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Preparing a Good Business Plan
Creating a solid business plan is a key step for any entrepreneur starting a new venture. A good business plan serves many purposes – it focuses your ideas into a cohesive strategy, helps you identify opportunities and challenges, attracts potential investors, and provides a roadmap for your business. While writing a full-fledged plan takes significant time and effort, the process gives invaluable clarity and direction to make your business vision a reality.
This comprehensive guide will walk you through the essential components of crafting a winning business plan, right from developing an executive summary to performing financial projections. Whether you’re planning to launch a startup or expand an existing company, these tips will help you prepare a strategic, professional business plan.
Tips on Preparing Your Business Plan
Define your business concept
The first step is to clearly establish what your business does. Start with an elevator pitch – a one or two-sentence summary of your company that captures the essence of what you do.
For example: “Anita’s Bakery is an artisanal bakery that hand-makes organic bread and pastries using locally sourced ingredients.”
Next, provide an overview of your products or services. Explain what makes your offerings unique or better than what’s currently available. Focus on the key benefits you provide customers and how you’ll differentiate from competitors.
Analyze the market opportunity
Research your target market thoroughly before writing your plan. Provide statistics and data showing the size of the market, major customer segments, and growth potential. Demonstrate a clear understanding of customer needs and how your products or services fulfill those needs better than alternatives.
Describe your ideal customer persona in detail. Outline their demographics, behaviours, concerns, and motivations. This will help you tailor your products, marketing and messaging to appeal to your best customers.
Explain trends and external drivers that may influence demand for your offerings. This could include technology developments, regulatory changes, competitive forces and other macro-level factors.
Define your competitive advantage
Outline the competitive landscape by naming your main competitors and companies with similar offerings. Identify their strengths and weaknesses.
Then explain your competitive advantage – why customers will choose you over other options. Low cost, innovative products, superior quality, better customer service etc. could provide an edge. Back up these claims with evidence. For example, if you offer the lowest prices, include data illustrating your lower price points.
Craft your company description
Briefly describe your company’s history, mission, vision, values, location, team, legal structure etc.
Keep it short, as more details will be covered later. Focus on giving readers an overview of your business foundations.
For startups, explain your origins and motivation for launching. Share the background on the founders and their expertise or experience. Outline the current development stage and milestones achieved to date.
Create a marketing and sales plan
This section converts your market research into targeted plans for attracting and retaining customers.
Start by outlining your pricing model. Explain your pricing strategy and why your prices provide value to customers. Include competitive data to substantiate your prices.
Describe your distribution channels – where and how customers will buy your offerings. Will you sell online, in retail stores, via sales reps, wholesale etc.?
Provide an overview of your marketing activities. This may include advertising, search engine optimization, social media, partnership programs, promotional events, networking etc. Explain your messaging strategy.
Project your sales numbers. Estimate monthly or annual targets for sales volume based on your market research. Explain the rationale behind these projections.
Outline your operations plan
Provide a blueprint of the daily operations involved in running your business. Start by describing your business location and facilities. Will you rent, buy or work from home? Identify key requirements like space, equipment, logistics etc.
Provide an organizational chart illustrating your company structure and team members. Give a brief overview of each role and their responsibilities. Include the owners and management team.
Explain your production process for creating products/services. Include quality control measures that assure consistency and efficiency. Describe order fulfillment and delivery processes. How will you manage inventory and distribution logistics? Share any proprietary operational processes that allow you to deliver offerings profitably and efficiently.
Develop your financial plan
This is one of the most significant parts of your business plan. Provide forecasts for revenue and expenses, financing requirements, and other key financial milestones. Start with a sales forecast built on your market research and projected sales. Develop an estimated cost of goods sold – what it costs you to produce each product or service. Combine these to calculate your gross profit margin.
Outline additional expenses like salaries, rent, supplies, marketing and other fixed and variable costs. Factor in one-time startup costs. Create projected income statements showing your net profitability over time. Explain the major assumptions behind your forecasts.
Share your expected financing needs. How much investment capital, debt financing or loans do you need? List funding sources and explain how you plan to raise these funds.
Finally, state financial milestones or break-even points that show important business growth benchmarks.
Identify potential risks that could impact your business, and your plans to mitigate them. These could include:
- Market risks – shifts in customer demand, new competitors entering the market etc.
- Operational risks – supply chain disruptions, technology failures, natural disasters etc.
- Financial risks – revenue shortfalls, high expenses resulting in inadequate profits etc.
- Personnel risks – loss of key team members, lack of required expertise etc.
For each major risk, describe specific actions you will take to limit the likelihood or impact on your company. This demonstrates you are prepared to handle challenges.
Craft an executive summary
The executive summary outlines your entire business plan in a one page overview. It’s often the first section that investors or lenders read, so make it compelling.
Succinctly cover your company description, market opportunity, competitive advantage, products/services, marketing approach, operations, management team, and financial projections. Write this after you complete the rest of your plan.
Useful business planning tips
Follow these additional tips for creating a polished, professional business plan:
- Focus on readability – Use an easy-to-read font, add charts and images, include section headings, and avoid dense paragraphs. White space improves readability.
- Check your grammar and spelling – Bad writing undermines your credibility. Ask others to proofread.
- Be concise – Avoid excessive details or repetitions. Investors have limited time so highlight key points.
- Update regularly – Review your plan annually or quarterly. Update details like finances, team, market conditions etc.
- Customize for your audience – Tweak your plan based on whether you are pitching to investors, lenders or strategic partners.
- Use business planning tools – Software like LivePlan can help assemble your plan, perform calculations, provide guidance and store your data.
Frequently Asked Questions
How long should a business plan be?
For a startup seeking investors, a business plan is typically 20-30 pages long plus financial appendices. However, length can vary significantly depending on your needs. For example, a plan to apply for a small business loan may be just 5-10 pages focussing only on the most relevant areas.
What should I include in each section?
The sections above cover the key components to include. The executive summary, company description, market analysis, and financial projections are critical sections. You can add more sections relevant to your business like a products and services plan, management team bios, location analysis etc.
Do I need a business plan to start a business?
A full-fledged business plan is not mandatory, but it’s highly recommended for any serious entrepreneur. The planning process provides tremendous value in crystallizing your business idea and strategy. You can begin operating your business before completing a formal plan, but it’s an important exercise.
What’s the difference between a business plan and pitch deck?
A pitch deck is a visual presentation to showcase your business idea on 10-15 slides. It highlights key elements of your plan. The business plan is a detailed written document covering all aspects of your company operations and strategy. Your pitch deck draws content from your business plan.
How should the financial projections be formatted?
Include your financial projections as appendices, not in the main body of your plan. Format them as spreadsheet tables with columns showing the various projected financial metrics – revenue, costs, profit, cashflow etc. for each month or year. Explain all key assumptions behind the forecasts.
How often should I revise the plan?
Review your business plan at least annually. Update any details that have changed significantly – new products/services, market conditions, technologies, team members etc. Don’t let your plan get obsolete. Change is constant when building a company.
Developing a strong business plan is a challenging but invaluable process for any entrepreneur. While requiring significant research and financial analysis, the act of converting your business idea onto paper will refine your strategy and provide a blueprint for success. Use this guide to plan your work and work your plan. With diligence and passion, you can craft a winning business plan to launch your venture.