You’ve decided you are going to start your own business, now it is time to create the business plan that will help guide you along the way and potentially gain investors. Even if you do not plan on reaching out to investors for funding, having a business plan is important to help keep you on the right track.
So, what does a business plan need to include and how do you write one? Below, we’ll outline the essential sections and additional resources to turn to if you get stuck.
1) Keep it Short and Concise
Sometimes as a new business owner, it can be difficult not to get distracted by potential opportunities and new areas of growth before you have even built the foundation. A good business plan can you keep you on the original path to creating that strong footing you’ll need to support all those future growth plans.
You can probably cover everything you need in 20 to 30 pages (or slides) plus an additional few for appendices, monthly projections, management resumes and other details you want to include. If you plan goes beyond this, you need to narrow your focus and summarize to the most important information.
2) Know Your Audience
If this business plan is just for you and your partner, great, you know exactly what you need to include to organize your own thoughts. If you’re creating a complex scientific process but your investors are not scientists, don’t write a business plan using jargon they won’t understand. Simplify it!
3) What to Actually Include in a Business Plan
A Strong Title Page and Executive Summary
Similar to a resume, you want to have a strong title page and opening summary section that will grab the reader’s attention. In particular if you are looking for investors. The summary section is meant to provide clarity and tell the reader exactly what it is your goals are for this business. Too often, the business owners’ objectives are buried deep inside the plan and sometimes are never even seen by the reviewer.
You can also include your slogan, logo, and mission statement in this section. Give the reader an idea of who you are and what you want your business to stand for.
A Description of the Business & the Opportunity
This is where you are going to tell the reader exactly what you plan to sell or the problem you plan to solve. Describe your target market and consumer and how you plan to help them.
This section usually begins with a brief description of the industry, including products, major competitors, recent developments and things that will affect your business both positively and negatively. Then describe the gap that you intend to fill and how you intend to fill it.
Research & Analysis
Include all of the research you have done on the industry here, including who is the target consumer and the target market. Providing market insights, challenges and future possibilities as well as any barriers to entry that you may need to work around. A classic method to use is the TAM, SAM, and SOM breakdown to evaluate market size in a top-down and bottom-up approach.
- TAM: Total Available/Addressable Market – everyone you want to reach with your product
- SAM: Segmented Available/Addressable Market – portion of the TAM to target
- SOM: Share Of the Market – subset of the SAM realistically reached, particularly at first
This is where you display everything you have learned about the competition; their strength and weaknesses and you plan to use those to your advantage. Describe how your business will positions itself to compete.
Execution, Plan & Development
The purpose of this section is to describe exactly how you are going to turn this opportunity into a business. This is essentially your sales and marketing plan, operations, and how you measure success.
Operations, Management & Company
Here is where you provide information on the operations of the business and how it will function on a continuing basis. Highlight the logistics and describe what your team will look like, both today and in the future. Provide an overview of both the internal structure (departments and divisions) as well as the legal structure you are selecting, headquarters location, and any history if you are already up and running.
Products & Pricing
Discuss the products or services and position strategy of your pricing structure. Your positioning strategy will be a driver in your price offerings and send a strong message to consumers. Are you priced above, at, or below the competition and why?
Sales, Marketing & Advertising
A business plan should include your sales and marketing strategy. How do you plan to reach your customers, what is your messaging, and do you have a budget set for advertising? A key component of this will be measuring the success of your advertising efforts. There are many ways to market, including public relations through media outlets, content marketing, digital marketing, and social media. Include your strategy around all the methods you plan to use.
Discuss the plan for distributing products and services to customers. This is an important component even for service-based companies because it involved the customer experience. If customers do not have a great experience when dealing with your business, all the fantastic content might be lost. Figure out what the distribution model will be and put yourself in the shoes of the customer to understand if it is something that will work. Remember, in today’s environment, convenience is key.
Milestone & Traction
This is a great section to add to demonstrate you have a well laid out plan for growth and specific goals you will meet along the way. Investors want to be able to see tangible and quantifiable progress with milestones you intend to hit at certain stages. This will most likely be used in the negotiations of funding so make sure it is as clear as possible and that you have set attainable goals.
Financial Plan & Funding Requirements
This is always the final section of the business plan. Probably because you want to save the best or most important for last. Provide a financial forecast, what are the startup costs, what is the overhead, what are the monthly costs to run the business, when do you expect to earn a profit, what will that profit look like. Include any current financial information if you have it such as amounts spent or earned, projections, and sales forecast.
If you are raising money to fund or grow your business, include the details of what you need and how that money will be spent. Don’t worry about including any terms of the potential investment as that will be negotiated later. Instead, just include a brief statement on the amount needed to get your business off the ground.
Profit & Loss Statement
Also known as the Income Statement, this is where the numbers come together to show if you’re making a profit or taking a loss. The P&L will pull data from sales forecasts, personnel plans, monthly expenses, and other costs associated with running your business. It also includes the net earnings or “bottom-line”, which is your expenses subtracted from your earnings (gross profit). A typical P&L will include the following:
- Sales, Income, or Revenue: This comes from your sales forecast and includes all revenue generated by the business
- Cost of Goods Sold (COGS): This comes from the sales forecast and total cost of selling products or services (Cost of Sales or Direct Costs)
- Gross Margin: This is COGS subtracted from Sales, most often shown as Gross Margin / Sales = Gross Margin Percent
- Operating Expenses: All expenses associated with running the business excluding COGS previously detailed as well as taxes, depreciation, and amortization – include salaries, research, and development (R&D), marketing, and any other expenses
- Total Operating Expenses: The sum of all operating expenses combined
- Operating Income: Also known as EBITDA or Earnings Before Interest, Taxes, Depreciation, and Amortization – subtract the Total Operating Expenses and COGS from Sales
- Interest, Taxes, Depreciation & Amortization: If you have these, list them here
- Net Profit: The “bottom-line” showing if you’ve make a profit, or taken a loss each month or year
Additional items in the financial portion are Cash Flow Statements (showing money in the bank at any given time) and a Balance Sheet (an overview of the assets and liabilities, equity, etc.).
Although this is the last thing you want to think about, it doesn’t hurt to include a plan for exiting the business. It could mean selling the business or turning it into a public company via an IPO. Investors may want to know your thoughts on this for their own financial goals. Be brief here, include some examples of companies that may want to buy if you are successful.
If you want to provide graphs, resources, financial projections, images or any other additional information, use an appendix.