A good business plan will help guide your business to success in the years ahead. There are eight elements that should be included:
1. Executive summary
2. Business description
3. Marketing analysis
4. Organization and management
5. Product or service line
6. Marketing and sales
7. Funding request
8. Financial projections
Read on to learn further details about the importance of each element, as well as how to construct your business plan.
How do you plan future goals and accomplishments for your small business? This is a common question for many aspiring entrepreneurs. There are many different types of business plans and they can range in size from a few sentences to hundreds of pages. According to the United States Small Business Administration, business plans generally project 3-5 years ahead and outline the route a company should take to grow revenues.
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Steps to Writing a Small Business Plan
The process of preparing a business plan will differ based on the overall age of your company. Well established businesses will have more information to include such as a mission statement, growth highlights, information about the product or service, financial information and future plans. In addition to talking about future plans and why they guarantee success, businesses that are just starting out should include more information about their background and why they started the business.
There are 8 elements that basic business plans should include. You may have more or less depending on what you decide to include and your goal projections.
1. Executive Summary
Every business plan needs an executive summary. The executive summary helps readers understand where your company currently stands and your future goals. If you are seeking financing, this is your first opportunity to grab the investor’s attention and let them know why they should invest in your small business. The executive summary should be the last section you write so you can effectively summarize the entire business plan.
2. Business Description
When preparing a business plan, the business description is the second section of the plan. This section will provide basic facts about the company such as ownership, startup date and locations. If you are operating the business alone, you may want to include your education and past experience as well as other personal histories that qualifies you to run a business. Keep the description section short, about 1-2 pages.
3. Market Analysis
Inform your readers of your market knowledge in this section. What research have you done on the industry? Who will be your target audience and why? Talk about your competitors and how you will succeed. Also, mention the challenges you may face and how you will deal with them. Showing expert knowledge of the competition will help investors decide if they want to financially commit to your business. The goal of this section is to let investors know that you know the market that you’re entering and show them it’s is large enough to sustain a successful business.
4. Organization and Management
Your small business plan should include a section on organization and management. This section should include your business’ organizational structure, details about the ownership of your company, profiles of your employees and the qualifications of your board of directors. To convey the organizational structure of your business it may be helpful to create an organizational chart detailing the layout of your small business. Readers are interested in your employees and upper management and will appreciate any information about their backgrounds. Within this section, it’s also recommended that you include some information about the board of directors and their qualifications as well. Include the board of directors names, positions on the board, background, extent of involvement and any historical or future contributions to the success of the company. The US Small Business Administration suggests you include the following information about your businesses ownership in this section, for the full list visit the US SBA:
- Names of owners
- Percentage ownership
- Extent of involvement
- Forms of ownership
- Common stock
- Management profiles
- Name of company
- Past track record
5. Product or Service Line
The products and services section of your business plan will include thorough information describing your product or service. Describe in detail the problem you are solving and your solution and relay the message as if you were talking to potential customers. Include information on how you plan to make your product unique compared to others that are similar. The US Small Business Administration also suggests for business owners to list any existing or pending copyright or patent filings in this section.
6. Marketing and Sales
Small business planning includes defining a marketing and sales strategy as well as setting goals. According to the Small Business Administration, the marketing strategy should include four strategies:
- Market penetration strategy
- Growth strategy
- Channels of distribution strategy
- Communications strategy
Next, detail your sales strategy which should include two components. A sales force strategy, which provides information about your salespeople and their training tactics. Second, it should include the company’s sales initiatives, which will include information about your sales prospects.
7. Funding Request
When writing a small business plan, you may include a section about your funding request. This section is only necessary for those seeking an outside investment. Business owners can use this section to detail their current financial status and request an investment or loan. Business owners should also mention future financial goals, funding requirements for the next 5 years and what they will use the funds for if they should be received. Some ways to use money from an investment or loan include: purchase more inventory, buy new equipment, hire employees, pay off existing debt and more. Business owners should also list out the type of funding they would like and the terms for repayment if it’s a loan. Some tips for business owners who are writing a funding request include:
- Tailor your funding request for pitching to different lenders. Lenders will have their own rules and stipulations so be sure to understand each and write your funding request to match their terms and conditions.
- Because each lender is different, they will have different questions and concerns for you. Do research to anticipate what they may ask you and detail some of the answers within your request.
- Don’t be stingy in your ask for funding. Ask for enough funds to ensure your business’s success, but not too much that you seem greedy.
It’s also important to learn more about different funding options for small business owners, such as factoring.
8. Financial Projections
Financial projections are the last section of the business plan. Business owners should have a good idea of their financial projections after analyzing the market and competitors. This section should include historical financial data, related to your company’s past performance and prospective financial data which tells your readers what you expect to happen with your finances in the future. Include numbers and ratios of your financial data and possibly even graphs to help readers and potential lenders understand your forecasts.
Researching and documenting this information is the time-consuming portion of preparing your small business plan. Once all of this information is recorded, small business planning will be quick and easy. If appropriate, include an appendix to organize your plan and make it easier for readers to find certain topics. Also, update the business plan on an as-needed basis so that it’s always current with market trends and reflecting on your latest goals and objectives.