What is business planning? It's the process of creating an operational and financial road map for your small business. A business plan is what you provide to prospective lenders and investors. It can be used both in the startup phase as well as when the business changes its strategy or direction. The business plan should describe:

  • Your company.
  • The services and products you'll offer.
  • Your financial projections.
  • Leadership and staffing models.
  • Management and operations information.
  • And other important details.

Purpose of a Business Plan

The process of writing a business plan helps you solidify key aspects of your new company, including:

  • Location.
  • Whether you will have employees and their roles.
  • The amount of startup funding you need.
  • How you will distinguish yourself from the competition.
  • The competitive market advantage of your products and/or services.

The amount of detail you need depends on the complexity of your business. In general, financing plans should include more detail. This helps show lenders the commitment you have to your business and the level of industry knowledge you possess.

As you write your plan, you'll likely uncover misperceptions in the market, weaknesses in your concept, and other challenges that will affect the way you develop and market your business.

You'll also conduct market research as you write your plan to determine:

  • Who your competition is.
  • How much funding you need to get started.
  • How profitable you can be.
  • What sales and marketing strategies will be most effective for your target audience.

Most lenders require a business plan when you apply for financing for your small business. You might also need to provide bank account statements and other forms of documentation.

Although a business plan is a critical document, it's not static. You should review the plan every year and make updates as needed. Also review it after significant changes or periods of growth.

In short, a well-researched and well-written business plan should spell out just about everything your company will do in its first year or two of existence.

Elements of a Business Plan

Use a professional, traditional format for your business plan, particularly if you'll be sharing it with potential partners, collaborators, investors, and/or funders. Every business plan should include the following:

  • Executive summary
  • Business purpose
  • Description of products and services
  • Mission statement
  • Executive leadership details
  • SWOT (strengths, weaknesses, opportunities, threats) analysis
  • Market analysis
  • Cash flow analysis and financial projections
  • Staffing and operations plan

Ideally, your business plan should be about 15 to 20 pages long. You can reference additional items, such as maps and patent applications, that require more space and include them as appendices.

Remember to highlight areas of your business that will interest and attract potential investors. Make sure your business plan is completely free of errors and appropriate for the situation. For example, a mini-plan outlines just the basic facts of your business. Working plans are used internally by management. Presentation plans should contain charts, graphs, and data and are produced for investors, lenders, and stakeholders.

Financial Projections

Financial projections and cash flow analysis are often the most challenging aspects of writing a business plan. Sometimes called "pro forma" statements, these documents provide a forecast of how your business finances will look over the coming months and years.

Your financial projections should include both current and projected financing as well as your overall budget. You'll extrapolate revenue and expenses over the designated period and describe the costs of startup and operation.

More than 75 percent of business failures are attributed to poor cash flow, so it's important to have a plan to prevent these shortages. For example, if you have a major order but you can't fill it because you don't have the cash flow to hire staff and purchase supplies, you are at risk of losing a lucrative client.

For this reason, regular cash flow projections are critical to running a successful business. If you manage your cash flow correctly, you can cover occasional shortfalls with equity or financing.

You should also include a sales forecast, which is the projection of goods and services your business will likely sell over the forecasted period.

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