What Is a Business Plan?
Your business plan should document your strategy and steps to achieve business goals. A good business plan will contain your market strategy, market research, business purpose, and financial protections. In addition to the inherent value a good business plan brings, it will help attract financing and investors.
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- A startup's business plan can help banks and other potential investors determine whether your business has a chance of success.
- Your business plan should include an overview of your current business's financials and growth projections.
- A good business plan also includes a market analysis to assess the demand for your business's product or service in its target market.
- Most business plans contain a competitive analysis that breaks down the strengths and weaknesses of competitors in your target market and the strategies you believe will give you a competitive advantage.
Understanding Business Plans
A business plan should provide an overview of your business and step-by-step guidance on managing each step of starting, structuring, and growing your operations. Additionally, many lenders and venture capital firms want to see a viable business plan that provides a realistic overview of its chances for success in the market before providing loans or investing in your company.
Generally, there are four types of business plans:
- Startup plans lay out your business ideas and why they should succeed.
- Acquisition plans explain why you want to acquire a business and how you intend to run it.
- Repositioning plans explain why companies seek to change their existing products or services to meet evolving customer needs.
- Expansion plans explain why your business wants to open in new locations or enter new markets.
You can read more about each of these under "Types of Business Plans" below.
What Should a Plan Include?
There is no standard business plan template that can be used for every business because the plan should be narrowly tailored to your business model, financial situation, and legal structure. However, most experts agree that good business plans should contain sections that provide the following:
- Executive Summary and overview which is the critical sales pitch for investors. If they read nothing else, this should provide the basic information and the strongest rationale for the business.
- Market analysis establishes a demand for your product or service in your business's target market, lays out a marketing strategy, and any potential for developing new products with your intellectual property.
- Competitive analysis breaks down how your business's product line and pricing compares to the competition and how your business will distinguish itself from competitors already in the market.
- Financial plan showing the business' financial statements, cash-flow statements, records, and projections for future revenue growth. A startup business without a financial track record should include realistic estimates of its future profitability.
- Operating budget includes projected costs concerning staffing, overhead, marketing, production, and other business-related expenses.
- Management plan includes an organizational chart, a description of the management team, and your business' staffing requirements.
- Appendices include all the background documentation to support the plan.
How Long Should a Plan Be?
The U.S. Small Business Administration says there is no recommended length for business plans but adds that a basic plan can run from 38 to 50 pages, with complex plans running from 80 to 100 pages. It adds that each plan should contain a shorter executive summary that provides a concise overview of the plan and your company's history that is no more than four pages long and encourages the target audience to keep reading.
Types of Business Plans
Start-Up Business Plans
A business start-up plan will have all of the sections listed above, but with more or less focus in certain areas.
- The start-up business plan lays out the business idea and explains why it should succeed. It may not yet have a track record.
- The product may be new and innovative.
- Because the start-up company doesn’t yet have a track record of success, it will need to focus more on the skills and experience of the management team.
- The financials will be projected, rather than actual data.
- The start-up company will have different milestones to achieve.
- A key audience for the start-up business plan is likely to be a bank if the business is looking for a loan.
- The start-up business plan may also be key for recruiting business partners and key staff.
If your business start-up plan is bringing a new product to market, provide information about the product and its benefits. But realize that (contrary to what you see on Sharks) investors typically don’t invest in products. They invest in businesses. It’s much more important for them to see that the business owners know what they are doing and have a good plan.
Acquisition Business Plans
Acquisition plans explain why you want to acquire a business, how the new business fits with or enhances your existing business, and how you intend to run it. Because the target business is already operating, you will likely have access to actual financial data and tax returns. You will have information about their marketing strategy and perhaps their pricing strategy. All of this information builds the case for acquisition.
While it will share many of the same components of a start-up plan, it will have some additional sections. New sections include:
- Target Description: If you know the company you want to acquire, this section will focus on that company. It will detail products, customers, market share, and the risks and opportunities it offers for growth.
If a specific target company hasn’t yet been identified, the plan will describe the kind of company you want to acquire and the ideal conditions for such an acquisition. It may identify several potential companies for acquisition, identifying the strengths and weaknesses of each.
- Transition Plan: Merging two businesses requires a transition plan. This portion of the business plan will be implemented upon purchase. It will guide the transfer of contracts, business relationships, and intellectual property rights. It will determine how staff from both companies will work together and where redundancies exist. The goal of the transition plan is to minimize disruption to business operations.
- Purchase Structure: This section explains how the acquisition will be financed.
- Appendices: Be sure to include available documentation like tax returns, licenses, and legal documents.
Repositioning Business Plans
When COVID struck in 2020, forcing many businesses to close, some businesses took this opportunity to reposition themselves. They saw an opportunity to produce a different product line, or a way to use their resources to provide a new service.
Before jumping into this change, they likely wrote a repositioning business plan. These plans explain why companies seek to change their existing products or services to meet evolving customer needs. Marketing expert Jack Trout identified three opportunities for companies to reposition:
- Changing with the times
- Beating the competition
Some repositioning plans will focus on a change in marketing. Others with a change in products. All of the parts of the standard business plan will apply but the marketing and competitor analysis sections may be more in-depth.
Expansion Business Plans
Expansion business plans explain and guide the direction of business expansion. This could be:
- Adding new products and services
- Opening new stores in your current locations
- Entering new geographic markets
- Reaching a new customer segment
An expansion business plan will rely heavily upon marketing research, a competitive analysis that breaks down the strengths and weaknesses of competitors, a strong marketing strategy, and financial projections
Need Help With a Business Plan?
A local business lawyer will have experience drawing up business plans and identifying the key questions they should answer. A skilled attorney will assist you in developing a plan that provides an appropriate assessment of the legal and financial risks your business is facing and drawing up a plan to minimize them. Additionally, a lawyer can help write a plan that provides the information that lenders and venture capitalists are looking for and ensure that it accurately represents your finances and operations.
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