But even if you aren’t looking for working capital, having a business plan can be a huge benefit. It helps you set future goals, put together strategies to help you reach them, and make decisions along the way.
What a business plan tells you
Every business plan is different. The way you create yours will depend on the nature of your business. However, it should include the following:
- The value you offer customers or clients
- How your business makes money
- The resources you rely on to operate
- New products or services you may provide in the future
- Your position in the market versus competitors
- How you plan for your business to grow
- Current financial report
- Financial projections
There are different ways to communicate this information—we’ll get to those shortly.
Reasons to write a business plan
A business plan is like a Swiss Army knife—it can do a lot of things really well. And once you have one, it soon becomes indispensable.
While each industry’s business plan will look different—an ecommerce business plan will be different than a medical tech company—there are very basic commonalities. Broadly speaking, here are five important goals you can achieve with a business plan.
1. Test out your business idea
Maybe you’re considering turning your side hustle into a full-time gig, or maybe it’s still just a twinkle in your eye. Either way, writing a plan is a good way to see if it’s feasible before you start investing serious time and money.
Working through a business plan can lay bare your idea’s strengths and weaknesses, and flag any roadblocks you may face down the line. Specifically, when you do market and competitor analysis for your prospective business, you should quickly be able to tell whether it will be profitable. Financial projections can help you determine what type of income you’ll be earning, and what you need for funding.
2. Get funding
If you’re applying for a small business loan, having a thorough business plan is essential. Lenders want to be sure you’ll be able to pay off the loan, with interest. A business plan shows them how you’ll do that.
3. Attract investors
Similar to lenders, investors—whether they’re angel investors, venture capital firms, or even friends and family—want to know your business will turn a profit. After all, they’ll want a good return on their investment. Most investors expect to see your business plan before they risk their money.
4. Plan for the future
With financial projections and marketing objectives, your business plan sets a roadmap for the future. That can help you decide what to do in the here and now, and prepare for the years to come.
5. Make decisions more easily
When you’ve got a map guiding you, you spend less time at the crossroads picking a direction to take. As you face decisions during periods of business growth, your business plan acts as a powerful tool.
Should you open a brick-and-mortar location, or offer a wider range of products online? Should you apply for a loan now, or wait until next year? If your business plan is thorough, you already have the answers. That means less time debating, and more time acting.
Steps to writing a business plan
1. Determine its purpose
First, decide what goals you hope your business plan will help you achieve. Your business plan’s purpose will determine how you format it, what type of documentation you need to support it, and the kind of research you’ll need to conduct. For instance, if your aim is to secure financing, your plan will be different than it would be if you were using it internally to make business decisions.
2. Pick your audience
Who will read your business plan? Potential investors, lenders, or buyers? Employees? All of the above? Write your plan, choosing the language you use and the information you present with your specific audience in mind.
3. Do the research
Any claims you make need to be supported by hard facts. Research will take up the bulk of the time you spend creating your business plan. For instance, if your business plan assumes your industry is on the upswing, you should have the numbers to prove it.
Some questions you should be prepared to answer with the support of research:
- Who are your main competitors?
- What services/products are your target clients or customers looking for?
- Where is your industry headed?
- What is the history of your industry or niche?
- What types of roadblocks could you potentially face down the line?
4. Get documentation together
The most important documents in your business plan are your financial records. Past tax returns, financial reports, and comprehensive bookkeeping demonstrate your company’s history and future viability. You’ll use them to create financial projections.
You’ll also need a list of all employees and their positions within the company. And if your business relies on licensing agreements or intellectual property, be prepared to compile those as well.
5. Create a company profile
Your company profile is a public-facing document. For inspiration, make a list of companies you admire and then check their website’s “About” page and their LinkedIn profile.
Your company profile should explain:
- The problems your business solves for customers and clients
- What sets you apart from the competition
- The resources you use to get the job done
- Your company’s history
- What inspired you to go into business
- Your mission statement and vision for the future
This should be a short document, no longer than one page. These topics will be covered in greater detail within the business statement itself, but spelling out all the info now can help you get started and guide you as you write it.
6. Write the business plan
When you’ve decided what you’re aiming to achieve and who you’re addressing, compiled all the information you need, and laid the groundwork with a company profile, you’re ready to write your plan. Don’t start until you’ve covered the previous five steps—it’s better to over prepare for writing your plan rather than scramble for information when you’re in the thick of it.
It’s also best practice to include a cover page. It should be simple and introduce the key information of your business including a logo and legal information.
7. (Optional) Prepare a presentation
If you’re looking for funding or sharing your work with partners and employees, you may want to create a business plan presentation. This can take the form of a speech, slideshow, promotional video, audio track, or any combination of the above.
Think of it as a pitch for your company and your plans for the future. Boil down the information in your business plan into a digestible format, with the goal of getting your audience excited.
Types of business plans: traditional vs. lean
Business plans can be split into two categories: traditional and lean (or “startup”). Each has its own strengths and weaknesses. Choosing the type that’s relevant to your business will depend on how you intend to use your business plan.
A traditional business plan is highly detailed, and relies on plenty of research. This is the type favored by investors and lenders—if you’re seeking out more working capital, it’s a good choice.
The drawback? Traditional plans take longer to research, plan, and write than lean business plans.
A lean business plan is less detailed than a traditional one, relying on less research. Specifically, it doesn’t feature financial projections or detailed competitor and market analysis. It’s relatively quick to write, and leaves you more flexibility—you can write a lean business plan now, and a traditional one later on. That makes it a great choice for startups still sketching out exactly what their business will look like.
Since it’s less detailed than a traditional plan, if you present a lean business plan to lenders or investors, they may ask you for more information. A lean plan is best used as a “rough draft” to help guide you in the early days of your business.
Business plan formats
Even if you’re seeking funding, the traditional format may seem like overkill. But each of the following nine parts plays an important role—feel free to adjust them to suit your needs.
The lean business plan is based on the Lean Business Model Canvas, a classic format for startup business plans. When creating a lean business plan, keep it brief and digestible. It can be as short as one page.
Even if you aren’t using your business plan to seek funding, including financial projections offers major benefits. By looking into the future of your business, you can make plans for growth and set realistic goals to reach along the way. Get started with our guide to financial forecasting.