Creating a Business Plan
Though the task may seem overwhelming, writing a business plan is an important step in helping your company thrive. Business plans provide vision and help to clarify strategy. They are also critical for businesses seeking funding. But where do you begin, and what should you include? Like most daunting projects, drafting a business plan is more manageable if you take it step by step. While plans vary by business, here’s a synopsis of the eight basic sections and what they should entail.
1. Executive summary:
The first section should be a concise overview of your business plan. While the summary should be short, it must be well written: Your goal is to draw readers in so they want to read more about your company. Though this section appears first, consider writing it last, after you’ve worked out the details of your plan and can summarize your thoughts succinctly and accurately. The executive summary for a standard business plan should include:
- Your business name and location
- The products and/or services offered
- Your company’s mission statement
- The purpose of your plan (to secure investors, set strategies, etc.)
2. Company description:
This high-level view of your company should explain who you are, how you operate and what your goals are. The company description should feature:
- The legal form of your business (corporation, sole proprietorship, etc.)
- The nature of your business, and the needs you plan to satisfy
- A brief history
- An overview of your products/services, customers and suppliers
- A summary of company growth to-date, including financial or market highlights
- A summary of your short-term and long-term business goals
3. Products/services:
Clearly describe what you are selling, focusing on the customer benefits. Incorporate details about suppliers, product or service costs and the net revenue expected from the sale of those products or services. Consider adding pictures or diagrams. In general, this section should include:
- An in-depth description of your products/services, emphasizing the specific benefits
- An explanation of the market role of your product/service and advantages it has over the competition
- Information about the product or service’s life cycle
- Relevant copyright, patent or trade secret data
- Research and development activities that may lead to new products and services
4. Market analysis:
Show your industry knowledge, and present conclusions based on market research. (Place detailed findings of any studies in an appendix.) Your market analysis should include:
- A sketch of targeted customer segments, including size and demographics of the groups
- An industry description and outlook, including statistics
- Historical, current and projected marketing data for your product/services
- A detailed evaluation of your competitors, highlighting their strengths and weaknesses
5. Marketing Plan / Strategy and implementation:
Summarize your sales and marketing strategy and your operating plan. This section should include:
- An explanation of how you will reach target customers and penetrate the market
- Details about pricing, promotions and distribution
- What messages will you use and how will you get your customer’s attention?
6. Marketing Plan / Strategy and implementation:
Summarize your operating plan. This section should include:
- An explanation of how the company will function, following the operations’ cycle from acquisition of supplies through production to delivery
- Information on sources of labor and number of employees
- Data on operating hours and facilities
7. Organization and management team:
Outline your company’s organizational structure, and identify the company owners, management team and board of directors. Include the following:
- Information about owners, including their names, percentage of ownership, extent of involvement within the company and a biography listing their background and skills
- Profiles of your management team, including their names, positions, main responsibilities and past experience
- List of any advisors, such as board members, accountants and attorneys
8. Financial plan and projections:
This last section of your business plan should be developed with a professional accountant after you’ve completed a market analysis and set goals for your company. Some of the important financial statements that should be part of your plan are:
- Historical financial data, if you own an established business, including income statements, balance sheets and cash flow statements for the past three to five years
- Prospective financial information, including forecasted income statements, balance sheets, cash flow statements and capital expenditure budgets for the next five years (use SBA financial projections spreadsheets)
- A brief analysis of your financial data, featuring a ratio and trend analysis for all financial statements
The Mission Statement
Describe What Your Company Does
No need to be fancy here. Just say it, for the moment.
Sample Mission Statements
My company’s purpose is to:
Sell shoes
Provide educational services
Grow market vegetables
Describe HOW Your Company Does It
This is the tricky part, because we’re not looking for a detailed description of your business’s physical operations here; we’re looking for a description of how your business operates generally. For most people, this means incorporating one or more of your core values into your description.
So take a moment to think of/list the core values that are important to you that are expressed in your business.
Here are some sample values that might be important to you and the way you do business that you may want to use when you write a mission statement:
Sample Values
- Provide high product quality
- Provide superior customer service
- Protect the quality of the environment
- Ensure equal access to resources
- Encourage innovation/creativity
- Practice sustainable development
It might be helpful to focus on your business’s core competencies when you’re considering which values are worthy of being a part of your mission statement. Once you’ve decided which core values are most important, add one (or two at the most) to your description of what your company does.
Sample Mission Statements
My company’s purpose is to:
- Sell shoes of the highest quality so every customer can find a pair of shoes they actually love to wear.
- Provide educational services that allow all children to experience learning success and become life-long learners and contributing members of our community.
- Grow market vegetables using organic, sustainable farming practices to give people safe and healthy food choices.
When you’re finished, have another look at your mission statement and see if it says what you want to say or if there’s a better way of phrasing it. Be sure to change the phrase “my company’s purpose” to the name of your company.
For example;
“My company’s purpose is to grow market vegetables using organic, sustainable farming practices to give people safe and healthy food choices”,
might be rephrased to produce this finished mission statement:
“At Earth’s Bounty, we grow market vegetables in a way that’s good for the earth and good for the table”.
The Vision Statement
A vision statement is your ticket to success. A photograph in words of your company’s future, it provides the inspiration for both your daily operations and your strategic decisions.
Without a vision statement, effective business planning would be impossible; it’s the vision statement that provides the destination for the journey, and without a destination, how can you plan the route?
If you don’t have a vision statement, don’t panic.
I bet you do have a vision of what you want your business to accomplish; you just need to articulate and formalize it. Here’s how to write a vision statement:
1) Examine your mission statement.
A mission statement answers the question, “Why do we exist?” for a company.
What is it you do well? How do you do it? A vision statement answers the question “Where are we going?”
2) Dare to dream.
Before you can travel to the moon you have to look up at the stars. To write a vision statement, focus on the basics of your mission statement and extrapolate; where is your business going to be five years from now? What will your company have accomplished? Forming a mental picture will help. If you have trouble visualizing your business, mentally script your own news byte. Imagine that you, the CEO of your company, are being profiled on the news.
What are you and your company being recognized for? For instance, if your current business involves yoga instruction, you might imagine yourself being featured on the news for opening your twelfth franchise.
3) Shape your vision statement; apply the formula.
Maybe when you were picturing the future of your company, you saw a whole list of achievements scroll by or imagined all sorts of disjointed clips. To write a ision statement, we need to distill your vision into a usable form. Use the following formula to shape your vision statement:
Five years from now, (my company name) will ___________________ by ________________________.
Using this formula to write a vision statement will force you to choose what you consider to be the most important accomplishment of your business and give you a time frame to accomplish it.
For instance, here’s a sample vision statement:
Five years from now, Tiny Tots Diaper Service will be the top grossing diaper service in the Lower Mainland by consistently providing a reliable, affordable service for Moms and Dads with small children.
4) Commit to your vision statement.
- Take action to make your vision statement come true: Use it as the basis of your business planning.
As the vision statement provides your destination, the ‘where you want to get to’, all of your goals and strategies will focus on making it happen. It’s the natural basis for all of your business planning.
- Keep your vision statement alive: Share it with potential partners, staff and employees if you have them. If you just tell it to people once, your vision statement will fade and disappear. So besides talking about it, keep your vision statement alive by keeping it physically prominent. Print it out and post it on your desk, in your staff room, wherever you, your colleagues and your staff will see it (and be reminded of it) daily.
SAMPLE VISION STATEMENTS
Sample Vision Statements
Five years from now, Paula’s will be rated as a “five star” restaurant in the Greater Toronto area by consistently providing the combination of perfectly prepared food and outstanding service that creates an extraordinary dining experience.
Five years from now, Computer Services Ltd. will have annual revenues of over one million by consistently providing timely, reasonably priced repair and instructional services.
Within the next five years, ZZZ Tours will become the premier eco-tour company in ________, increasing revenues to 1 million dollars in 2015 by becoming internationally known for the comfort and excitement of the whale-watching tours it offers.
Within the next five years, the Women’s Center will have helped create a safer, more harmonious community by helping women acquire the education, skills and resources necessary to build self-sufficient prosperous lives.
Within the next five years, Metromanage.com will become a leading provider of management software to North American small businesses by providing customizable, user-friendly software scaled to business needs.
Five years from now, Tiny Tots Diaper Service will be the top grossing diaper service in the Lower Mainland by consistently providing a reliable, affordable service for Moms and Dads with small children.
Is Your Vision Statement the Right One?
It isn’t hard to write a vision statement. But it is sometimes difficult to write a vision statement that truly encapsulates your vision for your company. When you write your vision statement, make sure that you have chosen the vision that is most important to you. If you don’t fully believe in your vision statement, you won’t be able to fully commit to it and writing a vision statement that you can’t or won’t fully commit to is a waste of time.
The Marketing Plan
To grow your business, you need a marketing plan. The right marketing plan identifies everything from 1) who your target customers are to 2) how you will reach them, to 3) how you will retain your customers so they repeatedly buy from you.
Done properly, your marketing plan will be the roadmap you follow to get unlimited customers and dramatically improve the success of your organization. To help you succeed, use this proven marketing plan template.
Section 1: Target Customers
This section describes the customers you are targeting. It defines their demographic profile (e.g., age, gender), psychographic profile (e.g., their interests) and their precise wants and needs as they relate to the products and/or services you offer.
Being able to more clearly identify your target customers will help you both pinpoint your advertising (and get a higher return on investment) and better “speak the language” of prospective customers.
Section 2: Unique Selling Proposition (USP)
Having a strong unique selling proposition (USP) is of critical importance as it distinguishes your company from competitors.
The hallmark of several great companies is their USP. For example, FedEx’s USP of “When it absolutely, positively has to be there overnight” is well-known and resonates strongly with customers who desire reliability and quick delivery.
Section 3: Pricing & Positioning Strategy
Your pricing and positioning strategy must be aligned. For example, if you want your company to be known as the premier brand in your industry, having too low a price might dissuade customers from purchasing.
In this section of your marketing plan, detail the positioning you desire and how your pricing will support it.
Section 4: Distribution Plan
Your distribution plan details how customers will buy from you. For example, will customers purchase directly from you on your website? Will they buy from distributors or other retailers? And so on.
Think through different ways in which you might be able to reach customers and document them in this section of your marketing plan.
Section 5: Your Offers
Offers are special deals you put together to secure more new customers and drive past customers back to you.
Offers may include free trials, money-back guarantees, packages (e.g., combining different products and/or services) and discount offers. While your business doesn’t necessarily require offers, using them will generally cause your customer base to grow more rapidly.
Section 6: Marketing Materials
Your marketing materials are the collateral you use to promote your business to current and prospective customers. Among others, they include your website, print brochures, business cards, and catalogs.
Identify which marketing materials you have completed and which you need created or re-done in this section of your plan.
Section 7: Promotions Strategy
The promotions section is one of the most important sections of your marketing plan and details how you will reach new customers.
There are numerous promotional tactics, such as television ads, trade show marketing, press releases, online advertising, and event marketing.
In this section of your marketing plan, consider each of these alternatives and decide which ones will most effectively allow you to reach your target customers.
Section 8: Online Marketing Strategy
Like it or not, most customers go online these days to find and/or review new products and/or services to purchase. As such, having the right online marketing strategy can help you secure new customers and gain competitive advantage.
The four key components to your online marketing strategy are as follows:
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Keyword Strategy: identify what keywords you would like to optimize your website for.
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Search Engine Optimization Strategy: document updates you will make to your website so it shows up more prominently for your top keywords.
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Paid Online Advertising Strategy: write down the online advertising programs will you use to reach target customers.
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Social Media Strategy: document how you will use social media websites to attract customers.
Section 9: Conversion Strategy
Conversion strategies refer to the techniques you employ to turn prospective customers into paying customers.
For example, improving your sales scripts can boost conversions. Likewise increasing your social proof (e.g., showing testimonials of past clients who were satisfied with your company) will nearly always boost conversions and sales.
In this section of your plan, document which conversion-boosting strategies you will use.
Section 10: Joint Ventures & Partnerships
Joint ventures and partnerships are agreements you forge with other organizations to help reach new customers or better monetize existing customers. For example, if you sold replacement guitar strings, it could be quite lucrative to partner with a guitar manufacturer who had a list of thousands of customers to whom it sold guitars (and who probably need replacement strings in the future).
Think about what customers buy before, during and/or after they buy from your company. Many of the companies who sell these products and/or services could be good partners. Document such companies in this section of your marketing plan and then reach out to try to secure them.
Section 11: Referral Strategy
A strong customer referral program could revolutionize your success. For example, if every one of your customers referred one new customer, your customer base would constantly grow.
However, rarely will you get such growth unless you have a formalized referral strategy. For example, you need to determine when you will ask customers for referrals, what if anything you will give them as a reward, etc. Think through the best referral strategy for your organization and document it.
Section 12: Strategy for Increasing Transaction Prices
While your primary goal when conversing with prospective customers is often to secure the sale, it is also important to pay attention to the transaction price.
The transaction price, or amount customers pay when they buy from you, can dictate your success. For example, if your average customer transaction is $100 but your competitor’s average customer transaction is $150, they will generate more revenues, and probably profits, per customer. As a result, they will be able to outspend you on advertising, and continue to gain market share at your expense.
In this section of your plan, think about ways to increase your transaction prices such as by increasing prices, creating product or service bundles/packages, and so on.
Section 13: Retention Strategy
Too many organizations spend too much time and energy trying to secure new customers versus investing in getting existing customers to buy more often.
By using retention strategies such as a monthly newsletter or customer loyalty program, you can increase revenues and profits by getting customers to purchase from you more frequently over time.
Identify and document ways you can better retain customers here.
Section 14: Financial Projections
The final part of your marketing plan is to create financial projections. In your projections, include all the information documented in your marketing plan.
For example, include the promotional expenses you expect to incur and what your expected results will be in terms of new customers, sales and profits. Likewise include your expected results from your new retention strategy. And so on.
While your financial projections will never be 100% accurate, use them to identify which promotional expenses and other strategies should give you the highest return on investment. Also, by completing your financial projections, you will set goals (e.g., your goals for your referral program) for which your company should strive.
Completing each of the 14 sections of your marketing plan is real work. But, once your marketing plan is complete, it will be worth it, as your sales and profits should soar.
The Operations Plan
When writing the business plan, the operating plan section describes the physical necessities of your business’ operation, such as your business’ physical location, facilities and equipment. Depending on what kind of business you’ll be operating, it may also include information about inventory requirements and suppliers, and a description of the manufacturing process.
Keeping focused on the bottom line will help you organize this part of the business plan; think of the operating plan as an outline of the capital and expense requirements your business will need to operate from day to day.
You need to do two things for your readers in the operating section of the business plan: show what you’ve done so far to get your business off the ground (and that you know what else needs to be done) and demonstrate that you understand the manufacturing or delivery process of producing your product or service.
So divide the operating section of the business plan into two parts, starting with the Stage of Development section.
In this section, describe how your product or service will be made, and identify the problems that may occur in the production process.
Then show your awareness of your industry’s standards and regulations by telling which industry organizations you are already a member of and/or which organizations you plan to join, and telling what steps you’ve taken to comply with the laws and regulations that apply to your industry.
Explain who your suppliers are and their prices, terms, and conditions. Describe what alternative arrangements you have made or will make if these suppliers let you down.
Explain the quality control measures that you’ve set up or are going to establish.
When you’re writing this section of the operating plan for the business plan, start by explaining what you’ve done “to date” to get the business operational, followed by an explanation of what still needs to be done. Follow this with a subsection titled “Risks” that outlines the potential problems that may interfere with the production process and what you’re going to do to negate these risks. The rest of the development stage part of the operating plan will be divided into subsections such as “Industry Association Membership”, “Suppliers” and “Quality Control”.
The second section of the operating plan part of the business plan is the Production Process section.
While you can think of the Stage of Development part of the operating plan as an overview, the Production Process section lays out the details of your business’ day to day operations.
Remember, your goal for writing this section of the business plan is to demonstrate your understanding of the manufacturing or delivery process for your product or service, so you need to let the readers of your business plan know that you’ve crossed all your ‘tees’.
Make sure you include all these details of your business’ operation:
General: Do an outline of your business’ day to day operations, such as the hours of operation, and the days the business will be open. If the business is seasonal, be sure to say so.
The physical plant: What type of premises are they and what is the size and location? If it’s applicable, include drawings of the building, copies of lease agreements, and/or recent real estate appraisals. You need to show how much the land or buildings required for your business operations are worth, and tell why they’re important to your proposed business.
Equipment: The same goes for equipment. Besides describing the equipment necessary and how much of it you need, you also need to include its worth and cost, and explain any financing arrangements.
Assets: Make a list of your assets, such as land, buildings, inventory, furniture, equipment and vehicles. Include legal descriptions and the worth of each asset.
Special requirements: If your business has any special requirements, such as water or power needs, ventilation, drainage, etc., provide the details in your operating plan – as well as what you’ve done to secure the necessary permissions, such as zoning approvals.
Materials: Tell where you’re going to get the materials you need to produce your product or service, and explain what terms you’ve negotiated with suppliers.
Production: Explain how long it takes to produce a unit, and when you’ll be able to start producing your product or service. Include factors that may affect the time frame of production and how you’ll deal with potential problems such as rush orders.
Inventory: Explain how you’ll keep track of inventory.
Feasibility: Describe any product testing, price testing, or prototype testing that you’ve done on your product or service.
Costs: Cost of product cost estimates.
When you’re writing this section of the business plan, you can use the headings above as subheadings and then provide the details in paragraph format. If a topic does not apply to your particular business, leave it out.
The best part is that once you’ve worked through this business plan section, you’ll not only have a detailed operating plan to show the readers of your business plan but have a convenient list of what needs to be done next to make your business a reality.
The Competitive Analysis
Start-ups should always know what their competitions’ strengths and weaknesses are, and one of the ways they can uncover this information is by conducting a competitor analysis.
Including a competitor analysis in your business plan, for example, shows investors that you are aware of the competition, that you understand your marketplace and that you have plans in place to compete at the same level as established competitors.
In this competitor analysis, you should describe the product or service that you offer and how it compares to what the competition has to offer. Doing a SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis of your main competitors can form part of this description.
Doing a competitor analysis holds several benefits for the growing enterprise:
- It can help you understand your business’s competitive advantages and disadvantages in your industry
- You can gain an understanding of your competitors’ business strategies
- To provide an informed basis to develop strategies to achieve competitive advantage in the future
- To help forecast the returns that may be made from future investments, ie how will competitors respond to a new product or pricing strategy?
In today’s information age, finding information about your competition’s business is easier than you’d think.
Online searches should provide information that is published and available for general consumption. This is where you’ll find:
- Annual reports
- Company profiles
- Product brochures
- Press releases
- Articles published in the media
- Presentations.
Then there is data that will require some investigation and research, such as pricing, marketing campaigns, promotions and so on. Call your competitors and ask questions, posing as a potential customer. You can gain a lot of insight.
Other good sources of information about your competition include trade shows, conferences and seminars.
The Financial Projections / Budgets
One of the reasons having a business plan is a good first step for starting a business is to answer the fundamental, and critical question of how much money it will take to get the venture started.
Having an educated idea about startup costs can benefit your business more than not having a plan at all, and facing more unforeseen surprises. The key is to look at your business expenses as individual components.
You can calculate starting costs by making three simple lists, a few educated guesses and then adding them all up.
List spending on assets. Your business assets are the things you need to use in your business over the long term. For example, if you’re starting a brick-and-mortar store, that might include items such as shelves, tables, a cash register and so on. A graphic artist might need specialized printers and a drafting board, among other things.
If you’re either making or selling products, think about the inventory you’ll need to have at the start. The easiest example is the books a bookstore needs to stock its shelves or the raw materials a manufacturer might need to start assembling a product. If you’re starting a service business — meaning you don’t make or sell products — then don’t worry about inventory. You can skip this step.
All of these items make up your starting assets. While you might also think the money you have in the bank is an asset to list here, we’re going to save that for another list later on.
For every item on this list, make an educated guess of what the amount of expense will be. If you can’t estimate the price for an item off the top of your head then do some research. For instance, call real estate agents to inquire about rental space and prices. Contact insurance brokers to ask about insurance plans and prices.
One important note: Although computers and office equipment should logically be included on this list, the federal tax code allows us to deduct their cost from our taxable income as expenses, so most accountants recommend calling them expenses, not assets. We’ll get to these in the next list.
List spending on expenses. Not everything you purchase is an asset. You also spend money on expenses. For example, it costs money to set up a legal corporation, an LLC or a partnership. The money you spend to build your website, the costs of fixing up your office and the salaries you pay employees to help you set up are also examples of expenses.
And, because of the special tax treatment I mentioned earlier, include expenses for computers and other office equipment on this list.
Now, add up your starting assets and your starting expenses to calculate most of your starting costs.
Determine how much money you’ll need to get started. The final piece of the puzzle is knowing how much cash you’ll need to have in the bank for the early months while your startup is ramping up and not generating enough sales to cover costs and expenses.
There are a number of theories on how to do this. Some people say you need enough to cover six months of expenses. Others say a year. But in my experience, it’s usually not that easy.
My suggestion is to estimate your first 12 months of sales, costs of those sales and expenses. Subtract the costs and expenses from the sales for each month, and the result should show you whether you’re short of cash. You’ll be able to tell from that spreadsheet how many months it takes to start breaking even and how much money you’re missing. That’s essentially what you need to have as starting cash.
And if you were hesitant about putting together a business plan, you’re already well on your way after calculating the numbers here.
Once you have your numbers, plug them into the SBA Financial Projections spreadsheets to create professional projections, balance sheets and income statements.
Follow these steps and you’ll put together a professional business plan that investors will be interested in reviewing.