Building a business will bring plenty of ups and downs, as well as lots of surprises. If there’s one tool that can help you roll through those ups and downs and make adjustments along the way, it’s the old fashioned business plan.
A business plan is an actualized, logical breakdown of your company’s future. It’s a document describing what you plan to do and how you’re going to do it, and it’s a document that many investment-seeking entrepreneurs use to explain their vision to potential investors.
A business plan can and should be put to use in several ways. But above it all, its most important use is acting as your North Star. It’s there to remind you of your mission, keep you on track to reach your goals, and help you set a path forward.
Does my company need a business plan?
To be blunt, you absolutely need a business plan.
Business plans push owners to slow down and consider all aspects of the business before launching it. They give shape to a business idea and can help owners work through tough questions well before they face them.
The lifespan of the average business continues to get shorter and shorter, and the majority of new businesses don’t last more than five years. No matter who you are or what expertise you have, opening a business is a risk. Business plans, however, help you to mitigate that risk by forcing you to think through the market, you financial goals, and what will make your business stand out.
The essential DNA of a business plan
A healthy business plan lays out your business goals and what strategies you implement to reach them. While there may be many more sections, here are three of the most essential parts of a business plan.
The Business Concept
Your business concept should be full of big-picture plans. This is where you break down your industry, business structure, products or services you offer and where they stack up against the competition. This is also the critical area where you explain what success looks like, what big goals you plan on hitting, but also surpassing.
This section is where you ‘wow’ anyone reading with your vision. Give them the fireworks of what your dream business looks like.
Sub-sections to Include:
- Executive Summary
- Business Description
- Operations and Management Plan
This is where you describe who your potential customers are: who they are, where they are, and why they’re buyers. You’ve already hinted at these concepts in the first section, and here you’ll drill down to share more details.
Create personas for your primary customer targets. Show in detail what the market for your business looks like and how much opportunity that market presents. This is also where you’ll describe the competition and how you plan on beating them.
Sub-sections to Include:
- Market Strategies
- Competitive Analysis
- Design and Development Plan
This section is best prepared with the help of your accountant (or at least some excellent accounting software) and is what potential investors will be most excited to see. However, even if you don’t plan to seek investors, there is a benefit to spending time on these sections.
- Cash flow
- Balance sheet
- Profit and Loss statements
- Break-even analysis
Before starting a business, it’s impossible to fill these with completely accurate numbers. However, these projections will help you to understand what your financial goals must be to be successful and how to go about achieving them.
How long should my business plan be?
A business plan should be as long as it needs to be. No more, no less.
What that looks like depends on your business and how difficult or complex it is to explain to others. Owning and operating a neighborhood sports bar has fewer complexities than raising money and developing a cutting-edge tech company.
A good average, though, is between 15-20 pages.
Business Plan Variations
A business owner can put their business plan to use in several different ways. The internal team can use it to check in on their progress and set goals. Investors will also want to see it, but they may not care to see all the same details. The best way to handle these different needs is to create multiple versions of your business plan.
If you’re in the very beginning stages of your business, a mini-plan could work just fine. These are only suggested when you’re trying to give potential customers or investors a snapshot of what you’re doing, but will soon be offering a much more thorough plan down the line.
A mini-plan can be as short as 5-10 pages and includes high-level points like:
- Business Concept
- Income Projection
- Finance Needs
- Marketing Plan
- Cash Flow
- Balance Sheet
Just remember that the mini-plan isn’t meant for long-term use. Its main purpose is to drum up initial interest in your business by sharing some of the highlights.
The Working Plan
The working plan is your organizational roadmap: long on details and short on presentational pizazz. This plan is strictly for internal use and not meant for investors or anyone on the outside. These kinds of plans won’t need complex appendices or stock photos of people working around a table. The purpose of this document is to spell everything out for anyone on the inside, that’s it.
The Presentation Plan
Using the working plan as the skeleton, the presentation plan is the dressed up version. You’ll want to work with a graphic designer and a copy editor to make sure the document is looking its best. If you’re after any kind of loan or investment capital, this is the plan to use. For due diligence purposes, you’ll want to add things like competitive threats and risks.
Your plan should tell an easy-to-follow story because, for a lot of VC’s, time is money. You may not get a second chance to sit down with them. The look and feel of the plan should be uniform to the company style and consistent throughout.
When should I update my business plan?
Anytime your company goes through a significant change, your business plan should reflect that. Some companies update their plans annually, quarterly, or even monthly.If you need financing, lenders or venture capital firms will want to see a plan that’s current with your business needs.
As your business continues to grow and evolve, a strong North Star will keep your team on the same path toward your shared goals. The business plan will keep you grounded to your goals, your metrics, and your mission. Follow it and adjust it as needed, and you’ll stand a much better chance of outliving the competition.
Need some help planning for your financial future? Read more on our blog.