Lots of people want to start their own business. One of the first things that stops these would-be entrepreneurs from realizing their ambitions is the seemingly daunting task of writing a business plan. Writing a business plan, though, is a rather easy task if you understand your business, so let’s take a look at what a business plan entails.
Before we jump into drafting our business plan, we should think about why we are writing a business plan in the first place. Most business plans are used to secure financing for a business — whether it be a start-up or an existing company looking for additional capital. This financing could come from a bank, an equity or venture capital fund, friends, family or just about any other potential investor you could think of.
Another reason to write a business plan is to organize yourself, make sure you have thought through all the components of your business and make sure that it makes sense. A great idea for a product or service may not amount to a great business unless you can turn a profit through effective marketing, management of expenses, management of accounting and information systems, etc.
Things to Keep in Mind
As you write your business plan, keep in mind that your audience — whether you’re currently looking for financing or not — is likely to be a potential investor. You need to communicate to investors that your company understands its business and has thought through all the risks, challenges and opportunities involved in its industry.
To communicate this understanding to investors, you should try to provide sufficient detail about your business to demonstrate your knowledge. For example, you could write something like this: “According to the ABC Trade Association, profit margins for our industry average around 25%. With the procedures we have put in place, our business can achieve 30% margins due to the increase in our operational efficiency.”
There is no hard and fast rule for where or how you should add these kind of details, but using them will improve your credibility as a company.
You should also pay attention to your writing style. There is nothing to be gained by using fancy vocabulary or flowery language. In fact, such writing may cause your audience to lose sight of your business. Instead, you should write clearly and to the point so potential investors have a clear understanding of how you run your business.
The Outline
So with these ideas in mind, how should we structure our business plan? Below is one example of how a business plan can be structured. This outline contains the most commonly-used sections of a business plan but is by no means exhaustive of the areas that a particular business might need to cover.
Executive Summary
Business Highlights
Operational Overview
Market Overview
Management & Personnel
Financials
Appendix
The executive summary of your business plan should be a two to four page summary of your business plan. It should touch briefly on each area that is contained in the rest of plan and give the reader a good sense of your business even if they don’t have time to read the rest of the document. You may also want to touch briefly on the history of your company and its mission and values in this section.