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A great business plan is a living, breathing blueprint for your business that can help you navigate and manage your company while also helping potential investors, partners, lenders, and others understand your business strategy and your chances at success. A business plan is never quite finished because you're always revising it, reviewing it, and building upon it. In fact, more important to your business's future than having a 30-page, coil-bound plan to distribute is the business planning process that you undertake on a regular basis to hopefully keep your ship headed in the right direction without losing sight of your long-term destination.
"In my company, we've been working on the same plan for more than 20 years—we review it every month and revise it every year. We've printed it out a dozen times and shined and polished it. We share it with the team constantly, but it is never done," says Tim Berry, president and founder of Palo Alto Software, maker of Business Plan Pro software, who blogs at bplans.com. "When your business plan is finished, your company is finished."
The following pages will help you understand why you should write a business plan, components to include in a business plan, and how to use the plan internally to meet your business goals.
"In my company, we've been working on the same plan for more than 20 years—we review it every month and revise it every year. We've printed it out a dozen times and shined and polished it. We share it with the team constantly, but it is never done," says Tim Berry, president and founder of Palo Alto Software, maker of Business Plan Pro software, who blogs at bplans.com. "When your business plan is finished, your company is finished."
The following pages will help you understand why you should write a business plan, components to include in a business plan, and how to use the plan internally to meet your business goals.
Dig Deeper: Setting Company Goals
How to Write a Business Plan: Reasons to Write a Business Plan
For those of you just starting a business, writing a business plan is a crucial first step. It can help you describe your product or service, detail your marketing strategy, and lay out your sales and operational forecasts—including the ever important cash-flow projection so as to keep your business on track for profits. Putting these plans in writing can hopefully start a healthy business planning process that your business revisits on a regular basis, updates, and revises.
If outside investment or loans are sought, whether from venture capitalists or bankers or others, a business plan is essential. It's one of the first documents that a loan officer will want to see. In addition, an angel or venture capital investor will want to not only see and read the plan before providing funding, but they'll try to poke holes in your business plan and quiz you about things you should have addressed. For the purpose of financing, you may add certain sections to your business plan, including background and historical information about the business and a description of the management team leading the organization.
"Show investors how they are going to make money," Berry says. "Don't confuse the health of your company with money for the investors, because they don't make a dime if your company is healthy and growing. To get money back to the investors they have to be able to sell their shares in your company, either because you've sold shares on the public stock markets (called going public, or initial public offering) or because you've been acquired by another company. This is the exit strategy."
If you're developing a plan involving a business loan, then your lenders are going to want something slightly different. They will want to see a section detailing collateral, or assets to pledge against the loan. Collateral includes funds to support loan payments, interest expenses, and debt repayment, Berry says. Banks aren't allowed to make speculative loans, so you need to include information in your plan to make the banker feel safe.
A business plan may also be required if you plan to do business overseas. "If you do business internationally, a business plan provides a standard means of evaluating your products' business potential in a foreign marketplace," says Linda Pinson, author ofAutomate Your Business Plan for Windows® and Anatomy of a Business Plan, who runs a publishing and software business, Out of Your Mind and Into the Marketplace. Pinson also was selected by the U.S. Small Business Administration to write its government business plan publication.
But a business plan is not only for start-ups or businesses seeking investment or loans. A business plan can also be used by any business—no matter what industry, location, or size—to formalize a set of business goals and outline the operational and financial strategy for meeting those goals. A formal business plan can be a vital tool for running a business, setting out sales forecasts, marketing plans, and cash flow statements that can be revisited and updated every month.
For those of you just starting a business, writing a business plan is a crucial first step. It can help you describe your product or service, detail your marketing strategy, and lay out your sales and operational forecasts—including the ever important cash-flow projection so as to keep your business on track for profits. Putting these plans in writing can hopefully start a healthy business planning process that your business revisits on a regular basis, updates, and revises.
If outside investment or loans are sought, whether from venture capitalists or bankers or others, a business plan is essential. It's one of the first documents that a loan officer will want to see. In addition, an angel or venture capital investor will want to not only see and read the plan before providing funding, but they'll try to poke holes in your business plan and quiz you about things you should have addressed. For the purpose of financing, you may add certain sections to your business plan, including background and historical information about the business and a description of the management team leading the organization.
"Show investors how they are going to make money," Berry says. "Don't confuse the health of your company with money for the investors, because they don't make a dime if your company is healthy and growing. To get money back to the investors they have to be able to sell their shares in your company, either because you've sold shares on the public stock markets (called going public, or initial public offering) or because you've been acquired by another company. This is the exit strategy."
If you're developing a plan involving a business loan, then your lenders are going to want something slightly different. They will want to see a section detailing collateral, or assets to pledge against the loan. Collateral includes funds to support loan payments, interest expenses, and debt repayment, Berry says. Banks aren't allowed to make speculative loans, so you need to include information in your plan to make the banker feel safe.
A business plan may also be required if you plan to do business overseas. "If you do business internationally, a business plan provides a standard means of evaluating your products' business potential in a foreign marketplace," says Linda Pinson, author ofAutomate Your Business Plan for Windows® and Anatomy of a Business Plan, who runs a publishing and software business, Out of Your Mind and Into the Marketplace. Pinson also was selected by the U.S. Small Business Administration to write its government business plan publication.
But a business plan is not only for start-ups or businesses seeking investment or loans. A business plan can also be used by any business—no matter what industry, location, or size—to formalize a set of business goals and outline the operational and financial strategy for meeting those goals. A formal business plan can be a vital tool for running a business, setting out sales forecasts, marketing plans, and cash flow statements that can be revisited and updated every month.
"It helps provide coordination. It's a way that different people can work together on a team," Berry says. "There is a magic to metrics. Humans like to have a way to measure themselves and track their own progress toward goals rather than being completely subject to someone's guess later as to how they've done."
Dig Deeper: Setting Realistic Sales Projections
How to Write a Business Plan: Components of a Business Plan
There are scores of websites these days on the Internet that offer to sell business plans for $20 or more, designed to let you enter your company name and specifics and generate a plan. These are about as valuable as the paper they're printed on, says Berry. The reason is that each business is unique and, therefore, each business plan should be a unique document to be truly worthwhile to the business. A business owner should also be fully invested and fully aware of every aspect of the plan. That said, there are some general guidelines and structures that most business plans should follow.
Lay out the text simply using an easy-to-read font, in an obvious outline, with a table of contents and topic headers. Include charts where appropriate, and appendices for monthly projections at the end of the business plan document in a 'landscape' layout.
"Your business plan should look professional, but the potential lender or investor needs to know that it was done by you," Pinson says. "A business plan will be the best indicator that can be used to judge your potential for success. It should be no more than 30 to 40 pages in length, excluding supporting documents."
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