4 Steps To Creating A Stellar Business Plan

A business plan serves two purposes:

  • It provides a road map for your business.
  • It helps you obtain outside financing.

If you’re going into business for yourself, you must have a business plan – period. Numerous studies have shown that one of the major reasons new businesses fail is poor planning. (Many people want to start a business, but not everyone has what it takes to succeed. Learn more in Are You An Entrepreneur?)

The good news is that developing a business plan is not as hard as it seems. In order to develop a solid business plan, you need to have a thorough understanding of the business you’re entering. Next, you need to determine how you’ll use the plan and who your target audience is. Finally, you should create a complete a business plan that is comprehensive and concisely written. We’ll explore each of these steps in detail.

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Step 1: Know Your Business
In order to prepare a business plan, you must know the business you are entering inside and out. This means lots of research. Research comes in two forms: reading everything you can about the industry and talking to those who are already in it. Learn everything you can about your business and industry.

Step 2: Determine Your Purposes for the Plan
A business plan serves to crystallize your business vision and guide you in fulfilling that vision; it is also frequently used to entice potential investors.

If you are self-financing your business, you design the plan mostly for your benefit, but if you’re seeking outside investors, you’ll need to target them. As such, before you create your plan, determine whether you will solicit outside investors.

Step 3: Determine Your Audience
If you plan to recruit investors, you need to build a plan to suit them. Outside investors, who range from friends and family members to banks and venture capitalists, will invest through either loaning you the money, buying shares in your company or some combination of the two. Determine their level of sophistication and what they are looking for in a potential business investment. Remember that regardless of their level of sophistication, they are all looking for four things:

  1. Trust in you – You build trust by demonstrating ethics and integrity, so your business plan should demonstrate those qualities. (Read Eight Ethics Guidelines For Brokers for more on gaining a reputation for integrity.)

  2. Understanding of the business – It is your job to clearly articulate your mission statement, your product offerings and how you will make money. Your may have to tailor your plan to suit your audience: less-sophisticated investors may be scared off by industry jargon, while investment professionals will probably expect it. (Read Getting To Know Business Models for further reading on how businesses make their money.)
  3. Financial confidence – Clearly articulate the risks of investing in your business. Also, show investors how they can recoup their money – whether your venture succeeds or fails. (Learn how venture capitalists make their money in Cashing In On The Venture Capital Cycle.)
  4. A good return on investment – Over the period of 1928-2007, the geometric (exponential) return for stocks was 9.8%, while for 10-year Treasury bonds, it was 5%. Historical private-equity returns are more difficult to measure, but, in general, investors will expect a premium of anywhere from 2-5% over public-equity market returns. The return on equity for your new business must be in the private-equity range. (For related reading, see Keep Your Eyes On The ROE.)

Typically, investors will look to beat a certain internal rate of return. Your job is to make sure your projected returns are in line with those of similar industries. (For related reading, see An Inside Look At Internal Rate Of Return.)

Step 4: Create Your Business Plan
First, develop an outline of your business plan. Consider every aspect of your business and how it will affect your business plan. Remember, this business plan is a road map. It must guide you. It must also communicate to investors what you’re doing and why they should invest with you.

The order in which your plan is presented should be something like the following:

  • Mission Statement
  • Executive Summary
  • Product or Service Offerings
  • Target Market
  • Marketing Plan
  • Industry and Competitive Analysis
  • Pro-Forma Financials
  • Resumes of the Company Principals
  • Your Offering (what type of financing you’re seeking)
  • Appendix (any other pertinent information)

You’ll probably also want to note any personal seed capital you’re investing in the venture. Financiers want (and often require) entrepreneurs to put their own funds in the venture, and the greater the portion you invest relative to your net worth, the better.

Now let’s review each section of the business plan in detail.

1. Mission Statement
The mission statement is a concise, one- to three-paragraph description of your business objectives, or your business’s guiding principles. In this section, you should state your unique selling point, or what separates your company from all the others in the industry that are otherwise just like it.

2. Executive Summary
This is a one- to two-page summary of your business. Potential investors will read this to decide whether they want to look at the rest of your plan.

3. Product or Service Offering
Create a section describing your product or service offerings in detail, as well as how much you’ll charge for what you’re selling.

4. Target Market
Present your primary and secondary target markets, along with any research that demonstrates how your target market will benefit from and consequently purchase what you’re offering.

5. Marketing Plan
Present your marketing plan, which should show in detail how you’ll reach your target market. This part of the plan will include advertising and promotional strategies. (Read Advertising, Crocodiles And Moats to learn more about the importance of good advertising.)

6. Industry and Competitive Analysis
Include a complete and thorough industry and competitive analysis that includes all stakeholders in your business. Don’t forget to include governmental and regulatory agencies. (Read Competitive Advantage Counts to learn the importance of being different from the pack.)

7. Financial Statements
These must be complete, accurate and thorough. Each number on your spreadsheets must mean something. Don’t estimate payroll, for instance; determine what it will actually be. Your income statement must reconcile to your cash flow statement, which reconciles to your balance sheet. Your balance sheet must balance at the end of every period. You must have supporting schedules (e.g., depreciation and amortization schedules) to back up your projections. (To learn more about what investors will be looking for, see Reading The Balance Sheet and Breaking Down The Balance Sheet.)

If you are having trouble building your pro-forma financial models, which should project out for at least five years, seek outside help from a qualified professional. (Learn how to ensure that your business stays afloat in Six Steps To A Better Business Budget.)

Use realistic projections. In estimating the growth of your business, you will make certain assumptions, which should be based on thorough industry research combined with a strategy for how you’ll compete. Also, analyze how quickly you’ll achieve positive cash flow. Investors vary in their standards, but most like to see positive cash flow within the first year of operation, particularly if this if your first venture.

In order for your projections to be accurate, you must know your business. If you’ve built an accurate and realistic model, but still project negative cash flow for more than 12 months, rethink your business model. (For related reading, see The Essentials Of Cash Flow.)

8. Resumes of Company Principals
Include the bios and professional backgrounds of all significant employees of your business. You will want to emphasize how their backgrounds have prepared them to take on the challenge of running your new startup. Also, if an employee’s business background is in a significantly different industry, you might want to emphasize how this can be an advantage instead of a detriment. (Read more in Evaluating The Board Of Directors.)

9. Your Offering
Present what level of investment you’re seeking and for what purposes you will use the funds. If you’re selling business units, state the individual price per unit.

Once you’ve put together all of this key information, make sure to present your plan professionally. It should be typed, margin aligned and neatly bound. Use color graphics and pictures where possible. Do not handwrite changes or corrections. The inside of your business plan should be near book or magazine quality.

After you’ve finished your plan, have a professional you trust, such as a Certified Public Accountant (CPA) or attorney, look it over. This person may catch details, errors or omissions you’ve made. They also will be able to give you a more objective opinion of the viability of your business.

Building Your Business Plan Is Just the First Step
Once you’ve completed your plan, you’ll submit it to potential investors, who may ultimately commit to financing. Once you receive those commitments, you’ll negotiate terms and then, finally, open your doors for business, which is where theory ends and the real work begins.

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Partnerships: A Recipe for Small Business Success?

36Teaming up with a partner (or multiple partners) to start or expand your business can make taking that leap a little less daunting.

However, establishing and navigating relationships with other people can be tricky, especially in a business context. Whether you’re considering a general partnership or incorporating a business with a partner, you’ll need to carefully consider whether that partnership-based structure is the right fit for your business.

Consider the Pros and Cons

Before you sign on any dotted lines, be sure to carefully consider the advantages and disadvantages of business partnerships:

Advantages

  • Brain capital: Two (or three or four) heads are better than one.
  • Share the workload: You don’t have to wear all the hats in the business. You can even take a vacation and leave your partner minding the business. You have backup. You don’t have to be in two places at one time. You’ll both have better work/life balance.
  • Strength in numbers: In the B2B market you will be taken more seriously if you are a team of two or three versus a sole proprietor. Clients will perceive that your business has more resources behind it, because it does.
  • Access to financing: With more people to back a business loan, you may find that you can more easily access financing for your business.
  • Support and connection: You have someone else to share the success with.

Disadvantages

  • Decision making: If it is an equal share partnership, always coming to a consensus is difficult and time consuming. There has to be one partner who can be the “tie breaker” or who gets the ultimate say.
  • Stress: Whatever your previous relationship was, a partnership in a business will test your ability to work successfully together, every day.
  • Accountability: You do have to answer to your partner(s) – you are not simply your own boss.
  • Control: You won’t have total control of every aspect of your business. You will have to be able to trust your partner on every level to make good business decisions and live with them, even if sometimes you don’t agree with their way of doing things.

Find the Right Fit

Deciding whether to pursue a business partnership is only the first step – next, you need to make sure you find the right partner.

Above all else, the partnership has to be the right fit for all parties in order for it to be successful. Do a personal inventory of your own skills then identify gaps that a potential partner could fill.

When searching for a business partner you should look for someone who will bring a complementary set of intellectual assets to the business. Choosing a business partner with the exact same background, education, skills and experience is just “you times two.”

Get on the Same Page

Once you’ve established that your partnership will be a good fit (for example, he’s great at marketing and sales, while you’re great with financial forecasting, accounting and business strategy), you then have to ensure that you have the same vision, values, goals and objectives for the company.

Come up with these things together and include them in your business plan and strategy. The more aligned you are from the outset, the more successful the partnership.

Get It in Writing

When it comes to the money, you’ll want to make sure you have an open conversation with your business partner early on. There are a number of questions you’ll need to consider:

  • Who is bringing what into the company in the form of cash, equity, tangible assets, intellectual property etc.?
  • What is the profit sharing agreement?
  • What happens if one of the partners decides to leave the company?
  • What happens if your partner is sick or can’t for whatever reason continue in the business? Are you both taking an owners draw? How much? Is it equitable for the investment you each bring?

If you are incorporating, include these considerations in your incorporation documents. If you’re setting up a general partnership (unincorporated), get everything in writing – even if your partner has been your best friend since kindergarten, or is a close relative.

Draw up an agreement that outlines your roles and responsibilities in the company and what you both are bringing into the business financially. Your chances of long-term business success are much better if you have all your agreements in place so there are no misunderstandings.

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How Business Planning Leads to Better Management

34In my experience leading dozens of business planning workshops in countries all over the world, I’d say only about 10% to 15% of teams I’ve encountered have an effective business planning process. Sounds low, doesn’t it? What many business owners fail to understand is that good planning equals good management.

Let me explain. Planning is about managing resources and priorities in an organized way. Management is related to leadership, and it’s related to productivity.

Here are three steps to get you planning better and, in turn, improving your management.

1. Devise a plan. As the business owner, you start by writing important details down. You don’t need to sweat every detail of creating a long document. Instead, jot down essential points as bullets, and tables, and bare explanations. The strategy element of planning is to focus on what you’re good at, what matters, which people are most important to you and what you can do for them. It’s about positioning, determining your target market and product focus.

It’s important to document these details in order to communicate your vision to employees. If you don’t have a team, there’s value in referring back to your original thoughts regarding the path for your business and comparing them to actual results.

Related: 5 Ways to Kick-start Your Business Planning

2. Define success. In order to chart your path, you’ll need to define long-term goals. Think broadly about how you see your business in several years.

From there, get specific. You’ll want to establish milestones for when you want to accomplish certain goals, and know who you will want to carry them out. Go beyond sales, costs and expenses, and look at what really drives your business. It might be conversions, page views, clicks, meals, trips, presentations, seminars and other engagements.

Then, establish a review schedule — when you and your team review changed assumptions, track results and make changes as necessary.

Related: Are You a Goal-Getter?

3. Put it in motion. Can you see the management brewing? Tracking and analyzing numbers can help you manage the work behind the numbers. You’ll be in a better place to recognize and highlight what’s working and what isn’t working for your business and your team.
Suppose traffic is up, but conversions are down. You collect your data, review it with your team and develop a plan to make changes toward reaching your goals. That’s management.

Managing your business successfully requires more than just praise and pats on the back. Sometimes it means focusing attention on problems, helping people solve them if possible, discussing and embracing mistakes, and, in the worst case, weeding out people who don’t care about bad results. This can all be accomplished more efficiently when you have a plan in place.

Related: How to Become a Master Problem Solver

Either way, whether results are better than expected or worse, the planning and tracking makes your follow up easier. The process itself adds commitment and peer pressure to the team. Highlighting good performance is easier when there are agreed-on numbers to define it. And, probably most important, dealing with poor performance is always hard, but not quite as hard when you can focus on the specific numbers instead of personalities or office politics.

Which brings me back to where I began: Planning is management. Without planning, your management is at a real disadvantage.

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7 Qualities Any Smart Entrepreneur Must Look For in a Business Plan

According to management experts, a business plan usually represents and places clearly on paper the vision of any business. It shows the business owner, staff, partners and financiers the direction the business is expected to go and how it is expected to get there within a known time frame. Many smart entrepreneurs know that starting a business without a known and workable business plan is akin to flying an airplane without a flight plan. When a business plan is good, it helps the business owner to meet set targets, make meaningful progress, and avoid wastes and loss of precious time and money. To be able to give that onerous service, a good business plan must have these 7 qualities which every entrepreneur must always look out for.

01. It must be realistic. Since a business plan is premised on future achievements, the assumptions must be realistic enough to be achievable. If the assumptions are unrealistic, chances that the business goals will be met become very doubtful.

02. It must be easily understood. When a plan is too complex, implementing it becomes very difficult. If it is easy to understand, it can be implemented easily to meet targets as projected.

03. It must address the purpose of the business. Every business known to man always has a purpose. Any business plan which can not clearly define the purpose of any business is not a good plan and can not be implemented.

04. It must have target functions. A good plan will show clearly the target functions of every major unit of the business. That helps to check these functions to make sure that they can individually meet their targets without which the overall goals of the business can not be met.

05. It must be clear, concise and direct to the point. A clear and concise plan makes for easy understanding and implementation. Tasks, deadlines and time frames must be shown clearly in a good business plan. These provisions usually guide the entrepreneur to meet production and delivery targets.

06. It must define and apportion responsibilities clearly. Apart from determining before hand the number of people expected to work in a business, a good business plan shows clearly what functions each employee will do for the overall interest of the business. That way, the plan helps to cut to the barest minimum, conflicts and wastes.

07. It must clearly highlight all assumptions. A good business plan must show clearly all the assumptions used to make all the projections for the future. With these assumptions, it is easy to find out how realistic the projections are and if necessary where to make amendments and adjustments to ensure the projections will be achieved. A very common recipe for disaster in any business is when assumptions are unrealistic and unreasonable.

A very good business plan is usually an inseparable companion of any smart entrepreneur. That is because it is needed to run any business smoothly and to present the business in good light to outsiders particularly investors and financiers. When an entrepreneur ensures that her business plan has all these qualities, it becomes a very useful tool to run the business successfully. That is why every smart entrepreneur must always look out for these qualities in any business plan to enable her decide how good and useful such a plan is.

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Writing a Business Plan For A Small Business

What Is A Business Plan?
A helpful definition of a business plan is found in Wikipedia:

“A business plan is a formal statement of a set of business goals, the reasons they are believed attainable, and the plan for reaching those goals.”

What Should You Include In Your Business Plan?

1. Executive Summary
Covering key points of your business plan, the executive summary should be completed last as a summary of each section.

  • [Objectives] Include only if you need to explain the purpose of the business plan
  • Our Business
  • Our Products/Services
  • Our Customers
  • Financial Summary

2. Business
An introduction. Provide practical information on your location and premises, management team, suppliers, production facilities, required equipment, management-information and IT systems.

  • Business Overview
  • Management Team
  • Operations

3. Products and Services
Explain the products and services you provide. What need does each product or service fill for your customers? Research your competitors. Who are they? What do they do well? What do you think your company does better? Why?

  • Products and Services
  • Competitors

4. Target Market
Who exactly are your customers? What is their profile? How (or where) will your customers find you, how will they buy from you? Think about what’s going on with this market (growth, trends), and how your business fits into this market.

  • Market Overview
  • Market Needs

5. Strategy and Implementation
Work through each of the “4P’s” of marketing in turn, Position, Pricing, Promotion and Place to create your marketing plan. Then identify the milestone events that are important for your business, and make your best guess at when you will achieve them. You should review and update your milestones regularly, as a way of measuring your success in achieving your business plan.

  • Marketing Plan
  • Milestones

6. Financial Plan
Your financial future begins with your sales, so try and estimate sales in bite size chunks, per week, per month etc. Be realistic otherwise you will soon start to feel despondent. What will it cost to operate your business? Don’t forget that while sales are uncertain, you have full control of how much you spend and keeping your costs down may be the key to your success.

  • Sales Forecast
  • Personnel Plan
  • Budget

Does it all sound too much? If you need some inspiration, find the section you feel most comfortable with and start with that. Make sure you don’t try and do your business plan in one go. Set a deadline for completion of your business plan and get started!

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