Need a Roadmap? Here's How to Write a Business Plan You'll Actually Use

Why do business plans fail?

1. Warning: Other articles on business plans would never tell you what we’re about to tell you. But your business plan can fail. The last thing you want is for time and effort to go down the drain. Avoid these common business mistakes:
2. Bad business idea. Not every idea is going to win. Sometimes your idea may be too risky and you won’t be able to get funding for it. Other times it’s too expensive or there’s no market. Aim for small business ideas you start with little money and bypass traditional startup costs. 
3. No exit strategy. Investors reading your business plan want to know one thing: will your venture make them money? If you don’t show an exit strategy, or a plan for them to leave the business with maximum profits, you’ll have little luck finding capital. 
4. Unbalanced teams. A great product is the cost of entry to starting a business. But an incredible team will take it to the top. Unfortunately, many business owners overlook a balanced team. They assume readers want to see potential profits, without worrying about how you’ll get it done. If you’re pitching a new software idea, it makes sense to have at least one developer or IT specialist on your team. 
5. Missing financial projections. Your numbers are the most interesting part for readers. Don’t leave out your balance sheet, cash flow statements, P&L statements, and income statements. Include your break-even analysis and return-on-investment calculations to create a successful business plan. Sometimes, a business loan may be essential to grow your business. Check our guide on how to get a business loan to understand if you need a business loan or what type of loan you need. 
6. Spelling and grammar errors. Some businesses think hiring a professional editor is overkill. The reality is, all the best organizations have an editor review their documents. If someone spots typos while reading your business plan, how can they believe you’ll run a successful company?

Competitive analysis

There are three overarching factors you can use to differentiate your business in the face of competition:

• Cost leadership. You have the capacity to maximize profits by offering lower prices than the majority of your competitors. Examples include companies like Mejuri and Endy.
• Differentiation. Your product or service offers something distinct from the current cost leaders in your industry and banks on standing out based on your uniqueness. Think of companies like Knix and Qalo.
• Segmentation. You focus on a very specific, or niche, target market and focus on building traction with a smaller audience before moving on to a broader market. Companies like TomboyX and Heyday Footwear are great examples of this strategy.
• To understand which is the best fit, you’ll need to understand your business as well as the competitive landscape.

You’ll always have competition in the market, even with an innovative product, so it’s important to include a competitive overview in your business plan. If you’re entering an established market, include a list of a few companies you consider direct competitors and explain how you plan to differentiate your products and business from theirs.

Management and organization

The management and organization section of your business plan should tell readers about who’s running your company. Detail the legal structure of your business. Communicate whether you’ll incorporate your business as an S corporation or create a limited partnership or sole proprietorship.  If you have a management team, use an organizational chart to show your company’s internal structure, including the roles, responsibilities, and relationships between people in your chart. Communicate how each person will contribute to the success of your startup. 

Products and services

Your products or services will feature prominently in most areas of your business plan, but it’s important to provide a section that outlines key details about them for interested readers.  If you sell many items, you can include more general information on each of your product lines; if you only sell a few, provide additional information on each. Describe new products you’ll launch in the near future and any intellectual property you own. Express how they’ll improve profitability.  It’s also important to note where products are coming from—handmade crafts are sourced differently than trending products for a dropshipping business, for instance.

Customer segmentation

Your ideal customer, also known as your target market, is the foundation of your marketing plan, if not your business plan as a whole. You’ll want to keep this person in mind as you make strategic decisions, which is why an overview of who they are is important to understand and include in your plan.

To give a holistic overview of your ideal customer, describe a number of general and specific demographic characteristics. Customer segmentation often includes:

• Where they live
• Their age range
• Their level of education
• Some common behavior patterns
• How they spend their free time
• Where they work
• What technology they use
• How much they earn
• Where they’re commonly employed
• Their values, beliefs, or opinions

This information will vary based on what you’re selling, but you should be specific enough that it’s unquestionably clear who you’re trying to reach—and more importantly, why you’ve made the choices you have based on who your customers are and what they value. For example, a college student has different interests, shopping habits, and pricing sensitivity than a 50-year old executive at a Fortune 500 company. Your business plan and decisions would look very different based on which one was your ideal customer.

Marketing plan

Your marketing efforts are directly informed by your ideal customer. Your plan should outline your current decisions and your future strategy, with a focus on how your ideas are a fit for that ideal customer.  If you’re planning to invest heavily in Instagram marketing, for example, it might make sense to include whether Instagram is a leading platform for your audience—if it’s not, that might be a sign to rethink your marketing plan.

Most marketing plans include information on four key subjects. How much detail you present on each will depend on both your business and your plan’s audience.

1. Price. How much do your products cost, and why have you made that decision?
2. Product. What are you selling and how do you differentiate it in the market?
3. Promotion. How will you get your products in front of your ideal customer?
4. Place. Where will you sell your products?

Promotion may be the bulk of your plan since you can more readily dive into tactical details, but the other three areas should be covered at least briefly—each is an important strategic lever in your marketing mix.

Logistics and operations plan

Logistics and operations are the workflows you’ll implement to make your ideas a reality. If you’re writing a business plan for your own planning purposes, this is still an important section to consider, even though you might not need to include the same level of detail as if you were seeking investment.

Cover all parts of your planned operations, including:

• Suppliers. Where do you get the raw materials you need for production, or where are your products produced? 
• Production. Will you make, manufacture, wholesale or dropship your products? How long does it take to produce your products and get them shipped to you? How will you handle a busy season or an unexpected spike in demand?
• Facilities. Where will you and any team members work? Do you plan to have a physical retail space? If yes, where?
• Equipment. What tools and technology do you require to be up and running? This includes everything from computers to lightbulbs and everything in between.
• Shipping and fulfillment. Will you be handling all the fulfillment tasks in-house, or will you use a third-party fulfillment partner?
• Inventory. How much will you keep on hand, and where will it be stored? How will you ship it to partners if required, and how will you approach inventory management?
• This section should signal to your reader that you’ve got a solid understanding of your supply chain and strong contingency plans in place to cover potential uncertainty. If your reader is you, it should give you a basis to make other important decisions, like how to price your products to cover your estimated costs, and at what point you plan to break even on your initial spending.

Financial plan

No matter how great your idea is, and regardless of the effort, time, and money you invest, a business lives or dies based on its financial health. At the end of the day, people want to work with a business they expect to be viable for the foreseeable future. The level of detail required in your financial plan will depend on your audience and goals, but typically you’ll want to include three major views of your financials: an income statement, a balance sheet, and a cash-flow statement. It also may be appropriate to include financial projections.

Income statement

Your income statement is designed to give readers a look at your revenue sources and expenses over a given time period. With those two pieces of information, they can see the all-important bottom line or the profit or loss your business experienced during that time. If you haven’t launched your business yet, you can put together a forecast of the same information.

Balance sheet

Your balance sheet offers a look at how much equity you have in your business. On one side, you list all your business assets (what you own), and on the other side, all your liabilities (what you owe). This provides a snapshot of your business’s shareholder equity, which is calculated as:

Assets - Liabilities = Equity

Cash flow statement

Your cash flow statement is similar to your income statement, with one important difference: it takes into account when revenues are collected and when expenses are paid. When the cash you have coming in is greater than the cash you have going out, your cash flow is positive. When the opposite scenario is true, your cash flow is negative. Ideally, your cash flow statement will help you see when cash is low, when you might have a surplus, and where you might need to have a contingency plan to access funding to keep your business solvent. It can be especially helpful to forecast your cash-flow statement to identify gaps or negative cash flow and adjust operations as required. Here’s a full guide to working through cash-flow projections for your business.

Tips for creating a small business plan

There are a few key things to keep in mind to help you write an effective business plan. 

• Know your audience. When you know who will be reading your plan—even if you’re just writing it for yourself to clarify your ideas—you can tailor the language and level of detail to them. This can also help you make sure you’re including the most relevant information and figure out when to omit sections that aren’t as impactful.
• Have a clear goal. You’ll need to put in more work and deliver a more thorough plan if your goal is to secure funding for your business versus working through a plan for yourself or even your team.
• Invest time in research. Sections of your business plan will primarily be informed by your ideas and vision, but some of the most crucial information you’ll need requires research from independent sources. This is where you can invest time in understanding who you’re selling to, whether there’s demand for your products, and who else is selling similar products or services.
• Keep it short and to the point. No matter who you’re writing for, your business plan should be short and readable—generally no longer than 15 to 20 pages. If you do have additional documents you think may be valuable to your audience and your goals, consider adding them as appendices.
• Keep the tone, style, and voice consistent. This is best managed by having a single person write the plan or allowing time for the plan to be properly edited before distributing it.

Business planning gives you a solid foundation for growth

A business plan can help you identify clear, deliberate next steps for your business, even if you never plan to pitch investors—and it can help you see gaps in your plan before they become issues. Whether you’ve written a business plan for a new online business idea, a retail storefront, or growing your current company, you now have a comprehensive guide and the information you need to help you start working on the next phase of your own business.

Making Sound Projections

Five-year forecasts of profitability help lay the groundwork for negotiating the amount investors will receive in return for their money. Investors see such financial forecasts as yardsticks against which to judge future performance.

Too often, entrepreneurs go to extremes with their numbers. In some cases, they don’t do enough work on their financials and rely on figures that are so skimpy or overoptimistic that anyone who has read more than a dozen business plans quickly sees through them. In one MIT Enterprise Forum presentation, a management team proposing to manufacture and market scientific instruments forecast a net income after taxes of 25% of sales during the fourth and fifth years following investment. While a few industries such as computer software average such high profits, the scientific instruments business is so competitive, panelists noted, that expecting such margins is unrealistic. In fact, the managers had grossly—and carelessly—understated some important costs. The panelists advised them to take their financial estimates back to the drawing board and before approaching investors to consult financial professionals.

Courtesy: effective business planning in Saudia Arabia