You may ask: why do I need it? Why can’t I just launch my company and get to market? Why is a business plan important? Actually, its importance cannot be understated.
Business plan sets out where you want to go, defines your key objectives for the next two or three years. It shows your plan to get there, the strategies you are going to use to achieve the goal. It is a working document that you can refer to and make sure you are going in the right direction. Business plan is a great way to demonstrate how you are performing to other people. That is why banks and investors ask for it. But before you start to write a business plan, make sure you take the next steps.
Steps to Take Before Writing a Business Plan
Step 1: Know the Audience
If you are going to produce something people want to buy, then you should understand the needs of your customers, their desires and fears. If the customers do not have a need to buy your product, it does not make sense to create it. So, while developing the product, get input and feedback from the customers.
Step 2: Create Customer Profile
The importance of age, gender, location of your customers can’t be understated. Many business people often ignore the customer interests, buying behavior, etc. I know that these things may seem trivial, but they can provide valuable insights, for example, for advertising.
Step 3: Identify the Competitors
Identify your top 3 competitors and study their products, services, pricing. So, it will be much easier to differentiate yourself from them as well as figure out how to price your products. Offer something they are not offering. Maybe, it is a better guarantee, lower prices, more value, etc.
Now it is time to give you ideas on how to make a business plan, what goes into a business plan and how to present a business plan. I will take you through each section. However, you ought to know that the plan is often not written in the same order as in the final document. For example, although the executive summary appears as a first section, it is usually written last, when everything else is done. So, what to include in a business plan?
Overview of the Company
The first section is the introduction and the company overview. There, you need to include the basic information about your company: the business name, the address, the website, and the contact details. Indicate your legal status, for instance, whether you are operating as a sole trader, a partnership, or a limited company. What do you want to achieve and how do you plan to measure your success? Make sure you describe the product or service you are offering and who you are selling it to.
The reason why many companies fail after the first year is because they do not have anything that differentiates them from the others. This is known as a USP (Unique Selling Proposition) and that is why you needed to identify your competitors before starting a business plan. Find your USR. For example, you will give a money-back guarantee if the customer is not satisfied. If your competitors offer a 30 days guarantee, why not offer 90 days or even a year?
The key here is to keep focus on the benefits your customers get from the product or service you offer rather than just features of what it is or what it does. Explain what it is that makes you different and makes you stand out from the competitors.
The next section is about market research. This is where you demonstrate that you have researched your market and understand the environment you are working in. You want to include a P.E.S.T. (Political Economical Social Technological) Analysis. Here you need to show which market factors are likely to have an impact on your business. A significant part of this section is about identifying your target markets, showing who and where your customers are and how you can satisfy their needs.
Sales and Marketing Strategy
This section focuses on your target market, how you plan to promote the company and reach the customers. Include details of your pricing strategy and a thorough sales forecast. Be specific about what you want to achieve, include a timeline. It is important for you to explain how you will track results and measure your performance. Include what you plan to do to minimize the risk in your business writing.
A key section of your business plan is operations. This is where you explain how you plan to conduct your company’s activities. It includes information about your location, premises and equipment. This section also explains how you plan to deliver the products and services. Add an overview of your suppliers as well as distribution strategies. Do not forget to mention how many employees you need and what IT-support you are planning to have.
Now, we get to the financial information section. This is one of the most critical and daunting sections. It is a good idea to ask your accountant or business advisor to help you out. The aim is to demonstrate that the business will have a sufficient cash flow to cover its expenditures and make a profit. You need to show detailed month by month cash flow expectations for the first year and a profit and loss statement for the next two or three years.
I want to show you two quick financial statements that you can include in the business plan. One is a profit and loss projection and the other is a cash flow statement. For example, you are planning to launch a school photography business. The company would provide photography services to schools. You know these class photos at the end of the year? Well, you would start a company that would take those photos and get paid for them.
In terms of finances, you need to think what the revenue of the business will be. For this company, it will be school events, school picture packages and album CDs. You need to count the fixed cost. Fixed costs are those upfront costs that they need to spend to get the business started, but they may not last. Once you buy your camera, you may not need to buy a new one every year. Then add variable costs. For example, legal and accounting fees, picture prints, shipping, website, advertising. The bottom line for the financial sector is the net operating income.
Yes, you are almost there. It’s time for the final section. This is where you put together all the documents and evidence to support your business plan. This may be market research information, any letter you have from potential customers or other companies’ orders. You can also include references or examples of previous work, the price list, legal documents, policies and procedures, etc.
There is only one thing left. After you learned a lot about your future company and set its goal, it is time to write an executive summary. The question is how to write an executive summary for a business plan? The main idea is to keep it brief and to the point. Provide an overview of a business and cover its most important points.
But I suppose you still have tons of questions. And one of them is how long should a business plan be? You have to size your paper to the type of your business. In many instances, you can basically write a business plan in two or three pages. Obviously, when you have a more complicated business, when the investment is going to be much larger, it is going to be more complicated to operate it, to sell, to market it. It all depends on the type of business. For example, for above-mentioned photography company is can be 5-8 pages. If you are writing a plan for an oil company, 5 pages are going to be only about the financial side of the plan.
Often when you are starting out a business, you can really get away with 3-4 pages. So, if you are asking for small loans like $20,000, be sure no one is going to ask you to write a business plan of 20 pages.
So, once you have a clear image of your business in your head, it is actually just a matter of couple of hours to write a perfect business plan.