Here are the most important questions you need to answer.
If you’re an aspiring entrepreneur who’s preparing to launch a new company, writing a business plan is one of the smartest exercises you can do.
That’s because a business plan forces you to explicitly answer some of the most important questions that you’ll confront on your journey.
You might think you have a crystal-clear vision of how your company will operate. More often than not, though, the process of writing a plan will expose holes or weaknesses in your concept. This gives you the chance to fix them before you sink your life’s savings into the venture.
A good business plan is a road map. It can also serve as an argument to others—bankers and investors, especially—about why they should believe in your idea.
Putting together your plan probably will be easier than you think. Here are the most important parts.
Executive Summary
This is a short, high-level view of your company and your industry. It shouldn’t run much longer than a single page. Who are you, and what do you do? What market do you serve? Tell the reader why you’re awesome.
If you’re seeking funding, this is a good place to spell out how much you need and generally how you would use it.
Pro Tip: The executive summary always kicks off the business plan, but it’s usually better (and faster) to write it last, after you think through all the other sections, such as …
Market Analysis
Who are your target customers, and how many of them are out there? Is there a particular geographic area or demographic you serve? Who are your competitors?
When it comes to target customers, be careful about going too broad. A lot of young businesses make the mistake of thinking literally everyone is a potential client. But it’s better to have a specific “ideal customer” because you can more effectively tailor your sales and marketing efforts to just those buyers. (Saving you time and money!)
Your local library’s business research department can be a great help when you’re doing market analysis. For example, the staff there can help you identify how many of your ideal clients live in the area where you operate—giving you a clearer idea of your company’s potential for growth.
Products and Services
What are you going to sell, and how will it make your customers’ lives better? And why is it better than your competitors’ offerings?
Sales and Marketing
After you’ve explained what you’re going to sell, tell how you’re going to do so. How much will your product cost, and how does that compare to competitors? Where can customers buy your merchandise—online, in stores, trade shows, party sales?
And how will you promote your offerings? You’ve got a ton of options—advertising, billboards, digital campaigns, direct mail and more—but in the early stages, you’ll probably have a limited budget. Make sure you choose the avenue that delivers the biggest bang for your dollar.
Management and Business Structure
This is where you introduce the people who will be in charge of running the business. That includes ownership and key managers, along with their individual biographies. Be sure to list qualifications and relevant experience.
This is a good place to mention your advisory board, if you’ve got one.
You should also explain how the business is structured. Are you an LLC, an S Corp, a C Corp, a partnership, a sole proprietorship? If there’s more than one owner, what percentage of the company does everyone hold?
Financial Projections
This section is one of the most critical, especially if you’re using your business plan to seek a bank loan, an investment or some other type of funding.
Indicate how much you need, how much you’re willing to invest personally and what the money will be used for: leasehold improvements, inventory, legal costs, etc. Don’t forget working capital. Only about half of new businesses reach a point where they can support themselves from sales in their first year. Your business will need a cushion of cash to live on.
At a minimum, you’re going to need a profit-and-loss projection and a cash-flow projection looking ahead to the next 12 months. (Again, your audience might want to see numbers for a longer period of time.) A balance sheet and a break-even analysis are good ideas, too.
Your lender will probably want financial statements and recent tax returns for all the principals in your business.
This might feel a little intimidating if you’re a first-time entrepreneur. But there are several resources available, many of them free.
The Small Business Development Centers at Johnson County Community College and the University of Missouri-Kansas City both offer one-on-one counseling and classes on business plan development. SCORE.org has free templates on its website that can help you put together financial reports.
