How to Write a Business Plan
If you need outside funding for your business, you must write a business plan. Even if you don’t need outside funding, writing a business plan can be an incredibly helpful exercise to gel your thoughts, project your efforts out for the next 3-5 years and outline the route, milestones and revenue you anticipate. This is an effective way to objectively consider the key elements for your business venture. SBA has created a Business Plan Tool you can use. The SBA Tool is different from the SBA Learning Center. Both can be very useful.
The SBA has developed a Learning Center that provides information on 61 topics relevant to developing a small business. Ten deal with Starting a Business. 22 deal with Government Contracting. Six deal with Financing. 16 deal with Managing a Business. Seven deal with Marketing. Most of the information in Key Elements and Topics to Consider has been summarized from information available from the Small Business Administration.
If you know clearly what you want to do, have organized the steps in your mind, and if you don’t need outside funding, you probably don’t need to write a business plan. You do need to know what you are doing.
Probably the most important thing for you to realize is that you must write your business plan. For $25,000 more or less you can have a professional, including Chimorel, create your business plan, but the ideas, the research, the framework for your business must come from you. If you don’t know what you want to do, no professional writer can make your business a success.
Traditional Business Plan Elements
Executive Summary: Your executive summary is a snapshot of your business plan as a whole and touches on your company profile and goals. Write your Executive Summary after the rest of the plan is done.
Company Profile: Your company description provides information on what you do, what differentiates your business from others, and the markets your business serves.
Market Analysis: Before launching your business, it is essential for you to research your business industry, market and competitors.
Organization & Management: Every business is structured differently. Determine the best structure for your business.
Product or Service: What do you sell? How does it benefit your customers? What is the product lifecycle?
Marketing & Sales: How do you plan to market your business? What is your sales strategy?
Funding Request: Current funding needs? Five year funding needs? Working capital? Debt retirement? Acquisitions? Type of funding anticipated?
Financial Projections: Financial projections back up your request.
Appendix: Optional, but useful for resumes, permits, leases, etc.
Make Your Business Plan Stand Out: What makes your business unique?
Two Page Executive Summary
Within two pages describe what your company is and why it will be successful. Include your mission statement, your product or service, and basic information about your company’s leadership team, employees, and location. Include financial information and high-level growth plans.
Using a Lean Startup Format, think through the following: key partnerships, key activities, key resources, value proposition, customer relationships, customer segments, channels, cost structure and revenue streams. Reflect what you think is important within these concepts, keeping your summary to two pages. If you don’t understand a term review the SBA Business Plan Tool. Scroll up.
Executive Summary Details
This is the last section you will write, but the first and most important section of your business plan. It is designed to grab a potential investor’s interest with where you are, where you are going and why you will be successful.
If you are an established business, include:
- The Mission Statement – This explains what your business is all about. It should be between several sentences and a paragraph.
- Company Information – Include a short statement that covers when your business was formed, the names of the founders and their roles, your number of employees, and your business location(s).
- Growth Highlights – Include examples of company growth, such as financial or market highlights (for example, “XYZ Firm increased profit margins and market share year-over-year since its foundation). Graphs and charts can be helpful in this section.
- Your Products/Services — Briefly describe the products or services you provide.
- Financial Information – If you are seeking financing, include any information about your current bank and investors.
- Summary of future plans – Explain where you would like to take your business
If you are a startup or new business, include:
- Your experience and background, as well as, the decisions that led you to start this particular enterprise.
- A thorough market analysis. The need or gap for your target market. Your particular solutions to fill the gap.
- Why you will succeed and your future plans.
Company Profile
This section of your business plan provides a high-level review of the different elements of your business,similar to extended elevator pitch to quickly help readers and potential investors understand your goal unique proposition. You should include:
- Describe the nature of your business and list the marketplace needs that you are trying to satisfy.
- Explain how your products and services meet these needs.
- List the specific consumers, organizations or businesses that your company serves or will serve.
- Explain the competitive advantages that you believe will make your business a success such as your location, expert personnel, efficient operations, or ability to bring value to your customers.
Market Analysis
The market analysis section of your business plan should illustrate your industry and market knowledge, as well as, your research findings and conclusions. You should include:
- Industry Description and Outlook – current size, historic growth rate, trends and characteristics (life cycle stage, projected growth rate), major customer groups within your industry.
- Information About Your Target Market – narrow your target market to a manageable size. Avoid trying to appeal to too many target markets.
- Distinguishing characteristics – Critical needs of potential customers? Are those needs being met? Demographics? Where are they located? Seasonal or cyclical purchasing trends?
- Size of the primary target market – data on annual purchases , fore-casted market growth, research you conduct.
- How much market share can you gain? – market share percentage and number of customers you expect to obtain in a defined geographic area? Explain your logic.
- Pricing and gross margin targets – define your pricing structure, gross margin levels, and any discount that you plan to use.
- Results of the market tests or research studies you have completed – Include other details in the appendix.
- Competitive Analysis – identify your competition by product line or service and market segment. Assess market share, strengths & weaknesses, importance of your target market to your competitors, barriers to entry, window of opportunity, indirect/secondary competitors.
- Market Barriers – changing technology, high investment cost, lack of quality staff.
- Regulatory Restrictions – customer or governmental regulatory requirements, how you’ll comply, operational or cost impact the compliance process will have on your business.
Organization & Management
Include: your company’s organizational structure, details about the ownership of your company, profiles of your management team, and the qualifications of your board of directors. Who does what in your business? What is their background? Why are you bringing them into the business as board members or employees? What are they responsible for? The people reading your business plan want to know who’s in charge. Give a detailed description of each division or department and its function.
Include who’s on the board, if you have an advisory board, how you intend to keep them. What kind of salary and benefits package do you have? What incentives are you offering? How about promotions? Reassure your reader that the people you have on staff are more than just names on a letterhead.
- Organizational Structure: Lay out the structure of your company. Create an organizational chart with a narrative description. Leave nothing to chance. Who does what? Is someone in charge of every function of your company. Be sure nothing will fall through the cracks,and nothing will be done three or four times over.
- Ownership Information: Include the legal structure of your business and subsequent ownership information. Have you incorporated , C or S corporation? For a partnership is it a general or limited partnership? Are you a sole proprietor.
- Include: Names of owners, Percentage ownership, Extent of involvement with the company, Forms of ownership (common stock, preferred stock, general partner, limited partner), Outstanding equity equivalents (options, warrants, convertible debt), Common stock (authorized or issued), Management Profiles.
- Record of Owner/Management Team: Key people, their backgrounds & resumes. Include name, position with brief position description and primary duties, primary responsibilities and authority, education, unique experience and special skills, prior employment, past track record, industry recognition, community involvement, number of years with company, compensation basis and levels (reasonable , not too high or too low).
- Quantify Achievements: managed a sales force of ten people, managed a department of fifteen people, increased revenue by 15 percent in the first six months, expanded the retail outlets at the rate of two each year, improved the customer service as rated by our customers from 60 percent to 90 percent rating.
- Highlight how your staff complement your skills. Show how each person’s unique experience will contribute to the success of your venture.
- Unpaid Advisory Board: Can provide expertise your company cannot otherwise afford. List well-known, successful business owners/managers to enhance your company’s credibility and perception of management expertise.
- Board of Directors: Include names, positions on the board, extent of involvement with company, background, historical and future contribution to the company’s success.
Product or Service
Emphasize benefits to potential and current customers. Focus on why your particular product will fill a need for your target customers. Include:
- Description of Your Product / Service: Specific benefits of your product or service from your customers’ perspective. Discuss your product or service’s ability to meet consumer needs, advantages your product has over the competition, current development stage of your product.
- Details About Your Product’s Life Cycle: Where your product or service is in its life cycle and any factors that may influence its cycle in the future.
- Intellectual Property: Pending or anticipated copyright or patent filings. list them here. Existing legal agreements, nondisclosure or non-compete agreements.
- Research and Development (R&D) Activities: Outline R&D activities you are involved in or plan. Results expected for future R&D activities. Analyze R&D efforts of your business and of others in your industry.
Marketing & Sales
Marketing is the process of creating customers. Customers are the lifeblood of your business. Define your marketing strategy as part of an ongoing business-evaluation process unique to your company. Consider these four different strategies:
- Market penetration strategy.
- Growth strategy. Include: an internal strategy such as how to increase your human resources, an acquisition strategy such as buying another business, a franchise strategy for branching out, a horizontal strategy where you would provide the same type of products to different users, or a vertical strategy where you would continue providing the same products but would offer them at different levels of the distribution chain.
- Channels of distribution strategy. Choices could include original equipment manufacturers (OEMs), an internal sales force, distributors, or retailers.
- Communication strategy. How do you reach customers? Perhaps a combination of promotions, advertising, public relations, personal selling, and printed materials.
After developing a comprehensive marketing strategy, define your sales strategy. Include:
- Sales force strategy. Use internal or independent representatives? How many salespeople will you recruit? Recruitment strategies? Training? Compensation?
- Sales activities. Break down sales strategy into activities. Identify list of prospects, prioritize your contacts, selecting leads with the highest potential to buy first. Identify the number of sales calls you will make over a certain period of time, determine the average number of sales calls to make per sale, average dollar size per sale, and average dollar size per vendor.
Funding Request
Your funding request should include the following information:
- Your current funding requirement.
- Future funding requirements over the next five years.
- Anticipated use of funds. Capital expenditures? Working capital? Debt retirement? Acquisitions?
- Any strategic financial situational plans for the future. Buyout? Being acquired? Debt repayment plan? Selling your business? These plans directly impact your ability to repay your loan(s).
Include the amount you want now and the amount you want in the future, the time period each request will cover, the type of funding you want (equity, debt), and the terms that you want.
Financial Projections
Historical Financial Data
For an established business, you will be requested to supply historical data related to your company’s performance. Most creditors request data for the last three to five years, depending on the length of time you have been in business.
Historical financial data includes your company’s income statements, balance sheets, and cash flow statements for each year you have been in business (for three to five years). Creditors are also interested in any collateral that you may have that could be used to ensure your loan, regardless of the stage of your business.
Prospective Financial Data
All businesses will be required to supply prospective financial data. Creditors will want to see your expectations within the next five years. Forecast income statements, balance sheets, cash flow statements, and capital expenditure budgets. The first year, supply monthly or quarterly projections. Years 2-5, supply quarterly or yearly projections.
Make sure that your projections match your funding requests; creditors will be on the lookout for inconsistencies. Catch mistakes before they do. Summarize your assumptions. Include a short analysis of your financial information, ratio and trend analysis for all of your financial statements (both historical and prospective), graphs of your positive trend analysis.
Appendix
Provide an Appendix as-needed to specific individuals (such as creditors) who may want access to information to make their decisions and when appropriate to have this information within easy reach. Include, as needed or requested:
- Credit history (personal & business)
- Resumes of key managers
- Product pictures
- Letters of reference
- Details of market studies
- Relevant magazine articles or book references
- Licenses, permits or patents
- Legal documents
- Copies of leases
- Building permits
- Contracts
- List of business consultants, including attorney and accountant
Copies of your business plan should be controlled. Keep a distribution record. Update and maintain your business plan on an as-needed basis. Include a private placement disclaimer with your business plan if you plan to use it to raise capital.
Make Your Business Stand Out
Determine why your target market would want to buy from you. Is the market you serve the best one for your product or service? Are the benefits of dealing with your business clear and are they aligned with customer needs? When you are unsure, take a step back and revisit the foundation of your business plan.
- Be Clear About What You Have to Offer
- What are you really selling? There may be other restaurants, but none with your value, ambiance, brand experience.
- Why are you unique? What needs does your product or service fulfill? What benefits and differentiators will help your business stand out from the crowd?
- Strategize! Don’t Be a Jack of All Trades.
- Clearly define what you’re selling. Divide your products or services into manageable market niches. Offer specialized goods and services attractive to a specific group of prospective buyers.Identify
Identify a niche based on your market knowledge. Conduct a market survey with potential customers to uncover untapped needs. Identify the following:
- Which areas your competitors are already well-established
- Which areas are being ignored by your competitors
- Potential opportunities for your business
Below are a variety of topics you will want to consider as you begin to develop your business. We use the word Google when you should definitely do more research; however, anything you don’t fully understand could be a subject you want to research further. When you get into a monthly Business agreement with Chimorel, we can do a lot of this research with/for you, but the more you do the better prepared you will be and the less it will cost you.
Choose Your Business Structure
The structure you choose has legal and tax implications. Find the one best suited for your business.
- Sole Proprietorship: The most basic type of business. You own the company and are responsible for its assets and liabilities.
- Limited Liability Company: An LLC is designed to provide the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership.
- Partnership: Different types of partnerships depend on the nature of the arrangement and partner responsibility for the business.
- Corporation: A corporation is more complex and generally suggested for larger, established companies with multiple employees.
- S Corporation: An S corporation is similar to a C corporation but you are taxed only on the personal level.
- Cooperative: People form cooperatives to meet a collective need or to provide a service that benefits all member-owners.
Register Your Business
Pay attention to the following as you begin to establish your business:
- Choose Your Business Name: Frame its identity by carefully considering the many factors involved in choosing your business name. Google factors involved in choosing a business name.
- Register Your Business Name: You must register your name to comply with the law.
- Register With State Agencies: Some businesses must register your business name with a state or local government agency. Google.
Location & Equipment
Pay attention to: Google/Ask us when appropriate.
- Basic Zoning Laws
- Learn about local zoning ordinances and regulations that may apply to your small business.
- Home-Based Business Zoning Laws – you may be required to comply with local zoning laws.
- Leasing Commercial Space – learn what to expect when leasing a commercial office space for your small business.
- Buying Government Surplus – Purchasing surplus goods from the government is an easy and affordable way to equip your new and expanding business.
- Leasing Business Equipment – Consider available options to acquire needed equipment.
Licenses & Permits
There are certain federal and state licenses and permits you will need to obtain.
- Federal Licenses & Permits: Certain businesses, like ones that sell alcohol or firearms, require a federal license or permit. Google.
- State Licenses & Permits: Some states have requirements for specific businesses. Google.
Learn About Business Laws
You may be subject to a variety of laws and regulations. The following gives you a brief overview. Google when appropriate.
- Advertising & Marketing Law – there are basic rules when it comes to advertising, labeling and marketing your products or services.
- Employment & Labor Law: Hiring your first employee or building your business team requires you to comply with a labor law.
- Finance Law: Financial laws protect businesses, investors and customers.
- Intellectual Property Law: Intellectual property law can protect your business interests. Learn about how to register a trademark or service mark, file a patent or copyright your work.
- Online Business Law: Selling on eBay, or operating an e-commerce site. How and when to collect sales tax.
- Privacy Law: Do you have a privacy policy?
- Environmental Regulations: protect the environment.
- Regulation of Financial Contracts: Uniform Commercial Code (UCC) for transactions outside your state.
- Workplace Safety & Health Law: A variety of tools, guides and training materials that can help you comply with occupational safety and health laws.
- Foreign Workers & Employee Eligibility. Employee eligibility.
- Investments: You must register any investment not sold under the right conditions, so before you start asking a few friends to put a little money into your business find out the law.
- Contact a Government Agency: There are both federal and state agencies which can help you as you develop your business.
Business Finances
Suggestions to improve your odds of business success. Understand your financing needs, as well as ,the options available to help you start, manage and grow your business.
- Estimate Startup Costs: Assess costs associated with starting, managing and growing your business.
- Use Personal Finances: Your personal finances can affect your business finances.
- Prepare Financial Statements: What is the importance of understanding financial statements for your small business?
- Develop a Cash Flow Analysis: Determine the amount of cash you need to start, operate and expand your business.
- Develop Break-even Analysis: When will your business will break even and begin to make a profit?
- Borrow Money for Your Business: What will you need before seeking out financial assistance for your business?
- Learn About SBA Financial Assistance: What are the requirements are for businesses seeking SBA financial assistance?
- Determine if Your Business is Fiscally Fit: Better manage your business money with Money Smart, an instructor-led business training curriculum.
Explore opportunities that range from traditional loans to grants and bonds.
- Loans: What loans are available?
- Grants: What grants are available to your small business?
- Venture Capital: What can you expect from venture capital?
- BusinessUSA Financing Tool: A search tool to help you identify what government financing programs may be available.
Filing & Paying Taxes
Do you need to obtain a tax ID? What are the benefits and requirements?
- Is It A Business or a Hobby? Are you engaging in a business or a hobby? What the tax advantages and requirements for each?
- Obtain Your Federal Business Tax ID: You absolutely need a Tax ID. What are the federal tax obligations for your small business?
- Determine Your State Tax Obligations: What are the requirements and benefits for your state?
- Determine When Your Tax Year Starts: Knowing when the tax year starts is important to meeting filing requirements
Hire & Retain Employees
Learn about employment and labor laws to make sure your business is in compliance.
- Hire Your First Employee: Know 8 steps to making sure you know the regulatory requirements before you start staffing your business.
- Hire a Contractor or an Employee? What is the distinction between an independent contractors and an employee? Knowing this distinction can save you money on taxes and legal fees.
- Pre-Employment Background Checks: What types of information can you use for background checks to make informed decisions?
- Required Employee Benefits: What benefits are you required by law to provide your employees?
- Optional Employee Benefits: What employee benefits can play an important role in the lives of employees and their families?
- Writing Effective Job Descriptions: Write effective job descriptions that ensure employees understand the roles and responsibilities associated with their position..
- Employee Handbooks: Write an employee handbook that properly sets expectations for those who work for your small business.
