A business plan is your road map to success.
But your road map is only as good as the information it contains. A clear, concise plan lays out a path for the future, providing you with momentum and guidance, and forcing you to think through what will work best for your business’s long-term goals. On the other hand, a flimsy plan can lead to unforeseen roadblocks and disaster.
Curious about how to make a business plan? This step-by-step guide will guide your path.
How to Write a Business Plan
Before we begin, it’s important to clarify what a business plan actually is. In a few words, it’s a written description of your business’s future trajectory. It should cover your long-term goals and the strategies you’ll employ to meet them, potential obstacles along the way and how you’ll overcome them, your business’s structure and organization, and the amount of funding you need to get off the ground. When done correctly, a business plan can help you find investments, hire crucial employees, land deals, and accomplish a host of other crucial tasks.
But what does it contain?
Typically it consists of three primary sections:
- The Business Concept – This covers your industry, business structure, product or service, unique selling proposition, and the steps required to succeed.
- The Marketplace Section – Here, you’ll describe the potential customer base, your rival competition, and how you’ll position your business to corner a portion of the market.
- The Financial Section – This discusses your income, balance sheet, cash flow, and other financials that are important for analytics, projections, and modeling.
So, if you want to create a business plan, you’ll have to break down these three sections into even further detail starting with:
The Executive Summary
The executive summary contains a brief outline that clearly states the purpose of creating the business as well as its long-term and short-term goals. It’s helpful to think of it as your detailed elevator pitch. It will touch upon all of the critical details of your strategy, while eschewing those that are less important, and should include:
- A mission statement
- Description of products or services
- An objective summary
- A comprehensive market description
- A quick summary for business viability and your competitive advantage
- A forecast of potential growth and revenues
- Funding requirements to be operational
When writing your executive summary, don’t forget to include what makes you unique and sets your business apart from others. What’s something that you can offer that other businesses can’t? Take the time to really brainstorm why you are unique or ask trusted customers and business partners. Doing so will help you to establish a strong foundation moving forward.
A great business solves customer problems. If your Summary cannot clearly describe, in one or two pages, how your business will solve a particular problem and make a profit, then it's very possible the opportunity does not exist – or your plan to take advantage of a genuine opportunity is not well developed.
This is your opportunity to give a snapshot of your vision for the business. It includes crucial details such as:
- The registered business name
- Address of offices or buildings
- Names of the founders
- Location and geographical markets served
- Company history
- Type of business
- Current status and stage of the company
- Further details on products or services offered
If you don’t have all the answers, don’t worry or get bogged down in the details because things will inevitably change. Harvard Business Review writes:
The real key to succeeding in business is being flexible and responsive to opportunities. Entrepreneurs often have to pivot their business once it becomes clear that their original customer is not the right customer, or when it turns out that their product or service fits better in an alternate market.
This is an important exercise, but it won’t necessarily make or break your business, particularly since your business and market may look very different a year from now. Why, just consider the impact the coronavirus has had on markets and people looking to start up something new. The opportunities that were present just a month ago may no longer be there. And that might change again in three months if the crisis is in control and the economy is humming again.
Your market research will play a critical role in whether or not your business plan and strategy work. To begin, it should include evaluations and analysis of customers’ demographics, buying cycles, and purchasing habits. The U.S. Small Business Administration writes:
You'll need a good understanding of your industry outlook and target market. Competitive research will show you what other businesses are doing and what their strengths are. In your market research, look for trends and themes. What do successful competitors do? Why does it work? Can you do it better?
Think about what your competitive advantage will be and how your target audience will react to your products and services. To get your research going, there are several questions you can ask, including:
- What is the size of the market?
- What does the potential customer look like?
- What are the total households?
- What is the median income?
- What are the incomes by demographics?
- Is the market or industry growing, declining, or stagnant?
- What is the rate of demand for your goods or services?
- Are there ways to stand out amongst your competitors?
- What does your target audience expect to pay and what are they willing to pay for your products and services?
There are more questions than just these, but starting here will provide a good staging point to grow your business.
This section is devoted to profiling your competition and detailing your competitive advantage over them. By highlighting their strengths and weaknesses, you can look for ways that you can do things better, more efficiently, or you can find potential market share that you can capture. Questions this section should be answering include:
- What market or segments of the market does your competition serve?
- Why do potential customers choose them?
- What benefits do they provide?
- What are their strengths and weaknesses?
- What are their goods or services, prices, and how do they promote them?
- How can you take market share away from them?
It’s not simply about listing information about your competitors, it’s how you analyze and work with that data that makes the difference. As the Balance writes:
For many small businesses, the key to competing successfully is to identify a market niche where they can capture a specific target market whose needs are not being met...The goal of your competitor analysis is to identify and expand upon your competitive advantage – the benefits that your proposed business can offer the customer or client that your competition can't or won't supply.
Sales and Marketing Tactics
Having the best product in the world won’t mean a thing if nobody knows about it. This is where the marketing strategy comes into place. According to Entrepreneur.com:
In the objectives section of your marketing plan, you focus on the ‘what’ and the ‘why’ of the marketing tasks for the year ahead. In the implementation section, you focus on the practical, sweat-and-calluses areas of who, where, when, and how.
Naturally, this can include a mix of both paid and free marketing channels such as:
- Nextdoor – Nextdoor is the neighborhood hub that connects you to local businesses in your area and gives you a private location-based place to exchange helpful information, services, and goods. Here, you can set up your Business Page for free, and gain direct access to customers who matter most, your neighbors. As a free service, this is the preferred choice by small local businesses who rely on their community to thrive.
- Social media – In addition to Nextdoor, Facebook, Instagram, Twitter, and Linkedin are all powerful channels to support your business and not only spread the word, but build up brand recognition and spread relationships, too.
- Online ads – There are several digital marketing campaigns you could engage in, including pay-per-click campaigns and Google AdWords.
- Traditional advertising – Print, television, and radio are still some of the most cost-effective ways to reach a large swath of potential customers.
Your approach will largely be determined by your marketing budget. And since it may require significant investment, it’s crucial to chart a plan that ensures you’re generating a return.
Organization and Management
Your second to last step will include both your operational needs as well as your management team. You need to think about how you will do taxes for your small business, what kind of legal structure you will be, and cover other important factors regarding business planning. This informs potential investors and lenders as to how the business will be structured and who will run it. It will include:
- Legal structure for tax purposes
- Sole proprietorship
- The company founders
- Their percentage of ownership
- Their duties and roles
- The key employees and managers
- Faculties, equipment, and supplies needed
- Initial staffing needs
- Business relationships that are or need to be established
- How the operation will likely change as it grows
In light of COVID-19, also take into account the resources available to small businesses at the moment. The CARES Act is offering plenty of tax relief to small businesses to make sure they don’t lose momentum during these tough times. When moving forward with your business planning, consider how these relief funding programs could benefit you.
These all need to be highly specific to your market sector and customer demographic. And the more fleshed out this section is, the better idea you’ll have for where you’re ready and where you’re not.
Financial Factors and Projections
If you’re just getting started, this section may end up being a little more vague since you don’t have all that much information to go off of. However, if you have been in business for some time, you’ll want to include:
- Profit-and-loss statements
- Balance sheets listing assets and debts
- Cash flow statements
- Net profit margins
- Current ratios
- Accounts receivable turnover rati
With these numbers you can forecast your financial projections, both current as well as hypotheticals, should you obtain the necessary capital. NerdWallet notes that you should be cautious and meticulous when performing these forecasts:
Here, you’ll provide your business’s monthly or quarterly sales, expenses, and profit estimates over at least a three-year period – with the future numbers assuming you’ve obtained a new loan. Accuracy is key, so carefully analyze your past financial statements before giving projections. Your goals may be aggressive, but they should also be realistic.
How to Make a Business Plan
Once you’ve finished the final stage, your work isn’t over. In reality, it’s only just begun. That said, this is an essential aspect of starting a business and it shouldn't be taken lightly. So, be sure to devote plenty of thought and energy into your business road map. By paying it the time and respect it deserves, you’ll be fully prepared to handle all the bumps, diversions, hiccups, or black swan events (coronavirus) along the road towards success.
If you are a local business, claim your free Business Page to get started on Nextdoor. Resources on how to use Nextdoor to stay connected with your local customers during coronavirus, pertinent news affecting businesses, and more, are available in our Small Business Guide for Coronavirus Relief.