It might take up a week of your valuable time, but it’s more than worth it. According to multiple research papers, start-ups who prepare a thorough business plan are twice as likely to succeed as those who don’t.
Consider 40% of all start-ups fail in the first year of business and 80% fail in the first five years, you can see how preparing a proper plan would be worth well more than the effort you put into it.
Luckily for you, there are plenty of different business plan software tools available on the internet that give you a template to work with and walk you through the entire process so that you can setup fairly quickly.
Of course, if you’re of the old-fashioned nature you can always make it by hand. The basic purpose remains the same – to help you prepare for the many entrepreneurial challenges you’ll face ahead and to serve as a guiding light that can set you straight anytime you start to go off-track.
The Benefits Of Having A Business Plan
If it’s made well, a proper business plan can help you manage your finances smartly, guide you through the first few grueling months of getting the business off the ground, and help you measure success against established standards.
It’s also important because it’s the only thing investors and banks look at when deciding if they want to invest in your business or not. They’ll go through the executive summary and base their decision on your forecasts and predictions, so make sure you get all of this information as accurate as possible.
Apart from that, having a business plan can help you:
- Identify and fix potential problems long before they happen
- Manage your finances in a clean, structured way
- Expand your business when the time is right
- Measure success against set criteria and timelines
Business Plan Formats
Traditionally, business plans were made as 20-30 page paper documents that were submitted to banks and investors.
Your final plan will likely take the same format too, but when you’re preparing one for yourself, it can be on a wide variety of mediums. These include:
- PowerPoint presentations
- Business plan software
- Any other medium you can write on
Regardless of whichever format you choose, your business plan will contain 9 essential components, as covered ahead.
9 Steps To Preparing A Plan
1. The Executive Summary
The first part of the business plan is also the most important. This is a brief summary of your entire business – what you plan to do, how you plan to do it, what you’ve achieved so far, what the finances will look like, etc.
99% of the time, investors and bankers will base their decisions to invest entirely on the contents within the executive summary. If they don’t like what they read here, they’re not going to bother reading the rest of the plan.
The executive summary or introduction should start off with a single line that describes your entire business in a few concise words. Here, you need to highlight your competitive advantage or USP (Unique Selling Point) and get the investors’ mouths watering.
The rest of the executive summary will build on the first line by highlighting all your products, the progress you’ve made so far, a timeline of your objectives, and how you hope to achieve them.
Make sure your text has a positive tone throughout this document. You want to make the investors feel like they need your business, not the other way around.
2. The Problem Being Addressed
All businesses exist to provide solutions to ongoing problems. Even if they’re not charging their consumer any money (like social media websites), they wouldn’t be able to function if there wasn’t a need or a problem that needed to be addressed.
In the next part of your business plan, you need to highlight which problem your company will address and how they plan to do it.
Once again, give the investors a reason to buy into your ideas. Don’t try and solve a problem nobody has. Many small businesses before you have tried doing just that, and all of them have failed.
Here, it’s important to think like your own target customer. Why would you, as a customer, be interested in buying this product? More so, why would you ever spend your hard-earned money on it?
The answer to these questions will give you a better idea of how you should portray the problem-solution section. Remember, your business doesn’t need to solve world hunger or ensure peace between two countries at war for it to qualify as a problem. It can even be something as simple as a bakery that produces the best muffins and bread in the city.
3. The Solution Implementation
Next, you need to explain to the investors “how” your product or service provides the intended solution. Prepare flowcharts and diagrams that highlight how the end-user will use the product, what kind of benefits they’ll receive, and how the solution is being implemented.
You should also highlight any negative/positive side-effects on the environment or the user.
If you have a physical product, make sure you bring it along to the meeting. This will be the perfect opportunity to impress your potential investors and show them exactly what your new business is capable of. Think of it like an episode of ‘Shark Tank’ or ‘Dragons Den’.
4. The Target Customer
You should have conducted enough market research to know exactly what your target demographic is like – their age, gender, preferences, personality type, monthly income, etc.
This step is vital because it highlights that you know what you’re doing and you’ve done your research. If you’ve already identified that there is a demand for the product you want to sell and people are willing to buy at your price point, you make the investors’ decision much easier.
When describing your target customer, try and be as specific as you can without restricting the market too much. For example, you shouldn’t be aiming at everyone in a specific city. That’s too wide and even you know it’s not possible. Instead, narrow it down by age and gender.
5. Competitor Analysis
After you’ve identified the target market, it’s time for a complete and thorough competitor analysis. For your own benefit, make sure this analysis is as comprehensive as possible.
The investors might not care about tiny, minute details but you can use them to identify chinks in the armour of your competition to provide a better, more advanced product.
Here, you’ll also need to highlight your competitive advantages and unique selling points. These are what separate you from your competitors and give customers a reason to choose your products over anyone else’s. This competitive advantage can be anything from cheaper prices to better quality products.
If you don’t have any competitors within your region, try expanding your search to city-wide or country-wide companies. It’s impossible that no one else is operating in the same industry as yours. If this is the case, your investors will ask themselves if this is just a bad business idea.
6. The Detailed Business Model
If step 3 was the frontend, consumer-related stuff, this is the backend.
Your business model details exactly how you want to operate, including how you’ll procure raw materials (if needed), how they’ll be processed, what quality assurance measures you have in place to ensure product meets standards, how they’ll be packaged, and your marketing strategies.
If you think about it from a wider perspective, the overall business model is made up of smaller models that each deal with a different aspect of the business. For a standard retail company, these smaller models will look something like this:
- Revenue Generation – How exactly you plan on making money
- Product Development – How is the product created
- Product Distribution – How does the created product get to the end user
- Consumer Marketing – What does the marketing strategy look like
- Company Operations – What are the team’s daily functions
7. Your Employees
This is where your dream team gets to shine on the big stage. Make sure you’ve included everyone who’s working at the company (even the lower staff), their individual roles, and their backgrounds.
It’s also a good idea to highlight their individual experiences at other companies and their Alma Maters so that your investors know they’re buying into a competent bunch of people who can actually pull this off. If you have any employees the investors might recognise and appreciate, you should bump up the team section to right after the executive summary.
8. The Detailed Financial Plan
This is where things will start to get a bit tense in the meeting room.
When you’re preparing your business plan, don’t forget that the people you’re going to meet are interested in money and money alone. They don’t care if you’re doing incredibly charitable work or if you have the most diverse team in the industry. They care if your business can actually make them money, so this is the part they’ll spend the longest studying.
Be prepared for some hard-hitting questions about your current finances and financial predictions.
A great way to highlight everything in one convenient location is to make a detail profit & loss statement. If you’ve been in business for a while, try backtracking your finances at least 3 years so that the investors can get an idea of the business’ potential growth.
9. The Required Investment
Lastly, you need to specify how much investment you need. At this point, you can leave a lot of things open for negotiation such as the equity you’ll give up, the partnership details, etc.
What’s important is that the investors know how much you’re looking for so that they can make a decision on whether to buy in or opt out.
Summing It Up
A business plan is your ticket heavy investments and a brighter future, but only if it’s prepared properly.
Make sure you follow our guide the next time you have a meeting with a bank or a potential third party investor, and watch as your business plan does its magic and secures the high-level investment for you.
To summarise, you’ll need to include the following 9 components in your detailed plan:
- The executive summary or introduction
- A brief intro to the problem your business aims to address
- The solution and how you plan to implement it
- Details about your target market
- Thorough competitor analysis
- The business model you plan to follow
- An introduction to your team
- Your financial plan
- The asking amount