Creating a business plan is similar to making a blueprint for a house or a physical building. It’s like knowing what you’ll use to build, how you’ll put it together, and when you’ll work on each part. Just like you begin by making the base of a house, because a business needs a solid foundation to succeed.
What is a Business Plan?
A business plan is a written document that outlines the future of your business. It’s like a story that explains what you want to do and how you want to do it. Even if you just scribble a short description of your business ideas on the back of an envelope, you’ve started a plan, or at least the beginning of one.
Business plans are mainly about strategy. You begin with what you have today, like your resources and skills. Your goal is to reach a specific point in the future, usually three to five years from now, where your business will be more profitable and have more assets. Your plan outlines the path from your current situation to where you want to be in the future. Essentially, it’s a map that shows you how to go from where you are now to where you want to be later.
Building Your Business Plan Step by Step
If you’ve looked into business plans on the internet or through organizations like the Small Business Administration (SBA), you’ve likely come across some widely accepted guidelines for what a business plan should contain and how it should be presented. In short, a good plan should address all the important factors that will help your business succeed. These include:
- Your fundamental business idea. This is where you talk about the industry you’re in, your business structure, your specific product or service, and your strategy for making your business successful. To compare it to building a physical structure, this is like the concrete you use for the foundation.
- Your strategy and the specific steps you intend to take to put it into action. What are your business goals? When and how do you plan to achieve them? After all, you need to have a clear plan for how you’ll construct your business.
- Your products and services and what makes them stand out. This is your chance to impress readers with solid details about what you offer and why customers would choose your products or services over those of your competitors. Think of your products and services as the building materials.
- The markets you intend to target. It’s time to outline your marketing plan. Who will be your customers? What’s the demographic of your audience? How will you attract and keep enough customers to be profitable? What methods will you use to reach your audience? What makes your business unique compared to others? How will you get people to visit your establishment and spend money there?
- Information about your management team and key employees. This is a crucial part of a business plan. It’s not a long, detailed biography of each person involved but a summary of their qualifications and what they bring to this specific business opportunity. Readers want to know who will be in charge of constructing your business and if they have the necessary skills.
- Your financial needs. These are determined by your projected financial statements and give a sense of how your ideas for the company, its markets, and its strategies will unfold. Just like with a building, you need to understand the costs of your materials and how you will adapt to changing conditions, including price fluctuations and construction delays due to weather.
While you create your business plan, focus on using facts instead of emotions, projections rather than wishes, and practical profit expectations instead of overly ambitious dreams of becoming rich. The goal is to demonstrate to readers that your business will have long-lasting success. And the use of verifiable, provable facts will give your plan the most crucial element of all: trustworthiness.
How Long Should Your Plan Be?
A helpful business plan can vary in length, ranging from a concise one-page summary to an extensive document of over 100 pages, especially when describing a complex business.
Typically, a standard business plan falls between fifteen to twenty-five pages and is often created and sent electronically, sometimes with additional forms requested by the recipient. Occasionally, there may be a request for a printed copy of your plan.
Mini plans, which are shorter, usually about five to ten pages, are popular for smaller businesses and can stand on their own. Larger businesses, particularly those seeking significant funding, may use mini plans as a preliminary version, with a more comprehensive business plan prepared in the background. It’s a good approach to start with a detailed plan and then condense it for presentation.
The plan’s size also depends on the nature of your business and your purpose for creating the plan. If your business idea is straightforward, you can explain it concisely. However, if you’re introducing a novel business concept or entering a new industry, it might require a more extensive explanation to convey your message. If you’re writing a plan for a division of a large organization, you might be given a specific format and required length.
The length of your plan is also determined by its intended use. If you’re seeking a substantial amount of seed capital, perhaps in the millions, to launch a risky venture, you’ll often need to provide detailed explanations and persuasive arguments, although there are exceptions.
In cases where you already have established relationships with potential investors, they may prefer a shorter mini plan. For internal purposes, like managing an existing business, a much more concise version might be sufficient.
For those who want to start with a compact way of outlining their ideas, LivePlan, a business planning and management software, offers guidance on creating a one-page business plan.
Many business plan presentations utilize PowerPoint slides, typically consisting of ten to twelve slides to convey your story. This is a good starting point, but it’s advisable to have at least a mini plan ready, especially if you are seeking substantial funding in the millions.
At What Point Should You Create Your Business Plan?
The fact that you’re reading this article indicates that you’re considering the need for a business plan. Chances are, you find yourself at a point where having a business plan can be highly beneficial.
- A business plan serves as a valuable tool for exploring the viability of a new business concept without the commitment of actually starting and running it. It can reveal significant flaws in your business idea. During your market research, you might identify tough competition, or your financial projections could prove unrealistic.
- Any business undergoing significant changes, which is the case for most businesses, can benefit from having a business plan. If the demographics of your market are rapidly evolving, new competitive products are challenging your profitability, you anticipate substantial growth or contraction in your business, or economic conditions are changing rapidly, a business plan becomes crucial. It allows you to adapt to these changes effectively.
- When contemplating the purchase or sale of a business, a business plan becomes a valuable tool for determining its value and defending that value if necessary.
- If you’re in need of financing, your business plan is the cornerstone of your funding proposal. Bankers, venture capitalists, and other investors typically require a business plan before providing funds. Even less experienced investors, such as friends and family, may not demand a formal business plan, but having one can instill confidence. If you’re using your own savings to fund the business, it’s still important to plan how you’ll allocate your resources.
Creating a business plan is not a one-and-done task. Even if you initially wrote a plan when you were getting started or seeking initial funding, it doesn’t mean your work is complete.
Many businesses seek additional rounds of funding, and by regularly updating your business plan to inform investors about how the previous funding has been utilized and the outcomes achieved, you increase your chances of securing additional funds.
It’s important to rewrite or revise your business plan on a regular basis to derive the greatest benefit from it. Typically, businesses revise their plans on an annual basis, and more frequently if significant changes have occurred that make the previous plan no longer viable.
Business Plan Buzzword
A competitive advantage sets you apart from your competitors, making you stand out as better than them. Examples of competitive advantages include offering lower prices, superior quality, and greater brand recognition. By analyzing your competition, you can develop your own competitive advantage by providing something (or multiple things) that they don’t provide.
Cocktail Napkin Business Plan
Business plans don’t need to be complex or long. They simply need to convey the core idea of what the business will do and why it will succeed.
An example of this simplicity is found in one of the most successful startup stories. In 1971, Herb Kelleher and Rollin King were brainstorming the concept of an airline connecting Houston, Dallas, and San Antonio. Their business plan for Southwest Airlines began with a simple triangle drawn on a cocktail napkin, representing the route map between these cities.
The two entrepreneurs later developed a more comprehensive business plan for Southwest Airlines and successfully secured millions in initial funding to launch the company. Eventually, they took the company public.
Throughout its journey, the airline expanded beyond the initial three cities to encompass other destinations within Texas and now serves over 100 destinations across 42 states, Washington, DC, and Puerto Rico. They operate with over 4,000 daily flights and earned $15.8 billion in revenue in 2021.
Southwest Airlines is known for its focus on providing affordable, no-frills, and frequent services, which aligns with the same strategy outlined on that initial cocktail napkin, albeit with some additional routes.
Making a business plan is like creating a roadmap for your business. It outlines what your business wants to do and how it will do it. The length of the plan can vary, but it should provide important information. Regular updates are crucial, especially for getting funding and adjusting to changes. Your plan should emphasize what sets your business apart and offer a clear, simple vision. The story of Southwest Airlines starting with a napkin drawing reminds us that even simple ideas can lead to big success in business.