Business plans aren’t just helpful ways to get a loan. Start drafting yours now.
In order to create a successful company, you need a solid business plan. Some people try to skip this step and jump right into the nuts and bolts of starting a business. Others think that you only need a business plan if you’re applying for a loan. While that’s one valid reason to create a thorough business plan, it’s by no means the only one. A business plan clarifies your goals and helps you proceed in an organized manner.
Here’s how to get started, and what to include.
Why You Need a Business Plan
Before we discuss some tips for actually creating a workable business plan, let’s look at why you need one in the first place.
- Identify your goals and methods. The main function of a business plan is to clarify the center purpose of your business and how you are going to run it. It will also cover issues such as your products, target markets and promotional strategies.
- Raise capital. You definitely need a business plan if you plan to raise money or get a loan. This goes not only for borrowing from banks and other financial institutions, but for anyone who might lend you money.
- Create a unified strategy. If you have partners, it’s important that everyone shares the same vision. When you start writing everything down, any differences of opinion become immediately clear and you can work them out.
What to Include in Your Business Plan
Too many business plans are vague or leave out essential information. This should be a concise document, not a meandering essay. There are certain characteristics that every business plan should include:
- Who, What, Where and How. List who is involved in your business and where it’s located (if it has a physical location). Describe what the business will do on a day to day basis — e.g. make t-shirts, create content for websites, repair jewelry — as well as any equipment that will be used. Finally, discuss your main marketing strategy.
- Your Market. Who is your target market? What is the current state of this industry and who is your main competition? These questions are vital for yourself as well as any possible investors.
- Financials. How much capital do you need to get started? What are your expenses? What are your expected sales? What is your profit margin? Create a cash flow statement that is as realistic as possible.
These are fundamental points to include in your business plan. If you’ve never created one before, you should look over some existing business plan templates.
Remember to Be Realistic
One of the most important qualities of a good business plan is realism. There are millions of business plans written each year; some are highly accurate in terms of their projections, while others are more fanciful.
You have the challenge of writing a detailed description of something that does not yet exist. This can make it tempting to be overly optimistic in your predictions. You should avoid this temptation, as it will cause you to lose credibility with investors. Even worse, it will make it more difficult for you to succeed, as you might be ignoring practical considerations that are likely to limit your cash flow or profits.
When creating a business plan, be as conservative as possible. Although you don’t want to be pessimistic when starting a new business — if you weren’t optimistic about your endeavor you wouldn’t be starting it — you also have to be thorough and down to earth in your approach. Many new businesses underestimate things like expenses and the amount of time it takes to accomplish basic tasks (such as setting up a retail store, building a website, getting a new product ready for the market, etc.). They may also overestimate demand for their product or service.
Do Your Research
Researching your market and competition is one of the best ways to prepare for creating a viable business plan. This is what allows you to make realistic projections on sales and cash flow. It also informs you regarding your competition and what you need to do to capture your share of the market.
Your business plan is the blueprint of your business. Just as the blueprint for a building ensures that the structure will be stable, a business plan guides you through the early stages of your enterprise. This is equally essential for you and any prospective partners or investors.
The Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched BusinessCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.
Image credit: CC by Ken Teegardin