What is a business plan?
A business plan is a document that outlines the purpose, strategy, financial profile and future revenue projections of a business. It’s used for internal growth purposes, as well as to present to potential funders.
The purpose of writing a business plan
There are two primary purposes of writing a business plan for your organization:
Creating a roadmap for your operations: As a business owner, compiling your business plan will force you to think carefully about your mission, competitive advantage, and financial model. You might discover new insights along the way, or uncover questions you hadn’t previously considered.
Making the case for your business to financial institutions: Whether you are seeking funding from an angel investor or a bank, they will generally want to review your business plan in order to decide whether to allocate money to your business.
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Elements to include in your business plan
Every business plan should contain the following eight sections:
Executive summary: States the mission of your business and the unique value you will bring through your product or service (also known as your unique selling proposition), together with an overview of your company, and basic framing of your financial status and future plans for growth.
Company description: Shares more information about the market needs it’s your business (literally) to solve, and how your company is positioned to effectively address them.
Market research: Reviews your competitors, highlighting their methods and performance. This section both consolidates best practices from others’ strengths, while also illustrating that there is a yet-unserved gap in the market that your company stands to fill.
Organization and management: Outlines both the legal structure of your business (e.g. C or S corporation, sole proprietor or LLC, etc.), as well as the positions of key team members. This section can sometimes include an organizational structure diagram.
Product or services: Introduces your signature product or trademark, its features, shelf lifecycle, the market needs they fill, and the technical details of its manufacturing or development plan.
Marketing and sales strategy: Presents your strategy for attracting the attention of potential customers and converting them into buyers. This section should also lay out the sales funnel, and offer a plan for customer retention.
Funding request: Details the capital you will require to kickstart your business.
Financial projections: Forecasts your financial position, by tracing your first year revenue and expenditures, and mapping where you expect your business to be by year five. Substantiate your projection by including financial documents from your first year and estimates of future ones, such as: income statements, balance sheets, cash flow statements, and capital expenditure budgets.
The U.S. Small Business Administration provides a lot of resources for structuring your business plan, as well as a template that you can use.
According to research published in the Harvard Business Review, the optimal window to draft your business plan is six to twelve months after your business is already in operation. This finding challenges the common misconception that the ideal time to draft this report happens either before or right when you launch your business.