A business plan can be a critical tool for obtaining investors for your venture. Also, it helps you organize your business idea clearly and concisely. Just as a tree needs strong roots to grow, a business requires a sturdy plan to help it succeed. You can start with a plan that covers the first five years of your venture.
A couple tips before jumping into the details of how-to:
- Keep in mind that business plans are becoming shorter and using more graphs, charts, and other visuals – rather than just words – to explain data and ideas. In later articles we will discuss how you can create a five-slide “pitch deck,” a one-page “lean canvas,” a one-page “business model canvas,” and other new trends in abbreviated business plans tools. However, it is wise to start with a fully written-out business plan before trying the shortened types. That way you understand and can communicate your ideas in depth before editing them down.
- There is no ideal number of pages for your business plan; just try to be as concise as possible. You are writing for modern readers with short attention spans who probably won’t make it through a 50 to 100-page business plan.
- Do not be concerned about creating a business plan that will remain unchanged as your company develops. Instead, expect your enterprise will evolve and change over time. Many businesses pivot, and so do business plans. No one can definitively predict the future of how your business, or the market, will advance.
- Unlike in nature, the seed you plant is not limited to becoming just one thing. Your business can grow outside of your original intentions for it. For example, digital forensics company Guidance Software (clients include The CIA, Facebook, and NASA) originated as an application to find lunch restaurants local to Pasadena, California.
A business plan can be used for several goals. In this article, we will focus on creating a business plan to help attract investor funding. Following are the basic sections you can create for your business plan.
1. Business Summary:
Your summary should be short and attention-grabbing, describing what makes your idea unique and why you believe it will be profitable. Always think in terms of your readers – in this case, potential investors. Tell them why they will want to give you money over other business owners. After you complete the other sections of your business plan, return and rewrite this summary in the most appealing and concise manner possible.
- Mission Statement: Explain your vision for the company and where you would like to take it. The best mission statements are usually short – often times between one and three sentences, and they can also be used as elevator pitches.
- Product or service: Define what you are selling.
- Company Data: Include the names and roles of your top team members as well as your business location(s), contact information, and date of the company’s formation.
- Financials: Briefly explain your current financing and what you seek. You can go into more depth later.
Many potential investors start by analyzing your management team, as your company is only as good as its people. Describe your key employees, and consider including information such as their backgrounds, education, past achievements, and roles at your company. Show how they add unique value and competitive edge to your business.
This is a good place to also describe the company’s ownership, stock plans, partnerships, etc.
3. Company Description:
Explain what makes your business special.
- Market Need: What is the need in the marketplace and how are you filling it?
- Target Customers: Who are your target clients or consumers?
- Unique Advantages: How are you uniquely positioned to bring value to your customers (due to your team, pricing, quality, location, innovations, etc.)?
4. Industry and Market:
Describe the industry and specific market you are targeting.
- Market Status: What is the current state and projected growth rate of the market?
- Market Share: What percentage of the market do you plan to gain and why? Include charts, graphs, or other data.
- Pricing Structure: Define your pricing strategy and how you will gain revenue.
- Competition: Describe your competition and why you will prevail over them.
5. Product or Service:
Describe what you are selling in more detail, and the unique benefits your product offers the target market(s).
- Description of product or service: Detail the current development state of your product or prototype. Discuss research and development.
- Copyrights, patents, etc.: If applicable, list all patents and copyrights you have secured or plan to secure. Make sure you discuss these with an attorney first to help protect your patents and copyrights.
Explain your strategy for marketing to your target customers.
- Penetration: How will you infiltrate the market? How will you continue to communicate with your customers once you’ve reached them? What type of ongoing relationship will you create with your consumers to inspire loyalty?
- Growth: How will you continuously grow your customer base?
- Distribution: What are your distribution channels?
Describe your sales strategy.
- Sales force: How will you sell your product or service? If you will use a sales team, how will you recruit, hire, train and pay them?
- Sales Activities: Define your specific sales strategy and action steps. Who are your prospects and how will you contact them? How many leads do you need to contact on average in order to make a sale? What is your average earning per sale, vendor, etc.?
8. Projected Financials:
Detail the financial projections for your business.
- Past Financials: Discuss how the type of business you are pursuing has performed historically. Consider including data on the performance of your own business so far, if your business is already established. This can include statements of cash flow and income, as well as balance sheets.
- Forecasted Financials: Show potential investors what you expect your business to earn for the next five years. Put together a chart to show quarterly earnings and expenses. Graphs and other visuals are helpful. Because you are making assumptions here, make sure you justify your assumptions with data.
9. Funding Sought:
Explain the amount of investment you seek and why, both currently and for the next five years. Include the type of funding and terms you seek.
- Current Funding Request: How much money do you need now?
- Future Funding Needs: Think about the future of your business: How much money do you need each year for the next five years, and why?
- Spending: How will you spend the investment money you receive? Examples include acquisitions of equipment or other assets, capital expenditures, working capital, and talent.
- Exit plan: Do you plan to sell your company? If so, when and to whom? How will you structure the deal? Many investors want to know your exit plan in advance and how they will get their money back.
10. Rewrite Your Summary:
See step one above.
A Glossary of Business Plan Terms
The glossary by William A. Sahlman for The Harvard Business Review (“How to Write a Great Business Plan,” 1997) remains relevant today, if you need a list of terms to avoid and a good laugh.
Want to learn more about how to use your business plan to get business funding? Learn more about traditional lenders and what they expect here.
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