When it comes to running a business, it becomes clear early on that it takes money to make money. However, if you don't have any money of your own lying around, it can be challenging to start or expand a business.
You may find yourself in need of a low-interest loan from a bank or the Small Business Administration. To secure funding, you will need a well-written business plan.
Why you need a business plan
Before the SBA or a bank will give you any funds, they need to know everything there is to know about your business. A business plan provides all the necessary information to demonstrate that you know how to run your business and have the expertise to do so.
In the case of new start-ups, a business plan highlights the demand for the company's products or services in the geographic area where it is located. It also shows how the business can fit in with the market where it is located and how it will be able to get customers.
In the case of businesses that are expanding, a business plan shows how the company can make more money by expanding and how it will put the requested money to good use. It also shows the payments and interest rate the owner expects to pay on the loan from the SBA or bank. The business plan demonstrates how they will be able to get their money back out of the company after investing in it.
What's in a business plan?
A good business plan should start with a strong executive summary, but there are many additional pieces. Some common section headings could include company background, products, services, the industry and competition, marketing plan, operating plan, management and ownership, goals and strategies, and financial assumptions.
Within each of those section headings, there should be some sub-headings. Not every business plan will have every heading or sub-heading mentioned in this article. As you write your business plan, you'll just need to customize the headings by picking the ones that are necessary for the type of business you have or are starting. Here's an example of an outline for a business plan.:
Product or Service Description
Current Business Position
Products or Services
Product or Service Overview
Suppliers and Inventory
Research and Development
Market Size and Growth
Suppliers and Vendors
Management and Ownership
Ownership and Boards
Goals and Strategies
Keys to Success
You will also need an appendix that includes revenue and expense projections, a cash plan, and other hard financial data.
How to write a business plan
The best place to start is always with the executive summary. By putting down all the main points in the executive summary, you set down a roadmap for yourself as you complete the rest of the business plan. You can use the executive summary you right as a launching point as you expand on each of the sections in the other parts of the business plan.
When writing the executive summary, you should first think about what makes your business unique and why the SBA or a bank would want to invest in it. Investors must be able to see a way for them to get their money back out of the business in the form of payments on the loan. The executive summary should provide the basics of everything the lender needs to know about your business before investing.
Here's a breakdown of each main heading to help you get started.
Here you set the stage by explaining the opportunity your business offers and is trying to take advantage of. You should also explain what the business does or sells and the stage it is currently in, like whether it's a start-up or trying to expand.
The executive summary should also include a summary of the financial potential that can be found in the business. You should use concrete numbers and project revenue for at least the next three years. Finally, don't forget to include details on the money you are requesting.
The request section should include not only how much you are asking for but also a list showing exactly what you will spend it on, the interest rate you expect to see (6% is a good starting point), and the amount of the payments over what period of time. In most cases, you'll want to plan for 180 months, but if you're asking for millions of dollars, you'll probably want to spread it out over 300 months.
Background, products and services
These sections cover the history of the company, a description of the business, and the products or services it sells. These sections are about the business of the business. The reader should get a good idea of exactly what the company does and how it makes money. The background section should also include a history of the company and an explanation of where it currently stands.
The products and services sections should include details on competition in the space. There is no need for a thorough list of competitors in this section, but it should provide an analysis of what the competition looks like in the geographic area where the business is located.
The industry and competition
This section dives further into the competition, but it also includes an explanation and analysis of the industry your business is in. The reader should have a complete understanding of how the industry works and how companies make money. The section should also reveal opportunities for growth in the space.
This section may include a list of your company's main competitors and an explanation of how your company plans to face off with those competitors. It should explain why your business is different and better than those competitors and why it will be able to stand up against them.
Marketing and operating plan
The marketing section includes more information on your company's competitive advantage and details on pricing and distribution. It covers all aspects of marketing, including promotional plans and even opportunities for getting feedback from customers and acting on that feedback. The marketing section should focus on getting the word out about your business.
The operating section is about the nitty-gritty of actually running the business. It includes details on everything from the building you operate out of to the equipment you use and even the suppliers or vendors you rely on. It also includes information about staffing.
While you talk about your personnel plan in the previous section, this section focuses on your management team. It should include bios of yourself and your key managers, which should demonstrate that all your team members have the experience and knowledge it takes to make the business a success.
This section should also include details about the structure of the business. In the case of a company with multiple partners, you should make it clear how much of the business each person owns. You should also provide details on the board of directors if you have one. Not all companies are large enough to warrant having a board.
Goals and strategies and financial assumptions
The goals section should provide information about your goals for the business. It should also include a list of things you need to do in order for the business to succeed. Further, you'll want to provide details on what your future plans for the company are.
Not every business plan will have a financial assumptions section. You may have already spelled out everything so clearly in the rest of the plan that you don't need to provide a list of assumptions. If you do include this section, you'll need to explain what your assumptions for making the business work are based on.
Finally, the appendix will include all the hard numbers. You can't have a business plan without revenue and expense projections. You'll also need a balance sheet, profit and loss statement, cash plan, and possibly a ratio analysis. If you don't have the financial background to provide these documents, you may wish to work with an accountant for this part of the business plan. You'll need three to five years of projections.
All of these headings might make writing a business plan seem like an arduous task, but you might find it helpful to use software like the Ultimate Business Planner to write it. Such software can help you organize your thoughts and give you further insight into what and how to write. The software can also provide charts and graphs based on the numbers you enter for the financials, giving the business plan a very professional look. It may even eliminate the need to work with an accountant because some software can provide the financial documents you need if you simply enter your revenue and expense projections.