Do you always need a written business plan? Keeping track of every part of your business in your head is an impossible task, and the components of cash flow–sales, costs, expenses, assets, liabilities, capital, and profits–are much easier to understand and manage when laid out in an organized way.
Not only that, having everything documented will help show others that you have a good idea on your hands, one worthy of investment—whether that be labor or capital.
There are many different types of business plans, however, each type generally falls under one of two categories: traditional or lean startup. Whichever you choose, writing a business plan can give you a roadmap, guiding you through each stage of starting and managing your company, and can help convince people to invest in or lend to you.
That said, does a business plan guarantee success? Sadly, it does not. If all you needed to succeed was a business plan, then everyone with a business plan would be successful. Nonetheless, it is an excellent exercise and decision-making tool, and will help you flesh out a solid business strategy. In fact, scientific studies have shown that many successful businesses planned ahead.
In this article, we’ll review the traditional business plan format used to outline the company’s mission statement, structure, products or services, growth strategy, and more—information that will all be necessary if you’re going to secure outside investment, such as investor funding and business loans. Furthermore, we’ll provide a few examples of business plan templates we stand behind.
If you’e starting a small business, your business plan can be a highly useful tool to help you run your business. It can be the blueprint for how you structure, run, and grow your company.
They’re also an excellent way to flesh out key elements of your company, such as capital needs, product-to-market fit, competition, marketing plans, and potential to make a profit. Documenting all this will give you a much better grasp on your chances for success.
Most importantly, traditional business plans are an essential part to securing funding or bringing on new business partners. By providing in-depth detail on how you plan to operate your business, you make it that much more attractive to prospective investors or lenders.
This is because any investor is more likely to put their money and resources into someone who has made the effort to think out and document how the business will run—the business owner is more likely to be viewed as committed, thoughtful, and strategic.
Furthermore, creating a business plan lets you spot opportunities and challenges as you grow. This is due, in large part, to the fact that business plans have become less static.
(It used to be the case that many business plans were long, formal, and static documents that did not change much.)
Nowadays, many business owners revisit and revise their business plan as the company grows, as they gather new and different information and experience, and as the market changes. This allows for more flexibility and strategic planning and pivoting.
Now, some people may see writing a business plan as a chore or necessary “evil” required to attract financing or investors.
It may be seen as a chore, but it should also be seen as a low-cost—if not free—way to explore the viability of your potential business and avoid costly mistakes. At the end of the day, it’s not just about funding, it’s about the process.
By writing a plan out, you show not only yourself but those around you that you have a good idea on your hands, one worthy of time, effort, and money.
Traditional business plans, or standard business plans, are highly detailed and provide a comprehensive look at the inner workings of your business.
These types of plans are necessary when requesting funding from an prospective investor or lender. They can be dozens of pages long, and usually take more time to write than other types of business plans, such as a lean startup plan.
Lean startup plans are typically shorter, focusing on key elements from a high-level. They are useful tools for measuring performance regularly and tracking your financials and milestones against what you projected so you can respond to opportunities and react to challenges quickly.
This type of business plan is faster to write, but doesn’t always provide enough information to potential investors or lenders. Nonetheless, it is a great option for startups looking to move quickly and decisively.
When writing a traditional business plan, the outline should include these topics:
The order in which the topics are included is not incredibly important. The level of detail is what investors are looking at. Let’s briefly review each section.
This is one of the most important sections of your business plan, as many investors will make a decision to invest in your business based on this summary.
Often, these investors won’t read the rest of the business plan unless your executive summary is convincing enough. It shouldn’t be longer than one page, and should provide a high-level overview of your business idea that persuades an investor to continue reading.
Your executive summary should include every section described below, but condensed to include the most important information so a busy reviewer can get the idea quickly.
This is where you’ll go into detail about your business concept and company, explaining what you do, why you do it, and the problems you plan to solve.
You should include information regarding your business’s structure, goals and objectives, as well as the consumers or businesses you plan on serving. You can also include your cultural philosophy, principles, and ideals.
All this should be written to explain why your business is a good investment bet.
If you plan on raising money from investors, they will want to know how you structure your business and who runs it. This means determining how your business is structured legally, and including that information in your business plan.
State whether or not you are or plan to incorporate as a C-corporation, S-corporation, or limited liability company (LLC), and show who will be running each part of the business and describe how each member will contribute to the company..
Documenting the legal structure and management team in your business plan regardless of fundraising strategies will ultimately be helpful, as you will have all your business entity information recorded for any future needs.
Explain what you plan to sell and why. How will it benefit your customers or the businesses you plan to serve? In the life sciences sector, sharing how you plan to handle intellectual property is incredibly important.
If you’re performing research and development, you’ll want to include comprehensive details.
Many investors will want to know an analysis of your target market, the size and growth of that market, and why you’re targeting it.
Market research—specifically, researching your competitors—should give you a good idea of what your target industry and market looks like. It will show you what other businesses are doing and whether or not it’s working.
This type of competitive analysis will also help you understand their strengths and weaknesses, and how you can position yourself.
Looking for themes and trends can help you get an idea of what successful companies do, why they do it, and how you can improve on it. Including this information in your business plan will help investors see how your business fits into the target market, and whether or not you have any competitive advantages.
Creating these two documents is extremely important because it will define how exactly you will market to customers, as well as how you will convince them to purchase the product or service you’re offering.
While sales strategies and marketing strategies are somewhat different, they are often talked about together, as sales and marketing departments work closely to achieve business goals.
Although there is no single way to approach creating a marketing strategy, there are some best practices that many entrepreneurs in various industries typically follow. These best practices include:
Include your marketing and sales strategy in your business plan by outlining your current marketing plan. Explain what your ideal customer demographics are and why, show how your strategy fits that actual or potential customer, and include your value propositions. Incorporate how you plan to attract and retain their business as well.
As well, this section should also describe how you’ll actually make a sale. Refer back to this section when describing your financial projections.
If you’re looking for outside investments to fund or finance your company, you’ll need to include a funding request section. If you’re not planning to ask, you can skip this section entirely.
Although investors are an excellent resource (large cash injections, wide network to leverage), there are other ways to fund your business without using investors.
Use this section to include important information on your business’s funding needs, as well as future financial plans and projections.
Include how much funding you may need and when you’ll need it, whether you prefer equity or debt, the terms you’d like, and the length of time this request will cover. Furthermore, describe how you’ll use your funds.
Specify whether it’s for hiring and salaries, equipment and supplies, or bills that need to be paid. (It could be for all of these.)
Include a description of your future financial plans. It should include any loan repayment schedules and plans to sell the business. You’ll also want to include your exit strategy, letting investors know how they will be able to exit the deal should they wish.
An exit strategy can be a number of things, from initial public offering (IPO) or merger and acquisition (M&A) to a management buyout.
The financial plan section is used to illustrate your projected financial position, as well as a number of financial statements.
It can be used to supplement your funding request and should show your company’s stability.
You’ll want to include the most important views of your financials, to showcase your business’s financial health. If you have income statements, balance sheets, and cash flow statements you can provide, make sure you do.
Depending on your audience, it may also be helpful to provide a financial forecast for the next five years. Include projected income statements, balance sheets, cash flow statements, and capital expenditure budgets, and describe your projected cash-flow statement.
It can identify gaps or negative cash flow, helping you adjust your operations accordingly. Lastly, match these projections with your requested funding so investors understand why you’re requesting that specific amount.
You can use a business plan template to write an effective business plan. These templates typically provide step-by-step instructions, or enough detail about each section, to help guide you through the process.
We’ve gone ahead and collected a few resources we believe in, and have provided them here for you:
As tedious as it may sound, writing a great business plan can help convince others that you have a viable business idea on your hands.
With an excellent business plan, you’ll likely have an easier time getting people to work with you, whether as a fellow founder, an employee, or as an investor.
Lastly, even if you’re not actively seeking out funding, it’s an excellent exercise that will leave you understanding your business inside and out.
These articles are designed to be informational and do not represent legal advice. Before making any legal or financial business decisions, you should consult with a professional who can advise you based on your individual situation.