By Hari A business plan is a foundational key to success for any business, whether big or small. Whether your goal is to secure funding for your business, develop a general roadmap, or simply grow your business from the ground up, an effective plan must be established prior to any first step.
What is a Business Plan?
For those unfamiliar with the term, a business plan is a key document that defines, in detail, the objectives of a company and how that company specifically plans to achieve those goals. This plan will cover everything including finances, marketing, operational considerations, legal considerations, and much more.
Business plans are developed with both the internal and external audiences in mind. From an external perspective, a business plan helps a company identify their potential customer base and where they should be directing the vast majority of their energy. Internally, a business plan can be used to pitch investors for funding or simply to show shareholders and employees the direction of the business.
Why is a Business Plan Important?
Some companies may overlook creating a business plan out of eagerness to get their operations underway. In this process, they may accidentally gloss over extremely important details that need to be covered. As an example, if a business plans on making an employee base they will need to set up workers compensation insurance in the event of a workplace accident. Not doing so can leave them open to being sued by a former employee who was injured on the job.
Alternatively, if a company whose product is primarily food-based, specifically meats, starts advertising to platforms that are predominantly vegetarian, they aren’t likely to be successful. Implementing a strong and effective business plan is an important starting point for any business.
6 Steps to Create an Effective Business Plan
With the ‘what’ and the ‘why’ covered above, the only thing left to do is learn how to create a business plan that sets you apart from the competition:
Choose a business plan type
The first step in creating a business plan is to choose which type of plan you want to create: traditional or lean startup. There are a few key differences between the two.
A traditional business plan is typically extremely detailed, takes a long amount of time to write, and is more comprehensive. It is the preferred plan for targeting lenders or investors in the business. On the other hand, a lean startup plan is more high-level, quick notes about the organization that aren’t targeted towards potential investors.
A startup plan is only going to include the most crucial elements to your business strategy, essentially providing readers with a basic understanding of your business using only a quick glance.
Describe your company
The foundation of any business plan is describing what it is that your business does. This section should include information such as the registered name for your business, its location, who the management team is, and what the business structure looks like.
Cover the history of your organization and any driving factors that led to its creation to allow readers to better understand company objectives. It’s also best to include a percentage of ownership in the company so that investors can understand the financial structure.
Write an executive summary
An executive summary, often the first page of a plan, is the quickest glance into your business that a reader will have. It is also one of the most difficult things to write in the plan as a result. You must condense the entire summation of your business’ description, goals, and strategy into a small paragraph or visual page that investors can understand.
In general, avoid going into detail on an executive summary. Instead, focus on providing only the most important points of your organization, such as an overarching strategy to sell specific products, rather than diving into specifics.
Outline your business goals
During the course of creating your business plan, you will want to create an objective statement. This type of statement lists what your company wants to accomplish and how they are actually going to accomplish it. Typically, an objective statement will be broken out into the short vs. long-term, allowing readers to gain a better sense of the business roadmap.
Any plans for acquiring funding should be listed here, along with future goals such as introducing new products or different marketing strategies. As a whole, the objective of this section is to provide readers with a comprehensive understanding of what your company is doing and how you plan to grow your company over time.
Describe your products and services
No business plan would be complete without a description of the products or services offered. Besides providing insight to investors on what they are putting money into, this description can help business owners narrow down who their target audience actually is, resulting in improved sales from targeted marketing.
You should include a description of the product or service, pricing models for those items, who your customers are intended to be, how you will order those items, how you will sell the items, and how you will get the items to customers.
Perform financial analysis on your business
Finally, perhaps one of the most important aspects of a business model is financial analysis. Investors need to see hard numbers to understand what they’re getting into, and financial analysis will also help you decide if the business is viable. Calculate metrics such as net income target, profit ratio, leverage, inventory turnover target, and sales target.
Start your small business today
Starting a small business is never an easy task, but it is extremely exciting, nonetheless. Avoid getting caught up in that excitement and forgetting to handle some key administrative steps, such as creating a business plan, when implementing your idea. With the right tools at your disposal, any business idea can be crafted into something special over time.