You can run a bakery, a flower shop or a factory. But, no matter what, you have likely been told many times that a solid business plan is essential.
It is common knowledge that business planning, regardless of its form, is beneficial. A business plan can be an invaluable ally in the entire life of your company, from its beginning to its cash-flow.
It will help you get started, stay on track, keep your growth under control, secure financing, and much more. Many people think the term is just a small part of corporate jargon.
This guide will help you understand the basics of business plans. It also explains how to create a business plan.
What is a business strategy?
A business plan can be described as a written document that outlines in detail your plans and how you will achieve them. Every business needs a business plan. A business plan is essential for all businesses.
A business plan is a written document that describes a business idea. A business plan is a combination of financial, operational, and strategic marketing perspectives.
A business plan serves two main purposes, depending on the audience.
- It is intended for internal audiences (business owners, employees ) and serves as a guide to the management in order to plan the company’s growth and prepare any necessary modifications.
- It serves to communicate your plans for your business to external audiences such as banks, investors, alliances and customers.
Planning is crucial to the success of a serious business venture that will require significant time, money and resources. Each business has short-term and longer-term goals. Sales targets and expense budgets are all important. A business plan can be useful for a startup looking to raise funds or a mature business with 10 years of experience.
What is the importance of a business plan?
It is common to believe that business plans are only for startups. They can also be used to support loan applications or get investors. Business planning is important and can bring many benefits to any business.
According to a study, many companies are able to succeed without planning. However, businesses that plan can grow 30% more than those who don’t.
Here are five reasons business plans are essential for your business.
- To set priorities. There are many things to take into consideration when running a business. Sometimes, you cannot control everything. Business planning can help you track the most important and relevant things. This will allow you to allocate your resources, time and effort strategically.
- To make important decisions. A solid business plan will help you focus and define your business ideas and strategies as an entrepreneur. Not only should you be focusing on financial matters, but also management issues, human resource, technology, competitors and customers. You can see how your core strategies will affect your overall strategy by thinking deeply about them.
- To find potential weaknesses. You can share your plan with professionals and customers to help identify potential pitfalls and offer valuable advice. This will reduce the risk factors.
- To secure financing. To secure financing. While it is possible to review profits, when sales on account, price of goods sold, or repayments of debt are involved, planning and management are essential.
- To communicate your ideas to stakeholders. Business plans are a communication tool that can be used to convince lenders or financial institutions to invest in your company. It can also be used to recruit potential customers, secure credit from suppliers and create a foundation for employees to work for your company.
What types of business plans are there?
Most people who write their first business plan wonder “How detailed should it be?”
Unfortunately, there is no single answer to this question or formula.
It’s entirely up to you. It depends on your business and the necessity of it. There are three types of business plans.
Plan for a short business
A business plan should be between 10 and 15 pages in length. This plan is best for new companies at an early stage of development, when there are not many interrelations.
A short business plan is only appropriate for a company that has a long history. This is to ensure that certain investment opportunities can be approved in advance.
Even if the business plan is very brief, all information must be provided in an accurate and complete manner. It should clearly state the reason for the request.
Final goal: convince potential investors that your business and market are well understood.
Extended business plan
A business plan can be as long as 40 pages. This type of business plan explains the company’s issues more deeply and in greater detail than a shorter version.
This type of plan is more important if the capital required is high.
If you need to invest 5 million dollars in a project of an industrial plant and you want long-term credit, it would be prudent to prepare a business plan.
This business plan should include a detailed market analysis and financial planning for a 5-year time period. Once the reader has fulfilled their request, it should be clear and concise.
Plan for operational business
This document is important for your company’s internal communications. This document is used primarily by the management team, board members, and professional advisors at high levels. It is a great tool for aligning and focusing the efforts of key managers towards common company goals.
Operational business plans can be lengthy and complex, sometimes exceeding 40 pages.
What are the components of an effective business plan?
While no two businesses will have identical plans, they might have similar components. These are the most important parts of a business’s plan.
The executive summary summarizes the key points of your business plan and presents them in a concise format. This section is the most important in the business plan. It should be captivating and interesting for the majority of your readers.
The executive summary should include:
- A quick overview of the main topics
- Give a brief description of your products or services
- The core statements and conclusions of the enterprise strategy and success factors
This section should not exceed two pages. This section should be written after the entire plan has been completed. It summarizes the entire plan in a concise manner. It should be dynamic and interesting to “tow” readers’ attention.
This section will provide background information, describe your business and give you a more detailed introduction to your company. The following subsections should be used to break down this section:
- Business overview: This is a general description of your business. It will include a description of where it fits in the market, the needs it will fulfill, and the way it will do so. Include any history and describe the markets where your products or services will be used.
- Structure of the company: List key employees such as shareholders and partners, and information about incorporation.
- Goals and Objectives: Define your long- and short term goals and objectives. This should clearly state what your company plans to do for each phase of the business.
- Your strengths and weaknesses: Let your hair down and highlight your business’s best features. You should highlight the areas where you excel, such as customer service, product quality and pricing, or strong distribution. Also, talk about your weaknesses and what you are doing to overcome them. To make this clear, you can use SWOT Analysis.
- Vision and mission statements: A company’s mission statement outlines its business and its goals. It also explains how it will achieve those objectives. Your vision statement is how you envision your company’s future.
Services and products
The company can then present all its products and services. It may also include pricing and product life-span.
This section can include information about production and manufacturing, legal issues (patents and copyrights or trademarks), and research and development (R&D).
Your market analysis should be a good indicator of your understanding of the market and the market you are trying to enter.
This section will require data and statistics that will help you talk about the market’s past, present and future. You should also mention the profiles of your customers.
Sales and marketing strategies
A marketing plan is an important part of your business plan. It outlines how you will reach potential customers.
Marketing plans should include information about your market, competition, and other strategies to increase sales. It includes the 4P’s and how to measure the success of your marketing mix.
What are your sales strategies? This is the most common question you will answer when discussing your sales strategy.
You should be as specific and precise as possible. It is a good idea for you to include the number of sales reps that you plan to hire and your sales targets.
This section is important when you plan income expenses and cash flows. Even if you don’t borrow money, it will help you make many future decisions.
If you’re trying to borrow money, your financial section should contain:
- Projections of income and expenses
- Cash flow forecasts
- Financial statements
- Capital expenditures
Requirements for funding
The last section of your business plan should include information about how much money you have, what you are willing to repay, and for how long. These are the things you can do:
- How much money do you need?
- What type of loan are you applying for?
- What assets and how you plan to secure the loan
- The term you would like to repay
- Here’s how the funds will be used
Five Tips to Write a Perfect Business Plan
Determine your purpose
Each business has its own purpose. Before you start writing, it is important to understand why you are writing and what you want to achieve with it.
Your business plan won’t be of any value if it doesn’t have a clear, specific or set of goals.
The business plan is a roadmap with clear directions. It is important to include how you plan to fund self-funding if you intend to do so.
Your plan must appeal to investors if you are trying to attract them. Your purpose should be stated in the Executive Summary section.
Your vision is yours
Based on your goals and purposes, a vision shows you where your business should be in the future. A vision can help you keep your business on track and will give you a sense of direction.
Your management team and staff must work hard to realize your vision. You can resolve fundamental questions about the direction of your business by brainstorming and exchanging ideas. Your vision statement should be clear
- It is simple enough to understand and written in plain English (i.e. There is no business jargon
- It is powerful, passionate, and memorable
- It is clear and concise, and conveys a lot in just a few words
- Realistic (i.e. in terms of your internal resources , abilities and potential
- Shows the best possible outcome for your company
- Numeric measures of success shouldn’t be used
- It helps to create a picture in people’s minds.
These examples will help you to create your vision statement.
- “There will be an individual computer at every desk that runs Microsoft software.” (Microsoft’s original vision statement).
- “Our vision is the world’s most customer-centric business; to create a place where people are able to discover and find anything they might like to buy online.” (Amazon.com).
- “Bring inspiration to all athletes* around the globe. You are an athlete if you have a body. (Nike)
Make a profile for your company
You can find the company profile on the company’s website. This helps you attract potential customers and talent. Your company profile can also be used in your business plans.
A profile that is attractive should include the following:
- The history of the company
- The products and services
- The target market
- The target customers
- Problem-solving strategies
- Competitive advantages
Your profile should be easily visible and concise enough to draw readers to it. It is important to not underestimate it as it will be the first thing that clients, readers, and leads come across. Your chances of achieving your goals are greater if it is precise and informative.
Know your competitors
Your business should never claim to be unique. Despite the fact that you might feel unique and successful, others will likely be doing something similar.
It is not enough to simply be aware of your competition. You must also get to know them. It is important to understand their market share, profitability, size, products and pricing strategies, as well as how they attract customers. An effective tool to improve your business is a competitor analysis grid.
Keep an eye on your competition. Your competitors will also change as markets evolve. Existing businesses will adjust to changing markets, while new businesses will enter the market.
Therefore, it is important to view competitor analysis as a continuous project that must be reviewed on an ongoing basis. This will allow you to stay ahead of the curve.
It’s okay to be confident about your business performance. Unrealistic goals can lead to disappointment later.
Underestimating sales figures and underestimating costs can make your plan less credible, which could result in lenders and other interested parties being dissatisfied. Your plan should not be based on pipe dreams or illusions, but the most reliable facts and figures.
Everybody dreams big. But, there’s a fine line between optimism & reality. It is crucial to find the right balance, especially when it comes to investors.
The bottom line
It takes a lot of effort to write a business plan. It doesn’t have to be difficult. Your business plan should at its core identify where you are, where your business wants to go and how you will get there.
Although a business plan is not a guarantee of success, it can help to reduce the chances of your business failing. If your business doesn’t have a solid plan, you can follow this guide to create one now.