Without a roadmap, it’s easy to get off course. And when it comes to operating your business, you need a small business plan to stay on track. Before creating your company’s “roadmap,” learn how to write a small business plan effectively.
Writing a business plan takes time. But if you draft your plan before starting your venture, you can reap the rewards.
Business plans can help you further understand your market, obtain outside funding from lenders and investors, and strategize your company’s future.
How to write a small business plan
There are approximately nine sections in a traditional business plan outline. But, business plan sections may vary between companies.
Read about the contents of each section to learn how to create a business plan.
1. Executive summary
The first section of your small business plan is an executive summary. Your summary should concisely explain the key points of your business.
Keep your summary short and sweet. It should outline the rest of your business plan, not repeat it.
Make sure your executive summary answers:
- Why does your business exist (e.g., what is your small business mission statement)?
- What types of products or services do you offer?
- Who runs your business?
- How many employees do you have, need, or plan to have?
- Where is your business located?
- What do your finances look like?
- How much money do you need to run or grow your business?
You might consider waiting until you’re done with the other sections of your business plan to craft your executive summary. For some, summarizing is easier than expanding.
2. Company description
The company description portion of your business plan structure typically includes more detail than the executive summary. But, it is similar to the executive summary in that it summarizes your business.
Provide an overview of the scope of your business in the company description. Go into detail about who runs your business, how it’s structured, and where it’s located. Also, include your mission statement and how your company fills a marketplace need.
Your company description should answer:
- What does your business do?
- Who are your target customers?
- How is your business poised for success? What sets you apart?
- What is your business structure (e.g., sole proprietorship, S Corp, etc.)?
- Where are you located?
- What is your mission statement?
3. Market analysis
To complete the market analysis part of your business plan, you need to conduct research. Find out information about your market, target customers, and competition.
Research your competitors’ strengths and weaknesses. Learn which demographics you plan to target. Analyze the size of the market you want to penetrate.
Questions you should answer in your market analysis include:
- Who is your target audience?
- What part of the market does your business exist in?
- Who are your competitors?
- How many competitors are in this part of the market?
- What do your competitors do right? Wrong?
4. Organization and management
The organization and management section of your business plan for small business dives into your business structure and leadership.
You can structure your company as a sole proprietorship, partnership, limited liability company (LLC), corporation, or S corporation. Decide what is the best structure for small business before choosing. Explain why you chose this structure in your business plan.
List the names of the people running your business. Describe the strengths, skills, and experience of business leaders. Delegate roles and responsibilities to each leader. For example, if you form a partnership, explain each partner’s role.
Be sure to answer these questions in your organization and management section:
- What is the legal structure of your business?
- Why did you choose this business structure?
- Will you change your business entity in the future?
- Who runs your business?
- What skills do your key employees bring to the table?
- What kinds of positions do you need to fill to run your business?
5. Services or products
Now for the fun part of your business plan—your products or services. If you’re like most business owners, you’re likely more excited about running your company than structuring it.
The services or products section of your business plan defines your offerings. Explain how your products or services benefit your customers. And, discuss your offerings’ unique value proposition. You should be able to explain what sets your products or services apart from the rest of the market.
Your services or products section should answer the following questions:
- What will you sell?
- What is your product life cycle?
- How do your offerings compare to what’s already out there?
- What problem does your product or service solve?
- Do you plan on seeking patents or copyrights?
6. Marketing and sales
Marketing is arguably one of the most critical parts of running a business. You may have a great product or service, but it doesn’t matter if nobody knows about it.
Through marketing, you can build relationships with potential customers, show your business’s authenticity, and make sales.
Your small business plan should explain how you plan to market to potential customers. Will you use online marketing strategies, such as social media and email campaigns? Or, do you plan to utilize offline strategies like radio ads and direct mail? Lay out exactly what combination of marketing strategies you plan to pursue.
You must also define your sales strategies and goals. Explain how you will sell to customers and explain sales goals.
Here are a few questions your marketing and sales section should answer:
- What marketing strategies will you use?
- Which channels will you use to market to your target customers?
- How will you sell to customers (e.g., online or in-store)?
- What are your ideal profit margins?
7. Funding request
Are you using your business plan to obtain outside financing? If so, you need to define your funding needs in your document.
This section of your business plan should give the lowdown on your financing needs, plans for funding, and desired repayment terms.
Be willing to answer questions like:
- How much funding do you need?
- How will you fund your business?
- What will the requested money go towards?
- How do you plan on paying back debt?
- Will you pursue debt financing vs. equity financing?
8. Financial projections
The financial projections section is pretty nitty-gritty. You must lay out your business’s future finances to help you budget. If applicable, use historical data to estimate your financial projections.
When coming up with your financial projections, work within time periods. You want to be as specific as possible. And, avoid overestimating your small business revenue. Also, be prepared to answer what you’ll do if you don’t reach your financial projections.
Some financial questions to answer in this section include:
- How much do you have in expenses?
- What are your cost of goods sold (COGS)?
- How much is your projected income?
- What is your break-even point?
- What is your business exit strategy?
Add any additional attachments to the appendix section of your plan.
Some documents you may need to provide include:
- Credit histories
- Prior financial statements (if applicable)
- Permits and licenses
5 Tips to follow when writing a small business plan
Now that you know how to write a small business plan, follow these tips to bring it home.
Conduct thorough research
Research might not be your favorite thing in the world. But before you start a business or write your plan, you need to make research your new best friend.
From conducting a thorough market analysis to deciding the best structure for your venture, research is a must.
Without researching your idea, you could set your business up for failure. Know what you’re getting into so you don’t wander blindly into an oversaturated market or dying industry.
Put work into the presentation
After doing the necessary research and writing, make your plan stand out by prioritizing presentation.
Here are some do’s and don’ts when it comes to compiling your business plan:
- Write it on loose leaf paper
- Stick your business plan in an old folder
- Forget to format your business plan
- check for grammar
- Use graphs and charts
- Go the extra mile to simplify navigation (e.g., binder dividers)
Keep it short
There is no definitive business plan length. According to the Small Business Administration, many experts recommend keeping the business plan between 30-50 pages.
Avoid writing just to write. Answer what you need to about your business to keep your plan concise.
Sell your business
Most entrepreneurs create business plans to obtain financing. Whether you’re writing your plan for yourself or others, you must sell your business.
You need to convince lenders and investors to finance your dream in your business plan. And if you can’t sell your business in the plan, how will you sell it in your marketing efforts?
Promoting your company in the plan solidifies your belief that you have a great business idea. Write your startup business plan with confidence.
Done writing your small business plan? Great! But, that doesn’t mean you can set it on your bookshelf to collect dust. You need to revisit your small business plan from time to time.
Businesses grow continuously. As your company develops and changes, you must also update your business plan.
When you add or remove products or services, mention the changes in your plan. If you decide to change business structure, record the new entity and why you changed it.
Consider looking at your small business plan once per year or whenever your venture changes.
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This is not intended as legal advice; for more information, please click here.