It’s finally arrived. The day you can start to build up your own business.
You’ve worked years, and saved up thousands of dollars for this day. You can finally become your own boss, and work on your own schedule. Everything has fallen into place, and through all your hard work you’ve come to this point.
But before you can open your doors and sell your wares, you need to construct and flesh out one vital piece to the grand puzzle: your small business plan.
What is a small business plan, and why is it so important to create? Why can’t you just open your doors one day and be a small business? What’s the big to-do about a simple plan?
Here at Fiscal Tiger, we want to ensure that your business starts on solid ground. Let’s look at why business plans are essential, and walk through each step to help you create your own. By building up a thorough business plan, you can ensure that your business has the foundation it needs to truly be successful.
Table of Contents
Defining a Business Plan
Business plans function as the very blueprint for your company. They are meant to define not only your goals and objectives, but also your trajectory and any potential plans to sell or expand your business. Although you might be in the very beginning stages of your business, you’ll want your plan to flesh out everything from start to finish. Yes, your business plan — if it’s detailed enough — will also chart a course for the eventual closing or selling of your business, whether that’s years or decades down the road.
All in all, According to the Small Business Association’s “How to Write a Business Plan” course, your business plan should answer these questions in detail:
- Who are you?
- Why are you in business?
- What do you do?
- How do you do it?
- Where do you operate?
- How will you generate profits?
- Who are your customers?
- Why is your business important?
The more detailed you can be in your answer, the more prepared you will be for the road ahead. But business plans aren’t just for your sake. Business plans are also necessary for stakeholders and those that might be interested in investing in your business. Although you may have saved up money to help open your business, chances are you’ll be needing the help of partners or banks along the way. Although you can start working on building your credit score in anticipation of needing to borrow money, the business plan (or a version that is catered to external audiences) will be important to lenders as well. Armed with a detailed plan and a clear vision you can share with lenders, getting your small business loan can be just another step in realizing your entrepreneurial ambitions.
Additionally, you’ll need your business plan for those inside your business: managers, employees, and other associates. It will help them better understand your vision and mission for the business, and keep everyone on the same page.
It’s also important to keep in mind that your plan will evolve alongside your business. Your initial plan today might not be feasible in a couple of years, but you can also expand and revise your original idea as your business grows and matures. Write both a traditional and a more alternative plan. The alternative plan will be more flexible, with pathways that could lead in many different directions for your business. Consider it your Plan B in case the traditional plan doesn’t pan out as intended.
With each intended audience, you might need to write different versions of your business plan: one for yourself, one for your internal network, and one for an external investing audience. Each version of the plan will reflect the same core ideas, but will emphasize different portions based on the needs and interests of your audience.
Building a Plan for Investors
When it comes to crafting a plan for an external investing audience, you’ll want to place more emphasis on the operations and profits of the business. What is your product and market? What is your intended profit margin? You might even want to include detailed analysis of your market research and competitor analysis.
The Small Business Association also suggests focusing a portion on the funding you will be requesting: “When writing for external stakeholders, focus on the financial aspect of the business. For example, if you’re looking for a traditional loan – you should include the amount you’re looking for, how the funds will be used, what those funds will accomplish, how you plan to repay, and any collateral you have to offer.”
Additionally, talk about growth and what you plan on doing with any extra money. Are you going to expand your business or your product line? Calculate your Return on Investment (ROI) — a percentage that measures the gain or loss generated on an investment relative to the amount of money invested (calculate with ROI = (Net Profit / Cost of Investment) x 100) — to help them understand how their loan will impact your business profits.
You will also need to consider exit strategies. How will your business settle up any debts if things fall through? Investors will want to make sure you have every safety net in place, but also a plan B in case things fall through.
Breaking it Down Further
Every business owner will craft a different plan for their business, but there are some key components that every owner needs to flesh out in their grand business plan. Here are some of the most important aspects to include when describing your business:
- Mission Statement — This will be where you describe the true mission of the business. Some companies use this as a marketing slogan, but it is vital to building a message of inspiration around your business. Who are you and what do you stand for? Your statement will be something that truly expresses the business.
- Goals and Objectives — Your objectives need to be attainable and within reason, as well as specific. Set targets for your business and describe how you intend to achieve those goals.
- Products and Services — This is the core of your business, so be sure to include everything from a description of your product, to your competitive advantage over others in your industry. What is your products pricing based on, and how are you marketing that product? Keep this section brief, as you can expand on it later in your plan.
- Target Market — Your customers are what keeps you afloat. How have you identified them, and why are they interested in what you’re selling? Also discuss your physical location and if you intend to expand or move into a different market in the future. Also keep this section brief for now.
- Industry — Use this section to briefly describe your industry, your competitors, and how your industry is growing in the coming future. How will your business grow along with your industry?
- Management Structure and Employees — This section will describe how your company plans to utilize their employees, and will ultimately describe how your management structure is aligned. Who will have the ability to sign off on projects, and who will be working directly with customers? What are the values you plan to instill that will keep your staff motivated? How will your employees be paid, and how will this change over time?
- Organizational Structure — Similar to the section on management structure, this section will describe how your upper management (aka the owners and partners) will be structured in the business. What are the roles of each member of your company? You might also want to include resumes of your key members, to help others understand how they are qualified for the position. Also list any board members, accountants, or legal team members that will be working alongside you.
- Legal Structure — Depending on what industry your business is a part of, this section will vary in size. Are there licenses or permits you needed to open the business? You can also highlight any special certificates or awards that might apply to your business. Use this section to explain the legal form of ownership for every business member who might have a share and yourself. Are you classified as a corporation, proprietorship, or a partnership and why?
What’s Next for Your Business?
You business plan will also need to reflect a marketing strategy, sales goals, and requests or plans for funding. You’ll also need to project your cash flow and projections for profits and losses. We will cover these aspects in greater detail in separate pieces.
Overall, you business plan should be constructed like this:
- Cover Page
- Executive Summary (this will be short descriptions of every section of your business plan, as a way to draw in readers and help them understand your basic goals)
- Table of Contents
- Company Description
- Market Research
- Product/Service Line
- Marketing and Sales Strategies
- Funding Requests
- Financial Projections
- Appendices (blueprints, maps, photos, resumes, (etc) if you need them)
Along with being a requirement to get loans and many other types of financing, a business plan may be necessary for recruiting partners or employees. It also provides a foundation for accountability and measuring progress, and forces you to confront your entrepreneurial weaknesses and probable challenges. Additionally, you will need it if you plan (or are forced) to sell down the road.
In the end, your business plan will be the foundation in which you build your business. It will be the blueprint to your success, and the guide for your first couple of years. Over time, as your business changes, your plan might change as well, but the plan you create today will be your defining statement. Make sure you business starts on the right path from day one by constructing a thorough and thoughtful business plan now.
For more tips and guides, check out our small business resource center.
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