A blog series that focuses on challenges and opportunities faces by aspiring entrepreneurs and small business owners.
How To Write a Business Plan: 4 Important Steps
Turn a great idea into a profitable small business. Learn how a business plan can provide a road map for your success.
Writing a business plan can transform your business from an idea into a solid strategy. Think of it like a sport. Any successful coach will have their plays mapped out and then will execute them in a certain way to win. You should do the same for your business. But, before you move full steam ahead on your business idea, take a step back and ask yourself a few basic questions. Is there a need for your product or service? Can you compete with others in your area? Is your idea profitable?
Now’s the time to make sure you can answer these questions and analyze the scope and strategy behind your business. When done right, a business plan can double the chance of your success: helping you grow beyond the initial startup phase.
In this article, we’ll discuss how to write a business plan as well as what you should include in the plan.
1. Define Why You Are Creating a Business Plan
No matter the size of your potential business or the industry you want to break into, a business plan is a must-have. A business plan is a detailed outline of what your business will be, how it will work and how it will bring in money. It includes an explanation of how your business will turn a profit, dealing with everything from financial statements and pricing to potential customer segments and business development. A business plan shouldn’t be a hurdle you overcome but rather a useful tool to help set your business up for success. It helps you:
● Determine clear business goals.
● Understand your target market and competition.
● Manage ongoing risk and cash flow.
● Summarize the daily activities of your business.
● Recognize your business financial needs.
● Begin to measure growth and hiring needs.
You’ll want to draft a business plan if you need to secure financing from a bank. They consider your creditworthiness and ability to generate enough to repay a loan based on the 5 C’s of Credit: character, capacity, capital, collateral and conditions.
Potential investors will want to see your business plan and how you’ll earn a good return. They’ll seek answers to the following questions:
● Have you researched the market to determine the demand for your product or service?
● Do you have the right people in place to support your financial goals and objectives?
● How will you grow your business in sales or services?
A business plan will help provide a financial road map for your company and for you as an entrepreneur.
2. Plan Ahead With Research and Consultation for Your Business Plan
First, vet and research your business idea. You can do this in a variety of ways, including:
● Having discussions with those who are in the same industry.
● Forming a focus group with your friends, family or colleagues.
● Identifying your potential competitors and their products or services.
After you’ve completed your initial research, run your business idea past a Northwest Bank commercial banker. A commercial banker is familiar with all types of businesses in various markets and can provide you with free advice. They will help you think about answers to the following questions:
● Have you thought about your potential expenses?
● Will you need a business loan?
● Have you thought about the tax implications?
● Where will you get business insurance? How much will insurance cost you?
● Have you determined your business structure?
Even if your business isn’t complex, you have much to think about right out of the gate so you don’t put yourself and your money at risk.
Our commercial bankers can provide industry statistics and analysis to help you learn more about the market you want to enter. They can also recommend various experts, such as a CPA, lawyer and other legal representatives, to help you with your financial documents and potential tax implications.
There are a number of software options and templates available through the Small Business Administration (SBA), such as the Small Business Development Centers and SCORE. The Small Business Development Centers have individuals available to help you in creating your business plan at no additional cost.
3. Start Writing Your Business Plan
Once you’ve established that you have a viable idea, it’s time to start writing your business plan. A traditional business plan consists of many sections, all of which go into detail on your proposed business. While you don’t have to stick to an exact page count, use a combination of the following elements that make the most sense for your business. Make sure that you include enough information in your plan to clearly explain your business, but not so much that you overwhelm yourself or your financial lender or investors.
Draft an Executive Summary
An executive summary is a crucial section of your plan and is oftentimes the last part that you’ll write. It should include a high-level overview of your story and why you are starting a business. This is typically one page in length.
Describe Your Company
In this portion, introduce why you’re in business, why you’re different, what you have going for you and why you’re a good investment bet. Include detailed information about your company, such as:
● Your business name, location and key people in the business.
● The problems your business solves or the needs it meets.
● Consumers, organizations or businesses your company plans to serve.
● A mission and vision statement explaining why your business exists and including a list of goals.
List Your Products and Services
Clearly describe the products or services you plan to offer and explain how they compare to those of your competitors and the benefits they provide to potential customers. Also include new products you may launch in the future to improve your profitability.
Provide a Market Analysis
No matter what type of business you start, you must choose the right market for your product or service. This is why market research and analysis is critical. Look at the potential market as well as trends or themes from your competitors to see what they do to help their customers. Then, examine how you can do it better.
Explain Your Business Structure
Explain how your company will be structured and who will run it. You’ll need to outline the legal business structure of your startup: sole proprietorship, partnership, corporation or limited liability company.
Outline Your Funding Requirements
If you're asking for funding, this is where you'll outline your requirements. Your goal is to explain how much funding you’ll need over the next few years and how it will be used.
Specify whether you want debt or equity, the terms you'd like applied, and the length of time your request will cover. Give a detailed description of how you'll use your funds. For example, specify whether you need funds to buy equipment or materials, pay salaries, or cover specific bills until revenue increases. Always include a description of your future financial strategies, like paying off debt or selling your business.
Include Financial Projections
Your goal is to explain to a bank or investor that your business will be a financial success. Provide a prospective financial outlook for the next few years, including forecasted income statements, balance sheets and cash flow statements. Make sure to clearly explain your projections and match them to your funding requests. If you have other collateral you could put against a loan, make sure to list it.
Add an Appendix
Use your appendix to provide supporting documents or other materials that were specially requested. Common items to include are credit histories, resumes, product pictures, letters of reference, licenses, permits, patents, legal documents and other contracts.
4. Continue To Refer to Your Business Plan After It’s Completed
Once you’ve completed a draft of a business plan, use it to organize your daily business decisions. But remember — it isn’t set in stone. You may find that you need to adjust or change it depending on the market or your goals. By having a good small business plan in place, you can feel confident you are starting on the right path.
Reach out to our commercial bankers today to learn about other resources and tips on why your small business needs a business plan.