Creating a Plan Is Essential for a Successful Business: Here’s What You Should Know
by Scott K. Schmidt, Chief Financial Officer at U.S. Money Reserve
Creating a solid business plan is the first step to ensuring that your business is ready for prime time. Here’s how to do it right.
Whether you’re getting ready to open a new small business or simply exploring the market to expand your current company, putting together a business plan is an essential step to take to create a sustainable business.
Creating a solid business plan sets you up for success by doing three things: It helps verify that there is indeed a need for your business idea before you invest a ton of money; it helps you get clear on how you plan to go to market; and it can help you secure funding if you need it to get started.
Creating a comprehensive business plan can take a lot of time and work, but it can pay huge dividends down the road. Here are a few basics you should know about creating a plan for a successful business.
Business Plan 101: What Is a Business Plan?
A business plan is essentially a roadmap for a business. It forms the backbone of any successful business, and it should be created when you first start a business and then updated once a year to remain relevant to changes in the economy, demand, and other factors that influence the way your particular company works.
A good business plan offers a structured way to think through the key elements of your business
and what will make it unique in the market. Creating one can help you hone your idea and improve it, too.
The U.S. Small Business Association (SBA) provides a fantastic jumping-off point if you are just starting to work on your business plan. It breaks down the key elements of a solid plan into bite-sized chunks so that you can tackle them one at a time.
What Kinds of Business Plans Are There?
The SBA suggests you use two types of business plans: a traditional version and a lean version. The traditional version is the deep dive, while the lean version is a quick and dirty plan that is designed to touch only on the high-level aspects of your business.
If you decide to go with a lean plan, you’ll likely still need to create a more comprehensive plan if you intend to seek funding from the markets. Most investors or banks want to see the more detailed plan, and in many cases, it pays to start with the traditional version and convert it into the lean version since there is some overlap between the two.
What Makes Up Each Type of Business Plan?
Regardless of the type of business plan you choose to start with, each has nine key elements. It’s important to note that you can mix and match or trim and add based on your own business idea and what is relevant to your industry.
If you are working on a traditional business plan, it should include a mix of the following nine sections:
● Executive Summary: Here, you discuss what your company is, why you think it will be successful, and what its unique offering might be. You should include your mission statement and basic information about your leadership team. You should also include any high-level financial items here if you plan to seek funding. Many times, this section is filled in last because all the work you put into the rest of the plan will inform this section.
● Company Description: Here, touch on the detailed information about your company. What problem is your company solving? How is your business unique to the marketplace? What are your company’s competitive advantages? These are the kinds of questions you should answer in this section.
● Market Analysis: This is the section that tends to take a lot of time because you’ll need to conduct some market and competitive analysis on other businesses in your specific sector and present the information in a way that makes it clear how your company stands out from the rest.
● Organization and Management: In this section, you should touch on who is on your management board, on your advisory board, and within your organization. You also need to mention how your company will be organized and who will run it. This is the section where you will include how your company will be structured legally as well.
● Service or Product Line: Describe what you sell and how it will benefit your customers. You can touch on the product’s life cycle here and discuss any plans you might have for things like intellectual property, patents, and copyright filings. Research and development information also goes here.
● Marketing and Sales: What are your plans for marketing and selling your item(s) or service(s)? Here you should detail your go-to-market plans for getting and retaining your customers.
● Funding Request: This section details how much you want to receive from a loan or a grant that you are applying for, what terms you’d like, and how you plan to use the funding. In this section, you should talk about how you want the deal to be structured (debt or equity) and be as specific as possible.
● Financial Projections: This is where a lot of legwork will need to happen, too. You’ll need to provide balance sheets and projections for where you hope the company and business will be in the future. If you are already an established business, you can provide any details of funding that you have previously received and what your budgets look like for the future.
● Appendix: This section provides any additional information that might be needed to support the rest of your business plan.
A lean business plan has some similar sections but is generally shorter. Use it when you want to be quick to market. In most cases, banks or financiers will request the full business plan in addition to the lean plan in order to evaluate your company for funding. This lean plan is based on the popular version developed by Alex Osterwalder. The elements in a lean business plan include some variation of these nine sections:
● Key Partnerships: Who will you work with to create, start, or grow your business? These partners should include manufacturers, suppliers, and others you might work with.
● Key Activities: How do you plan to give your business a competitive advantage? Highlight things like selling direct-to-consumer or how you will use technology to leverage the sharing economy.
● Key Resources: What key resources will you use to offer value to your customers?
● Value Proposition: What is the value you are adding to customers’ lives? Explain it here.
● Customer Relationships: How will you interact with your customers? Are you going to sell online only? Will you sell in person?
● Customer Segments: Who are your customers? This is where you will include information like demographics, your target market, and psychographics of your customers.
● Channels: These are the marketing channels you will use to reach your target customer audience. What is your plan to get your product(s) or service(s) in front of the right customers?
● Cost Structure: Are you focusing on reducing cost or maximizing value? In this section, you’ll need to define your strategy and list the most significant costs you’ll incur while you do it.
● Revenue Streams: How do you plan to bring in money from your product(s) or service(s)? Will you charge membership fees or service fees or charge on a per-item basis? You’ll need to include all revenue streams in this section.
Both these plans are great for different reasons, and they can help you get a good idea of what the potential of your business might be. You can find a variety of tools online to help you build a great business plan, too. Some tools walk you through each portion of the business plan (typically, you’ll need to pay for these), or you can do it all by yourself and save money.
Either way, getting a good business plan into place is the first step in ensuring that your business will be around well into the future.
Why You Need a Business Plan
A great business plan can serve a wide variety of needs, whether you are just starting out, merely revising your plan for the new fiscal year, or looking to get a cash infusion. The benefits of putting together a comprehensive business plan can be tremendous, and it’s well worth the investment of time and effort. Not doing a business plan can, in fact, hurt your business because you may miss opportunities for financing, expansion, or finding new target customers.
For one, a solid business plan can help you decide whether you need new assets. By working through the process, you can get a better idea of whether you should buy or lease new space or equipment and how much that might stretch your budget or enhance your earning abilities. All business owners work to strike a delicate balance between investing and overextending, so it’s important to use your business plan as a way to check in. Consider it a health checkup for your business.
Second, a business plan can really help you narrow and refine a marketing plan. Every year there are new innovations in social media and marketing that affect your customers’ needs and wants. In order to keep up with where your customers are at, it’s important to stay on top of your marketing plan and revise it as time and the economy progress. Without an annual assessment, you could be doing more harm than good to your business by not keeping up with where your customers are headed.
A business plan also can help you refine and hone your hiring strategy. When you create a comprehensive business plan, you get a top-level and narrowly focused idea of what is really going on in your company. It can help you identify blind spots or places that you might want to focus on when you hire people. It can also help you attract the right talent, too, since you’ll get a clearer idea of what exactly it is that your business provides and what you might need to do to grow.
Finally, a business plan helps you focus on what really matters the most to your business, and it can help you communicate that to investors, prospective hires, and your management.
This kind of work may seem overwhelming, but by getting specific and narrow with your business plan, you can set yourself on a path that is more likely to bring in profit and success. Building a solid business plan will most certainly be worth the time and effort it takes because it creates the roadmap for your future success.
