There’s an old saying in the business world: “Failing to plan is planning to fail.” If you want to improve your business’s chance of success, you need to write a business plan to serve as an overall guide and roadmap for how you’re going to operate your business.
Even the smallest, simplest small business needs a business plan to show how you’re going to find customers and make sales, how you’re going to compete with other existing players in the market, and how you’re going to assess your strategic options to decide where, whether and how to compete in various market niches.
Writing a business plan also makes it easier for your company to get a small business loan or secure venture capital financing, as it gives you an official document to disclose your financial projections to potential lenders and investors.
Here are a few key elements that you need to include in your small business plan, with guidelines for how to compose each part of the written business plan:
- Executive Summary: This is a concise overview (2-3 pages) of your business plan, which is most often read by financial institutions and potential investors. This is where you need to give a broad but compelling description of the goals of your business, a statement of purpose for your business, and an explanation of what makes your business unique.
- Management Bios: Give a brief bio for each member of the executive team. Make it professional, highlighting key accomplishments, and not too lengthy or self-congratulatory. Show that your management team has the relevant experience to make your company succeed.
- Products and Services: Describe the products and services that your business offers. Explain how your products and services are unique and how they are likely to compare with competitors’ offerings.
- Market Potential: Even if you’ve got a great product, lenders and investors want to see growth potential for the overall market that you’re in. It does no good to be #1 in market share in a shrinking market. Instead, show some research, statistics and trends to indicate where you see the growth potential for your market.
- Marketing Strategy: A small business plan is in many ways simply a “marketing plan” with a few additional details. The marketing strategy needs to be at the heart of writing a business plan, because this is where you show how you’re going to find customers and make sales. What markets will you target? Who are your ideal customers? How will you find them? What marketing strategies and tactics will you employ to reach your target audience? How confident are you that there is sufficient demand in the market for what you have to sell? Can you take customers away from competitors? Can you sell to new customers for the first time? These are all questions that your marketing strategy section needs to answer.
- Financial Projections: Especially if you’re going to ask for bank financing or seek venture capital investors, you need to show solid evidence that your business has potential to profit and grow. Show your revenue expectations, how soon you expect to reach profitability, and demonstrate clear plans for any funding that you need from lenders or investors.
- Exit Strategy: If your goal is to sell your business after a few years to a larger company, or take your company public, outline this exit strategy in the business plan. Investors want to see the potential for big growth and big profit. Give them a clear 3-to-5 year plan for how you can get there together.
- Make it Legal: And don’t forget – before you launch your business, before the ink is dry on your business plan, make sure you get your legal ducks in a row by incorporating your business as an LLC, S-Corporation or other legal corporate structure. This will protect your hard work, defend your rights to your intellectual property, shield your personal assets from some of the worst-case scenarios of entrepreneurship, and give your business a higher level of credibility with customers.
Writing a business plan should not be a merely academic exercise – the last thing you want is for your business plan to be written as a one-time deal and then sit on a shelf gathering dust. Instead, your business plan should be a living document that you can adapt and re-evaluate over time. But before you launch your new business, take the time to ask yourself these questions and go through the mental exercise of writing a business plan. Your future profits depend on it.