How to Write a Great Business Plan: Key Concepts
The first in a comprehensive series
to help you craft the perfect business plan for your startup.
Contributing editor, Inc.@jeff_haden
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CREDIT: Getty Images
Some entrepreneurs succeed without a
business plan. With great timing, solid business skills, entrepreneurial
drive, and a little luck, some founders build thriving businesses without
ever creating even an informal business plan.
But the chances are more likely that
those entrepreneurs fail.
Will a business plan make success
inevitable? Absolutely not. But great planning often means the difference
between success and failure.
Where your entrepreneurial dreams
are concerned, you should do everything possible to set the stage for success.
And that's why a great business plan
is one that helps you succeed.
What
matters most
Many business plans are fantasies.
That's because many aspiring entrepreneurs see a business plan as simply a
tool--filled with strategies and projections and hyperbole--that will convince
lenders or investors the business makes sense.
That's a huge mistake.
First and foremost, your business
plan should convince you that your idea makes sense--because your time,
your money, and your effort are on the line.
So a solid business plan should be a
blueprint for a successful business. It should flesh out strategic plans,
develop marketing and sales plans, create the foundation for smooth operations,
and maybe--just maybe--convince a lender or investor to jump on board.
For many entrepreneurs, developing a
business plan is the first step in the process of deciding whether to actually
start a business. Determining if an idea fails on paper can help a
prospective founder avoid wasting time and money on a business with no realistic
hope of success.
So, at a minimum, your plan should:
- Be as objective and rational as possible. What may have seemed like a good idea for a business can, after some thought and analysis, prove not viable because of heavy competition, insufficient funding, or a nonexistent market. (Sometimes even the best ideas are simply ahead of their time.)
- Serve as a guide to the business's operations for the first months and sometimes years, creating a blueprint for company leaders to follow.
- Communicate the company's purpose and vision, describe management responsibilities, detail personnel requirements, provide an overview of marketing plans, and evaluate current and future competition in the marketplace.
- Create the foundation of a financing proposal for investors and lenders to use to evaluate the company.
A good business plan delves into
each of the above categories, but it should also accomplish other objectives.
Most of all, a good business plan is convincing. It proves a case. It
provides concrete, factual evidence showing your idea for a business is in fact
sound and reasonable and has every chance of success.
Who
must your business plan convince?
First and foremost, your business
plan should convince you that your idea for a business is not just a
dream but can be a viable reality. Entrepreneurs are by nature confident,
positive, can-do people. After you objectively evaluate your capital
needs, products or services, competition, marketing plans, and potential
to make a profit, you'll have a much better grasp on your chances for success.
And if you're not convinced, fine:
Take a step back and refine your ideas and your plans.
Who
can your business plan convince?
1. Potential sources of financing.
If you need seed money from a bank or friends and relatives, your
business plan can help you make a great case. Financial statements can show
where you have been. Financial projections describe where you plan to go.
Your business plan shows how you
will get there. Lending naturally involves risk, and a great business plan can
help lenders understand and quantity that risk, increasing your chances for
approval.
2. Potential partners and investors.
Where friends and family are concerned, sharing your business plan may not be
necessary (although it certainly could help).
Other investors--including angel
investors or venture capitalists--generally require a business plan in order to
evaluate your business.
3. Skilled employees. When you need
to attract talent, you need something to show prospective employees
since you're still in the startup phase. Early on, your business is more of an
idea than a reality, so your business plan can help prospective employees
understand your goals--and, more important, their place in helping you achieve
those goals.
4. Potential joint ventures. Joint
ventures are like partnerships between two companies. A joint venture is a
formal agreement to share the work--and share the revenue and profit. As a
new company, you will likely be an unknown quantity in your market. Setting up
a joint venture with an established partner could make all the difference in
getting your business off the ground.
But above all, your business plan
should convince you that it makes sense to move forward.
As you map out your plan, you may
discover issues or challenges you had not anticipated.
Maybe the market isn't as large as
you thought. Maybe, after evaluating the competition, you realize your plan to
be the low-cost provider isn't feasible since the profit margins will be too
low to cover your costs.
Or you might realize the fundamental
idea for your business is sound, but how you implement that idea should change.
Maybe establishing a storefront for your operation isn't as cost-effective as
taking your products directly to customers--not only will your operating costs
be lower, but you can charge a premium since you provide additional customer
convenience.
Think of it this way. Successful businesses do not remain static. They learn
from mistakes, and adapt and react to changes: changes in the economy, the
marketplace, their customers, their products and services, etc. Successful
businesses identify opportunities and challenges and react accordingly.
Creating a business plan lets you
spot opportunities and challenges without risk. Use your plan to dip your toe
in the business water. It's the perfect way to review and revise your ideas and
concepts before you ever spend a penny.
Many people see writing a business
plan as a "necessary evil" required to attract financing or
investors. Instead, see your plan as a no-cost way to explore the viability of
your potential business and avoid costly mistakes.
Next time we'll take a closer look
at the main components of a business plan. We'll start with the Executive Summary.
More from this series:
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