How to Write a Business Plan
Starting your own business can be exciting and liberating. A vital tool for starting and operating a successful business is writing a business plan. The process of writing a business plan forces you to think logically about the odds of success and whether you have the capability to create a solid business.
A good business plan defines and refines your business idea. It identifies goals you have for your business. It provides a roadmap of where you want to take the business and what resources you will need to make that happen. 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 the process of preparing to write and then writing your business plan.
Define Your Audience
The first thing to consider when writing a business plan is the audience you want to reach.
If you are introducing a new product to market, your product information, value proposition, target market information, and marketing strategy will be critical.
Business owners (or prospective business owners) often write a business plan to think through and confirm the wisdom of starting a new business. You should do as many financial projections as possible. Your business plan can confirm the potential for success and keep your business on track to meet milestones.
Potential business partners will want to know if this is a good fit for them and a business venture likely to be profitable. Details on partnership arrangements and legal structure, the management team, and daily operations will be key information for them.
Potential investors and lenders are a critical audience for your business plan. Be sure to use a professional tone in writing.
Writing the plan to attract investors or secure bank financing will require substantially more market analysis and financial forecasts. If you are seeking venture capital or a business loan, you'll want a strong emphasis on financial information and business strategy.
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 you have a solid plan in place to succeed.
Your next financial investor may be a bank or lender. They want to know that your company can earn a profit and make interest payments — and eventually pay off a loan.
Your business may want to appeal to venture capitalists or private equity firms for large 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 include:
- A prospective landlord: Can you pay the rent on your lease?
- A prospective vendor: Are you likely to be able to pay your bills?
- Potential customers: A competitive analysis and market analysis will help you find these businesses. Then you will need to convince them that it's worth their while to leave their current provider for your new company.
- Key employees: Before they leave their good-paying job to sign on with your company, they may want to see your plan for success. Create an organizational chart to help team members see where they fit.
Business plans are equally important to small and big businesses. These plans force owners to think strategically and rationally. It requires an honest look at the current business climate, the economy, and the competition. It highlights obstacles and identifies ways to avoid them. A business plan requires the owner to create realistic financial projections.
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.
Realize that as you do your research, your initial ideas for your business may change. You may discover more or less opportunity 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 business plan they were shown. If you are making changes to your business plan —if your original plan no longer works — be sure to include in it 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.
- Review the types of business plans and determine which one you need to write. Some types of business plans have additional sections or appendices.
- 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. You may feel it's more manageable to tackle these as separate documents that 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, a product designer? Get help now, before you invest time and money in a business that could fail. This is the time to prove the viability of the business.
Business plans give owners, employees, and investors a broad understanding of the business, along with 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, and cash flow analysis.
Even if you're not a financial expert, you will need to master certain financial concepts for the health of your business as well as for the business plan. Understanding how to do a breakeven analysis (when the business will turn a profit), and financing basics such as cash flow projection are 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
If your business plan is primarily a tool to keep your business on target, spend your energy analyzing and predicting financial information and focusing on your marketing efforts. Dispense with most of the salesmanship, but keep it professional since you may be showing your plan to management, employees, customers, etc.
As long as the financial projections are accurate and you competently describe your business operations and goals, you'll be in good shape to keep your business on the right path.
If you are primarily seeking funding from lenders and venture capital firms, they want to see a viable business plan that provides 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 do this.
Get Professional Help When Writing a Business Plan
No one is born knowing how to write a business plan. They learn it from experience. Consider seeking advice from mentors or business people who have done this before. Call the office of your local Small Business Administration to see if they offer help. Also see State Resources: Starting a Business.
While it is not necessary to hire an attorney when drafting a business plan, it's usually beneficial to have an attorney help you in the beginning stages of starting a business. Contact business organizations attorney in your area for more guidance.
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