How to Make a Business Plan and What Mistakes to Avoid
A business plan is your business’ true North. For people who are reading your plan, it is a guide to help them understand what you are all about. Your business plan creates a bridge between your prospects and the possibility of realizing them.
Before we start on how to make a business plan, the document is often confused with a business proposal. Later, we will see the differences and similarities and how to go about a business proposal. But first, how should you make and write a business plan, and what is it?
What Is a Business Plan?
A business plan is a document that outlines the objectives of your business and how the venture plans to achieve its goals. The document further provides the feasibility of your business for the next few years.
How to Make a Business Plan
There are two methods you can use to make a business plan;
- Traditional business plan
- Lean startup plan
1) Traditional Business Plans
Traditional business plans have a detailed description and are mostly targeted toward requesting financing. When writing a plan, you want to make it easy for a potential financier to understand all you are about, and a traditional plan gives all this information.
When writing a business plan, you do not necessarily have to stick to a specific template, as the format is not set in stone. However, there are elements that you need in your business plan, and we will discuss them.
a) Executive Summary
An executive summary highlights the most crucial information in your document. Furthermore, it is an overview of what your business is about. In an executive summary, you need to show why you think your business will be successful. You should have the following details:
- Management team
- Mission statement
- Product or services you provide
- Customer analysis
- Problem statement (the gap you see in the market)
- Your idea on how you will fill the industry gap
- Competitive analysis
- Industry analysis
- Marketing plans
- Financial plan
- Company overview
If the business plan is something you want to use in seeking financing, you need to include a short summary of financial projections and what growth plans and business goals you have put in place. Still, the executive summary should not be more than three pages long.
TIP: Instead of starting with the executive summary, write it as the last thing because it essentially summarizes what is in the plan. Remember to use a confident tone, and do not give away everything here, as you still want the reader to go through your business plan. Secondly, ensure the summary flows logically.
b) Company Description
The company description provides an overview of the company and its purpose. It should concisely describe the nature of the business, its goals, target market, unique selling proposition, and competitive advantage. Ensure you provide a brief introduction to your company, including its name, location, and legal structure (e.g., corporation, partnership, sole proprietorship). Mention the year it was founded and any notable milestones or achievements.
c) Management Team
Introduce key members of your management team and highlight their relevant experience and expertise. Include brief bios or summaries of their roles and responsibilities within the company. Although you may not see it in a typical business plan template, you should use this opportunity to mention any stellar achievements your staff has under their belts.
d) Market Analysis
Identify and define your target market or customer segment. Describe their characteristics, demographics, and needs. Explain how your products or services fulfill those needs better than existing alternatives.
Also, provide an overview of the industry or sector your company operates in. Discuss relevant market trends, growth prospects, and potential challenges. Demonstrate your understanding of the industry’s dynamics and how your company is poised to capitalize on opportunities.
e) Production Process
The production process section of your business plan should provide a concise overview of how you will create and deliver your goods or services. A successful business plan should cover the key steps involved, the resources and inputs required, your commitment to efficiency and quality control, and your dedication to continuous improvement. By addressing these aspects, you demonstrate a clear understanding of how your production process will operate effectively and meet the needs of your customers and run your new business effectively.
f) Marketing Strategy
The marketing strategy section of your business plan should provide a concise overview of how you will effectively reach and engage your target market. It should cover your target market definition, the unique value proposition of your goods or services, the marketing channels you will utilize, and the specific promotional tactics and strategies you will employ. By addressing these aspects, you show a clear understanding of market research and how to position your offerings, communicate your value, and attract customers to drive sales.
g) Financial Projections
The financial projection section of your business plan summarizes your anticipated revenue, costs, profitability, and cash flow. It encompasses your sales revenue forecast, cost analysis, profitability assessment, and cash flow statement and projection. By including these elements, you showcase a comprehensive grasp of the financial implications of your business operations and offer valuable insights into the potential financial performance of your venture.
h) Funding Request
Here, you have the opportunity to showcase the financial potential and appeal of your goods or services. Capture the attention of potential investors by articulating your capital needs, outlining a compelling funding strategy, and presenting enticing financial projections. Paint a vivid picture of the exciting returns on investment they can expect, highlighting the growth opportunities, market expansion, and profitability milestones that make your venture an enticing opportunity for funding. With a well-crafted funding request, you can inspire confidence in investors and secure the necessary resources to bring your business to life.
The appendix here will be like your resource centre, where you provide all your supporting documents, including any resumes, financial records, product images, legal documents, licenses, patents, permits, etc.
2) Lean Startup Business Plans
This business plan format comes in handy when you need to explain your business idea in the fastest way possible. If you plan to change your business plan, this is the format you should go for. Here are some elements you can use to describe your venture’s goal.
i) Value Proposition
Make a clear case for what unique product or service your business offers in the market, and state your target market.
State who you are going to be working with to run your business. This can include manufacturers, suppliers, partners, contractors, and more.
List your valuable assets, staff, intellectual property, or capital. Here, you lay down your valuable cards to show your investors that you are on a growing path.
Highlight the things you are doing differently to have a competitive edge over your competitors. Show how you are using technology to provide services and how easy it is for your clients to get their needs met.
v) Customer Relations
How you relate to your customers directly impacts how your business will convert, and this is of utmost importance to anyone seeking to invest in your business. Therefore, clearly show how uniquely your clients will be treated.
vi) Cost Structure Value
It focuses on identifying and understanding the key costs associated with your business. This includes both fixed and variable costs that are essential for operating your business and delivering your products or services
vii) Revenue Streams
It involves identifying and categorizing the various ways your business generates income. This can include sales of products or services, subscriptions, licensing fees, advertising revenue, or any other revenue sources specific to your business model.
Common Mistakes When Writing a Business Plan
When making a business plan, there are some pitfalls that we may find ourselves in, which can be detrimental to our efforts.
- Avoid being unrealistic– You may be tempted to be over-ambitious in your business planning and get a few details wrong or incorrectly estimate some factors, such as your competition, customer base, finances and projections, and timelines.
- No Legal Structure– When running a business, it is vital to preview your contracts and partnerships with a lawyer present. Without a witness or a lawyer, you are setting yourself up for failure in future.
- Length– A plan that is too long may have errors and contradictions, especially if you haphazardly implement a free business plan template.
- Bad Executive Summary- An executive summary is where you capture or lose a potential investor.
- Inaccurate Information- It might be tempting to overinflate our capabilities, like business financials, just to pull an investor. This is a bad idea because there is a chance you might not be able to back it up, and your business could have legal implications that are costly to deal with.
- Poor Presentation– What people see means a lot, from your grammar, technical language, proficiency, and articulation.
- Lack of Research– If you do not do enough research for your business plan, it will show, and your potential business partners might pick them out by just glancing at your plan. This can be in your sales strategies, business description, target audience, or business structure.
What Are the Similarities and Differences Between Business Plans and Business Proposals?
Both the business proposal and plan attempt to showcase a service or a product, get investors or opportunities on your side and seek partnerships that generate revenue. They include some financial statements and set a clear outlook of how the business will turn out.
While proposals can highlight a company profile, their main purpose is to show more of the business part and how it intends to work, while the business plan shows everything, including company history, structure, products, projections and more details. A proposal is used chiefly for businesses that already exist, while business plans can be prepared when starting a business or when one needs a boost.
Here are some steps to use when writing a business proposal.
How to Write a Business Proposal
Here are some steps you can use to write a business proposal;
- Write down a title page
- Make a table of contents
- Create an executive summary to give your reader a snapshot of your business
- Write your problem statement
- Show your solution for the problem in “step 4” above
- Give your pricing for the solutions above
- Show how qualified you are to give those solutions
- Give a summary or a conclusion
- Include your T&Cs
- Create space for signatures
Frequently Asked Questions About Making a Business Plan
a) What are the seven steps of a business plan?
Here are seven steps you can follow when making a business plan;
- Create an executive summary
- Write a comprehensive business description
- Include a well-researched market analysis
- Outline your company organization
- List the services and products you are offering
- Add your business financial outlook and include statements if you have some
- Create a fitting summary with an appendix to include all the attachments
b) How do I write a basic business plan?
To write a basic business plan, be careful not to be too long in your write-up and try to be as factual as possible. Do not let the pressure to impress a potential investor make you include overambitious plans. Here are some things you can include in a simple business plan.
- Executive summary
- Marketing efforts and strategies
- Financial projections
- Products and services
c) What are the five elements of a business plan?
Essentially, your business plan can have five vital pieces of information you need to put out. They include the following;
- A brief description of your business
- Your analysis of the competition you will face
- Marketing plan
- Financial situation
- Your organization structure
A business plan is the first step in getting a competitive advantage over other outfits and getting yours started on its growth journey. If you are going to start or sell your business, you should start right, and you can do this by drafting a proper business plan.
Featured Image by Scott Graham on Unsplash