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Commerce Puzzle

Commerce Puzzle

How To Write A Business Plan

A Step-By-Step Guide

Do You Need A Business Plan?

There is no question that we are currently in the age of information, technology, and innovation. As businesses, industries, and software continue to advance, the question “do I reeaally need a business plan?” is one that comes up often within the entrepreneurial community. With the expansion of business plan software, as well as the rise of business canvassing, the topic offers good room for confusion. Although the general answer seems to lack clarity, the explanation makes it very easy to understand. As with most things in the business world, the answer is: “it depends.” The good thing is, it is effortless to determine if you need a business plan, and we will go through that decision below.

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How Do I Decide?

Any consultant, expert, or relevant agency is going to highly recommend that you write and maintain a business plan. In general, this is a recommendation that we agree with for entrepreneurs and startups. With that said, you only NEED a business plan in two situations. #1, if you are going to request funding. #2, if you are seeking out a partnership. Although those who finance their business through a bank loan are in the minority (40% of business owners used a bank loan), it is still imperative to review the necessary steps needed to complete the process that they go through. Remember, owners and institutions will tell you that a business plan has more use than merely being a tool to get financing, and we agree with this analysis. The nature of the question discusses the NEED for a business plan, not the professional opinion over the application of one, so therefore, our answer reflects the periods where a business plan is expected, not where it is useful. If a situation arises where possession and maintenance of a business plan are not a necessity by majority demand, we are forced to discard those situations from the meaning of “need.” If you are looking for funding, a partnership, or just prefer to be wholly prepared in your business ventures, keep reading to find out how to build your business plan.

So Many Formats, Which One?

Most entrepreneurs are excited to write their business plan until they begin their preliminary research. At that point, it is common for confusion to set in as nearly every source of information has a different suggestion on which format is the best. To add to that, new software and business plan alternatives are quickly gaining popularity amongst entrepreneurs (not lenders), so sometimes owners are merely wondering which technological advancement to use to their advantage. Thankfully the confusion is smoke and mirrors, and THE standard structured business plan (the one offered by the United States Small Business Administration) is all that you will need in your financing or partnership journey.

What About The Other Options?

As we mentioned earlier, there is no getting around the fact that you will be pushed or pulled to use a business plan alternative due to the technological advances that we are currently seeing. If you are an early stage entrepreneur or startup that would like to organize your ideas without committing to a standard business plan, we recommend taking advantage of one of the many alternatives available online. Check out the business model canvas process that has gained popularity throughout recent years by clicking here, or by watching the video below.

Business Model Canvas

The Standard Business Plan

Writing a standard (traditional) business plan is time, effort, and resource consuming. Now that we have an understanding that the target audience for a standard business plan is made up of traditional lenders, we can dig into the components that make up a standard business plan, as well as the nine traditional sections lenders may expect to see.

The Standard Format

Traditionally, standard business plans use a combination of 9 sections, with a universal expectation of a 7 section minimum. It is important to note that delivering a 9 section business plan is in no way inherently better than a 7 section plan. Lenders are busy, and they expect to see what they need with not much else in sight. Bulking up your business plan with extra sections in hopes of extra-credit is not recommended. If you stick to the outline below, you will be in a good position moving forward. Here are the nine sections of a traditional business plan. We will breakdown each section below.

1. Executive Summary

2. Company Description

3. Market Analysis

4. Organization & Management

5. Service &/Or Product Line

6. Marketing & Sales

7. Funding Request

8.) Financial Projections

9.) Appendix

1.) Executive Summary

The executive summary is a short, concise, and extremely dense briefing on the overall positioning of your business and why it has an opportunity to be successful. In this section, you want to touch on information about your products, services, company structure, management team, location, growth projections, and employees. The section should also include an unambiguous mission statement that encapsulates the ideology and direction of your company. Although it sounds impossible to pack all of that information into a summary, sticking to a structure makes it a bit easier.

Tip. Remember, when writing the executive summary, you want to leave out detail and concentrate on verifying the existence of the separate components that make your business what it is. For example, you will not go into detail about the functioning or marketing of your product or services; you are simply explaining what it is that you offer. Do not go into detail of why your final projections are what they are; you merely touch on the overall hypothesis of your projections (where you will end up) and save the explanatory detail for the financial projections section below.

2.) Company Description

We learned above that the key to writing a good executive summary is saving the detail for the following sections. The key to writing a good company description is realizing that this is the section where the expectation for full detail begins. The company description is intended to be a detailed explanation of what your company does, how it functions, what industry it is in, your locational benefits, how it serves the consumer (if applicable), how it serves other businesses (if applicable), and the expertise that makes your company different from its competitors. Remember, this section is intended for the writer to bring a focus to their company strengths.

Tip. If there is a section where investors discard most business plans, the company description is that section. You should look to grab the investors attention with the information conveyed in your description. Do not be afraid to use descriptive language that highlights the unique route that your company is taking to success. Investors are looking for your ability to be thorough, as any signs of misunderstanding lead to an immediate decrease in investor confidence. If you are stuck, use the old saying: “Who, What, When, Where, & How?” If you can answer all five of those inquiries in descriptive detail, you have written a great company description.

3.) Market Analysis

Market analysis is such an in-depth venture that it has an entire industry of experts (market research analysts) that dedicate their time and education to all that goes into it. Thankfully, investors are not expecting you to dish out thousands for full-blown analytic reports. The market analysis section refers to the analysis of your competitors, called competitive research, and how like-minded businesses are currently functioning within the industry. You will want to report on the general trends of your market, current competitor marketing tactics, current competitor operations, and advantages you see your company having within the market.

Tip. Do not get overwhelmed with feeling like you have to throw a mountain of numbers into the section. If you can narrow down a few reliable figures and use them to explain how you are planning to gain a competitive advantage, you will have written a good section.

4.) Organization & Management

First and foremost, the length of this section will vary drastically depending on the size of the business or corporation that is tasked with writing the plan. Here you will go into detail about the legal structure or your business, how it is registered, who it is registered with, and any future registration changes that you are currently considering. If you own an LLC, you will describe that here. If you own an LLC and you plan on converting into a corporation, you will need to disclose that here. It is recommended that you describe the hierarchy of your company, and go into detail about the positioning and duties of your top decision makers.

Tip. Think of this section as strictly informational. No fluff, all correct information.

5.) Service Or Product Line

For most businesses, this will be one of the most detail-oriented sections of the entire plan. When describing your product or service to an investor or traditional source of financing, the detail you provide is crucial to getting the “yes” that many are hoping to hear. You will want to cover who your product or service serves and how. You will also want to cover the foundation of your product or service by discussing copyright filings, patent filings, intellectual property, proprietary software, R&D findings, and anything else that helps bring your product or service to life.

Tip. Go very heavy on the detail. Try to answer any questions or objections before they come.

6.) Marketing & Sales

The marketing & sales section will lean more towards the explanation of a transparent sales process than a drill down on an innovative marketing ideology. Thankfully, you will have almost all of the information that you need from your round of competitive research that took place in an earlier section. You will want to describe the process of completing a sale, and the expenses associated with that process. You will want to display basic knowledge of how you plan to market your product or service, and this knowledge can be rooted in what your competitors are currently doing. Do not get overwhelmed with feeling like you have to show the investors a brand new way to attract customers within your industry. There is nothing wrong with stating how you plan to improve on the current strategies that are being used within your industry.

Tip. Detail is expected when it comes to the marketing section; it just does not have to be rooted in innovation. You genuinely do not have to display the ability to attract customers in a brand new way within your marketing plan. As long as you have a plan to improve on the strategies that are already in place, you will be in good hands.

7.) Funding Request

Under the assumption that you are seeking funding, this will be the section where you ask for what you are wanting. There are no grey areas in investing. Any signs of being indirect will result in the investor getting cold and canceling the deal. You will want to plainly lay out how much you are looking for, why you need it, what you plan on doing with it, when you plan on paying it back, and how you plan on paying it back. Including any financial plans or strategies that you have underway that may help pay back or secure funding.

Tip. Stick to industry standard terms within this section. It always helps to communicate with an investor using investor-friendly language.

8.) Financial Projections

Your financial projection is written as a tool to help secure funding, and for this reason, sticking to a particular structure helps answer as many questions as possible for anyone looking your way. If you have already been in business, you will want to include past bank statements, cash flow statements, balance sheets, and any information on previous loans associated with the company. You will also include the forecasted income for the next 5 to 10 years, and the associated documents to support your financial forecast.

Tips. Using charts or graphs to show your previous and past projections can help with clarity.

9.) Appendix

The appendix section should neatly hold any supporting documents that can be used to help legitimize your business plan. Bank statements, balance sheets, legal documents, permits, contracts, references, credit history, and any other relevant reports have a home in this section.

More Business Plan Help

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