The Basics of Writing a Business Plan Here's why you need a business plan and everything you need to know to get started writing yours.
- Finding the purpose of a business plan
- How to know if you need a business plan
- Writing a back-of-the-napkin plan.
This is part 10 / 11 of Write Your Business Plan: Section 1: The Foundation of a Business Plan series.
Writing a business plan is like the architectural plan for a home or a brick-and-mortar building. You need to know what materials you need, how you're going to construct the building, and when you need to build each piece of the building. You start by building the foundation because your business can't stand up without it.
What is a business plan?
A business plan is a written description of the future of your business. It is a document that tells the story of what you plan to do and how you plan to do it. If you jot down a paragraph on the back of an envelope describing your business strategy, you've written a plan, or at least the germ of a plan.
Business plans are inherently strategic. You start here, today, with certain resources and abilities. You want to get to a "there," a point in the future (usually three to five years out) at which time your business will have a different set of resources and abilities as well as greater profitability and more assets. Your plan shows how you will get from here to there. In essence, it is a road map from where you are now to where you want to be later on.
Building your business plan brick-by-brick
If you've done any research about business plans online or through an agency like the Small Business Administration (SBA), you've probably heard about some generally accepted conventions about what a business plan should include and how it should be presented. In sum, a plan should cover all the important matters that will contribute to making your business a success, including:
1. Your basic business concept. This is where you discuss the industry, your business structure, your particular product or service, and how you plan to make your business a success. To use the analogy of building a brick-and-mortar building, this is the concrete you use for your foundation.
2. Your strategy and the specific actions you plan to take to implement it. What goals do you have for your business? When and how will you reach your goals? After all, you need to know how you plan to construct your building.
3. Your products and services and their competitive advantages. Here is your chance to dazzle the readers with good, solid information about your products or services and why customers will want to purchase your products and services and not those of your competitors. Your products and services are the materials you'll use for the building.
4. The markets you'll pursue. Now you have to lay out your marketing plan. Who will your customers be? What is your demographic audience? How will you attract and retain enough customers to make a profit? What methods will you use to capture your audience? What sets your business apart from the competition? How are you going to get people to come to your building and spend money?
5. The background of your management team and key employees. Having information about key personnel is an important but often misrepresented portion of a business plan. It's not a long and detailed biography of each person involved but an accurate account of what they have done and what they bring to the table for this specific business opportunity. Readers will want to know who will construct your building and if they're qualified builders.
6. Your financing needs. These will be based on your projected financial statements and provide a model of how your ideas about the company, its markets, and its strategies will play out. With a building, you need to know the costs of your materials and how you will adapt to changing conditions, including pricing and construction delays due to weather.
As you write your business plan, stick to facts instead of feelings, projections instead of hopes, and realistic expectations of profit instead of unrealistic dreams of wealth. You want to show readers that your building will last for years. And facts—checkable, demonstrable facts—will invest your plan with the most important component of all: credibility.
Related: How To Write A Business Plan
How Long Should Your Plan Be?
A useful business plan can be any length, from a one-page summary to more than 100 pages for an especially detailed plan describing a complex enterprise. A typical business plan runs fifteen to twenty-five pages, created and (usually) sent electronically, sometimes accompanied by forms the receiver requests you fill out. Occasionally, you may still be asked for a hard copy of your plan.
Mini plans of five to ten pages are the popular concise models that may stand on their own for smaller businesses. Larger businesses, seeking major funding, will often have mini plans, but the full business plan will be waiting in the wings. It's advantageous to run long when creating your plan and then narrow it down for presentation purposes.
The size of the plan will also depend on the nature of your business and your reason for writing the plan. If you have a simple concept, you can express it in very few words. On the other hand, if you are proposing a new kind of business or even a new industry, it may require quite a bit of explanation to get the message across. If you are writing a plan for a division of a large organization, you may be given a set format and prescribed length.
The purpose of your plan also determines its length. If you are looking for millions of dollars in seed capital to start a risky venture, you will usually (although not always) have to do a lot of explaining and convincing. If you already have relationships with potential investors, they may simply want a mini plan. If you are just going to use your plan for internal purposes to manage an ongoing business, a much more abbreviated version may suffice.
If you want to start small with an effective way to get your ideas down, you can follow the guidance of LivePlan, a business planning and management software, on writing your one-page plan for your business.
Many business plan presentations are made with PowerPoint decks, using ten to twelve slides to tell your story. This is a great starting point, but you should have at least a mini plan available, especially if you seek millions of dollars.
When Should You Write Your Business Plan?
The fact that you're reading this article means you suspect it's about time to write a business plan. Odds are you are at or near one of the many occasions when a business plan will prove useful.
- A business plan is a good way to explore the feasibility of a new business without actually having to start it and run it. A good plan can help you see serious flaws in your business concept. You may uncover tough competition when researching the market section, or you may find that your financial projections simply aren't realistic.
- Any venture that faces major changes (and that means almost all businesses) needs a business plan. If the demographics of your market are rapidly changing, strong new competitive products challenge your profitability, you expect your business to grow or shrink dramatically, or the economic climate is improving or slipping rapidly, you'll need a business plan. This will allow you to make changes accordingly.
- If you are contemplating buying or selling a business, your business plan can provide you with a handy tool to establish a value—and to support that value if challenged.
- You will need a business plan if you are seeking financing. Your business plan is the backbone of your financing proposal. Bankers, venture capitalists, and other financiers rarely provide money without seeing a plan. Less sophisticated investors or friends and family may not require a business plan, but they deserve one. Even if you're funding the business with your own savings, you owe it to yourself to plan how you'll expend the resources you're committing.
Writing a business plan is not a one-time exercise. Just because you wrote a plan when you were starting out or raising money to get underway doesn't mean you are finished. Many companies look for additional rounds of funding. By updating business plans to let investors know how the funding has been used to date, and the results of such efforts, the chances of procuring such funding are improved. A business plan should be rewritten or revised regularly to get maximum benefit from it. Commonly, business plans are revised yearly, more frequently if conditions have changed enough to make the previous plan unrealistic.
Business Plan Buzzword: Competitive advantage makes you different from, and better than, your competition. Lower prices, higher quality, and better name recognition are examples of competitive advantages. By studying your competition, you can devise your own competitive advantage by providing something (or several things) that your competition does not offer.
Cocktail Napkin Business Plan
Business plans don't have to be complicated, lengthy documents. They just have to capture the essence of what the business will do and why it will be a success.
The business plan for one of the most successful startups ever began with a triangle scrawled on a cocktail napkin. The year was 1971, and Herb Kelleher and Rollin King were formulating their idea for an airline serving Houston, Dallas, and San Antonio. The triangle connecting the cities was their route map—and the basis of the business plan for Southwest Airlines.
The two entrepreneurs soon expressed their vision for Southwest Airlines more fully in a full-fledged business plan and raised millions in initial capital to get off the ground. Eventually, they went public. Along the way, the airline expanded beyond the three cities to include other Texas destinations, and now it serves over 100 destinations in 42 states plus Washington, DC, and Puerto Rico, with over 4,000 flights daily and revenues of $15.8 billion in 2021. Southwest specializes in low-cost, no-frills, high-frequency service, which, if you add some lines to the original triangle, is the same strategy mapped out on that cocktail napkin.
Related: How To Write Your Business Plan