The decision to create a business plan is an important one, whether you are starting a new business or growing an established one. A solid business plan is fundamental to long-term business success.
It serves two main purposes:
- It acts as a roadmap for your business.
- It is a tool that helps you obtain outside financing.
While the phrase “creating a business plan” may conjure up feelings of trepidation and dread, it will not be as difficult if you break your business plan down into its more essential parts.
WHY DO YOU NEED A BUSINESS PLAN?
While a business plan will not guarantee success, failing to have one almost guarantees that you will not find the success you seek.
The first thing you need to do before creating the roadmap, though, is to figure out where you are heading.
In order to do that, you should ask yourself four simple questions.
1. How do you want your business to look in one year?
2. How would you like it to look in three years?
3. Where do you want to see your business going in five years?
4. What would you like to have accomplished by your tenth year in business?
Seek the answers to those questions, keeping in mind profits, revenues, expansion, growth and other critical drivers and metrics for your business.
WHAT DOES A BUSINESS PLAN INCLUDE?
In order to build the roadmap to reach your intended business destinations in a timely manner, you must include key pieces of information and analysis in your plan. The many moving parts of running your business become the fundamental building blocks of your long-term business plan. Consider each of them pit stops along the road to business success.
Your business concept is a summation of your company in a few concise and simple sentences. It should clearly communicate the idea, design or value proposition behind your business so that a customer, investor or potential partner can quickly grasp what you will do and the value it will provide. Keep the concept statement to one paragraph.
Your business strategy provides the detail on how you will execute the business concept. It describes your industry, explains your product or service, and the critical factors that will drive your business success. Those factors might include such things as your management team, operational plans or cost advantages. In essence, it is an executive summary that explains why your business is uniquely suited to succeed.
Specific things you should consider while creating the strategy section of your plan include:
- Current and future products or services offered.
- The size of the market.
- How the market is changing.
- Industry trends.
In the market analysis section of your plan, you need to explore the ins and outs of your potential customers or markets.
- Who are they?
- Where are they?
- What motivates them to buy the items or services you offer?
- What do they want or need from you?
- How are you going to attract new customers?
- What do you plan to do to keep them coming back?
Most importantly, though, is to answer this one question: “How are you profitably going to meet the needs of your target customer?”
In order to be complete, your marketplace analysis must pay attention to your competitors. This is necessary whether you are an established business looking to expand or a new business interested in taking business away from other established businesses in the area.
Questions to ask yourself here, include:
- How is your business going to succeed in a market that is already being sufficiently served by another business in your industry?
- Is there sufficient demand to bring another business into the market or expand your existing business?
As a new business you will need to include the following in your financial analysis:
- Break-even analysis.
- Financial ratio calculations.
- Internal and external funding requirements.
- Projected revenues and profits over one, three, and five-year terms.
Don’t forget to include plans for assets the business needs to acquire and the costs of the marketing plan the business intends to follow coming out of the gate.
Existing businesses need to include cash flow statements, balance sheets, and pro-forma income statements, for example.
Keep in mind, you should provide information that will assist potential lenders (banks and credit unions) and investors in approving loans or green-lighting investments in your business.
MAINTAINING YOUR BUSINESS PLAN
To get the most benefit from your business plan, it should be dynamic and evolving You must adjust your plan as necessary with changing markets, new product concepts, evolving technology, need for additional financing, and goal achievements, just to name a few. An old business plan may not reflect your current reality, so be sure to revisit your business plan periodically. Having an updated checklist helps you to do just that.
Once you have a plan in place, you will begin to see the effectiveness of how such a simple business tool can take the guesswork out of starting a business or growing one.
Revised April 2023
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
All loans are subject to credit approval.