Getting Started with a Business Plan

A business plan outlines a company’s goals and the strategies by which it achieves these goals. Typically, a business plan consists of: a) an executive summary, b) a description of products or services, c) industry overview/market analysis, d) marketing and sales strategies, e) operations/execution strategy, f) competitive analysis, g) description of management team, h) financial statement and i) an exit strategy. Below is a high-level description of each of these components.

A business plan starts with an executive summary, an overview of the business plan. This operates as a reader on the company and is meant to concisely communicate its most crucial features and activities. It often features a mission statement or memorable tagline that summarizes the company’s work. This paves the way for more detailed descriptions of the organization. The b) section describes the need met by a product/service before expounding on its technical features. This section additionally lists any technologies licensed/used by the company as well as any intellectual property owned by the company, as these become relevant when discussing competition.

The next section of a business plan gives an overview of the current industry and market for the product/service offered. This means indicating the company’s target demographics and its main competitors. Market analysis usually requires a lot of data in order to develop a well-rounded description of the target market along with its behavioral and demographic trends. This also more clearly identifies the relationship to competitors, both direct and indirect, based on the properties of the shared market.

A business plan usually proceeds with marketing strategies, touching on pricing and promotions. This section also features information on where the company currently sells its goods and where it hopes to expand. The following section explicates the operation and execution strategy, discussing facilities and logistics planning, relevant government regulations, where material is sourced from, etc. An execution strategy also typically outlines a company’s goals and the metrics by which it measures success. This is paired with a note on the successes a company has already seen, also called traction.

The amalgam of data presented in the preceding sections naturally coalesces into a competitive analysis. This section highlights the ways in which a company differs from its competitors and how it can play these differences to acquire a larger share of the market. This can relate to advantages provided by a company’s production process, or to a strong brand identity a company might develop. In any case, this section should indicate how a company holds its own in a crowded field.

As the business plan approaches its end, it often includes a section regarding the company’s history that covers important details like its legal structure and any patents currently pending approval. It also gives brief biographies for members of the management team, explaining why they are best fit for their position. The last major section of the business plan then outlines a company’s finances, systematically categorizing all expenditures and revenue. This way, when indicating capital needed from outside investors, it is easy to show where investments will go. A financial section often includes projections for important metrics over the next few years. This includes sales projections, usually calculated monthly for the first year, and then yearly after that, as well as operating cost projections as the company experiences growth.

The final section details exit strategies. As business plans are most commonly read by potential investors, this outlines the path to a payout. Once this is written, you have the option to attach an appendix that provides additional information, like extra data or product images.

With all the technical aspects of writing a business plan covered, here are a handful of important Do’s and Don’ts for anyone looking to start the writing process.

  1. DO know your audience
    Business plans are functional documents traditionally meant for outside investors, bankers, and internal managers. Instead of writing what you want to share, prioritize what someone would need to know about your company’s operations before getting involved. Especially important for research-based startups is to avoid technical language or jargon, as most readers will lack the requisite specialization to understand.

  2. DO write a few versions of your plan
    A full-length business plan is useful for courting interested investors or possible employees, but you may need access to a comprehensive overview of your business in other contexts. Prepare a one-page version of your plan as a networking tool for recently-acquainted investors and a mid-sized plan focused on company goals and health for internal circulation.

  3. DO update your plan regularly
    When regularly updated, a business plan can act as a good read on company health. This boosts efficiency by keeping company goals focused and allows for better decision-making by ensuring company data is up-to-date. Plus, nothing is more embarrassing than trying to win over investors with a document that references obsolete goals and market trends.

  4. DO use sensible estimates
    One of the most common mistakes for first-time business owners is to overestimate the amount of money their business will make in its first few years. Business consultant Joel Razi recommends doubling your expenditure projections and cutting your most conservative revenue forecasts in half in order to account for this. Try not to list overly specific estimates either ($103,774.32 versus ~$100k).

  5. DO synchronize your writing with other important activities
    A study by the Harvard Business Review found that the best time to write a business plan is 6-12 months after company formation. Furthermore, companies in the study found that if they wrote while talking to customers to prepare for the initial marketing phase, their venture viability increased by up to 27%.

  6. DON’T take too long
    Both in starting and in completing the writing process, waiting can be detrimental to a company’s prospects. The same study by the Harvard Business Review found that starting to write over a year after formation actually negated the positive effects of writing a business plan and that writing for longer than 3 months could even damage a company’s venture viability.

  7. DON’T hide your weaknesses
    A business plan should accurately portray a company rather than idealize it. As such, it should indicate where there’s room for improvement in operation and management. While one might think this would diminish a company’s promise, investors want to work with a business capable of mature self-reflection and improvement so they know how to contribute.

  8. DON’T overemphasize your numerical data
    Quantitative data regarding your company’s market, financial health, and projected earnings are a prerequisite for a well-rounded business plan. However, it’s important not to get lost in the numbers. Balance quantitative findings with evidence that speaks to the heart of your company, like customer testimonials or impactful media coverage.

  9. DON’T overextend your goals
    While having a lofty vision for the future is important, the realities of business management, as well as investor expectations, demand pragmatism. An execution strategy should focus on improving current operations, at most hinting towards possible expansions, and milestones should be kept in a relatively contained time-frame. Anything else is best kept for a different conversation.

  10. DON’T become overly attached to your plan.

A business plan is a company’s guiding document in many ways, indicating its central operations and points of focus. However, anyone is susceptible to the pitfalls of over planning. A company needs to believe in its plan and the strategy it lays out, but it shouldn’t become so overly attached to said plan that it misses out on unexpected opportunities.

Check out our post on an example business plan.

References