Today I’m revisiting a topic I have covered before but needs to be covered again – the basics of writing a business plan. In the sea of information out there on the internet, stuff gets buried, so even though I have made this video before I am updating now and we’ll walk through the key components of a solid business plan.
Now, I know people out there like to constantly debate the merits of a business plan and whether entrepreneurs should bother creating one. I’ve commented on that silly debate before so I won’t do so here and will just assume you agree with me that you do need a business plan of some sort or you wouldn’t have clicked on this. Besides, if you want outside funding, you need to have one and, even if you’re not in search of outside funding, it’s always a good idea to have completed some solid market research and laid out your marketing, financial, and operational plans before you get too deep into running the day-to-day of your business.
With that said, here are the basics of what you should include the plan:
First up is your executive summary – and this is really only necessary if you’re creating a formal plan – if you want to pull together the components to get your strategy on track but you’re not submitting the plan to any outsiders in search of funding, you can skip this. Basically, it’s the cliff’s notes to the business plan and should be concise and compelling so that any potential investor who reads it is interested enough to continue on to the full plan, which will contain the real meat. I tend to write the executive summary last so I can pull the info I need about the company and its business model, management, competition, and marketing and financial plans from the rest of the plan.
The next section is the description of the business. Here you say what your business does, provide information about its products and services, and explain the business model. This forces you to fully think through how you’re going to bring in money so you and any potential investors understand where the revenues will come from.
Next you need to provide an in depth marketing plan. Here is where you explain in detail why what you have to offer is so special and how you’ll make sure your customers know that so they’re willing to shell out cash to buy it from you. You need to perform some market research and competitive analysis so you know who and where your customers and competitors are. This section is incredibly important because, if you can’t clearly explain how you’ll bring in customers, then you really don’t have a business. Also remember, anything you discuss in this section must be directly related to the forecasts in the financials section. If you say you’re going to bring in a million new customers in the first 6 months, you’d better have a marketing plan that justifies that type of growth and have included the marketing expenses in your financials. Lots of people underestimate the importance of creating a thorough marketing plan and then fall short when they actually open their doors. Remember, just saying you’re going to do email marketing to bring in clients isn’t enough. You need to say where you’re going to get your email list from, what the open, click through, and conversion rates are for that type of list to justify the number of customers you project, and then include the costs of buying and sending to that list in your financial plan.
After your marketing plan comes the operational plan. Here you explain how stuff is going to get done. Where will your employees come from? How much do they cost? What about supplies and equipment, R&D, compliance with regulations? This section is where you lay out how all of the gears will work together to ensure that stuff gets done when it needs to get done so that your company continues to move forward.
Next you should identify your corporate structure – what type of business entity you chose and why. If you’re not sure what the best entity for your business is, I have an old video you can check out and will be creating an updated version soon.
After that you’re onto the management team. Here you explain who is in charge of what and why. This is another piece of the puzzle that many people ignore if they’re not seeking outside funding, but you shouldn’t. You need to seriously think about who will be included in your executive team and what they contribute. Having your best friend be your Chief Technology Officer when his background is accounting makes no sense. Be honest with yourself about who should take on the key roles in your company and make sure that they’re qualified. Don’t stack your executive suite with dead weight because you feel like you should have a bunch of “directors” or “chiefs” or because you want to appease family or friends.
Finally, you need to create a financial plan for your company and forecast what will be happening with your money. First you should create pro forma financial statements to get an idea of whether your company will actually be profitable. If you don’t know how, you can take a look at my old videos about financial statements and pro formas but I’ll also be uploading new versions at some point in the future. If you really have no clue what you’re doing, you should probably bring someone in to help you create the financial. Remember that you need to have an explanation for every number you put here, so go back to your marketing and operational plans to make sure you don’t miss any expenses and you’ve justified any revenues. Once you have these completed, if you’re looking for investment, you’ll need to discuss the financing you propose.
Now, these are just the basics of a business plan and some more formal plans may have additional information. However, if you thoroughly complete all of these sections, you’ll be in good shape to move forward with launching your business solo or recruiting investors to work with you.