Before launching any business venture, you need a plan. Not just a plan in your head, but a comprehensive, long-term business plan with research, goals, and obstacles. Building out a business plan can be the difference between your startup succeeding or failing.
Your business plan is the blueprint you’ll build your business from, but how do you build your business plan? To guarantee that your business plan checks every box, we’ll give you a step by step guide on how to put together each part of a well-made plan.
A few things to keep in mind before you start:
- A business plan should serve as an internal roadmap for you, so you need to think five years down the road while putting it together. Your plan is critical to keep you on track with your goals, especially as things get hectic in the first few years of your business
- In addition to a shorter business plan for internal use, you should also keep an extended version to send to potential investors or financiers. It’s a central part of any pitch to lenders or banks. The Small Business Administration recommends a full business plan be anywhere from 25 to 100 pages
- Adjust your business plan over time. It’s critical when launching a startup, but just as important to help guide an existing company
The U.S. SBA outlined nine key components of a business plan, explained here:
1. Executive Summary
This is where you’ll provide an introduction and overview of your company. That means you should include a mission statement, the purpose of the business, and some information on the company’s leadership. You should also briefly explain why the company will be successful in its industry and add any relevant financial information. Your executive summary should be brief – think two pages maximum.
2. Company Description
Here you’ll go into more depth on the key players within the company, plus provide some general background. A good company description features a brief history of the company followed by a projection of the consumers and markets the company plans to serve. The company description is an extension of the executive summary, and it allows you to really hammer home the strengths of your business. The summary should catch a reader’s attention, but the description should maintain their interest.
3. Market Analysis
A market analysis will be one of the biggest pieces of your business plan. You’ll likely spend more time researching and writing this section than most others – for good reason. The market analysis shows how well you know your field, and building this section will give you insights into how potential competitors behave. Knowing what other companies in your industry can and should shape how you operate.
The market analysis section is where a good business plan really fleshes out what the company will look like. In addition to the analysis of your competitors, you should also identify your target market and demographics, as well as any trends or risks within your industry. All in all, the SBA suggests your market analysis section is anywhere from 9 to 22 pages.
4. Organization and Management
In this short section, you’ll include high-level information about the company, such as it’s legal status. Is your company an LLC, a sole proprietorship, or a partnership? That should all be explained here.
In addition, you should include a chart outlining your companies structure, plus a brief background on executives. Compiling the resumes of your top employees here can be a good idea as well.
5. Service or Product Line
A business is only as good as what it sells. In this section, explain what goods or services your company offers, why the product benefits your target audience, and what advantages you have in the space. Along with the market analysis, the service explanation should be the bread and butter of your business plan.
You should also outline any existing or planned patents, trademarks, and copyrights, as well as research and development. The SBA recommends this section is 4 to 10 pages long.
6. Marketing and Sales
Marketing is the lifeblood of a business since it’s the key to attracting new customers and spurring growth. Here you’ll outline the company’s strategy to enter the market, attract consumers, and make sales. This section will probably be the one that changes the most over time, as your marketing strategy will likely need adjustment as trends in the industry shift. Your marketing and sales section should be around five pages.
7. Funding Request
This section will serve as a current financial analysis, as well as any potential funding requirements. Until this point, your business plan may be a bit vague, but in this section and the next, you need exact numbers and dollar amounts.
Explain how much money has already been invested in the company, and then list how much you expect to need in additional funding. A good funding request is tied to financial projections and plans, so you can show investors that you will be able to provide a return on their investment. Be specific about where funding will be used and what financial changes you anticipate, like taking the company public.
8. Financial Projections
This section is the most important part of your business plan, and according to the SBA it “requires significant effort.” Here’s what the Small Business Administration says you need to include:
- Personal financial statements of owners signed and dated in ink
- Outstanding debts owed, including the creditor’s name, the amount due, terms, collateral, and current status
- Two-year cash flow budget
- Forecasted 5-Year financial projection of income and expenses
- A short analysis of your financial information that includes a ratio and trend analysis for all of your financial information (1/2 to 1 page)
- Charts and graphs to further illustrate financial data
- Financial assumptions and footnotes to information
- For existing businesses only: Financial data across the last three fiscal years
You should have this section reviewed by a third-party analyst and include a review letter that indicates your financial information is in line with Generally Accepted Accounting Principles.
The final section of your business plan should include any information that you couldn’t find a place for earlier. Every appendix will look different, but generally, the appendix includes licenses, permits, and contracts, plus any additional information about the management.
The Final Word
Even when you finish your business plan, you’re not really done. It’s a living document and should be subject to constant change. At least once a year, check in with your plan. Are you on pace to hit your goals, or do you need to tweak your vision? By constantly keeping your business plan up to date, you ensure that your business is always optimized.