Business Loans

How to Write a Business Plan

Writing a business plan illustrates how you’ll turn an idea into a profitable venture, breaking down each step along the way. A business plan provides a detailed description of each facet and process within your business, from financing to marketing — and you’ll revisit it as you develop and grow your company.

What is a business plan?

A business plan is a guide for starting and running your company, illustrating how you’ll manage key areas of the business. A business plan would allow you to communicate your business ideas with others, such as potential partners.

Although you don’t need a business plan to be successful, lenders may require one, said Ada Womack, director of the Louisiana Small Business Development Center (LSBDC). You would need to produce one when applying for certain business loans or recruiting investors. In these cases, the money-related elements of your plan would be most important.

How to make a business plan for investors

Investors want to see the business’s potential. They want to know how you would use their investments to bring in revenue and grow the business. “They’re lending you funds to be successful,” Womack said. “They would want to see a return on investment.”

Investors would primarily look at the financial section of your business plan. For established businesses, this section would be based on past financial data, such as balance sheets, profit and loss and cash flow statements. For new businesses, this portion would consist of projections for the next two to five years.

How to come up with a business plan

New entrepreneurs should write their business plans before making any official moves, such as setting up a legal entity, to make sure they have a feasible idea. After finalizing your business idea, conduct extensive research to see how your concept would fare in the market. Then, compile all of that research into your business plan.

Here are four ways to prepare before sitting down to write your plan:

1. Research the market.

Analyzing your competition helps you make business decisions like determining price point and product line, and also helps you shape your business model so you stand out from the others.

2. Decide on a legal structure.

The legal structure of your business — sole proprietorship, partnership or limited liability company, for example — determines your personal liability, how much you pay in taxes and what paperwork you’ll need to complete. Once you’ve chosen the right entity for your concept, you can begin planning the details of your business.

3. Run the numbers.

New business owners often don’t estimate the right amount of funding they’ll need to get their companies off the ground. Carefully evaluate all areas of your business to make sure you ask for enough financing in your business plan.

4. Conduct a SWOT analysis.

SWOT stands for strengths, weaknesses, opportunities and threats. Identifying these elements in your business helps you organize the information that must be in your plan.

How to write a business plan: Step by step

Most business plan formats follow similar outlines. Templates are available online from resources, such as the Small Business Administration, SCORE, LivePlan and Bplans.

Your basic business plan should include the following sections:

Executive summary

To begin your business plan, describe your company, including your product or service, mission statement and basic information about your leadership team, location and employees. Also provide an overview of financial information and growth plans, which you’ll describe in detail in later sections.

Company description

Provide details about your business, such as the problems you expect to solve with the company and the specific types of customers you plan to serve. The company description is the place to highlight strengths and advantages like a desirable location.

Market analysis

Showcase your market research, including industry outlook and what your competitors are doing. Describe any trends or themes in the marketplace and how you plan to outperform the competition.

Organization and management

Identify your business entity and who will run, or is currently running, the company. You should include the job descriptions and resumes of anyone who is already on the team. The more team experience you can show, the better your business will look to investors. This is also where you could discuss sourcing and distribution of your product. You could illustrate your strategy for fulfilling orders and delivering products to customers.

Service or product line

Describe in greater detail the product or service you sell, how it will benefit customers and the product life cycle. Include any plans to file for a patent or copyright, as well as any research and development you’re conducting. In this section, you would also include pricing information and metrics for measuring performance like profit margin.

Marketing and sales

Your marketing strategy should be thorough, outlining your branding, sales and promotion strategy. Clearly define your target market and where those customers are located. Marketing also extends to digital marketing like social media accounts. Set up a website and official advertisements beyond social media campaigns, such as print or television ads.

Funding request

If you expect to distribute your business plan to investors or lenders, explain the kind of funding you’re looking for. This is your opportunity to specify how much money you need, the length of time the money will cover and how you will use the funding. State the terms you would like applied to your financing as well, such as the length of time you’d like to have to repay your debt.

Financial projections

Provide a financial outlook for the company for up to five years. Include projected income statements, balance sheets, cash flow statements and budgets. If you’re in your first year, you can make projections on a monthly or quarterly basis, since you wouldn’t yet have a full year’s worth of data. Established business owners should include past annual income statements, balance sheets and cash flow statements to give a sense of the business’s financial health.

Womack says business owners should be conservative in their financial projections. Financial experts reading the document will know if you’ve embellished anything or if you’ve set unattainable goals.

Appendix

Include any additional documents you did not find a place for in other sections, such as credit histories, letters of reference, permits or legal documents.

Tips for writing a business plan

When it’s time to put together a business plan, there are a few steps you could follow to make sure the process goes smoothly.

Decide whether to use a business plan template.

There’s a general expectation of the information included in a business plan and the order in which it’s presented, said Leonard Briskman, SCORE mentor in Washington, D.C. If you use a template, you won’t run the risk of leaving out crucial material.

If you’re not sure what needs to be in a business plan, a detailed template will help you gather the right information. From there, you just need to fill in the blanks under each section heading, which makes the process easier.

After you make your initial projections in your business plan and open your operation, Briskman recommends periodically adjusting for changes in the business to see if you need more capital than you originally thought. “It’s kind of an awakening for [business owners],” he said. “They see the business could be very different from what they planned.”

Be concise

A business plan can be from 10 to 30 pages, depending on the level of detail. If you’re making one for your own use or to apply for financing, nine to 12 pages should suffice, with a focus on financial information.

You may need to tailor your business plan to fit certain audiences or purposes. For instance, a lean business plan is a condensed version of a traditional business plan. A lean business plan includes small, actionable steps to reach a series of goals. This kind of planning may be most useful for startups or businesses with limited resources.

Clean up your credit while working on your business plan.

When you start a business, all of your financing is based on your personal credit before you build up business credit. Business owners may not realize how big a role their own financial history will play in securing funds for the company.

Before handing your business plan to potential investors or lenders, make sure your credit is in good shape. You could make improvements by paying down existing debts and ensuring you pay your bills on time.

Give yourself time.

Writing a business plan might take a couple of weeks, and questions can arise as you go through the process.

Surprises aside, it’s important to take the time to craft a quality business plan that will benefit you as you grow your company, Briskman said. “It helps you focus, more than anything else, in terms of the details of the business.”

FAQs

What needs to be in a business plan?

A business plan should describe all aspects of your business, including a description of your products or services, your marketing strategy and your financial projections. If you are providing your business plan to investors or lenders, it should also include the amount of funding you need and how you expect to spend those funds.

What is the main purpose of a business plan?

The purpose of writing a business plan is to set a roadmap to turn a business idea into a successful venture. Your business plan outlines how each part of your business would function and how much it would cost to operate. Additionally, lenders often want to see a business plan when approving borrowers, so it could be crucial to securing funding for your business.

Where can I find business plan help?

Your local Small Business Development Center could provide help writing a business plan for free. SBDCs operate across the country in partnership with the U.S. Small Business Administration, providing free business consulting and at-cost training on a variety of business topics.

 

Compare Business Loan Offers