By sampay Opinions expressed by Entrepreneur contributors are their own.
There are many articles about what to include in your business plan. But what about before you even start writing it? Are there things you need to know? Information you need to compile? Things to consider? You bet. Below you’ll learn five things you must know and do before sitting down to write your business plan:
1. Your business plan is a marketing document
The first thing you must understand before writing your business plan is that your plan is a marketing document. It is not a 50-page dossier explaining everything there is to know about your business. Rather, the document’s purpose is to convince others, such as investors, lenders, partners, employees, etc. to invest their time, money and/or resources in your company.
As such, your plan is a marketing document. It must compel readers to take the actions you want them to take. So, for example, rather than presenting a data dump in which you list every possible fact about your industry, focus on specifying the most relevant facts, and more importantly, discussing how those facts make your company even more likely to succeed.
Related: 7 Steps to a Perfectly Written Business Plan
2. Conduct market research
Before you start writing your business plan, you also need to conduct market research. This involves gathering information about potential customers, competitors and industry sizing and trends.
The purpose of this research is twofold: One, it helps you understand the competitive landscape in which you’ll be entering. Two, it helps you craft a sound and compelling strategy and properly position your company to readers as one that’s poised for success.
Much of the market research you need will be readily available. Look at industry associations or vertical websites that analyze your industry. For example, if looking for research for a business plan to launch a vending machine business, leverage sites like Vending Mavericks.
3. Figure out your precise use of funding
Most business plans are presented to funding sources such as banks, angel investors or venture capitalists in hopes of raising capital. One of the most important questions these funding sources will ask is how much funding you need and what it will be used for.
Before developing your plan, you need to get a firm grip on this answer. Doing so requires conducting market research. For example, if you plan to hire a new vice president of sales with the funding, research the annual salaries of such positions in your geographic area and/or market. Likewise, if your funding is to build out a restaurant, you need to talk with and get quotes from interior designers, contractors and equipment vendors among others so you have solid estimates of the costs you will encounter.
Related: The Essential Guide to Writing a Business Plan
4. Compile historical financials, and develop financial forecasts
If you’re writing a business plan for an existing business, you must compile all of your historical financial data. That includes past income statements and your current balance sheet.
For both existing and new businesses, your plan must also include financial projections. These projections include income statements, balance sheets and cash flow statements going five years out. Importantly, these projections must give investors and lenders the confidence that if they provide the funding you request, your business will be able to repay the funds (if a loan) from operating profits or gain tremendous value over time (if an equity investment) so the investors can sell their share at a significant profit later.
5. Determine how your business is uniquely qualified to succeed
Finally, you must determine how your business is uniquely qualified to succeed. This involves analyzing your competitive advantages and discussing how they will help you achieve success despite the challenges that may stand in your way.
For example, if you are entering a crowded market with dozens of competitors, discuss what makes your company’s product or service different from theirs and why that’s important. Or if you have a long-standing relationship with an established partner or customer, discuss what that means for your business and how it will help you secure additional resources, customers or profits going forward. Likewise, you may be uniquely qualified to succeed based on the intellectual property you have or the quality employees you have hired.
Importantly, you must recognize that the most successful companies have unique success qualities. Think through every key aspect of your business, your team, products, services, marketing plan, operations, etc., and figure out what’s needed to be uniquely qualified to succeed in each of these areas.
Related: How to Prepare and Write the Perfect Business Plan for Your Company
Anyone can write a business plan. But writing a business plan that achieves your goals is much more challenging. Those goals may include raising funding, convincing a company to partner with you or developing a solid roadmap for success among others. In any case, knowing and doing the five things mentioned above will allow you to create a winning business plan and achieve lasting success.