Writing a business plan is a vital first step to starting a small business. Your business plan will become, and remain, your roadmap to success for as long as you own the business.
It’s important to create this plan early, so you can outline the steps needed to take your business from conception to profit. The first thing you should note are the specific parts of a well-formed business plan:
- The first section is your business concept, where you explore your industry, your business structure, your product or service, and your plan for bringing in revenue.
- The second section is your marketplace, where you describe potential customers and their buying habits. This section will explore your marketing plan versus the competition.
- The last section is the financial section that outlines your cash flow and income statements, financial projections, and investor details.
Elements of a Business Plan
Each of those sections break down into eight different elements. These elements cover everything you need for a business plan that will guide your small business for years to come.
- Executive Summary
- Business Description
- Market Analysis
- Team and Management
- Service or Product
- Marketing and Operations Plan
- Financial Projection
Now we'll take a look at each element in detail so you can build the right plan for your business.
Everyone! If you’re beginning a venture to return a
profit, you should draft a business plan.
The executive summary will encapsulate the entirety of your business plan by summarizing your company and its overall goals. For new businesses this will likely be short, but this section will grow over time as you start analyzing profits and revenue.
As a new business, your executive summary should concentrate on your company background and your reasons for starting this business in your particular industry.
You should be able to explain the need for your business—a hole in the market or a lack of efficient existing businesses. This information can come from extensive market research done prior to your business plan. You should also explain how you plan to fill the gap and succeed in your industry.
As soon as possible! Your business plan will inform other
decisions like hiring and marketing.
Your business description will go into more detail about your business goals. Think of this section as your condensed appeal to investors or potential customers.
What to Include in Your Business Description:
- The nature of your business and how it satisfies the market need
- High-level explanation of products or services and how they fit within the market
- Specific groups of customers or businesses you will serve
- How you will succeed above the existing competition and overall value proposition
Your business plan will serve as your outline for success!
Your market analysis will dive into your previous market research and outline the industry as it exists at the time. This section will be frequently updated as the market changes.
What to Include in Your Market Analysis:
- Industry Depiction and Position: Define your industry with current statistics, like size, as well as historical data like growth rates and yearly trends. You should also include any key customer groups.
- Target Audience Data: Select and narrow your market. The less broad, the easier it will be to create a targeted marketing plan. Research their needs, demographics, location, and purchasing tendencies.
- Market Share Availability: What percent of market share can you gain in the industry? If you’re a local business, how many customers can you obtain in that area?
- Pricing Structure and Profits: Determine your structure for costs and targets for margin levels.
- Competitor Investigation: Identify your local and industry competition and any barriers they may create within your market.
- Regulatory Limits: Define any government regulations that may hinder your entry into the market, and how you will incorporate those.
Depending on your industry, your business plan can be updated
quarterly, but should be updated yearly at minimum.
Team and Management
Your Team and Management section should outline what your company structure will look like, including ownership, management, and directors.
It’s important to consider the following questions when outlining your organizational structure:
- Who does what in your company?
- What is their business background, and why are you hiring or partnering with them?
- What are their business responsibilities?
Each department should be thoroughly outlined, even if you haven’t hired for every position yet. Be sure to include a plan for growth, including potential new positions and hiring process.
If you have a board of directors, that should be included here. Also describe your salary structure and benefits package, as well as any bonuses you plan to give.
The organizational section should also include any details about incorporation and the legal structure of your business. Define your legal standing as a C corporation, sole proprietorship, or partnership.
Remember to include the following details about your business owners in this section:
- Owners’ names
- Percentage of ownership
- Contribution to the company
- Stock options
- Outstanding equity
- Common stock
- Management Record
- Position description and primary duties
- Education level
- Skills and certification
- Industry acknowledgement
- Community involvement
- Compensation level
Your board and employee profiles should highlight the skills needed to begin a successful business. Be sure to include how each person will contribute to bigger profit margins down the line and overall employee growth.
Service or Product
The service and/or product section of your business plan is important for defining the core of your business. It should also include how this service or product will benefit your customers and fulfill a market need.
Make sure to include the following in this section:
- Description of Your Product or Service: Focusing specifically on why customers would purchase from you versus the competition. If your product is still in the beta stages, make sure to include a projected timeline.
- Details About Your Product’s Life Cycle: Describe where your product or service is in its life cycle, including any improvements or upgrades in the future.
- Intellectual Property: Include any existing or pending copyright and patent decisions. Describe any aspects that may be subject to nondisclosure agreements.
- Research and Development: Detail any research you have performed and product development in process. Make sure to include future projection and analysis of any completed activities.
- Answer key questions such as who, what, where, when, how, why, and how much?
* Take time to research all components and write a comprehensive, detailed plan
- Include market research
- Explain how the plan relates to the financial projections
- Research costs thoroughly in order to provide more accurate numbers
- Just "guess" what your costs may be
- Limit your plan to a minimum or maximum number of pages
- Struggle with trying to make your plan "fit" into a generic mold
- Overestimate revenues
- Fill your business plan with meaningless fluff
Marketing and Operations Plan
An important part of your business plan is your marketing and operations section. Here you will outline your advertising and sales strategy for the business.
Marketing for a new business is the best way to raise awareness for your potential customer base. Here you should outline your step-by-step marketing strategy, which will likely continue to evolve over time.
Your marketing plan should include four different tactics:
- Market penetration strategy. This is how you intend to enter your defined market.
- Growth strategy. This will focus on employee growth, acquisition strategies, franchising options, and vertical growth.
- Channels of distribution strategy. Choosing a distribution channel, like OEMs or retailers, should be outlined in your marketing plan.
- Communication strategy. This will focus on your advertising and PR strategy for your business. Make sure to outline the mediums you are choosing to reach your customers.
Once you outline your marketing strategy, you should define the sales process and how you plan to sell your product. Your overall sales strategy should include two key foundations:
- A sales force strategy. If you are hiring a sales staff, outline whether this will be internal or outsourced. Make sure to include the size of your team in the beginning as well as plans to scale in the future. Also include the compensation and training details for these employees.
- Your sales activities. This is where you will outline the actual sales process, from prospect targeting to the lead funnel. Determine how and how often your leads will be contacted, along with average revenue projections per sales activity.
Once you have your market research completed, you can outline your financial projections in this section of your business plan. Your revenue and resource objectives should be set for several years into the future.
As a new business, you won’t include historical data in this section until later. Instead, you’ll focus on prospective data. This will be helpful for any investments or loans that you might need for financing. Include any revenue projections over the next five years, including balance sheets, cash flow statements, and budgets.
These projections should match the loan or funding requests that you are looking for. If there are any inconsistencies or guesswork, be sure to explain and outline why in your proposal.
Lastly, your financial section should include a history and analysis of your personal finances, focusing on trends across your statements.
Finally, you may want to include an Appendix to your plan. This can include items such as your credit history, resumes, letters of reference, and any additional information that a lender may request.