No matter how long you’ve been in operation, your business needs a plan. A good business plan can help you secure funding for your startup or expand your operation. Business planning provides you, your employees, and your investors with a clear outlook of where you see your small business going. It also details the steps you’re going to take to get there. Business plans can help you focus on the right things and give you a roadmap to future success.
Even if you aren’t looking for a capital infusion at this moment, a business plan can still be a great help. The process of creating a business plan forces owners to look at the company, and evaluate what’s working and what’s not. Business plans cover all aspects of building a small business, including things like financial analyses, sales strategies, and marketing plans.
Below, you’ll find a breakdown of everything you need to know about crafting a business plan. You’ll learn why business plans are critical to a small business’s success, and the things you should include when crafting your plan.
The importance of a business plan
A few years ago, Palo Alto Software surveyed its users to determine how useful a business plan was to success. The results were reviewed by the University of Oregon for validation and seem to point to the improved outcomes for those with business plans:
- Of those who created plans, 64% grew their businesses.
- Those who created plans were more likely to secure a loan or investment capital.
- Those who drafted a business plan were two times more likely to grow their business.
A well-constructed plan can turn a business idea into reality. Business plans can provide a roadmap to take action, inspiring team members and potential investors alike. Having a roadmap is one of the critical elements to gain a competitive advantage when creating or growing a startup business.
Times you’ll be glad you have a business plan
Any business hoping to raise funds needs a plan. If you show up at the bank to ask for a loan, lenders will want to see a business plan. Venture capitalists also like to know that you’re organized and informed, and that you have a strategy to help them obtain a return on their investment.
However, the benefits of a business plan go beyond raising money. Business plans can outline a company description and a marketing strategy. They’ll provide you with direction as you determine where to take your new business. Business plans also often contain a market analysis section, which can help you find and exploit your niche.
The sales strategies section can remind you of how you plan to increase your revenue. Your business plan is about organizing and planning so that you have the lay of the land and are ready to build your business in a way that makes sense. When you face uncertainty and aren’t sure where to go next, your business plan can give you the guidance you need.
7 elements of a business plan
Your well-thought-out business plan lets business partners and investors know that you’re serious and that you can handle building a great business. The seven components that you’ll find in sample business plans include:
- Executive summary
- Company description
- Market analysis
- Organizational management
- Sales strategies
- Funding requirements
- Financial projections
All of these elements can help you as you build your business — in addition to showing business partners, lenders, and potential backers that you have a clear idea of what you are doing. Below, you’ll find the seven elements that you’ll want to include when drafting your business plan.
1. Executive summary
The executive summary is the elevator pitch for your business. It distills all the vital information about your business plan into a relatively short space. It’s a high-level look at everything and should include information that summarizes the other sections of your plan.
We recommend writing the executive summary last so that you can include essential ideas from other sections.
Below, you’ll find a sample executive summary from Coffee House Inc. Its executive summary focuses on the value proposition of the business. Here’s what the company wrote in its plan:
“Market research indicates that an increasing number of consumers in our city are interested in the experience of coffee. However, there isn’t a viable place for them to meet and learn locally. Instead, they only have access to fast coffee. Coffee House Inc. provides a place for people to enjoy fresh-ground beans and truly enjoy their cup.
“Coffee House Inc. provides a hub for a subculture of coffee, offering customers a place to purchase their own coffee-grinding supplies in addition to enjoying the modern atmosphere of a coffee house.
“The founders of Coffee House Inc. are coffee aficionados with experience in the coffee industry and connections to sustainable growing operations. With the experience and expertise of the Coffee House team, a missing niche in town can be fulfilled.”
2. Company description
This is your chance to describe your company and what it does. Include a look at when you formed your business, your mission statement, and your values. These are the things that tell your story and allow others to connect with you. Some of the other questions you can answer in the company description section include:
- What is the business model? (What are your products and revenue sources? Who are your intended customers?)
- Do you have unique business relationships that offer you an advantage?
- Where are you located?
- Who are the founders and owners?
- What is the legal structure?
- What is your projected growth?
Answering these questions narrows your focus and shows potential lenders and backers how you view your venture. Your company description can also include descriptions about the type of business you’re running and an organizational chart of the business owners’ roles.
3. Market analysis
This is your chance to look at your competition and the state of the market as a whole. Your market analysis is an exercise to see where you fit in the market and how you are superior to the competition. As you create your market analysis, you need to make sure to include information on your core target market, profiles of your ideal customers, and other similar market research.
Part of your market analysis should come from the trends in your area and industry. For instance, Coffee House Inc. recognizes that there is a wide trend toward “slow” food and the idea of experiencing life. On top of that, Coffee House surveyed its city and found no local coffee houses that offered fresh-ground beans or high-end accessories for do-it-yourselfers.
Coffee House can create an ideal customer identity. The ideal customer is a millennial or younger member of Gen X. He or she is a professional and interested in experiencing life and enjoying pleasures.
The ideal customer probably isn’t wealthy but is middle class, and has enough disposable income to have a hobby like coffee. Coffee House appeals to professionals who work (and maybe live) in the downtown area. They meet their friends for a good cup of coffee but also want the ability to make good coffee at home.
4. Organization and management
Use this section of your business plan to show off your management team superstars. Venture capitalists want to know you have a competent team that has the grit to stick it out. You are more likely to be successful when you have the right management and organization for your company. Make sure you highlight the expertise and qualifications of each member of the team in your business plan.
In the case of Coffee House Inc. the founders emphasize their connections in the world of coffee, particularly growers who use sustainable practices. They can get reasonable prices for bulk beans that they can brand with their own label.
The founders also have experience making and understanding coffee. One of them has an MBA and can leverage executive ability. Both founders have worked in marketing departments in the past and have social media experience.
5. Sales strategies
How will you raise money with your business and make profits a reality? Your sales strategy can answer these questions. This section is all about explaining your price strategy and describing the relationship between your price point and everything else at the company.
You should also detail the promotional strategies you’re using now, along with strategies you hope to implement in the future. This includes your social media efforts and how you raise your brand awareness. Your sales strategy section should include information on your web development efforts and your search engine optimization plan.
Coffee House needs to make sure they utilize word of mouth and geolocation strategies for their marketing. Social media is a good start, including making Facebook Live videos of them demonstrating products and how to grind beans. They can encourage customers to check in when visiting, and offer exclusive coupons and promotions that activate when they come to the store, which could promote sales.
6. Funding requirements
This section will outline how much money your small business will need so that you can make an accurate funding request. Make sure you are as realistic as possible. You can create a range of numbers if you don’t want to try to pinpoint an exact number. Include information for a best-case scenario and a worst-case scenario. You should also put together a timeline, so your potential investors have an idea of what to expect.
For instance, it can cost between $200,000 and $500,000 to open a coffee house, and profit margins can be between 7% and 25%, depending on costs. A successful business in the coffee industry can see revenues of as much as $1 million a year by the third year, according to the Chronicle.
Some of the things Coffee House Inc. would include in its timeline are locating premises, obtaining food handlers’ permits and business licenses, arranging regular product supply, and getting the right insurance. The best and worst case scenarios for how long this will take depends on state and local regulations.
No matter your business, you should get an idea of what steps you need to follow and how long they typically take to complete. Add it all into your timeline.
7. Financial projections
Finally, the last section of your business plan should include financial projections. Your forward-looking projections should be based on information about your revenue growth and market trends. You want to be able to use information about what’s happening, combined with your sales strategies, to create realistic projections that let others know when they can expect to see returns.
If you’re looking to accurately analyze your financial statement, income statement, loss statement, cash flow statement, and balance sheet while projecting future cash flow, you may want to consider using accounting software like Quickbooks from Intuit.
Utilizing accounting software will allow you to recognize your deficiencies, acknowledge your strengths, and craft a detailed financial plan. Doing so can increase your likelihood of securing a favorable business loan.
Draft your business plan today
Even though it can be time-consuming to create a business plan, your efforts will be rewarded. The process is valuable for helping you identify potential problems and helping you plan ahead. You’ll be more organized and better prepared for success. We hope that the plan outline we provided proves useful for creating a good business plan.