No one ever said starting and running your business was easy, but a well-thought-out business plan can make the process smoother. Taking the time to put together your own business plan can save you time and money down the road. So how do you go about writing a business plan? And more importantly, why do you need one?
Advantages of having a business plan
There are many questions that come up when writing a business plan - what should go in it, who should write it, and most importantly, why do you even need one? Before we get into the nitty gritty of what should be included in your business plan, let's talk about some of the reasons why writing one is so important.
Whether you're a small business just starting out or have been in business for years, having a business plan is fundamental to keep your venture on track. Here are just a few of the benefits:
- A well-written, viable business plan helps you stay focused on your goals and objectives. The planning process alone can help you understand your own business better.
- Provided they are kept up to date, business plans act as a roadmap - outlining specific steps needed to reach your targets.
- Business plans to measure success and keep you accountable - quarterly reviews of your business plan will help ensure you're on track and meeting milestones.
- Having a solid foundation at the beginning makes it easier to persuade investors and raise money down the road.
- Last but not least, it's an essential tool for measuring progress and determining whether or not your current strategies are effective.
While there are undoubtedly many other benefits to having a well-written, business plan, these are some of the most important ones, both for a new business or an established business.
Steps to writing a great business plan
So now we know that business planning is crucial... let's talk about the key elements to write a business plan! Below is an outline or a list of some sections that you might want to consider.
The key sections of a business plan are an executive summary, a company description, an overview of the market and the competitive landscape, your sales and marketing strategy, an overview of the management team and some financial projections.
There are several traditional business plans templates and business plan examples available for free that you can use as a starting point.
An executive summary
An executive summary is a one page business plan outlining your business idea. It is an important tool for entrepreneurs, as it allows you to communicate your vision and get feedback from potential investors. It should be clear and concise, and it should highlight the key points of your business plan. In addition, it should be easy to understand, as it will be read by people who are not familiar with your business.
Think of the executive summary as a summary of everything that follows in your business plan. It normally includes information around:
- What your business does
- Your company's products or services
- The team
- Target market (who you sell to)
- The competitive landscape
- Positioning and competitive advantage
- Current financial position
- Growth strategy and financial projections.
You should dedicate one section to providing a company overview. Use this section to explain your mission statement. Why does your company exist? What are you trying to achieve and which problems are you trying to solve? Your mission statement is your raison d'être and this should be as clear and focussed as possible.
In this section, talk about your company model and how it enables your company to bring innovative products or services1 to market. What industry do you operate in? Which verticals do you sell into? You can describe how your company creates value for its customers and stakeholders, by meeting their needs and exceeding their expectations, and how you innovate your offering to constantly make it more accessible to your customers.
Use this section to run through background information on your business and the company's history, including a timeline to date. If your company has a unique business legal structure, you can explain the reason for it and highlight any potential benefits.
Outline the market and potential customers
In this section, you can summarise the findings from your market research. Talk about your target market. You might want to perform a market analysis on your Total Addressable Market, which represents the total market for your products or services, your Serviceable Available Market, which represents the portion of the market you can acquire based on your business model and your Serviceable Obtainable Market, which is the portion of the Serviceable Available Market you can realistically capture given your model and sales strategy.
Apart from the size of the opportunity, your market research will help identify your target audience and target personas. You should think about their role in an organisation (for B2B sales), their pain points, their budget and spending habits and their decision-making process.
Segmenting your audience
Moreover, if understanding the audience is a starting point, breaking it down into customer segments will facilitate an even more granular, focused go-to-market strategy. Customer segmentation might include details about where your audience is based, their age, behaviour patterns, earnings, level of education, as well as their opinions and beliefs.
Your focus should remain on product market fit. Understanding your audience is great, but explaining how your product helps in solving its needs and pain points is key to tapping into your market and scaling rapidly.
Identify the competition
To get an idea of how your company fares in the market, compare it to your competitors. Research your competitors' strategies, successes, and any barriers they may have faced. Even if you are doing something completely innovative, you will face some degree of competition.
Some factors that can distinguish you from your competitors are:
- Pricing - are you more or less expensive than your competitors?
- Differentiation - what are your competitive advantages? Are you offering a solution that is new or differentiated enough?
- Segmentation - depending on your offering, you might want to segment your competition and benchmark how well you are performing in various areas.
Understanding what your competitors are doing well and their weaknesses should help you in formulating your strategy.
Performing a SWOT analysis
A SWOT analysis, standing for Strengths, Weaknesses, Opportunities and Threats is exactly what the name suggests. It includes a breakdown of:
- Your company's strengths - could be anything ranging from product or services offering, to management, to your intellectual property
- Your weaknesses and what needs improving
- Your opportunities - entry in new markets, expansion in other geographies where your offering is not as strong
- Your threats - such as threats from competition or the regulatory environment
You can include a SWOT analysis in the form of a graphic, a table or a grid.
Explain your sales and marketing strategy
Your business plan should also include a marketing and sales strategy aimed at your client audience. You can use this section to introduce your marketing team set-up (if you have one), or your hiring plan to build one.
This can be a summary of your marketing plan, explaining how you plan to generate demand for your products and your go-to-market strategy. You might want to explain how you plan to allocate your marketing budget and your focus channels (SEO, social media, PPC, PR, affiliate marketing, etc.). Without a clear plan, you will struggle to 'buy leads', move them through the funnel and convert them into sales.
You can also introduce your sales plan. This will be less relevant if you sell online direct to consumers, but critical for a B2B or services-focused company. Do you have a sales team in place and, if not, how are you planning to grow this in the next years? What are your main sales channels? What is the average sales cycle and how can you work on improving this? Do you have any business partners that you sell through?
Introduce the team
Most business plans will also introduce the management team and key personnel running the organisation. If your company is mature enough, you might want to include an organisation chart to show the company's internal structure too.
Ideally, you would have a team in which day-to-day roles are at a minimum loosely defined and where each individual brings a unique skill set to the company. You can highlight their skillset, past experiences and how they will contribute to the success of your company.
A financial plan and financial projections
This section would include your financial statements, as well as other key details and financial information on your business. A good financial plan will help you convince investors and secure funding.
This will provide an overview of how you generate revenue and what the company's costs are. Therefore, it would include a revenue line (which is backed up by a revenue build module providing the details) and a cost structure. The revenue, net of your costs, net of financial interests and net of tax payments, gives your company's net profit.
Ideally, this would not only be historical, but also include a few years of financial forecasts. Typically, business plans show somewhere between three and five years of financial forecasts.
Cash flow statement
Cash flow statements summarise the cash movements of a business. Unlike your income statement, it takes into account the timing of cash movements (so when revenue is collected and when expenses are paid) and therefore provides a more complete view of your company's financial health.
If your company is generating cash, it has positive cash flow, otherwise, it has negative flow. This is important to investors, because it demonstrates how much cash you need - if a company is using cash faster than it is generating it, eventually it will need external investment if it wants to remain operating.
A balance sheet is a snapshot of a company's financial position at a given time. It allows investors to look into your company's capital structure and how the company is financed, i.e. your company's assets (e.g. cash, equipment, inventory, patents, etc.) and liabilities (such as bank loans, a business loan, mortgages or any sum of money owed).
Set out your growth plan and exit strategy
Your business plan should also outline the main strategy for growing your business. You can use this section to talk about your business strategy and your company plans. This involves identifying the main pillars for growth in the coming years and breaking these down for your readers. You can use this section of the business plan to lay out your expected future and illustrate the key milestone you intend to hit to achieve this.
A business plan gives you a solid foundation to grow
Having a business plan is vital to the success of your company. By taking the time to write a business plan and your goals, you are setting yourself up for success. A traditional business plan template can be a great starting point, but make sure to tailor it to reflect your unique business model. With a well-thought-out plan, you will be on your way to achieving your business dreams.