Build a business plan that works for you
So, you’ve done your market research, validated your idea among peers, and now you’re ready for the next step towards independent success. It’s time for that painstaking business plan, right? Well, that all depends on your business and what you hope to achieve.
Writing a business plan can be a daunting task for entrepreneurs. Entire books have been written on the subject. Luckily, in today’s efficiency-driven world, there are many handy online tools, shortcuts, and templates to help you find the one that fits your needs. Generally, most business plans touch on the same topics. This blog will show you how to make yours the most valuable document in your business.
The Ultimate Starting Point
“Using a canvas to quickly map out, iterate on, and test your business is the way to go. Stop wasting time planning for things that might not happen and start validating core assumptions early and often.” – Brian Jeffcock, Volta Academy Mentor, Founder, PALAIS, co-founder, Affinio, co-founder, Sidestory
The Business Model Canvas is a great starting point for new businesses. Its main bragging point is that you can complete this business plan in about 20 minutes. It allows you to view your business plan as a map, rather than a series of wordy pages and graphs.
Fred Wilson, a prominent venture capitalist who helped fund major companies such as Twitter, Foursquare, Tumblr, and Kickstarter, estimates that two-thirds of companies drastically pivot from their original business plan. Save your valuable time and use this canvas model as your blueprint.
Of course, few people will give you seed money on the basis of a business model canvas alone, but it’s the easiest way to lay out your assumptions, risks, and realities about your customers and markets. From there, you have a base to work from to help build an actual business plan if need be.
But, what if you need a “real” business plan…?
You started with the Business Model Canvas, but it simply won’t cut it for what you want to achieve. You might be applying for funding and they want something more in depth, or maybe you’re just a detail-oriented person and like to have everything in writing to keep you on track.
Full disclosure: business plans are generally quite time-consuming and require a lot of planning. Kind of ironic, right?
To make it easier, we’ve simplified the key points for you below, and categorized the six main elements of a business plan. The following will show you what parts you should emphasize in each section.
1. Executive Summary
With an executive summary, your goal is to give an overview of your business and use this opportunity to make a lasting first impression. This is the most crucial part of your plan. It acts as a hook for investors, and should explain the main selling points of your venture and why your idea is valuable.
Generally, while it comes first in the order of elements, it is best to do this part of the business plan last. It will be much easier when you can simply pull the key points from the other sections and summarize them. You want to make your executive summary as compelling as possible by focusing on the following:
What is the the pain you’re solving? Don’t try to dazzle readers with promises for a better future. Instead, tell your reader what’s wrong, why it needs to be solved, and how you plan to fix it.
What is your market opportunity? What evidence supports your belief that there is enough opportunity for you business to be successful? Think about the level on which you plan to operate your company. Is the opportunity global, provincial, or local?
What is your unique selling proposition? In order to be successful, you should have something that makes you and your company unique. What is it specifically that sets you apart from the competition?
Why are you the best person (or team) for the job? Does your educational background complement your role in this business? Are you incredibly passionate about solving this pain? Do you have a personal relation to the pain you want to solve? This should include anything that can help give the potential investor context.
What is your estimated revenue, your costs, and your investment? When it comes down to it, investors want to talk money. How much do you expect to make? How much do you expect to spend? Once you complete your cash flow statement, you will easily be able to pull figures to reference.
What will the investor get out of it? By nature, humans want to know what’s in it for them. Will they become associated with the next successful social enterprise to save a million dolphins, or will your untapped market fill their pockets with cash? Either way, they will want to know.
2. Business Details/Description
This is where you lay out the barebones existence of your company. We all understand how key it is to have a lasting and recognizable brand, so make sure to include what your brand stands for. Think of this part as telling the story of your business.
Like all stories, you must start from the beginning. Introduce the history of your business by including:
- How did the idea for the business come to be?
- What is your vision?
- What products/services do you offer/plan to offer?
- How do you plan to sell your product?
- Where will your office be located?
- How many are on your team?
- What is your brand all about?
Your brand is everything. Make sure you briefly include elements of your brand’s persona in this section. As a startup, your brand is likely to evolve with time, but you should have a general idea of what it stands for. Your persona represents the human characteristics that your brand encompasses. These are the things that potential customers can relate to.
Other aspects to consider when documenting your brand in your business plan include:
Promise: According to Brian Solis’ book, The End of Business as Usual, this is the equation that can help best define your brand promise.
Brand Promise = We Promise to Verb (How) + Target (Who) + Outcome (What)
Essence: What is the core characteristic that defines your brand? If your brand was a person, describe its personality in two-to-three words.
Mission Statement: A mission statement generally consists of three components:
- Key market – who is your target client/customer?
- Contribution – what product or service do you provide to that client?
- Distinction – what makes your product or service unique, so that the client would choose you?
For more on defining your brand, check out our blog “5 Ways to Define Your Brand Position”.
3. Marketing & Sales Strategy
Marketing is a key element to successfully operating a business. According to our experts, “Marketing is everything”. The world of marketing is always changing, but you should define the variables.
While your marketing strategy is bound to shift with evolving technologies, your customer likely won’t. Clearly define your ideal customer. This is where you describe the target market that will value your product or service. Knowing your customer will make it easier to justify your decisions for how to market to them. An effective way to do this is to build a customer profile. Focus on these three areas:
- Demographics – their age, gender, income, etc.
- Psychographics – their personality type, preferences, etc.
- Behavior – their similar likes and dislikes, sports, hobbies, etc.
Once you have defined who your target market is, you must elaborate on how you plan to reach them. In the world of marketing, a common way to do this is by using the “4 P’s of Marketing”.
- Product — How does what your business provides meet the needs of your target market? Explain how the market has an opening for you.
- Price — How much is your product? What is your logical approach to pricing?
- Place — How are you going to get your product to your customers?
- Promotion — How will you connect with your target market? Consider the different channels and media that you plan to use. To do this, you must think about the places your customers “gather” – that is, the publications they read (or watch), the events they attend, and the places they discuss their challenges or do research.
4. Management Team
This is where you get to talk about yourself and any co-founders on your team. You should take this opportunity to really dive into what makes you the most suitable team for this business. Some investors are more inclined to invest in people rather than ideas. While this section should be brief, touch on the following points:
- Describe your educational background and anything you may have done throughout your education that would contribute to your expertise in your field.
- Describe what skills you bring to the table.
- Mention any notable accomplishments that relate to this business.
- Don’t be afraid to get personal. Tell a little about yourself.
If you will have management working under you, do the same for them.
These are the nitty gritty details that describe the actual function of your business. This is where you’ll talk about how exactly you will distribute your product or service to customers and what costs are associated with doing so. This section depends on the type of your business.
What are your operation costs? Imagine everything that could possibly cost you money and include how you plan to cover those costs. Will you need equipment, software, or technology? The main theme you want to express in this section is the feasibility and realism in your estimations.
At the same time, make a list of any assets you have associated with the business.
Describe any customer discovery, product testing, price testing, or prototype testing that you’ve done on your product or service. Prove why your product has value and that you have done work to confirm that.
Time and Quality Assurance
How long will it realistically take to have your product built, manufactured, shipped, or delivered? All of these details directly impact the way business operates. For example, if you are a distribution company, you will have to consider the suppliers you choose and the methods of shipping you want to use.
Don’t limit yourself to these, but these are key points you’ll want to emphasize.
6. Financial Plan
The financial section is often the most daunting part of creating a business plan, but it is also the most crucial – especially if you want to attract investment or apply for funding.
Start with a sales forecast. Create a spreadsheet projecting your sales over the course of three years. It’s ideal to forecast sales by month for the first year and then either monthly or quarterly for the following years.
Create an expenses budget. You should know how much you will need to spend to receive the sales you forecasted – this is where an expense budget will be useful. Make sure to differentiate between fixed and variable costs in this part of your financial plan.
Develop a cash-flow statement. The cash-flow statement is a key piece of the financial section of your business plan. If you’re just starting your business, you can base your cash flow statements on sales forecasts, items on your balance sheets and other assumptions. If you’re operating an existing business, look at past documents, such as profit and loss statements.
State income projections. This is what people call “pro forma profit and loss statement.” For this section, use numbers from your sales forecast, expense projections, and cash flow statement.
Deal with assets and liabilities. You will need to address your assets and liabilities that aren’t in the profits and loss statement, and project your business’s net worth at the end of the fiscal year. Start by documenting assets and estimate how much cash you’ll have each month in the bank. Then, include your accounts receivable (money owed to you), inventory (if you have it), and major assets such as land, buildings, and equipment. Finally, determine and list your liabilities (or debts). This is what’s considered as your accounts payable – money you owe to outstanding bills or loans.
Conduct a breakeven analysis. Your business’s breakeven point is when your “business’s expenses match your sales or service volume.” For this section, you can draw from the fixed and variable costs you have listed in the expenses budget. This analysis will help you determine when your business will begin to be profitable and is important for potential investors, who need to be reassured they are investing in a “growing business with an exit strategy.”
While every aspect of a financial plan are important, it can be overwhelming to tackle all the calculations of the financial section at once. If you’re finding it difficult to get started, begin with the main portion of the financial plan: the cash flow statement. According to Futurpreneur, you should think of cash flow as the story of the money that enters and leaves your bank account monthly.
Most investors or funders will want to see cash flow statements for three years. Don’t worry if you don’t know the exact amounts of future revenue or expenses, as you will have to include estimated amounts on your cash flow statement.
If you’re struggling to create a cash flow statement on your own, check out this interactive cash flow template on Futurpreneur’s website to help you get started.
Your business plan is done – so, now what? Well, your business plan is never actually “done”. Your plan will become outdated fast, so you’ll need to ensure you make a habit of revisiting and revising it often. Your plan should evolve as your business does.
Creating good habits is arguably more difficult than creating bad ones – so before you fall into a routine of letting your plan collect dust, start updating your business plan right way. It helps to separate the process of updating your plan into monthly updates and annual updates. Entrepreneur Magazine has a great article for what to cover when updating your business plan.
No matter what stage or industry you’re in, a business plan can help guide business activities, secure investment, and even track the evolution of your company. As an entrepreneur, spending time and energy writing a 40-page business plan is likely low on your priority list, but, with this breakdown of the common elements in a business plan, you’ll be able to get started and begin iterating on your plan.
Also published on Medium.