From entrepreneurs with the seed of a great idea to established companies, every business needs a business plan.
But what is a business plan exactly? Is it worth the time and effort to write one?
Let’s take a look at why your organization needs this business roadmap and how it can set you up for long term success.
What is a Business Plan?
The easy answer, of course, is right there in the name—it’s a plan for your business. It serves as a guide for how you manage your organization.
Considered a basic business principle for startups, business plans are helpful for all kinds of companies.
For example, a plan for a startup might be a simple one or two-page document, sometimes referred to as a lean plan. It lays out only the essential information, immediate milestones the firm wants to reach and how to secure funding to meet those goals.
For a larger or established company, the plan might be more comprehensive in a traditional format. It typically includes areas such as financial data, a marketing overview and future plans for each department in the organization.
In either case, the intent is to provide a map for your business. You want to answer questions like how the business works, what your goals are and how your team will reach them.
Business plans can be internal or external, meaning it is used as a guide to get your team on the same page or an overview for those with whom you do business, or to pitch to those who want to invest in your ideas.
Why Do You Need a Business Plan?
As with the plan itself, the need and purpose for one varies between businesses.
Let’s take a look at two scenarios, involving ownership of rental property.
1. Growing Business
Imagine you own and rent a handful of condominium properties. You have plans to acquire more and turn it from a hobby to a full-time pursuit. This means a lot is going on in the early stages of your organization’s development. A business plan breaks down the moving pieces into more manageable portions.
For your growing real estate portfolio, those pieces include acquisition and capital improvement costs. Also important is income projections and growth or financial benchmarks. Plus, many tasks exist with finding a property, securing loans and closing deals.
One of the central uses of most startup business plans is for raising investment funds. A business plan conveys what the new company needs and convinces others to help fund its growth. For banks, lenders or investors, the business plan shows them the who, what and how of the business operations. Then it communicates why the new business is a solid investment.
2. Established Firm
A second scenario involves an already established real estate firm. You own several different types of properties and rent and manage them with an in-house team.
A business plan for an existing company takes on a much different purpose than for the startup.
Even if profitable, your company still needs a pathway to future growth. You need strategies for responding to a changing market or tracking current projects. You also want to establish goals or metrics to define your success.
An established owner might use a business plan to determine what it takes to move into a new market. You might tweak that same plan in response to new competition entering the market.
For firms currently on solid footing, the business plan helps assess where they stand. It can then detail their next steps for achieving further success and how to accomplish more, faster.
Updating Your Plan
After writing a plan, one of the key questions becomes how often do you update it. The answer is—it depends.
There are times when you might need a “one-off” version. For instance, those that are provided to a specific shareholder or future partner.
In other cases, you may develop a plan for the fiscal year 2020. Then that plan will serve as the basis for your 2021 plan, then 2022 plan and so on.
You should approach your plan as a living, breathing document. Create a master business plan, one kept up to date based on your company’s activity. You can then tailor that plan to a specific request or need without having to recreate it from scratch.
Elements of a Business Plan
Contrary to popular belief, business plans don’t need to be thousand-page documents. The critical factor is that they meet the needs of your business.
Business plans themselves come in various forms. As we noted, startups might use a one-page document to ask for initial funding. A legacy company might use a ten-page analysis to showcase their financial health.
Both could even be for the same audience, such as a financial institution. Or it could be used for customers or suppliers. Whoever it’s directed toward, the narrative of the plan serves the company who is creating it.
Despite a difference in style or purpose, every business plan includes a handful of central elements.
View these as your jumping-off point when writing the first draft of your plan. Hone in on the information that’s important to your organization to create a plan that reflects your company’s needs.
The one universal aspect for every plan is the inclusion of an executive summary. This is your plan’s introduction to the reader, so be sure it’s well-constructed.
The key to your executive summary is providing meaningful, relevant information in a brief description. Your main points should cover:
- Why your company’s expertise provides the best solution in your particular field.
- Why your specific area of focus is a favorable market in which to take part.
- Why your firm is best positioned to meet the market’s needs in this area.
To stand out, allow your introduction to mirror your firm’s culture and voice. If you produce and sell skateboards, let your passion for those unique boards shine through in the summary. If your organization is a financial services company, your summary should reflect a firm grasp of investment trends and customer needs.
To captivate your audience, both internal and external, start out with a compelling summary.
This second section in a business plan is straightforward and includes the background and history of your organization. Keep your firm’s bio short and to the point. Summarize your location(s), history, significant accomplishments and ownership or legal data.
If your group has a mission statement, include it in this section as well.
Some internal plans often leave out the company bio. Write one anyway. It’s good practice to convey your organization’s story. Plus, if you have it written, it’s ready to go should you ever need to publicly share it.
Product or Service Information
In this section, you’ll detail what your company does. This includes the goods you produce and sell or the services you provide. Make this section effective by capturing the following:
- How your solution is a benefit to customers.
- How you produce that solution, such as the lifecycle of product production or philosophy and method behind a service.
- Is your solution proprietary? Does it feature copyrights or patents?
- What is your company’s market advantage in what you do?
With product details, it’s best to paint a picture of the marketplace then detail how your business is positioned as a leader in that specific market.
Marketing or Sales Plan
Within your business plan, it’s not necessary to drill down into the finer details of every area. This is most true with your marketing or sales strategy. You don’t have to list every advertising source, but you should convey a grasp of your target demographics and how to reach them. You can include key points such as:
- How you price your offerings.
- How you promote and generate interest and sales from new customers.
- How you will keep those customers.
While product data shows your current market position, marketing data focuses on your tactics to keep and grow that market share.
For potential investors to know whether or not to invest, they need to know financial information. While the level of financial detail varies based on the audience’s need, the best financial plans feature the following:
- Financial forecast—this varies with industry, but should include at least a five-year forecast.
- Income statement.
- Balance sheet.
- Cash flow statement.
- Capital expense expectations.
Financials show both the current monetary health of your firm and what your future success may look like. If you’ve got a lot of good data, don’t hold it back. This is especially true if the plan is to attract investors. The more comprehensive your financial data, the better.
Your team summary is an extension of your company bio. The goal is to clearly define your company’s hierarchy and the key players at the top. This induces any influential department heads or partnerships you’ve built.
You also want to identify the principles that govern your company’s management style. Company culture is an underrated aspect of today’s business climate. Placing importance on it in your business plan will set yours apart from those that don’t. This is also a good spot to detail any personnel plans or challenges to consider.
Depending on the purpose of the business plan or its intended audience, there are two other sections worth noting.
In creating a comprehensive plan, you may need to include supporting documentation. The appendix helps organize requested materials or information that did not fit within your primary plan. These inclusions may consist of the following:
- Contracts or legal documents.
- Permits or licenses.
- Product specs or images.
- Organizational charts.
- Detailed financial reports.
For startups, or even established firms, seeking investment, you’ll want to include a dedicated section that outlines the request. You should specify the type of funding you need, how you’ll apply the funds and over what time-frame. It also helps to include a note on the financial endgame for your organization.
Whether for securing funding or getting your established team on the same page, business plans are invaluable for providing a pathway to success.
Develop a plan that best serves your company and its future growth. Keep it up to date and focused on the elements vital to your success, including where you’ve been, where you want to go and how you plan to get there.
A great business plan doesn’t need to be expertly written to be effective. It should, however, be written so you can expertly execute it.