What is a business plan (and why do I need one?)
When staring into the void of building a new business most entrepreneurs are excited by the prospects their idea will create- however they soon discover the real challenges that come with starting a new venture.
If you are starting a new business or already in business, it's critically essential that you come to terms with the importance of a business plan. Whether you’re looking for more credibility, or to open business accounts for loans and credit, or even looking for venture capital- your business plan will be an imperative part of your growth process.
So, do I need a business plan for my business? Yes, you do.
Well, you may ask; how exactly is a business plan connected to the success of my business? Or, how is a business plan supposed to help me fight through the competition in the market? These are important questions, and I will be answering them shortly. But before we begin, let's take a quick look at what a business plan is.
What is a business plan?
In simple terms, a business plan is a written document that describes the overall nature of a business, the goals of that business, the strategies or methods for attaining these goals, and the time frame within which these goals will be achieved. It also states the sales and marketing strategy, the financial background, projections for profit and loss, and background information on the organization.
As you can see already, a business plan is like a blueprint, a map that shows the direction your dear enterprise is going and how you intend to get it there. It establishes some structure and a clear organization in your business before you even hit the road. Without too much speculation, a quick look at your business plan will either convince an investor that it's a worthwhile venture or maybe, just a waste of resources.
Many entrepreneurs see business plans as just a simple tool or some paperwork for building the reputation of a business. On the contrary, it is supposed to be a plan for running a successful business. It's not a mere must-have but a logical and viable blueprint that should guide your business activities.
Now that you have a grasp on the Importance of having a business plan, I'd like to elaborate on how it benefits your business.
Benefits of Having a Business Plan
Whether you're just starting out or already cashing out, the usefulness of a well-written business plan goes beyond just impressing investors.
A business plan can help you gain clarity on the direction, values, and mission of your business- and should be updated as your business grows and pivots to include unexpected results. Your plan also sheds light on the resources available to you and your target audience. Many entrepreneurs find when writing their business plan that they didn’t have all of their details sorted out, or that they were missing huge pieces of their business while focusing on smaller details.
A business plan is not only good for investors and capital in your business, it brings clarity and sheds light on all of the bits of your business you may have been ignoring! What else is a business plan good for?
To Test the Feasibility of Your Business Idea
Before you start, you might want to take some time and gather facts and figures about your proposed business idea. This is the best way to determine if that idea is worth investing in or not. At this stage, your idea has got to impress you first before you sell it to any other person. And a very good way to achieve this is by taking the pain to draw up a robust business plan.
Most likely, before you get to the end of it, you'll see the weak points and strong points of that idea. It saves you the pain of going out there to test the waters with your feet and avoid getting your fingers burnt too early.
Your business plan helps you answer some critical questions about your proposed idea. For example, your market analysis will show you if there is a market for your service or product, who the major players in the industry are, the amount of demand and supply, the level of competition in your area of interest, the social characteristics of your target audience and so on.
To Achieve Your Goals
I know, of course, that you're in business for profits, at least. After all, that's the whole essence of starting one. So, I'll simply assume that you already have a target destination in mind before starting out.
Having a business plan helps you stay on course until you reach those milestones. It's easy to derail; I mean, to lose track of what the focus should be, in the long run, when you don't have a guide for the journey. But a well-thought-out business plan helps you stay in line. And if the need arises for diversification or expansion, it will be easy to factor that in. So, it also provides you with an opportunity to grow easily. Think of a business plan as your road map.
To Get Funding And Investors
At one point or another, your business will need some funding that you may not be able to gather at a time. Having a business plan at such a time comes handy. This is what will distinguish you from the other guy who's just running his show without a business plan. Serious investors will only put down their money for a business they believe in. And the best way to impress an investor is to get a finely written plan.
The same applies if you intend to borrow from banks. They want to see if you're capable of putting the money you'll get into proper use. Also, they want to know whether you'll be able to pay back or not. In essence, your business plan tells if your business is viable or not to any investor.
You can see the impact a real business plan has with entrepreneurs on the hit show Shark Tank where billionaires get pitched investment opportunities by entrepreneurs. While the show doesn’t require a business plan to get cast (seriously, here’s the application to be on the show: https://sharktankcastingseason12.castingcrane.com/) the likelihood of actually getting investment increases dramatically by entrepreneurs who know all of the nooks and crannies of their business are are ready to answer questions with clear vision of direction- the kind only provided by a well thought out business plan.
For Creating New Alliance/Partnership
Your business plan will speak for your business where you are not physically present to answer questions. In the process of joining forces with other people and businesses, your business plan will guide you regarding the scope of any new partnership, with a focus on what you stand to benefit, and in line with your set targets.
To Make Effective Business Decisions
Trust me; a business plan is an effective weapon in your business arsenal. It is also valuable for existing businesses just as it is for startups. If you belong to this category, having a plan will make managerial decisions easier for you. As your business evolves and grows, you may need to review your plan for focus and direction.
Another advantage here is that a good business plan lays a foundation for company leaders to follow, especially in the absence of the owner(s) of the business.
Business Plan Examples
What goes into a business plan? Well, for starters there is no single template that is all encompassing. Each business is unique and therefore each plan will look a little different depending on industry, company size, funding and goals, etc. Here are a few examples from startup.com that show how different businesses configure their plans.
While these examples are great, know that your business plan may look vastly different than that of a new tech startup or subscription box.
While business plans are very unique, there are a few accepted sections that are nigh required in each business plan.
Essential Highlights of A Business Plan
Drawing up a business plan requires some painstaking effort and can be time-consuming, but it's essential if you want your business to succeed. Most startups in America barely make it past five just years of existence. If your business doesn't have one, maybe it's time to get it done. (Don’t believe me? Check the stats at sba.gov!)
Today, some startups opt for a less stressful option called "pitch deck", which is typically a 15-20 PowerPoint slides used to showcase the company’s vision, how they intend to address key challenges and pique the interest of investors. You can find examples of a pitch deck in Canva’s default template presentations.
Whatever the case may be, you must have something written down, exposing what your business is all about. Does your business plan have to be sophisticated? No. Does it have to follow a specific perfect format? No. Besides, it's not even as hard as you think. Yeah, that's right.
While this post is not intended to teach business plan writing, there are key features a good business plan that we should note.
Executive Summary
The executive summary is where you provide a brief description of the purpose of your business. It is typically a short outline that summarizes all that the business is about in such a way that readers can quickly grab the major points in the entire document without having to read it all. It should contain a brief description of the products and services you intend to provide, a summary of the business objectives, a description of your target audience, what level of funding you require and a solid proof of the viability of your venture. You should be able to point out your competition, and also state your competitive advantage.
You probably think that it's a lot, but they're questions that should be easy to answer if your research is sound (which is why you should write it)
Business Description (Products And Services)
Again, you are expected to provide a detailed description of the kind of business you are into in this section. If you're selling a product, too many details wouldn't be necessary, unlike would be required if you are making the product.
Your service and its uniqueness are also required at this point. One more thing, if you have competition out there, this is where you would state them and also state your competitive advantage over them.
Market Analysis
A good business plan includes an extensive market survey. This is the crux of the matter. When this process is done, trust me, you'll know if you should continue with that business idea or not. The thorough market research affords you a comprehensive understanding of the market you want to penetrate.
You get to explore the market opportunities for your products or services, analyze and evaluate your customer demographics, their purchasing habits, the cycle of demand and so on. You will answer questions like; what is the market size? Is it growing, static, or declining? Is there a better marketing strategy that you can adopt? In the end, your level of understanding of the market will depend on the thoroughness of your survey.
Sales and Marketing Strategy
So you have a fantastic product or service, and you think it's a must-sell? But do you have a smart marketing plan? Are you certain that you’ll reap the returns of your investment? Can you beat the competition? And how?
The good thing about modern-day business is that almost anything can sell. The question then is; how do you reach your customers? Marketing analysis will help you out there. Focus on your target market and determine how best you can reach them.
Perhaps, there's a unique edge to your offerings. You need to answer the question of how best to leverage that and penetrate the market. Evaluate your competition too; how are they doing it and how can you do it better, if possible. Until you figure out this one, your venture may not succeed.
Competitor Analysis
This section in the plan is where you profile your existing competitors. You get to make a fair assessment of the strengths and weaknesses of current and potential competitors in the industry. What marketing strategies do they use? What is their market share? Are their prices competitive? How will they respond if you join the market? Do they have any weaknesses that can be exploited?
Having a strong understanding of who your competitors are and knowing that competitive edge over you will give you a better chance of survival in the market.
Operations Plan
A good business plan includes how a business should be run. Operations plan provides a structure that will serve your clients, minimize your costs, and ensure profitability. It's a layout of all the strategies you'll adopt to achieve milestones, and it helps you spend with a clear direction.
Usually, it stretches your budget over some time. Questions like; what kind of structure do you need? What is your staffing need? What tools and software do you need? What is the chain of command? And so on are answered in a typical operations plan.
For startups, you can borrow the process of other strong hands in the industry and then modify as it suits you. It's important to note that the requirements will differ from business to business, so be sure to adopt one that works for you.
Management Structure
Your business plan will point out your staffing needs and how management should be structured. This is one thing investors pay attention to because they believe that the strength of your management will ultimately affect the outcome of a business.
Financial Analysis
Financial projections and estimates help entrepreneurs and investors determine the business's viability. It tells you whether your business has a chance of survival. Typically, financial analysis will include:
- Income statements
- Balance sheet
- Cash flow statement
- Operating budget and break-even analysis
The main question your financial analysis will answer is: Can I make a profit from this business?
You may get professional guidance to assist with getting your business analysis done, but it is advisable to go into the world of business armed with one.
Putting it all together
As you can see, a business plan is a complex document that outlines each and every part of your business. It is important not only for investors and banks, but also for your company as a whole to dictate direction and hash out your vision. Because your business plan is all encompassing, it can be an intimidating document to write- and that’s why I created the 7 Day Startup.
Whether you’ve been in business for two days or twenty years, you now know exactly how important it is to have a business plan and keep that plan updated through all of the changes in your business. The 7 Day Startup Workbook asks you ALL of the questions in easy 20 min a day sessions for one week to get you the answers you need to put your business together (seriously, it’s like plug and play when you’re done). You ALSO get customized daily affirmations to keep you in a positive mindset and send out the right vibes to really achieve your goals.
Are you ready to build your new business plan? Get started here!