If you’re just starting out, writing a business plan might seem like a daunting task. If this is your first foray into a business, you may be unsure of exactly how to put a plan together, what it should cover and what information it should provide.
Think of the business plan as a blueprint that details every stage of starting, managing and growing your business. If you want to raise funding, it should detail financial projects for potential investors. This step-by-step guide will teach you how to create a business plan and offer tips on simplifying the process.
Assess Your Business Idea
This is the first and most crucial step of creating a business plan. You must assess whether your business concept is feasible and whether growth potential exists in the industry. This will determine whether the idea is worth pursuing. Conducting a bit of due diligence at this stage will ensure that you’re setting yourself up for success.
It’s normal to get emotionally attached to our business ideas and no matter how good they seem to us if the market dynamics don’t exist to support that idea, the business doesn’t have much chance of succeeding. Figure out the specifics of your concept and fine-tune the idea if needed to implement the business plan seamlessly.
Research Your Industry
Every business plan template you see will have the executive summary on the first page. It needs to reflect industry research. It should showcase that you’ve taken time to undertake considerable research into the opportunities and threats that exist in the industry you’re going to compete in.
You need to take a holistic view of the entire industry to form a comprehensive understanding of the landscape. This will require understanding government regulations and how they may impact your business, looking at industry reports and statistics to figure out where the gaps exist and keeping an eye on macroeconomic indicators to spot any headwinds that could impact the business.
It’s important to keep an eye on the competition to see how they cope with similar challenges and how your products can stand out against theirs. Study the needs of customers and figure out where competitors fall short. This will give you a clear view of the opportunities your business can take advantage of to thrive.
Analyze Your Competition
A good business plan must incorporate competitive research. You’re entering a market with incumbent players who aren’t going to be happy about a newcomer. You must thoroughly research how your competitors run their businesses and what strategies they rely on to achieve growth.
Study their products and services to figure out how they solve a problem for customers. Analyzing their pricing strategies will also help you with the financial projections for your business as a pricing benchmark is already set. Do a deep dive into their marketing tactics to understand how they bring in customers consistently and what you could be doing to gain an edge.
In-depth competitor analysis should leave you with a clear roadmap you can follow with reasonable certainty to ensure that your products, pricing, marketing and customer service are as good — if not better — than the incumbents.
Define Your Target Market
By now, you have started to form a good understanding of how to create a business plan. There’s another crucial element that needs to be incorporated and that’s your target market. It’s one thing to have a great product; it’s another to know which customers are likely to buy it and become repeat customers.
This requires research into the demographics, interests and needs of the people you’re looking to convert. You’ll have some idea of this based on your product. For example, if you have a product aimed at making life easier for senior citizens, there’s no reason to promote it to younger people.
Figuring out your target market goes beyond this. Research the audience demographics to build a more effective marketing strategy, lock in pricing based on their purchasing power, and target them with the most suitable products to help improve their lives.
Craft Your Business Model
A great idea or product alone isn’t enough to make a business successful, it needs the right business model to achieve its true potential. This requires picking the appropriate business structure, identifying and highlighting the value proposition in your business plan and figuring out the supply chain and distribution channels as well as pricing and customer service strategies.
Think of the business model as the foundation of your products and services. You craft this model based on your competitive advantage, industry research, trend analysis and customer segmentation. Sorting out all of these key elements helps set your business up for success.
Develop Your Financial Plan
You need to take a long-term view when setting financial goals. This provides you with a target to strive for and incentivizes efforts for sustained growth. It will also make it apparent if you need to raise outside funding to achieve the goals. If that is the case, detail your funding requirements in this section and provide clarity on what the funds will be used for. Mention whether you seek debt or equity, the terms you’d prefer and any repayment conditions.
Every business plan template you look at will have a detailed section for financial projections. It’s impossible to run a successful business without them. This is the part where you forecast sales, expenses and profit for at least a couple of years. If you’re looking to raise money, investors will be particularly interested in this part of the business plan. These projections will help them understand whether your business can generate enough profit to provide them with a decent return on investment.
Outline Your Product and Services
This section of the business plan needs to define your products and services in considerable detail. It should be apparent how they work and benefit your customers, how they’re priced and how you’ll provide ongoing support to customers. The product life cycle also needs to be clearly explained.
This is also where you should mention any intellectual property details, such as awarded or pending patents and copyrights as well as research and development activities. The goal is to provide an accurate representation of what your business offers, what the target market is and how it helps fill a gap in the market.
Describe Your Business Structure
You may choose any one of the following business structures, as each has individual benefits and liabilities that should align with your business model to be the best fit.
This is the simplest business structure as you’re individually responsible for all business operations. Sole proprietorship businesses aren’t required to file separate income tax forms from the owner, so all of the income and business expenses will be included in your tax return as the owner. This is a good starting point because of the low initial cost, but owners remain personally liable for the debts and obligations of the business.
A partnership is the simplest structure for businesses with two or more owners. It’s similar to a sole proprietorship as the business entity isn’t separate from its owners. All partners are required to report the profit and loss figures on their personal income tax returns through Form 1065. The low initial cost is a major draw for partnerships even as all partners remain personally liable for the debts and obligations of the business.
Limited Liability Company
A limited liability company (LLC) provides the benefit of a corporate veil and reduces the personal liability of business owners. There are also substantial LLC tax benefits. All profits and losses are passed through and each owner is required to declare them in their personal tax returns. There’s less paperwork involved when setting up an LLC compared to a corporation, and there’s no limit to the number of shareholders the LLC can appoint. The regulatory and LLC tax requirements can be costly and require resources such as attorneys and bookkeeping services to ensure compliance.
A corporation is a complex business structure. C-Corporation and S-Corporation are the two main types, the former is a fully separate legal entity from its owners, and the latter functions as a partnership with up to 100 shareholders. Corporations are liable for federal and state taxes, and shareholders must report dividend payments on personal income taxes. A corporate structure is useful when raising capital through sales of stock. It has the most reporting requirements of any structure and is generally more expensive to maintain.
Outline Your Marketing Plan
How do you plan on convincing customers to pay for your products and services? Is there a strategy to create a loyal customer base that will result in repeat orders? A good business plan needs to cover these important questions. Identify the strategies that can be used to target customers and how resources will be deployed to maximize returns.
Figure out the right messaging and platforms to target the relevant audience. Position campaigns based on your customer segmentation. This is basically how you’ll be selling your products. Potential investors will want to know how customers are acquired and for what cost. This will be a key discussion point and the basis upon which your financial projections are weighed.
Your marketing strategy should have short- and long-term goals. It should have the capability to evolve and adapt to market trends. There should also be defined goals, whether that’s increasing sales, growing website traffic or increasing customer engagement, progress should be tracked against key performance indicators (KPIs) to achieve measurable growth. This also adds an element of accountability as it ensures that the plan is followed to achieve the desired results.
Writing Your Executive Summary
Think of the executive summary as the elevator pitch for your business. It’s the first page of your business plan, and it needs to make the right first impression, particularly if the plan is to be shared with investors. The executive summary should make clear what your business is, the products and services it will provide and how customers will benefit from them.
It should also provide an overview of the financial projects so any concerns about viability can be addressed. Use the executive summary to highlight all of the positive attributes that make your business unique. Provide some detail about the opportunities you’ll pursue and mention all competitive advantages of your business.
It’s Time to Execute Your Business Plan
Now that you know how to start a business plan, you can begin putting it all together. It starts with the executive summary. Imagine crafting the perfect elevator pitch that presents your business in the best light and write it down.
Follow it up with market analysis and competitive research. Take some time to understand your target audience and the strategies you’ll use to target them. Don’t forget the financial projections as they’ll help you manage cash flow and forecast growth.
Once you complete the business plan, it’s time to execute it. Need some help setting up your business? Head to doola.com for quick and easy U.S. business formation.
How do I create my own business plan?
Create your own business plan by writing an elevator pitch, followed by the market and customer analysis as well as financial projections and marketing strategies.
Can I create a business plan after starting my business?
You can create it later on, but it’s risky to run a business without one. It’s always best to create a business plan before starting your business.
What should an entrepreneur do after creating a business plan?
Entrepreneurs should launch their businesses after creating a business plan. They should use a company formation service to ensure it’s done properly.