How to Write a Business Plan Step By Step : Small businesses can succeed or fail by having a powerful, detailed business plan. They provide vision and direction, allow for in-depth reflection of idea validity, and offer an insight into the competition and your company’s finances.
When faced with securing a loan or seeking investors,
business plans demonstrate that you are prepared and have fully vetted your business idea, says Craig Allen, a financial advisor and Southern New Hampshire University Business Plans Writing Instructor.
Allen says it can be hard to show the bank how you are going to repay the loan if you don’t have a financial forecast, which is part of the business plan.
Table of Contents
1. Executive summary
Your business plan starts off here – with your mission statement explaining the main purpose of your business, a sentence or two about your products or services, your ownership structure, and a summary of your plans.
2. Company description
This section provides a snapshot of your small business. This section provides important information about it including its registered name and location where it is physically located, the names of key personnel in the company, information about its history and nature of the business, and more details about products or services it offers or will offer.
3. Objective statement or business goals
You should include an objective statement in your business plan that clearly outlines your company’s goals, along with a business strategy that explains how you plan to achieve them. The objective statement illustrates what you’re striving to achieve, both short-term and long-term.
You can use this section if you’re seeking outside funding to explain why you need the money, how the funding will help you grow your business, and how you intend to achieve your business growth targets. The key is to explain the opportunity clearly and how the loan or investment will help your business grow.
For example, if your company wants to launch a second product line, you may describe how the loan will help your company launch the new product and increase its sales by 50% over the next three years.
4. Business and management structure
Your business’s legal structure — whether it’s a sole proprietorship, partnership or corporation — as well as the names of any key employees, managers or other shareholders of the firm should be mentioned here, along with the percent ownership of each shareholder and his or her involvement in the firm.
5. Products and services
Describe the products and services you offer or plan to offer in this section.
How your products or services work
This model will help us determine the pricing for our products or services.
What types of customers do you serve?
How do you plan on selling and distributing your products?
What makes your product or service better than the competition’s
How you plan to fill orders
Additionally, you can discuss any trademarks or patents associated with your product or service.
6. Marketing and sales plan
Your marketing strategy should contain an explanation of how you will implement it. Here, you can address how you will convince potential customers your products or services are the right fit for them or how you will gain repeat business by keeping customers engaged. Talk about what makes your company unique.
7. Business financial analysis
Startups do not have much detailed information about their financials, but existing businesses seeking small-business loans need to submit income or profit-and-loss statements, balance sheets stating their assets and debts, and a cash flow statement showing how money comes in and goes out of the business.
You may also include ratios that highlight the financial health of your business, such as:
Net profit margin: the percentage of revenue you keep as net income
Current ratio: the measurement of your liquidity and ability to repay debts
Accounts receivable turnover ratio: a measurement of how frequently you collect on receivables per year
8. Financial projections
If you’re seeking financing or investors, this is an essential part of your business plan. It outlines how you will generate enough profit to repay the loan or earn a decent return for investors.
Identify your company’s financial activity over at least three years, including projected sales, expenses and profits. Make sure your projections are accurate by making sure to analyze past financials.
The goals you have should be aggressive, but also realistic. “In general, you don’t want to stand out negatively by being too optimistic,” Allen says.
Allen says that you need to demonstrate your company’s ability to generate strong enough cash flow to service the obligations on a loan. But you also need to address the various risk factors involved with the business.
In his opinion, “the loan officer is going to want to know that you have considered all of the potential risks in some way and that you have minimized those risks in some way,” he says. Also Read Corporation Advantages and Disadvantages
If the appendix is lengthy, you may want to add a table of contents before this section. Include your legal documents, important contact information, investment info, personal and business credit histories, and copies of all receipts.
Business plan tips and resources
Now that you’ve written your business plan, here are some tips to help your hard work stand out:
Avoid over-optimism: If you are applying for a business loan at your local bank, the loan officer probably knows your market pretty well. Being overly optimistic can harm your chances of approval
You have to be realistic when you walk into a sales forecast, Allen says. “If you bring in a sales projection 50% higher than what’s reasonable for that type of business in that market, that’s going to work against you.”
The business plan only needs 15-25 pages, as long as it is clear, concise and has all the relevant information, Allen says.
Consider the key elements of your business plan and steer clear of jargon or technical details that are not that important. Supporting details can always be included in the appendix.
Make sure that your business plan is free from spelling, punctuation, and grammar errors that will put off lenders and prospective investors, taking their attention away from your business and keeping it on the mistakes you made.
It always seems to Allen that if a person was unable to proofread what he or she wrote beforehand, it proves how inconspicuous they are when it comes to running them business.
A nonprofit organization, SCORE, provides business mentors and experts who can help you with your business plan. You can look for a mentor or find a local SCORE chapter for more assistance.
A great resource is the U.S. Small Business Administration’s Small Business Development Center, which provides free business consulting and helps with business plan development.