When you apply for a business loan, your lender will review data such as your financial history and credit score. They’ll also ask to see your business plan. Having a well-written business plan can streamline the lending process and keep you focused on your business objectives. This guide will show you how to write a business plan effectively.
What Is a Business Plan?
A business plan is an official document that explains your company’s objectives and what concrete steps you will take to meet those goals.
Essentially, a business plan is a roadmap for your company’s future. It will provide an outline for how you’ll execute your business strategy. Companies in the same industry may have similar elements in their plans, but ideally, your business plan should reflect the unique needs and mission of your company.
Why You Need a Business Plan
According to research reviewed by the Babson College Center for Entrepreneurship, fewer than a third of successful entrepreneurs actually had a formal business plan.
Does this mean that you don’t need a business plan? While some businesses may succeed despite lacking a formal plan, there are many reasons why you should create one anyway.
Here are some of the advantages of a business plan.
Business owners rely on outside funding to launch, maintain, or grow their businesses. If you seek a loan from a traditional lender, they will typically ask to review your business plan alongside your business data and credit score. A business plan can increase your eligibility for these loans. It may also influence your loan amount and terms.
Similarly, a business plan can help you attract outside investors. A well-written business plan can demonstrate the exact steps you’ll take to bring about the potential success of your new startup. Investors are more likely to allocate money to companies with clear goals and strategies.
A business plan isn’t just for an outside audience. Your plan can also help you and your management team stay focused on your business goals. For example, if you’ve formed your business as a partnership, your business plan will keep everyone on the same page about your objectives and strategy.
Even if you’re a solo entrepreneur, a business plan can keep you focused and provide a way to track your progress as you meet benchmarks and key performance indicators (KPIs).
Negotiate Deals with Suppliers
Your company will probably need inventory and supplies to thrive. But in the early stages of your business, vendors may be reluctant to work with an unknown entity.
A business plan can show these suppliers that your business has both legitimacy and potential. Not only will you be able to secure contracts with suppliers, but your business data may help you qualify for discounts that can improve your profit margins.
Business Plan Outline
What does a business plan look like? While there’s more than one type of business plan, the most common business plan outlines look something like this:
- Executive summary
- Company description
- Organization and management
- Market analysis
- Description of products and services
- Funding request
- Financial projections
- Appendix (optional)
Does the order matter? To some degree, yes. An executive summary generally comes first, followed by a description of the company. Some plans may switch the order of your financial projections and funding request, though these sections are best reserved for the end, forming the conclusion of your plan as a whole.
How to Write a Business Plan
Every type of business has its own goals and objectives. However, the business plan still follows the same general format. Here’s how to create a simple business plan, with tips on how to write each section.
An executive summary briefly summarizes the points in your plan, offering readers a snapshot of your company and your business goals. The executive summary functions as the “elevator pitch” for your business and your funding request. As such, aim for no more than 250 to 500 words.
Though brief, you might seek to include the following:
- Your business name
- Your company mission statement
- A basic summary of your product or service
- Your most immediate business objective(s)
Even though the executive summary will be the first part of your plan, consider writing this section last. That way, you can highlight the key points in other sections of your business plan.
Your company description contains important information, including your registered business name and contact details.
But this is also where you want to elaborate on the nature of your business. Think about things like:
- What problems are you equipped to solve?
- Who is your target market?
- What advantage do you have over competitors?
- Does your location offer a strategic advantage?
- Do you have any experts on your management team?
You’ll elaborate more on your leadership team in a later section, but this can still be a good opportunity to brag about any specialists that offer your company a competitive edge.
Organization and Management
Here is where you’ll explain more about your leadership team. Your organization and management section will include information such as:
- Your legal structure (sole proprietorship, partnership, LLC, etc.)
- The names of any partners or senior leaders
- The resumes or CVs of senior leaders
- An organizational chart showing your team’s responsibilities
Of course, if you’re a sole proprietor, you can also use this section to offer a unique bio. It’s okay to brag a little! Talk about your past accomplishments and why your education or experience makes you uniquely suited for this business or industry.
The next section will be somewhat research-intensive. You’ll need to demonstrate a clear knowledge of industry and/or consumer trends, such as:
- What are the buying behaviors of your target market?
- What are some trends affecting your industry at the moment?
- What are the future prospects for your industry or target market?
- How do you intend to reach your target audience?
- Who are your major competitors?
- How will you set yourself apart from your competitors?
As you write a business plan, you’ll want to include data gleaned from industry publications and market research websites. Analyzing the behavior of your competitors is also a good way to attain information for your market analysis. And if you’ve been in business for a while, you can even look at your past marketing data to plot a course for your future.
Description of Products and Services
What exactly do you sell? This section will explain the type of products or services you offer and how they benefit your target market.
Don’t neglect the “nuts and bolts” of your sales and distribution strategy, including:
- Pricing model(s) (e.g., subscription packages)
- Sales strategy
- Distribution methods
- Supply chain and order fulfillment strategy
Even if your products are still in the research and development stage, you can explain more about this process and when you anticipate a prototype. You can also use this section to discuss any plans for patents or copyrights to protect your intellectual property.
If you write a business plan hoping to secure funding, here is where you’ll make your formal request.
Be specific. Clearly state the funding you need to invest in launching or growing your business. And also, be specific about how you’ll allocate that funding: for marketing, product research, new technology/equipment, etc.
Financial Records and Projections
Financials are a key part of any business plan, but if you make a funding request, they are all the more essential. You’ll want to include both records of actual pat performance ad projections for the future. Include data such as:
- Income statements
- Balance sheet
- Cash flow statements
- Any assets that can be used as collateral
But this is just the starting point. You’ll enhance your business plan by including additional elements such as:
- Net profit margin
- Current ratio
- Accounts receivable turnover ratio
These metrics reflect the amount of revenue your business generates and the amount of liquidity that can be used to pay back a loan.
Try to include data from the previous five years, if possible. And try to create a financial plan for the coming five years as well, based on past trends and industry research. Charts and graphs can be useful for summarizing key data and making it easier for readers to digest.
Keep your projections realistic and reasonable. Positive projections are always good, but lenders and investors will quickly spot projections that are too aspirational, and they won’t make a positive impression.
Your most important data belongs in the corresponding sections of your business plan. But a simple business plan won’t always have room for supplemental information, which might be better in an appendix. Your appendix might include the following:
- Personal and business credit history
- Business licenses or permits
- Equipment lease agreements
- Patents and copyrights
- Professional contracts
- Resumes of key employees
If you have lots of data, it’s okay to create multiple appendices to group your information together.
Business Plan Templates
Learning how to write a business plan can be easier when you use a business plan template. Here are just a few suggestions on where to look for a free template.
Microsoft Word offers a large number of document templates, including several that you can use to write a business plan. You can also download PowerPoint templates that you can use for sharing your plan in a business meeting or presentation.
The SBA Website
If you go to the U.S. Small Business Administration website, you can fill out a business plan template online and then download the completed form as a PDF document.
This template is a bit lengthy but may be useful for those with a lot of data to organize and present.
Santa Clara University’s My Own Business Institute
You can find more free templates at the My Own Business Institute (MOBI), run by Santa Clara University through the Center for Entrepreneurship and Innovation at their Leavey School of Business.
You can download each of the 15 business plan sections as a separate MS Word document or a single free template to fill out. MOBI also offers a few free resources for small business owners that can be helpful as you launch or grow your company.
Tips for Writing an Effective Business Plan
Remember that your business plan is designed to help you secure funding, among other goals. Is there a way to write a business plan that improves your chances of securing the best loans?
Yes. The following tips can help you craft a quality business plan so you can reach your goals.
First, it’s important to be realistic about your business. Lenders review the business plans of many companies in your industry. If your financial projections are overly optimistic, lenders may dismiss your plan as unrealistic. Keep your expectations — and your funding request — realistic and reasonable.
Proofread and Edit
You’ll want to proofread your work for spelling and grammar. But it also helps to get a fresh set of eyes to offer feedback. Ask someone to read your plan. At the very least, a proofreader can help you gauge the clarity of your writing, and they can help you give your business plan a final polish.
Does the prospect of writing a business plan give you flashbacks to high school term papers? If writing doesn’t come naturally to you, seek outside help. The right assistance can guide you through the writing process and provide input on your market research, financial projections, and more.
Don’t assume that your business plan is set in stone. Make a habit of regularly updating your business plan with the latest financial information after any major changes. Keeping your plan up-to-date will make it easier to secure funding if an unexpected business opportunity comes your way.
Your Future Self Will Thank You
Every business needs a good plan. Learning how to write a business plan will take time, but in the end, it will pay big dividends. A clear business plan will help lenders and investors take you more seriously, improving your chances of securing the funds you need to start your business or seize a new opportunity.
You’ll also be grateful that you completed this task simply because it helps you stay focused. Running a business is hard work. It’s easy to lose sight of your goals. Your plan can be both your starting point and stabilizing force, keeping you on the right trajectory to achieve your entrepreneurial dreams.
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