Making Business Planning Importance
There are many reasons to write a business plan—it’s not solely the domain of entrepreneurs who want to secure funding to start or grow their business. A good business plan can help you clarify your strategy, identify potential roadblocks, decide what you’ll need in the way of resources, and evaluate the viability of your idea before you learn how to start a business. Whatever your reason for writing a business plan, the task will probably still feel like a homework assignment. When you’re starting a new business, your to-do list is a mile long and filled with more immediately rewarding tasks, like taking product photos, creating ad campaigns, and opening social media accounts.
Not every successful business launches with a formal business plan, but many founders find value in taking time to step back, research their idea and the market they’re looking to enter, and understand the scope and the strategy behind their tactics. That’s where writing a business plan comes in.
Write your way to success
- What is a business plan?
- The importance of making a business plan
- How to write a business plan, step by step
- Why do business plans fail?
- Tips for creating a small business plan
- Business planning gives you a foundation for growth
- Business plans FAQ
- What is a business plan?
A business plan is a document that describes a business, its products or services, how it earns (or will earn) money, its leadership and staffing, its financing, its operations model, and many other details essential to its success.
The importance of making a business plan
Investors rely on business plans to evaluate the feasibility of a business before funding it, which is why business plans are commonly associated with getting a loan. But there are several compelling reasons to consider writing a business plan, even if you don’t need funding.
Planning. Writing out your plan is an invaluable exercise for clarifying your ideas and can help you understand the scope of your business, as well as the amount of time, money, and resources you’ll need to get started.
Evaluating ideas. If you’ve got multiple ideas in mind, a rough business plan for each can help you focus your time and energy on the ones with the highest chance of success.
Research. To write a business plan, you’ll need to research your ideal customer and your competitors—information that will help you make more strategic decisions.
Recruiting. Your business plan is one of the easiest ways to communicate your vision to potential new hires and can help build their confidence in the venture, especially if you’re in the early stages of growth.
Partnerships. If you plan to approach other companies to collaborate, having a clear overview of your vision, your audience, and your growth strategy will make it much easier for them to identify whether your business is a good fit for theirs—especially if they’re further along than you in their growth trajectory.
Competitions. There are many business plan competitions offering prizes such as mentorships, grants, or investment capital. To find relevant competitions in your industry and area, try Googling “business plan competition + [your location]” and “business plan competition + [your industry].”
If you’re looking for a structured way to lay out your thoughts and ideas, and to share those ideas with people who can have a big impact on your success, a business plan is an excellent starting point.
How to write a business plan, step by step
Few things are more intimidating than a blank page. Starting your business plan with a structured outline and key details about what you’ll include in each section is the best first step you can take. Since an outline is such an important step in the process of writing a business plan, we’ve put together a high-level overview you can copy into your blank document to get you started (and avoid the terror of facing a blank page).
Here’s what your standard table of contents looks like:
- Executive summary
- Company description
- Market analysis
- Management and organization
- Products and services
- Customer segmentation
- Marketing plan
- Logistics and operations plan
- Financial plan
You can also start with a free business plan template and use it to inform the structure of your plan.
Executive summary
A good executive summary is one of the most crucial sections of your plan—it’s also the last section you should write. The executive summary’s purpose is to distill everything that follows and give time-crunched reviewers (e.g., potential investors and lenders) a high-level overview of your business that persuades them to read further. Again, it’s a summary, so highlight the key points you’ve uncovered while writing your plan. If you’re writing for your own planning purposes, you can skip the summary altogether—although you might want to give it a try anyway, just for practice. An executive summary shouldn’t exceed one page. Admittedly, that space constraint can make squeezing in all of the salient information a bit stressful—but it’s not impossible. Here’s what your business plan’s executive summary should include:
- Business concept. What does your business do?
- Business goals and vision. What does your business want to do?
- Product description and differentiation. What do you sell, and why is it different?
- Target market. Who do you sell to?
- Marketing strategy. How do you plan on reaching your customers?
- Current financial state. What do you currently earn in revenue?
- Projected financial state. What do you foresee earning in revenue?
- The ask. How much money are you asking for?
- The team. Who’s involved in the business?
Company description
This section of your business plan should answer two fundamental questions: who are you, and what do you plan to do? Answering these questions provides an introduction to why you’re in business, why you’re different, what you have going for you, and why you’re a good investment bet. Clarifying these details is still a useful exercise, even if you’re the only person who’s going to see them. It’s an opportunity to put to paper some of the more intangible facets of your business, like your principles, ideals, and cultural philosophies.
Here are some of the components you should include in your company overview:
- Your business structure (are you a sole proprietorship, general partnership, limited partnership, or incorporated company?)
- Your business model
- Your industry
- Your business’s vision and mission statement and value proposition
- Background information on your business or its history
- Business objectives, both short and long term
- Your team, including key personnel and their salaries
Some of these points are statements of fact, but others will require a bit more thought to define, especially when it comes to your business’s vision, mission, and values. This is where you start getting to the core of why your business exists, what you hope to accomplish, and what you stand for.
Market analysis
No matter what type of business you start, it’s no exaggeration to say your market can make or break it. Choose the right market for your products—one with plenty of customers who understand and need your product—and you’ll have a head start on success. If you choose the wrong market, or the right market at the wrong time, you may find yourself struggling for each sale.
How big is your potential market?
The potential market is an estimate of how many people need your product. While it’s exciting to imagine sky-high sales figures, you’ll want to use as much relevant independent data as possible to validate your estimated potential market. Since this can be a daunting process, here are some general tips to help you begin your research:
Understand your ideal customer profile, especially as it relates to demographics. If you’re targeting millennial consumers in the US, you first can look for government data about the size of that group. You also could look at projected changes to the number of people in your target age range over the next few years.
Research relevant industry trends and trajectory. If your product serves retirees, try to find data about how many people will be retiring in the next five years, as well as any information you can find about consumption patterns among that group. If you’re selling fitness equipment, you could look at trends in gym memberships and overall health and fitness among your target audience or the population at large. Finally, look for information on whether your general industry is projected to grow or decline over the next few years.
Make informed guesses. You’ll never have perfect, complete information about the size of your total addressable market. Your goal is to base your estimates on as many verifiable data points as necessary for a confident guess.
SWOT analysis
A SWOT analysis looks at your strengths, weaknesses, opportunities, and threats. What are the best things about your company? What are you not so good at? What market or industry shifts can you take advantage of and turn into opportunities? Are there external factors threatening your ability to succeed? These breakdowns often are presented as a grid, with bullet points in each section breaking down the most relevant information—so you can probably skip writing full paragraphs here. Strengths and weaknesses—both internal company factors—are listed first, with opportunities and threats following in the next row. With this visual presentation, your reader can quickly see the factors that may impact your business and determine your competitive advantage in the market.
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