Picture this: You’re on top of a train trestle overlooking water that’s 50 feet below. There are people all around you encouraging you to jump, and there might even be one or two (including yourself) telling you not to. You didn’t prepare for what you were getting yourself into. Do you leap into the unknown?
In college, that’s exactly what I did. Literally. To date, it still holds the title as being the stupidest thing I’ve ever done!
But, leaping into the water also taught me something that applies to my business. I learned what it was like to leap into the unknown with no turning back, to risk everything, and to be unprepared while doing it.
As a business owner, you might face something similar. Instead of jumping in completely unprepared, though, consider packing a life vest. In business, your life vest is a business plan. When you create a business plan for small business, you will be better prepared for starting your company.
Why You Need a Business Plan
Like a life vest, a business plan could help your company stay afloat. Business plans outline your business’s purpose to help you:
- Obtain outside funding: This is one of the most important reasons for creating a business plan — investors and lenders want to see a plan before they give you money.
- Understand your market: What are other businesses in the same industry doing, who are your competitors, and what are some risks for your industry?
- Prepare to launch and grow your business: Learn how to make your business dream a reality. Regularly update your business plan to reflect your growing business’s goals.
Business plans help you know what you need to do to get your startup off the ground. Writing a business plan can help you narrow your vision and focus on your goals.
Before I became an entrepreneur, I desperately wanted to quit my job to start a business. I decided to ask my dad, the most influential person in my life, for advice.
Like many entrepreneurs, I didn’t have an initial plan. My dad asked me questions about my business that I just didn’t have an answer to.
After talking with my dad, I knew that I needed a business plan. I needed to map out the industry I was going to get into, what exactly I was going to do, and who my target customers were going to be before I could start the business. You need a plan before starting a company.
Creating a Business Plan
A business plan should have the same basic parts, according to the Small Business Administration:
- Executive summary
- Company description
- Market research
- Business structure
- Description of products or services
- Marketing/sales strategy
- Funding request
- Financial projections
A business plan doesn’t have to be formal or fancy, but it should cover the topics above. To understand what to include in each section of the business plan, read on.
Your executive summary summarizes the whole business plan document. It’s an excerpt that prepares you for what you are going to read. The executive summary highlights the best parts of your business plan.
Your executive summary should talk about the purpose of your business, its location, your vision, and what your business brings to the table.
Solidify information about your business. What’s its mission? How many employees do you have? Why did you decide to start your business, and what have you done to prepare? Briefly talk about the products and services you offer as well.
The company description portion of your small business plan talks about your business goals in detail. Talk about how your business is going to fill a gap in the current marketplace. Then, get into more details about your business like:
- How products and services will answer marketplace needs
- Who your target customers are
- Why you have a competitive advantage over other businesses (i.e., location, streamlined operations, value, etc.)
Describe what makes your business unique in the company description.
Before starting your business, it’s important to see what the competition is up to, how the market’s doing, and what trends are in the market. Research the market, understand what you’re up against, and detail it in the market research section of your business plan.
This market analysis will describe your industry, your target market, trends in the market that will affect your business, the size of your market, restrictions, and your pricing structure.
Talk about how much it costs to make an item and how much you want to sell it for. Create a competitive analysis so you can demonstrate how your business will perform.
Do you know what the legal structure of your business is/will be? Here’s what I’m talking about:
- Sole proprietorship
- LLC (single-member or multi-member)
- Corporation (C Corp or S Corp)
You will also detail business information in this section of the business plan. Include the owners’ names, how much ownership each owner has in the business, forms of ownership, and profiles of managers.
Management profiles should include information like names, positions, responsibilities, education, skills, and involvement. The more information you have about your business and its operators, the better.
Description of products or services
What exactly are you selling? In the products and services section, talk about things like:
- How your products or services will benefit consumers
- Why your products or services surpass the competition’s
- Your product’s life cycle
- Copyrights or patent filings
- Any further research
As a new or established business owner, you need a marketing and sales strategy to attract and retain customers. To improve your chances of attracting customers, decide how you will reach out to customers, grow your business, and penetrate the market.
Also, you need to include information about sales. Talk about whether or not you will have a sales team, how many people will be on that team, and how you will try to sell products and services to customers.
If you are asking investors to invest in your company or lenders to give you a loan, you need to include a funding request section in your business plan.
Include how much you are asking for, future funding requirements over the next five years, how you will use the funds, and an exit strategy. The exit strategy lets the lender know how they will get their money if you can’t repay them.
You need to be able to project your finances. Project your business’s revenue, expenses, and net profits. You can use market research to back up your projections.
If your business is already established, you can base your financial projections on past financial statements. There are three main financial statements you can use:
- Cash flow statement: Shows the amount of cash entering and leaving a business during a particular time period
- Income statement: Reports your business’s profits and losses over a specific period
- Balance sheet: Tracks your business’s progress by showing you assets, liabilities, and equity
A final word
Business plans aren’t a one and done thing. You will need to regularly update your company’s business plan as your business grows. Some people update their business plans a few times a year, annually, or once every few years.
When you’re ready to take the entrepreneurial leap, do it wisely. There are no guarantees in business, but a business plan can help you stay on the right track.