Whether you are a seasoned business owner or just start starting out as a small business owner, it is important you have a solid plan for your business. It is more than just an old cliché that ‘who fails to plan, plans to fail’. It is more relevant in the business world.
A business plan serves as a roadmap for how to structure, run, and grow your business. It can also help you secure the funding and partnership your business needs to get to the top. Therefore it is important that all business owners know the best practices for writing an effective business plan.
In this post, we will be walking you through the essential steps of writing an effective business plan for any type of business, so, prepare for the ride. But first, let’s see what a business plan is.
What is a Business Plan?
A business plan is a document that serves as the roadmap for the growth and development of any type of business. It describes who you are, what products or services you provide, how you earn or intend to earn, and your plans for the business. A well-written business plan can be an excellent tool for attracting talents and investors to a business. So, it’s okay to call it essential to your success.
When Do You Need a Business Plan?
Your business plan helps you start out your business on a good foot, and over the long term, it keeps you focused on what needs to be done and accomplished. A good business plan may be needed when:
- Starting out on a new business
- Seeking funding, loans, or investments
- Attracting, hiring, and retaining talents in your business
- Looking for a co-founder or partner
- Experiencing slow growth and need a change
Why An Effective Business Plan is Important
An effective business plan guides all through the way. It will be there to tell you what needs to be done at each stage of starting and managing your business. Apart from helping you to secure funding or bring in new investors to your business, it also helps in other important aspects of running a successful business.
Writing a business plan involves making thorough research, helping you understand the scope of your business and many other things about the business. A business plan would help you know how much money, time, or resources you need to start the business and make it a successful one.
A good business plan also gives you multiple ideas about things you can do to make the business stand out. It will help you understand your ideal customers and how best to serve them, which is very important for the success of any business.
It will help you have a detailed knowledge of your competitors. Gives you a proper idea of the kind of person to hire and partner with. All these are invaluable to the growth of your business. So, you don’t have a choice but to just sit and write a winning business plan for that business.
How to Write an Effective Business Plan
#1: Executive summary
This is usually the first element of any business plan. An executive summary is a brief description of your company and its potentials. Here, you want to let your readers see why your company will be successful. Your executive summary should include your mission statement, which is the core reason for the existence of the business. It is the why of your business.
This aspect should also include what your product or service is, the location of your business, and basic information about the leadership team and employees. You should also briefly state your financial information and growth plans in case you are using your business plan to secure funding.
#2: Company description
This is the next thing after your executive summary. It provides detailed information about your business. More than you did in the executive summary, here, you will be going into more details about the business, the problem it’s looking to solve, and the customer, businesses, or organizations it’s looking to serve.
Show what your company has that other companies don’t have, which will give you a competitive advantage in the market. Do you have any experts on your team? Do you think the business is established in a perfect location? All these are what’s expected to be featured in the company description section; it is a place to let your readers know your strengths.
#3: Objective statement
This should talk about the goals of the business while also highlighting the business strategy you have in place to achieve the goals. It clearly shows what you have to accomplish – both in the long and short term, and how to make them happen.
If you are looking to secure funding too, this section should be used to state why you need the funding and what it can do to help your business achieve its goals. You will need to give a clear description of the opportunities ahead of you and how the funding or partnership will help secure those opportunities and hence grow the business.
For instance, if you are adding a new product to your offerings, you might want to explain how getting the loan can help your business facilitate the additional product and how it can help increase sales by 50% over the next couple of years.
#4: Organization and management structure
Everyone looking to have a hand in a business will want to see that the business has a good structure. So this section is meant to let your reader know how your company is structured and who runs it. Show the legal structure of your business – whether it is a sole proprietorship, partnership, or LLC.
Give an organizational chart to show who is in charge of what in the company. Let your reader know the role of each executive and what their experiences are. Let them know how such experiences could contribute to the success of the business. If possible, include the CVs of key members of your team.
#5: Products and services
This section is for giving a detailed description of your products or services – whether the ones you are offering or plan to offer. It should include the following:
- A detailed explanation of your product or service
- How the product or service works and it can help
- The pricing model
- Your sales and distribution strategy
- Your typical customers or clients
- Your unique selling points – why the product is unique in the market
- How you plan to fulfill orders
- Trademark or patent plans
#6: Marketing and sales plan
How do you intent to sell and market your product or service? That is what this section is expected to tell. It should give a detailed marketing strategy and how you intend to persuade your customers to buy your offerings. How do you intend to keep your customers and make them keep coming back to you?
This section should also talk about your unique selling point i.e. what sets you apart from your competitors.
#7: Business financial analysis
This is where you talk about the financial details of your business. If your business is already existing, you might want to talk about your income or profit-and-loss statement. You might want to include a balance sheet that details your assets and debts, and a cash flow statement showing how much money enters and leave your business periodically.
You might also want to include some indicative ratios, such as your net profit margin, current ratio, and account receivable turnover ratio. All of these are indicative of the financial health of the business.
- Net profit margin: this is the percentage of the business revenue you get to keep as income.
- Current ratio: this shows your ability and capability to repay any debts you incur.
- Account receivable turnover ratio: this shows how frequently you collect on receivable per year.
#8: Funding request
This aspect is important if you are looking to secure funding with your business plan. Here, you are expected to outline your funding requirement. State how much you need and why you need it. Make it clear if it is debt or equity you want and the terms you’d like applied. You should also state the length of time the request will cover.
Above all, it is important you clearly highlight what you will be needing the fund for. Are you using it to procure equipment or materials, cover certain bills, or pay salaries until revenue increases?
#9: Financial projections
Further convince your reader to give you the funding you require by adding the financial projections section. Here, you want to convince the reader that your business has all it takes to be successful financially. If you have started the business over a while, include your income statements, cash flow statement for the last three years, and your balance sheet too. If you also have other collateral you think will match the loan in value, this is where to state that.
Let your reader know your financial forecast for the next couple of years. Include forecasted balance sheets, income statements, capital expenditure budget, and cash flow statement. Show your projection over the coming years and match them to your funding requests.
#10: Appendix
Do you have any more additional information you think will come in handy but you couldn’t fix elsewhere? This is where to mention and include them. So if you have such details as the resume of key employees, permits, licenses, bank statements, equipment lease, credit history, and contracts, just bring them all on. Your appendix can be long. Don’t let that bother you.
If you are concerned that it is long, you can include a table of content at the beginning of this section to make things easier for your reader.
And that’s it. You have your business plan and you are ready to take your business to the next level with less stress.
Bonus Tips to Help You Write a Business Plan That Stands Out
If you are securing funding with your business plan, you will want to make sure your business plan stands out to convince investors and accept your request. Most investors don’t have the patience to read a badly written document. So. Let’s see some tips you could use to write an attractive and winning business plan.
Know your audience
It is important you know who will be reading your business plan. Even if you are writing it to help shape your plans for your business, this will help you know the right language to use and what relevant detail you should include. This will also help you know if you should omit any sections and which sections to omit which are aren’t that impactful.
Have a clear goal
If you are writing it as a roadmap or walkthrough plan for yourself or even your team, you may want to soften a bit on the pedal. But if your goal is to write it to secure funding for your business, you will want to put in more work to deliver a more thorough plan.
Avoid over-optimism
This is also very important. If you using the plan to apply for a loan at a local bank, for instance, chances are that the loan officer already knows about your market pretty well. They probably have a good understanding of what is obtainable in the market.
So when writing your plan, it will be useless to provide unreasonable estimates and projections. That can hurt your chances of getting approved for the loan after all. So, be realistic as much as possible when writing your business plan.
Keep it concise
You don’t have to make your business plan unnecessarily long. You only need about 15 to 25 pages to make a good business plan. So focus on making your plan clear and concise enough. Include relevant information and don’t get too bogged down by the technical aspects of the business. Remember, you can use the appendix for adding any supporting information you think might be helpful.
It should be easy to read
No point in writing a business plan if no one could read it. So make things easy for your investors by dividing your document into distinct sections. That way, they would be able to easily flip between key pieces of information.
Proofread for any errors
You don’t want to submit a business plan full of typos and grammatical errors. So, triple-check your writing before submitting it.
Invest in quality design and printing
Create an amazing first impression by investing in proper branding and decent printing and bookbinding for your business plan. All these give your business plan a professional feel that only a few investors will be able to resist.
Keep the voice, tone, and style consistent
The best way to ensure this is when only a single person writes the plan. On the other hand, even when written by a team, ensure there is enough time for editing and should be done by just one person.
