You’ll commonly hear two schools of thought about writing a business plan. One is that you can’t really plan and business plans are outdated relics.
The other is that you can’t really accomplish anything without a plan.
These quotes sum up the positions pretty well:
There’s truth in both of these ideas.
You can’t plan forever without acting or anticipate everything that will happen years in the future in a business. You need to start and act. At the same time, action without any plans or goals is going to be inefficient.
Fortunately, good, modern business planning takes both of these truths into account.
Modern business plans can be composed quickly and are living documents that are reviewed and updated regularly. They are blueprints for acting quickly and effectively.
While not every business needs a business plan, most businesses–startup or mature–can benefit from having a written plan. Every business has goals, strategy, competitors and budgets. A good business plan accounts for these elements and makes sure everyone is on the same page and everyone can see if actual progress is being made.
In fact, professor Andrew Burke of the Cranfield School of Management in England has studied business planning for over 20 years and has found that effective business plans account for an additional 30% in growth.
Who Needs a Business Plan?
It’s true that some businesses do succeed without any formal plan. But writing down a plan increases your odd of success greatly.
For new or very young businesses that are looking to secure a business loan or outside investment, a business plan is essential. You’ll have to show these outside parties how you plan to use their money and what you expect the return to be on that money. (Not to mention, you’ll also need to know how much money you need.)
You’ll also want to address why your team is made up of the right people.
Without any plan, there is not enough substance for outsiders to consider your venture.
When startups present to investors, they’ll typically use a pitch deck, which is based on the business plan. Here’s the pitch deck Uber’s founders used to raise venture capital.
More mature businesses can also benefit form business plans if they want to drive growth. A business plan is a management tool and the regular review of a business plan is a management process.
What Goes Into A Business Plan?
Lets start by looking at what goes into a formal business plan that will be presented to outsiders like loan officers or investors.
These plans need to be more thorough and polished, but the good news is that even these plans require less work and time than they used to. Expectations have shifted in the business community and 50 page plans are no longer needed or expected.
A ten or fifteen page document for external presentation will usually suffice.
A business plan will be broken down into sections, which are listed below. These are common to all business plans and you’ll want to have all of these. Of course, the content will be different depending on your business.
If you’re planning a chain of eco-friendly laundromats you’ll have different challenges to address than if you’re trying to build a company to market your pharmaceutical patent.
That being said, here are the common sections.
Usually you’ll write this section last, but it will appear first. The executive summary highlights the key points of your business plan.
Most investors are busy and see lots of business plans. Many business plans will not be reviewed past the executive summary. This is your chance to make a strong first impression.
What’s compelling about your business? What’s the big opportunity you’re going to seize and the problem you’re going to solve? How are your going to solve it and why are you going to succeed?
You need to be persuasive and compelling and pique interest here. Make sure to include a summary of your existing team.
An executive summary should be able to stand on its own an independent document. In fact, you might sometimes want to give it to outsiders without the rest of the business plan attached.
Here’s where you let outsiders know what your company looks like today.
Who owns the company? What’s its current business structure–C-corp, LLC or other? When was it founded and incorporated?
Where is the company located? Does it currently have physical offices? Is it incorporated in a different state than where its offices are?
You can include your company’s mission statement here, if you have one. But it’s not a requirement.
Products and Services
This section is the heart of what your business does. You address the problem you are solving and how you solve it, in detail.
If you have a technology product, you describe it. Do you have intellectual property, such as a patent? Here’s where you describe it.
This is also the section where you lay out your understanding of the current or future competitive landscape and why you’ll be competitive. Don’t neglect this piece of it.
No matter how unique your business idea, you’ll face competition at some point. That’s not a negative. Acting as though you won’t face any competition suggests naivete to seasoned readers.
Target Market and Opportunity
Who is going to buy your product or service? Here’s where you answer this question in your business plan.
It’s an important one for several reasons. If you’ve been working in your industry for a long time and have a nuanced understanding of who your business will appeal to and why, this is where you state it.
Such an understanding can go a long way in building the credibility of your plan. Investors and loan officers know that you can’t know every detail of whom you will appeal to, but a an overly vague description can be a warning sign that the plan hasn’t really been thought through.
The other reason this section is important is that it gives readers an understanding of the size of the opportunity and how big your business could grow. This is known as your Total Addressable Market (your TAM).
If you need to raise millions of dollars to address a market that potentially consists of 2,000 buyers worldwide, you’re going to have a more difficult time. If your company can served the needs of potentially millions of consumers, that’s a safer investment with a bigger potential return.
Many venture capitalists, for instance, will not really be able to invest in businesses that don’t present some opportunity for a large return.
Marketing and Sales Plan
Every business needs a way to market and sell its products or services. This includes pricing. No matter how amazing the product, people can’t buy it if they don’t know about it.
And people won’t buy it if it’s simply unaffordable.
Here’s where you address these issues and outline your plan for sales and promotion.
Milestones and Metrics
A plan doesn’t mean much if you can’t measure its success. Here’s where you layout your goals. What do you need to accomplish and when will you accomplish it by?
Not only does this help you as a business owner but it also gives outsiders some expectations.
The specific goals and metrics will depend on your business. Planning a pharmaceutical company? When do you expect to have FDA approval? Building a software company? When do you plan to have the first version in the market? Planning a laundromat chain? When do you expect to have your first 100 customers? Or 10.000 visits to your website? When do you expect to be profitable?
This is an important section when raising investment funds. Investors usually invest in people, alongside investing in ideas.
Here’s where you describe who’s on your team and what they bring to the table. If you recognize that you have talent gaps here that you will need to fill later on, don’t be afraid to say that.
The financial plan addresses the money required to build your business.
It’s based on costs (including, importantly, personnel) and sales forecasts. These things will evolve overtime as your plan meets reality, but you need to have an initial idea of these requirements and expectations so you know how much money you need to raise and can offer some guidance about how much money you expect to make.
Does Every Business Plan Need All of These Sections?
No, not every business plan needs all of these elements.
If you’re business plan is going to be used for just internal goal setting and organization, it probably won’t need a company overview.
It also probably won’t have a management team section.
And if your business is mature, your financial plan will take into account real world results you already have achieved and be based on things like existing cash flow, sales and assets.
An internal plan might also dispense with the executive summary.
Internal business plans are more focused on goals and metrics. Often, they’re not even printed out. They’re left in digital form and they grow organically as they’re regularly reviewed, adjusted and updated.
The internal business plan is less formal. It’s a working guide.
Regular Review and Adjustment
Your business won’t get the benefits of a business plan if you write it one time and never really look at it again or review it.
The business world is not static and your business plan shouldn’t be either. In particular, the goals and metrics of it are really not useful unless you track your actual progress against them.
Plan to review and adjust your business plan on a regular basis–monthly or quarterly. All other things aside, you’ll find that you’re learning more about your business in a more efficient way. You’ll feel more int control and you’ll be more pro-active. And that usually feels pretty good.