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Why Is A Business Plan Important And How Do I Write One?

Business Plan BlogThe Business Plan Made Simple

A business plan is the roadmap of what you are going to do for your company’s future. But, why plan? Maybe you’ve heard that 50% of small businesses fail during their first four years in business. Let’s look at the glass half full. Half of all businesses are going to succeed—so let’s make sure you’re one of them!

Graph of the top reason business fail-business plan

Your business plan is the overall approach to how you’ll build the business of your dreams. It works hand in hand with your business goals to make the dream a reality (check out our previous guide for setting business goals!). A business involves more than just an idea. You need to know your customers, how much money you need to start, who you want as employees, and other important decisions. Making the right decisions, the kind that will help your business be something you’re proud of, requires effective planning.

Your plan should be step-by-step. It covers what your business is, what you will offer, how you will run your business, and how you will grow it. A plan makes setting your goals and objectives easy because you’ll know where you want to go. Plus, a plan isn’t just for you. A lot of small businesses need cash to get up and running, and your investors want to count on getting their money back. Planning for bumps in the road, and proving that to the bank, helps show them that you’re a solid investment.

CBInsights has taken a look at 100 failed businesses. A lot of the reasons for failure could be avoided with a little thought. Maybe there’s no market need. Not enough cash. Not the right team. The competition was better. The price wasn’t right. Don’t let this be you. Creating a plan helps you spot the pitfalls before you reach them.

Your Business Plan—Long or Short?

The Small Business Administration (SBA) tells us that plans fall into two common categories: traditional or lean startup. A traditional business plan covers everything about your business. It’s a great option if you’re seeking financing. A lean startup plan is meant to get your product or service into the hands of your customers faster. It also requires a lot less information.

If financing isn’t something you’re after, go with the easier lean startup. A lean startup plan can be produced in just an hour. And bonus–it might only be one page long! If you’ll be asking for bank loans or funding from investors, stick with time-tested tradition. You’ll need more info to convince them to invest in you and your ideas. Let’s take a closer look.

What’s Included in a Traditional Business Plan?

As we mentioned, a traditional business plan includes a lot of information:

Executive summary. Big term. Small (but important!) piece of the plan. This is front and center on your business plan, so it’s what investors focus the most on. Simply, it’s a short summary of everything else in the plan. You’ll likely write it last. Keep out that proprietary information, though. You want to save it for later in the plan for investors that are actually interested. When your executive summary is good, investors keep reading. If it’s bad—well, let’s not go there just yet.

Company description. Like it sounds, a description of what your company does. Lay it all out there for others to read. List the benefits of your business for individuals and for other businesses. Talk about your competitive advantages and strategy. Make your company shine by writing what is special and unique about what your business does.

Business and management structure. You’ve given your business a name you love, so put it down on paper here. You’ll also talk about who is running the business. And lastly, put in your plan on structuring your company. Different business structures affect your taxes and liability, and it can also affect funding. Let’s make things easier for investors and also include an org chart to indicate who’s in charge, who else will work with your company, and what makes them impactful.

Organizational chart for a business plan
Example of an Organizational Chart.

Products and services. You should be excited about your business offerings! Don’t be shy—talk about the value of your products or services. If you have any trademarks, patents, or other intellectual property, you should put it in this section.

Marketing plan. Know your target market before you start your plan. This is who will be buying your service or product the most. Harley Davidson isn’t likely to advertise to pre-teens. You’ll also need to include your industry outlook—or the rollercoaster of trends and challenges that your business rides. Check out your competitors and see what makes them successful and unsuccessful. Understanding your market now will pay off in the future!

Business financial analysis. It’s time to talk numbers, and this is the meat of your planning. Money speaks loudly, so expect investors to look this piece over like a fine piece of art. Include your financial projections—or what you think your sales, expenses, and profits will be. You can’t visit the future, but try to show projected numbers for five years. Pro tip: It helps to include some formal financial statements.

The SBA suggests including “forecasted income statementsbalance sheetscash flow statements, and capital expenditure budgets.” When you’re a younger business, be more specific and include quarterly or monthly projections. We’ll warn you—don’t make the mistake of making up numbers. We all want to roll in the dough, but let’s be realistic too. You’ll need to show that you’ve based your numbers on a good analysis of your market, your competitors, the potential market share you can get, and your projected costs of doing business.

Consider your ideal customers, your competitors, what piece of the customer pie you’ll have, and your business expenses. Not a financial expert? No worries. There are plenty of accountants or financial advisors who can help.

But, if you’re not looking for funding, and you stray away from tradition, a lean start-up format may be all you need.

What’s Included In A Lean Start-Up Plan?

If you’re one of the lucky small business owners that doesn’t need a traditional business plan, congrats! A lean start-up plan may get everything you need down on paper quickly. Following the Business Model Canvas, created by Alex Osterwalder, on a single sheet of paper you’ll list:

  • Key partnerships—your partners and suppliers that make your business work
  • Key activities—your day-to-day items that make your business succeed (e.g. Microsoft’s software development)
  • Key resources—your most important assets
  • Your value proposition—what your business solves and what that’s worth to customers
  • Customer relationships—what kind of relationship you’ll have with customers and how you communicate with them
  • Customer segments—your target market and who you’re selling to
  • Channels—how you’ll be moving your product or service from your business to your customer
  • Cost structure—the costs you’ll rack up with the business plan you’re creating
  • Revenue streams—your earnings after subtracting your cost from your revenue

Hard to believe that can all fit on one page? The SBA shows exactly how it’s done.

Lean Startup Business Plan Template

There are many sample business plan templates online to give you a head-start in creating a business plan. The SBA also offers an online business plan tool that will take you through the process of creating a plan.

The Don’ts of Business Plans

In Entrepreneur magazine, Andrew Clarke, CEO of Ground Floor Partners, covers the “Top 10 Business Plan Mistakes.” We’ve covered the dos, now avoid the don’ts:

  • Don’t write poorly. We all love emojis—but keep them in your phone. Poor spelling, grammar, punctuation, and style can make you seem unprofessional. If writing isn’t your strong suit, hire someone or use tools like Grammarly or Hemingway App.
  • Don’t be sloppy. Especially if you’re using your plan to get funding, you need to make sure it’s thought out, organized, and clean.
  • Don’t skip things. Make sure to cover all of the items we’ve discussed above—thoroughly.
  • Don’t be vague. If you’ve got some awesome information you want to keep under wraps, it’s OK to be protective. Clarke suggests sharing just your executive summary with potential investors. If they want to learn more, ask them to sign noncompete and nondisclosure agreements before hashing out the details. But be warned–investors don’t usually like to do this.
  • Don’t be too detailed. This is the opposite problem! Remove overly technical details and put long items in an appendix. Keep it short and sweet.
  • Don’t assume too much. Yes, you will be projecting into the future. But, your assumptions should be based on solid data.
  • Don’t skimp on research. Take the time to gather information about your industry, your market, your competitors, and your customers. Keep in mind that potential investors will likely check your data, so don’t pull it out of Narnia.
  • Don’t claim there are no risks. There are always risks. Make sure to outline them, along with information on how you will minimize or eliminate these risks.
  • Don’t leave out competitors. Again, all businesses have competition—direct and indirect. Identify them and indicate how you will compete.
  • Don’t forget the smaller plans. As Clarke says, a business plan “describes how you’ll get from one stage to the next.”

Ready, Set, Plan!

Now that you’ve got everything you need, it’s time to start planning. Writing a business plan isn’t nearly as daunting as it sounds, but you’ll have to dedicate time and effort. We get it—you want to get your business up and running! But planning will make success so much sweeter. Use this information to help you get your business plan started off on the right foot.