Many people we work with have a fear of creating a business plan. Some of this fear stems from not knowing what to put in the plan and the misconception of what is in the plan is set in stone.
A business plan can be as simple or complex as you want to make it. Having your plan in writing doesn't mean it can't change, but it does show you have thought about your business and where you would like to take it.
If you are looking for funding for your business, you will need a business plan and there are a few things you must have in the plan. It is easy to start thinking about your plan and get caught up in the details. My advice is get started and let the thoughts flow and then come back and revise as necessary.
Once you have a plan, you can use a "Pitch Deck" when it comes to funding. We will cover this in another time. There are plenty of free business plan and pitch deck samples you can find by searching google.
Some key areas to cover in your plan are:
Executive Summary
This is the summary of your plan. I usually tend to write this last, but it can be helpful to start here with some bullet points of key areas that set your business apart. In reality this is the only area many lenders are going to read aside from the financial projections. Some items to include here are:
What problem you are solving
How you are solving it
What makes you different from your competition
Company Description
In this section you will describe the makeup of your company. What is your purpose, mission, vision. Who founded the company and who is operating the company, including previous experience in business and market. What markets are served by the company and what is the total addressable market (TAM).
Products & Services
Describe in depth the value your company is bringing to the marketplace. What are the problems customers have and what are the company's solutions. Included in this section should be the description of the core product or service, cost and pricing research, future products and services, any market testing that has been done.
Marketing Plan
This area is one where some time now will pay huge dividends later. We have a whole series of blog posts on marketing plans and the first one can be found here.
I highly recommend starting with the marketing plan.
If you put together a full marketing plan now, it will save you time in writing the business plan and you will develop a better feel for your position in the marketplace and have a good idea of your expenses and how you will reach your customers. Some key areas for the marketing plan section are:
Market Research
SWOT analysis
Assessment of Competition
Marketing Strategies
Marketing Budget
Operations Plan
Here is where you show your understanding of the business and describe the day-to-day operations. If you are a service business, this area could be very short. If you are a large manufacturer this area might be huge. Some things to think about for this section are:
Facility needs
Equipment needs
Supply chain and inventory
Order and fulfillment processes
Management and Organization
In this section you will identify who is involved in the company and why this is the team that will get the job done. Basically you are summarizing your key players resumes and what they will do in their roles with this company. If you have key consultants you should include their roles and background here. Additionally, you will want to identify shareholders and investors here.
Financial Plan
Here is the meat of the business plan. If your business is just getting started, it can be hard to put numbers together. For established businesses, or sole proprietors growing into a business it is easier when you have a track record of sales. Either way, you should have:
Monthly projections for the first year for both sales and expenses
Annual projections for at least year 2 and 3
Monthly cash flow projections for years 1-3
For established businesses you should also have:
Current Balance sheet
Income Statements (P&L) from previous years
For startup businesses or expanding businesses you will also want:
Startup costs
Owner's Equity
Outside Investment
When making projections, keep a few things in mind. First, make sure all projections are based in reality. I see a lot of people taking best case or even higher sales projections in their first year of business. This would be great and sometimes even happens, but is not a great place to start from in projections. They also do the opposite in expenses. Often people will project expenses at the absolute minimum they can get by with.
The most reliable way I have found to project financial statements is to gather your expenses first. It is generally pretty easy to figure out the first year expenses. You should have an idea of monthly costs for things you need such as rent, advertising/marketing, office supplies, phone/internet, staffing, etc. Then figure out your cost of goods sold and markup/margins. Now you can figure out how many sales you need to cover these expenses. This is your break even number. Some things to think about in forecasting sales:
Is this a reasonable number?
What is the max number of sales you can expect?
What expenses change as more sales are made (staffing, production needs, fulfillment, etc)?
If you can take your projected sales and cut them in half, and take your projected expenses and double them and you are still making money, you have a great business idea.
Many businesses have started without a written plan, but I wouldn't recommend it.
4t Creative is here to help you develop your business plan and we can help with financing. Contact us to find out more about our consulting services.