
Sample business plan structure
All business plans should include at least the elements listed below, and additional sections, if required, depending on the type of industry.
- Executive Summary
- Company Background
- Products or Service Overview
- USP & Competitive Advantages
- Risks & Threats Assessment
- Market Analysis
- Operational Structure
- Management Profiles
- Professional Support
- Financial Projections
- Relevant Appendices
Creating a financial plan in business plans
90% of all new businesses fail for lack of a viable financial plan. If you want to get a small business loan or attract investors, you need to know all the numbers that will show investors how your new venture will be profitable.
Your business plan should show you making enough of a profit each month for you to live on. If it doesn’t, it may be considered unfeasible.
Before writing a financial plan outline, make sure you’ve carefully analyzed the data to support your assertions about the market, sales and profits.
Include a graphical breakdown of both projected profit and loss per month for the first year in business and show your expected one-time expenses and day-to-day expenses versus projected profit to indicate how you will pay off your loan.
Most investors are not going to hand you money without a pretty solid financial plan, so if you’re not too good at doing the financials you better get to work on learning how to project Pro-forma cash flow and projections.
If you’re not familiar with financial plans and spreadsheets, you may need help from an accountant or Company Secretary who prepares financial projections for startups or a freelancer who offers business plan writing services.
If you don’t have time to collate the data, you can hire a researcher or a freelancer to help you with your business planning process or pay a professional to put a financial plan together for you.
The disadvantage of not learning how to do the financial projections for your own business is that it won’t be easy to make changes in your financial plan when you need to make them.
More importantly, if you’re not familiar with preparing financial projections, you won’t be familiar with the numbers and will find it hard to answer any questions that investors ask about your financial projections or pricing strategy.
An alternative is to invest in business planning software and learn all about financial projections so you can confidently create a professional-looking small business plan and financial plan on your own.
So, where can I find free business plan software? Here’s a list of free business plan software you can try.
How to write an executive summary for a business plan
The first thing your potential funding audience will read is your executive summary. It’s the most essential part of your plan because it acts as a shop window to the plan inside, and it needs to draw the potential investor in.
According to Inc, the Executive Summary is a 1 or 2-page outline of your company’s purpose and goals. It is often the make-or-break section of your business plan and includes:
- A brief description of products and services
- A summary of objectives
- A solid description of the market
- A high-level justification for viability
- A look at your competition & competitive advantage
- A snapshot of growth potential
- An overview of funding requirements
The executive summary is usually written last and should provide a short, concise, and optimistic overview of your business that captures the reader’s attention and compels them to read more about it.
It’s got to punch above its weight class and have an impact, so don’t hesitate to rewrite it until you know it by heart. Start with a paragraph about each important part of the overall plan, and avoid repetition.
Show how the customer has a need or desire for your product. Don’t assume the investor will know. Spell it out. Explain how your products and services will fulfil that need, how the customer will find you, and how you will get your message across to them.
Now that you know how to make a business plan, it’s time to launch your new startup and test your business idea to see if it works. You can get more business tips and advice from business coaches and mentors in the Women In Business Community on SHEROES.
You’ll learn how to start a zero-investment business and open an online shop without investment to sell products online.
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