To successfully launch any small business off the ground, you need a business plan. Even if it is just a simple sheet of paper, it is important for entrepreneurs to do their homework and understand where they are in the market, where they are going, and think strategically about the goals they want to set for their company.
“A well-written business plan can mean the difference between success and failure — not only when it comes to securing capital, but also as it relates to actually running your company. The business plan provides a blueprint that guides a company from a startup phase to a thriving business,” Rohit Arora, CEO of Biz2Credit and one of the nation’s leading experts in small business finance, said.
According to Arora, a business plan should explain what the company is, who operates it (and why they are qualified), the competitive landscape, and the firm’s unique features and benefits that will lead to its success. The plan should also provide a cost estimate. This can be a challenge for a business that has not launched yet, so the key thing is to make cost estimates that are as realistic as possible.
Before you start writing your business plan, here are some prerequisites you should look into and handle first:
- Research Your Market
- Establish a Suitable Corporate Structure
- Legally Register Your Business Name
- Start Writing Your Plan
Research Your Market
According to Stacy Elmore at The Luxury Pergola, the first step entrepreneurs should take when building a business plan is to research the total market size for your product or service. This will give you a sense of the potential customer base and how much competition you may face.
- Important Business Tip:
When researching your market, you should also do some strategic marketing and development planning so you know what you could be getting into before you start selling products.
“Many businesses do it backwards — they randomly choose a name without strategic thought, then register their business, and then try to do marketing,” Kennette Burgess, owner of FOCUS Marketing, said. “This is the reason why many small business owners take a long time to complete a business plan or struggle to even start one because they try to do that first before developing their business model and marketing through strategic planning. If they did marketing first, then 80 percent of your business plan is already done.”
Establish a Suitable Corporate Structure
Now that you know your target market and have a strategic marketing plan in place, you now need to determine the business structure. According to Lyle Solomon, Principal Attorney at Oak View Law Group, these are the different business structures you can choose from:
- Limited Liability Company (LLC).
You can establish a separate legal entity that shields the owners from liabilities by using a limited liability company.
- Corporation, C (C-Corp).
A C-corporation is a type of business entity where the shareholders or owners are in charge of paying taxes. The corporation and the individual both receive tax benefits from the business. With this business structure, there is a possibility of double taxation. The corporation is only compensated for litigated-related losses up to the amount spent.
Under S-corporation, the owners are protected from liabilities. It gives shareholders or the company’s owner a cut of the earnings.
- Common Partnership.
This is when the company is incorporated by two or more persons in a general partnership to share the company’s assets and liabilities. The fact that partners share resources and responsibilities makes this corporation a joint venture. Compared to other business types, it offers less asset protection.
Legally Register Your Business Name
After choosing a business structure, Solomon advises that it is now time to choose a name. Verify the name is appropriate for your company and not already in use, and then you can register.
Start Writing Your Plan
Now, you are finally ready to put together a small business plan that will help your company flourish and successfully launch. According to the Small Business Administration, when dealing with lenders and investors, there are two types of business plans you can write up:
- Traditional Business Plan:
This type of plan is very detailed, takes more time to write, and is comprehensive. Lenders and investors commonly request this plan.
- Lean Startup Plan:
This type of plan is high-level focus, fast to write, and contains key elements only. Some lenders and investors may ask for more information.
Traditional Business Plan Format
If you are more detail-oriented, want a comprehensive plan, or plan to request financing from traditional sources, this is the format you should follow. When you write your business plan, there is no need to stick to the exact outline. Instead, just use sections that make the most sense for your business and your needs:
Your Company Mission
Stephanie Scheller, Founder and CEO at Grow Disrupt, says the first step for putting together a business plan is to create your mission. This should contain a detailed long-term plan for what is being built, and explain why your business exists beyond the functional skill or product.
“The best way to write your business plan is to start from the big picture and get more detailed,” Glen Bhimani, CEO and Founder of BPS Security, said. “Begin your business plan by writing out what your vision and mission for your company are, then write out your 10 year goal, your five year goal, and your one year goal. Keep it succinctly goal-oriented, because your path to success will change as you work toward success, but the goals will remain the same.”
A Market Analysis
If you have already researched the market your business will be a part of, then this part is already done for you. For any lenders or investors, be sure to write down a good understanding of your industry outlook and target market.
State Business Objectives
According to Scheller, this is where entrepreneurs should list the goals that you plan to achieve by the end of the year to be on track to build your mission. Go into detail about the problems you plan to solve, and the types of consumers you plan to serve. You should also explain the competitive advantages that will make your business a success.
Organization and Management
It is important to figure out who will be managing the company and how it will be structured. This is also where you can describe the legal structure of your business, as Solomon mentioned before. State whether you have or intend to incorporate your business as a C or an S corporation, form a general or limited partnership, or if you are a sole proprietor or limited liability company (LLC).
The Action Plans
Scheller says that these are the short-term goals that need to be accomplished within the next month that will serve as stepping stones to accomplish your business objectives. These can include a number of different plans, such as creating a product prototype or any marketing plans to get your brand name out there.
If you are asking for funding, this is where you will outline your funding requirements, according to the SBA. Be sure to clearly explain how much funding you will need over the next five years and what you will use it for. Give a detailed description of how you will use your funds, such as for buying equipment or materials, pay salaries, or cover specific bills until revenue increases.
The last step, according to the SBA, is to supplement your funding request with financial projections. Convince your lenders that your business is stable and will be a financial success. If your business is already established, include income statements, balance sheets, and cash flow statements for the last three to five years. If you have other collateral you could put against a loan, make sure to list it now.
Lean Startup Format
If you want to start your business quickly, your business is relatively simple, the lean startup format may be your got-to business plan. According to the SBA, there are different ways to develop a template for this format, and here are some components you can use:
Note the other businesses or services you will work with to run your business. Think about suppliers, manufacturers, subcontractors, and similar strategic partners.
List the ways your business will gain a competitive advantage. Highlight aspects like selling directly to consumers, or using technology to tap into the sharing economy.
List any resource you will leverage to create value for your customers. Your most important assets could include staff, capital, or intellectual property. Do not forget to leverage business resources that might be available to women, veterans, Native Americans, and HUBZone businesses.
Make a clear and compelling statement about the unique value your company brings to the market.
Describe how customers will interact with your business. Is it automated or personal? In person or online? Think through the customer experience from start to finish.
Be specific when you name your target market. Your business will not be for everybody, so it is important to have a clear sense of whom your business will serve.
List the most important ways you will talk to your customers. Most businesses use a mix of channels and optimize them over time.
Will your company focus on reducing cost or maximizing value? Define your strategy, then list the most significant costs you will face pursuing it.
Explain how your company will actually make money. Some examples are direct sales, memberships fees, and selling advertising space. If your company has multiple revenue streams, list them all.
Once you have a basic idea of what product or service you want to offer, who your target audience is, and a rough marketing structure for building your brand name, putting together a business plan can be fairly simple. Use these tips to help guide you along the way.