What is a business plan?

A business plan is a written document that articulates a business concept, market potential, opportunities, growth strategies, financial requirements, and management for a company. It also identifies potential risks, problems, and trade-offs.

Why do you need a business plan?

It is no secret that an essential element in launching, operating, and growing a successful company is sound business planning. Too many entrepreneurs carry important planning records in their heads and never transfer the ideas to paper. Moreover, entrepreneurs often lack the necessary planning skills to manage the company from the start-up stage through its growth stages. As businesses grow, however, various professionals who might be supporting the business, such as bankers, investors, and accountants, require that business-planning documents be developed and followed.

Writing a business plan requires you to take an objective, critical look at the business. In addition, this process offers the following benefits:

• Evaluates the business opportunity and guides a start-up or existing business
• Communicates the business idea and goals to decision makers, employees, and consultants
• Outlines the strengths of the business
• Identifies existing and potential challenges; highlights vulnerabilities
• Identifies areas for growth
• Provides necessary information for others to evaluate the company's strategy
• Helps to secure financing
• Serves as a tool to measure the performance of the business and its managers

Ultimately, writing a business plan forces the founder to consider every facet of a proposed business or growth idea and places approval and funding decisions on paper, where they can be evaluated and considered by all interested parties. It forces the owner and management team to plan for the business, review various aspects of a business, and challenge assumptions. A business plan may also lead the owner to examine the consequences of different strategies as well as the personal and financial requirements needed to launch or grow a business.

The value of creating a business plan lies in the process of researching and thinking about your business in a systematic way. The act of planning helps you to think things through thoroughly, study and research if you are not sure of the facts, and look at your ideas critically. It takes time early on but can help you avoid costly, and perhaps disastrous, mistakes later.

When do you use a business plan?

A common myth is that written business plans are only useful for securing debt financing from bankers or raising capital from investors. Business plans save time, prevent mistakes, and in many cases, save businesses. View business planning as an essential process that will help develop a clearer vision and focus for your businesses, even if you find the process of writing a business plan less engaging than other aspects of your enterprise.

• A business plan is a document that should be used as a management tool to operate a business rather than as a strict blueprint that must be implemented exactly as laid out.
• A business plan can help you pinpoint great ideas and clarify goals.
• With written goals, both the owner and employees will find it easier to take the business seriously.
• The process of analyzing the business and setting goals will enable an owner to better understand and clarify risks, thereby uncovering new ways to manage or reduce risks.

How do you write a business plan?

The business plan consists of a narrative and financial worksheets. The Small Business Development Center recommends an excellent model for your business plan:

Executive Summary

• Why will the business succeed?
• What do you want to start (or change)? 
• How much money is required?
• What is the return on the investment?
• Why is the venture a good risk?

Business Description

• What type of business are you planning?
• What products or services will you sell?
• What type of opportunity is it (e.g., new, part-time, expansion, seasonal or year-round)?
• Why does it promise to be successful?
• What is the growth potential?
• How is it unique?

Marketing

• Who are your potential customers?
• How large is the market?
• Who are your competitors? How are their businesses positioned?
• What market share do you anticipate?
• How will you price your product or service?
• What advertising and promotional strategies will you use?

Research, Design, and Development

• Have you carefully described your design or development?
• What technical assistance have you received?
• What research needs do you anticipate?
• Are the costs involved in research and design reasonable?

Manufacturing

• Where will the business be located? Why?
• What steps are required to produce your product or service?
• What are your needs for production (e.g., facilities and equipment)?
• Who will be your suppliers?
• What type of transportation is available?
• What is the supply of available labor?
• What will it cost to produce your product or service?

Organization

• Who will manage the business?
• What qualifications do you have?
• How many employees will you need? What will they do?
• How will you structure your organization?
• What are your plans for employee salaries, wages and benefits?
• What consultants or specialists will you need? How will you use them? What legal form of ownership will you choose? Why?
• What licenses and permits will you need?

Critical Risks

• What potential problems could arise?
• How likely are they?
• How do you plan to manage these potential problems?

Financial

• What is your total estimated business income for the first year? Monthly for the first year? Quarterly for the second and third years?
• What will it cost you to open the business? What will your personal monthly financial needs be?
• What sales volume will you need in order to make a profit during the first three years?
• What will be the break-even point?
• What will be your projected assets, liabilities, and net worth on the day before you expect to open?
• What are your total financial needs?
• What are your potential funding sources? How will you spend it?
• How will the loans be secured?

Milestone Schedule

• What timing have you projected for this project?
• How have you set your objectives?
• Have you set up your deadlines for each stage of your venture?
• Is there a relationship between events in this venture?

Appendix

• Have you included all important documents, drawings, agreements, and references?

Final note

Pay attention to your writing style. You will be judged by the quality and appearance of your work as well as by your ideas. Be sure to keep detailed notes on your sources of information and on the assumptions underlying your financial data. Click here for more
information.