More than 15 years ago, I was asked to write my first business plan. I was terrified. Petrified, in fact. I had no idea what to include in a plan, what a financial forecast looked like, or even a solid understanding of why writing a business plan might be important.
And, like most entrepreneurs, I was passionate about my idea but didn’t have a ton of actual business experience. I was confident that I could succeed, but also knew that putting together a solid plan was a critical next step if I was going to convince people that my idea could become a real business.
Years later, I now help run a company that produces business-planning software and, needless to say, my fear of planning is long gone.
What I’ve learned over the years is that business planning doesn’t have to be hard. It doesn’t have to be a 40-page document that no one really reads. Instead, writing a business plan can be a simple, and even enjoyable experience that is proven to help your business be more successful.
A recent study, conducted by the Cranfield University School of Management and published in the Journal of Management Studies, actually found that businesses with a plan grew 30% faster than those that don’t plan. So, even if you aren’t being asked by investors for a business plan, you’ve now got a pretty good reason to put one together.
Planning doesn’t have to be daunting. Believe it or not, if you’re starting a business or even just thinking about starting a business, you’ve already started working on your business plan -- even if you haven’t typed one thing yet.
As you start building your business, you’re already thinking about the future -- what you hope to accomplish and how you’re going to get there. That’s planning. And building a business plan is simply taking those ideas about how you’re going to grow your business and writing them down. It really is that simple.
I always recommend that entrepreneurs start out with a simple plan, a “lean plan” that is a quick overview of your business and how you’re going to build it. A lean plan can be just one page long and need only include a few bullet points for each section.
My lean plans always include the following:
- One sentence headline, or overview of the business
- The problem I’m solving
- My solution to the problem
- Who my target market (my customer) is
- The competition
- Key marketing activities
- How I’m going to sell my product or service
- High level revenue goals and major expenses
- My team & partners
You can read more about lean planning here.
You can build a lean business plan in half an hour, on one page. Really. Go do this now -- your business will thank you.
As you build and grow your business, you should take the time to continue to update your lean business plan. Because it’s only one page, this should be easy to do.
With your lean business plan in hand, you’re a long way towards the traditional formal business plan -- the one that’s printed out and sometimes bound with a glossy cover to hand to investors.
If you are in a position where you must write a business plan document, you’ll need to take your lean plan and expand on it to flesh out the details. Here’s an overview of what I include in my detailed business plan documents:
The standard sections of a business plan
1. Executive summary
The first section of a business plan is called the executive summary, and while it will be the first thing a reader sees, it should be written last. This is because it’s a one or two page synopsis of the all of the highlights in the rest of your business plan. You want to be sure that it’s clear and attention-grabbing, so the reader feels compelled to check out your whole plan.
2. Products and services
This section is pretty self-evident. What do you provide for customers? Businesses often include a list of products and services here, with detailed descriptions. It’s always good to call out what about your offerings makes them unique and valuable. Are they custom-made? Is your service one of a kind in your region? Put the spotlight on what makes your business special.
3. Target market
This is the section where you’ll describe your market as whole, the research you’ve done and why you’ve concluded that your business will be successful in this market. Who is your target market? Explain how you’ll reach them, the value your business provides, and how you see the market changing or expanding in the future. Include information on your competition, and what differentiates your product, service and business from the pack.
5. Sales and marketing
How will you get your product in front of your customers? What kind of sales strategy will you have and what marketing channels will you use? This is where you will describe how you get customers in through your doors and how you sell to them.
6. About the company
Your management team is a key part of your business, so they are also featured prominently in your business plan. Include a general overview of how your company is structured. Call out high-level management by name, and note a brief description of their backgrounds, qualifications, and duties on the job. An investor wants to know that they are putting their money in capable hands, so give them the information you would want to know if you were in their shoes.
7. Financial plan
Financial projections are an indispensable part of any business plan. The essential pieces are your projected profit and loss and cash-flow statements, so anyone reading your plan can see the details of how and when you’re going to be profitable, and that your company is cash flow positive. Other commonly included sections are the balance sheet, sales forecast and personnel plan.
The projections in your financial plan should be monthly for the first 12 months of your plan, and can be yearly estimates thereafter. Three years' worth of projections should suffice for most purposes, occasionally you may be asked to include five years. Any sort of projecting past five years is extremely difficult to do well (you aren’t a fortune-teller, after all), so it isn’t worth trying to estimate.
A living document
The most important thing to remember when you create your business plan is that this is a living tool, not a one-and-done thing. Used correctly, a business plan will help you grow your business faster and more strategically than your competition.
Ideally, you should review your business plan once a month to see if you’re on track to meet your goals and objectives. To do this, review your sales forecast and expense budget and compare your goals to what actually happened in your business. You might need to re-adjust your budgets and tweak your forecasts.
You should also periodically review your strategy. Is your marketing and sales working? Are there new competitors? Should you modify your marketing?
At the end of the day, your business plan is your compass. It’s the map you use during a long road trip to help you stay on course. Take the time to invest in plotting your course and then watch as you speed past the competition!
This article by Noah Parsons is brought to you as the part of a SmartBrief and Bplans partnership. Over the next few weeks, we’ll be bringing you articles to help you start and grow your business. Interested in learning more about lean planning? You can find the “Lean Planning 101” guide on the LivePlan blog.