How To Write a Business Plan
An effective business plan is more than just an innovative company description and an inspiring mission statement. Done right, a business plan is a persuasive tool that guides decision-making and fosters a clear understanding of your business's potential for growth and profitability.
The process of writing a business plan forces you to think logically about the odds of success and whether you can create a solid business. A good plan defines and refines your business idea and identifies:
- The goals you have for your business
- A strategic roadmap of where you want to take your business
- What resources you need for your business to thrive
It serves as a tool to introduce your company to investors, partners, employees, and others. It can also help you secure financing for your business.
Learning how to write a business plan will pay dividends down the road. This article provides entrepreneurs with tips on preparing to write and then writing your business plan.
The Three C's of a Strong Business Plan
Good business plans meet “the three C's"—referring to clarity, conciseness, and completeness. These three elements are key to a business plan effectively conveying your business idea to stakeholders, lenders, and employees:
- Clarity: Ensure your business plan is clear and easy to understand. Don't use flowery language. Clearly articulate your business idea, goals, and strategies. Write in a clear, simple tone that is accessible to all possible audiences. Your plan should be just as easily understood by a venture capitalist as it is by a prospective employee.
- Conciseness: Keep your business plan concise and focused. Avoid unnecessary details that don't contribute to the key elements of your plan. Investors, lenders, and stakeholders are more likely to read and understand a concise plan. Keep the “need to know" information the focus.
- Completeness: Your business plan should cover all essential aspects of your business. It should provide a comprehensive overview of your business idea and its potential for success.
Define Your Audience
The first thing to consider when writing a business plan is the audience you want to reach. Consider who will read your plan and what information is important to them. Regardless of the audience, keep it professional. This will set the tone that you're a well-informed and competent entrepreneur.
Potential audiences to consider include:
Prospective business owners often write a business plan to think through and confirm the wisdom of starting a new business. It helps to do as many financial projections as possible. Your business plan can demonstrate the potential for success and keep your business on track to meet milestones.
Potential business partners will want to know if your business is a good fit for them and if a partnership is likely to earn them a profit. Details on partnership arrangements, legal structure, management team, and daily operations will be key information for them.
Potential investors and lenders are a critical audience for your business plan. Writing the plan to attract investors or secure bank financing will require more market analysis and financial forecasts. Whether you're seeking venture capital or a business loan, you'll need a strong emphasis on financial metrics and business strategy. Money can come from a variety of sources, including:
- Seed money usually comes from friends and family or angel investors who help with the riskiest early phase of product development and initial sales. Your business plan shows them you mean business and have a solid plan to succeed.
- Your next financial investor may be a bank or lender. They want to know that your company can earn a profit, make interest payments, and eventually pay off a loan.
- Your business may want to appeal to venture capitalists or private equity firms for significant investments. They need to see a plan for increasing success and an exit strategy when they can get a return on their investment. For example, when do you intend to take the company public?
Other interested parties who may use your business plan in their decision-making process include:
- A prospective landlord: Can you pay the rent on your lease?
- A prospective vendor: Are you likely able to pay your bills?
- Potential customers: A competitive analysis and market analysis will help you find these target customers, whom you then must convince that leaving their current provider for your new company is worth their while.
- Key employees: Before they leave their current jobs to sign on with your company, they may want to see your plan for success. Employees want to know a company is secure, especially if their current job is stable. Create an organizational chart to help team members see where they fit and how they can grow with your company.
Tying together how the various elements of your business model work together to achieve success takes strategic thinking. Business plans force owners to think with strategy and rationale. It requires an honest look at critical areas that could impact the success of their business, including:
- The current business climate
- The economy
- The competitive landscape
It highlights obstacles and identifies ways to avoid them. A business plan requires the owner to create realistic financial projections and think about potential business challenges.
A good business plan doesn't guarantee success, but a company without a solid business plan is far less likely to succeed than a business built around a carefully researched plan.
When Do I Write a Startup Business Plan?
Write your business plan before you start your business. It will serve as a step-by-step roadmap and is essential for securing funding. No business will get far without a well-thought-out business plan in place.
Understand that your initial ideas for your business may change as you do your research. You may discover more or fewer opportunities in your area of interest. You may find more or less competition. A new opportunity may present itself. This is a learning process. Be open to making changes along the way.
Can I Revise My Business Plan?
Do you have a business plan that no longer reflects the realities of your business?
You can revise your business plan after your business is operational. Realize, however, that lenders and investors invested funds in your company based on the original business plan. If you are making changes to your business plan because your original plan no longer works, be sure to include the obligations your company owes to its investors. They will want to see the new plan.
How Do I Write a Business Plan?
Writing a business plan is a bit more art than a science — the art of persuasion.
Once you have thought through the goals you need to achieve with this plan, review the information provided in the FindLaw Start a Business section. Some important concepts include:
- Review the types of business plans and determine which one you need to write. Some types of business plans have additional sections or appendices. Your business may need a traditional business plan or a more specific business plan template.
- Review the market research on your target audience. As you write, keep each of these audiences in mind.
- Review the standard contents for a business plan. Do you have all the information you need to write each section? If not, gather data and do research.
- Your business plan includes a marketing plan and a financial plan. It may be more manageable to tackle these as separate documents first and then put them into your overall plan.
- Do you have the ability to do the research and to write each section accurately? Do you need the help of an accountant, a lawyer, a market researcher, or a product designer? Get help before you invest time and money in a business that could fail. This is the time to prove the viability of the business.
- Your business plan should lead with a strong and persuasive executive summary. This area introduces your business and should provide a concise overview of the entire plan. It should establish buy-in from the reader early on by capturing the key aspects of your business.
Business plans give owners, employees, and investors a broad understanding of the business and specific numbers to analyze. No matter the industry, a business plan should always cover marketing, management, and financial planning.
Financial information should include:
- Startup costs
- Revenue projections
- Profit and loss projections
- Breakeven analysis
- Cash flow statement
Even if you're not a financial expert, you will need to master certain financial concepts for the health of your business and the business plan. Understanding how to do a break-even analysis to predict when the business will turn a profit and financing basics like cash flow projection is essential.
Have another person familiar with accounting double-check your numbers. Catching financial issues early on is critical. You don't want to lose face with a lender or investor by presenting inaccurate data.
Focus on Your Particular Goals
Your business plan is a tool to keep your business on target. Spend your energy analyzing and predicting financial information. Focus on your marketing and sales strategy.
If the financial projections are accurate and you describe your business operations and goals well, you'll be in good shape to keep your business on the right path.
If you are seeking funding from lenders and venture capital firms, they'll want to see a viable business plan. It should provide a realistic overview of a business's chances for success. Focus on the financial elements, as well as the experience and credibility of the business founders. They need to trust that you can run a profitable and successful business.
Get Professional Help Writing a Business Plan
Even the most savvy entrepreneur may need advice from mentors or business professionals who have experience with business plans. Call the district office of your local Small Business Administration (SBA) to see if they offer help.
You can also use FindLaw's State Resources: Starting a Business.
While many business owners can write their own business plan without the help of an attorney, having legal help in the beginning stages of starting a business can be beneficial. Contact a business organization attorney in your area for more guidance.
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