WHEN YOU’RE contemplating starting your own company, crafting a detailed financial document that outlines your strategy and long-term goals may not be at the top of your priority list, but it should be. Without a sound written plan that outlines your concept, structure and financial projections, it can be difficult to secure essential funding.
“A business plan is a structured process to test ideas to determine if they are feasible and financially attractive. Thus, a business plan becomes a road map to successful implementation of your business idea,” explains Hal Shelton, a mentor with the nonprofit business mentoring group SCORE, an angel investor and the author of “The Secrets to Writing a Successful Business Plan.” Think of the financial document as a guidepost that includes tactical plans and budgets, he says.
n other words, a business plan offers an opportunity to explain how you’re going to successfully implement your idea. “During the process of developing a business plan, you develop a consistent set of messages, based on facts and analysis, describing your business idea, which will be used in discussions with funders, investors, customers, board members, advisors, vendors and employees,” Shelton says.
With that in mind, here are the basic steps for writing a business plan, along with key resources and tips for getting your startup off the ground.
Why You Need a Business Plan
If you need to secure a loan or attract key investors to get your business started, a detailed business plan is crucial. A written plan provides an overview of your business concept, structure and potential opportunities or risks for investors. The more well-laid-out your business plan is, the better your odds of attracting a lender or investor. Even if you don’t intend to borrow money or pitch investors, crafting a business plan can help you fully understand the challenges ahead.
What to Include in a Traditional Business Plan
While business plans can differ in format and structure, experts agree there are some key elements to include. A business plan should contain the following descriptions:
- Executive summary. “The executive summary will sum up everything about you and your business, what you do, the industry you’re in, where you’re located, why consumers should be interested in your offerings and how you will make money,” says Deborah Sweeney, CEO of MyCorporation.com, a website that helps entrepreneurs form an LLC or a corporation.
- Company description. Explain what your company will do and your big-picture vision for the business. If you’ve registered it as an LLC or S Corp, for instance, you’ll want to include that in the document, along with where you’ll be located and your overarching mission for the company.
- Objective statement or business goals. In this section, you should address business strategy. Sweeney also suggests including an industry analysis. “Know who your competition is, what they’re offering and study their marketing approach carefully,” she says.
- A market analysis. “Define what your target demographic looks like and how your business will attract, capture and retain its audience,” Sweeney says.
- Management and operational strategy. Think of this as an outline of the nuts and bolts of how your business will run. Will you have inventory, and if so, how much will you likely carry? Are you manufacturing a product? If so, how is that going to work? The more information you put down, the more you’ll highlight to key stakeholders that you’ve really thought how your business will be structured and how it will operate.
- A financial analysis. In this section, you’ll want to highlight pricing and profit margins and explain how your company will make money.
- Financial projections. Including a financial forecast is key for long-term success. You need to know how much your company is likely to earn in its first year or two and provide that information to potential lenders and investors.
“With your financial projections should be tables and charts that outline your cash flow and profits and losses. Fresh startups should also include their 12-month income statement, sales forecast, expenses budget and break-even analysis,” Sweeney says.
And if you are seeking funding from an investor or lender, along with the amount for how much revenue you’re asking, “your request must include information about how you plan on spending the money and the manner in which it will be spent,” Sweeney says.