Every business, no matter the size, needs a plan. Without an effective business plan, it’s difficult to strategize about your future goals and needs. Frankly, without a good business plan in place, you’re making it up as you go along, and that is a recipe for failure, not success. Plus, you’ll also need a good business plan to show lenders if you require funding. Fortunately, putting together an effective business plan isn’t hard, especially if using business plan software or templates. While this does take some time, it’s time well spent. This step forces you to think about your business in a way you may not consider when you’re dealing with the daily demands of your company. A business plan is never finished – this is a document that requires revisiting on at least an annual basis. You want to see how you’ve measured up and what needs to be changed to optimally run your business.
Critical Business Plan Elements
Every business has its own needs, but there are universal elements to every business plan. Start your plan by outlining your particular industry and the niche your business occupies. What product or service does your business provide within that industry? Explain how that product or service is used by consumers or clients. Are your products copyrighted or patented? How is your business structured – are you a sole proprietor, LLC, partnership, S corporation?
The Marketing Plan
You’ve addressed the basics of your business and determined why your product or service is valuable. Now, your business plan must show how you intend to market that product or service. What is your target demographic? Include that demographic’s age, income level, gender, etc. If your demographic is other businesses, include the types of businesses your company serves.
How will you provide information about your business to your target market? Depending on your business and your capitalization, that might include social media marketing, direct mail, SEO marketing, billboards, radio and local TV advertising or extensive networking. How do you expand your brand awareness? Of course, you’ll need a website, but what about blogging and other ways to increase your website’s search engine rankings? Whatever forms of marketing you choose, it’s crucial to show what gives you a competitive advantage.
Your marketing plan must include the ways you intend to grow your business, not just advertise it.
You and Your Team
Your business plan must include your experience and skills and those of your team. That doesn’t mean including a complete biography, but it does mean providing the educational and professional experience of each team member, showing what each person brings to the table. Include management and organizational structure, along with key responsibilities and the particular expertise each person has.
While putting together your business plan, you may find that you are lacking some essential industry expertise elements; you now realize you must find someone to provide it.
Goals and Strategy
Your goals for the business, and your strategy on how to attain them are a vital part of your plan. How realistic are these goals, based on current economic trends? That’s a question a potential lender will ask. Do your due diligence and be specific when writing down your goals and how you intend to reach them. It’s not enough to state you plan to grow your business by 10 percent annually without clarifying exactly what steps you will take to do that. Include ways you may have a competitive advantage, such as location, operations efficiency or superior customer service.
If your business is established, your financial plan should include expenses and profits. The best way to provide this information, especially to a lender, is via a profit and loss statement. From your current expenses and revenue, project your future expenses and revenue for a specified time period, such as the next five years. Stay conservative in your forecasts. Your plan must reflect reality, and you don’t want to overreach. Include any collateral your business has in the financial plan. State whether your accounting is done on an accrual or cash basis.
If you’re a startup, you don’t have a financial history to fall back on, but your plan should include quarterly projections. With a startup, you can’t provide actual numbers, but you should provide well-researched, educated assumptions based on reputable sources. Have these sources available, should the lender ask questions.
The Executive Summary
The length of a business plan varies, but figure that a plan may consist of 10 to 25 pages. If you’re a sole proprietor with a straightforward business, you may need just a few pages. Note that every business plan needs an executive summary. This summary highlights all of the document’s main points. You’ll write the executive summary last, after you’ve completed all salient points of the plan, and place it at the beginning of the document. With the executive summary, you’re putting your best foot forward, so do more than just taking extra time to work on it. Show it to a business advisor or knowledgeable business person to receive feedback, and tweak it as necessary. From a lending perspective, your executive summary is the best way to make a good impression.
The Annual Review
As noted, you should review and update your business plan at least once a year. The beauty of the annual review is that you can see what is and isn’t working with your business plan and make adjustments accordingly. As a living document, your business plan shows where you are meeting goals and objectives and where you might fall short. The annual review allows you to assess the direction your business is going. Perhaps you’ll need to revise your business plan significantly each year, or just make a few alterations. No matter whether you are course correcting with major or minor changes, your business plan reflects the options you have for continuing growth and success.