At this very moment, there are about 30 million small businesses in the United States alone. According to the U.S. Small Business Administration, those small businesses are enormous contributors to their local economies and to local employment, creating nearly 2 million new jobs each year. If you are thinking starting a small business is the right move for you, you must learn how to make a business plan before you begin.
What Is a Business Plan?
It is tempting for entrepreneurs wishing to start a new business to take their idea, seize the day and jump right in. However, without the proper preparation, including learning how to make a business plan and then creating one for your business, you dramatically decrease your odds of success. In fact, only one in four small businesses manage to stay in business for 15 years or longer, and only half make it more than five years before shutting their doors. The reason, in many of these cases, is a failure to learn how to make a business plan, create that plan and then leverage it for business success.
Simple Form Business Plans
In their simplest form, business plans are simply roadmaps for your business. They can be as straightforward as a list of goals for your business or a list of details. If you have a very clear vision about your business or a very simple concept around which to base your business, a simple form business plan may be all you need to get started. This simple format includes:
These business plans may also be referred to as “lean business plans” because they are “bare-bones” in nature and permit a business without a lot of operating capital to grow organically at its natural pace.
Formal Business Plans
If you are just looking into how to make a business plan, the idea of writing a formal business plan may feel daunting. Traditionally, formal business plans are 40 pages or longer, feature graphics and data, and include scientifically calculated predictions about your business’s future performance. In some situations, you may need this type of plan, including if you hope to sell the business, you are soliciting venture capital for the business, you are seeking grants or other public financial support, your partners require it, your business structure requires it or you are trying to get a business loan.
Learning how to make a business plan will sometimes require you to learn how to assemble the information included in a formal business plan even if you do not present it in the most conventional ways. Being able to call this information to mind while discussing your business will improve your credibility and help you in future presentations. Here is a basic list of components of a formal business plan:
Each one of these items will have its own section or even its own chapter if you are presenting a fully formal business plan, but even a semi-formal business plan will make a better impression if this information is included.
Why You Need a Business Plan to Have a Successful Business
Often, serial entrepreneurs believe they do not need a business plan. After all, they have started many businesses before. Similarly, brand new entrepreneurs often feel they are too inexperienced to even use a business plan effectively and skip the process of learning how to make a business plan. Both parties are in error. At the very least, every business needs a simple form business plan in order to keep its goals clear among employees, even if there is only one employee!
Several common excuses business owners provide for why they skipped out on learning how to make a business plan include:
All of these reasons are tempting but illogical. If you are too busy to create a plan, then you need that plan all the more in order to keep you productive and your business growth on track. Your business may be simple in nature, but it is certainly going to have more moving parts than you realize. You may not need funding now, but good planning keeps you “in the black” in the future. Finally, if you really cannot wait to get started, then you are definitely excited enough about the process to do it right and take a moment to learn how to make a business plan, and create a good one for your exciting new venture.
Start-up Business Plans
Start-up business plans help new business owners eliminate uncertainty about how they will run their businesses. For example, as you explore how to make a business plan for your start-up, you will realize that you must identify where funds for various payments for items, like internet services or postage, will come from. Often, people assume they will just pay these expenses out of pocket. That may work for a while, but it is definitely not a tax-advantaged way to run a business, and it can create trouble between business partners if the expenses are not evenly distributed.
Existing Business Plans
Think you do not have to learn how to make a business plan because you are already in business? Think again! You may have made it this far without knowing how to make a business plan or without having one, but if you want to grow and scale your business you will eventually need to create one. Remember how half of all new businesses fail within the first five years of existence? That failure is often a result of not creating a business plan to help the company grow in the long-term.
Businesses for Sale
Even if you are telling your business goodbye, knowing how to make a business plan for your business will help you give it a good send-off and hopefully make you some money in the deal. Thinking of closing your doors rather than selling? That’s okay. A business plan will help you identify valuable assets that you might want to sell instead of simply allowing them to slip away—if you are no longer going to use them. If you are planning to sell, a current business plan is a “must” if you want to get top dollar.
How to Make a Business Plan in 5 Steps
Now that you see the need for a business plan, it is time for us to deliver five easy steps as promised. Fortunately, even the most complex business plans can be reduced to just a few steps, although you may have to fill in a few more blanks per step to get a longer, more formal business plan fully fleshed out.
Step 1: Write Your Executive Summary
An executive summary explains to a reader exactly what your business is all about. Provide a name and a mission at the very least; then give some basic information about what you will be doing, how you are setting goals and what will indicate to you that you have met those goals. Executive summaries should generally include:
Step 2: Conduct Your Market Analysis
Now that you have finished your executive summary, you will see there are some clear questions about your goals that may be answered with a market analysis. A market analysis may sound complicated, but really you are using this step to answer some basic questions: Who is my target consumer? How will I get that consumer to work with or buy from me? Where is the evidence that my target consumer is available to my business? Where is the evidence my target consumer wants my product or service?
A market analysis shows you are providing a product or service that will meet a need or demand and that you have the means to reach the target audience in possession of this need or demand. Establish the identify of your target consumer. Then, show evidence that they will want or need to work with you and that you will be able to reach them to show they should do so.
Step 3: Make Some Financial Projections
Few people learning how to make a business plan really want to dive into financial projections, but it is a necessary part of every business plan. Show not only where you will be spending money but also what points in your business process will generate money. Have some fun with this section as you show your readers how and why you expect to make money and what you will do with it once you have made it. If you are soliciting funding to support a new business, this is also the section in which you should itemize start-up costs.
Step 4: Lay Out Your Organizational Structure
If you are the only person in your business, you may be tempted to skip this step as you move through the process of learning how to make a business plan. However, knowing everything will hinge on you and itemizing things that you might outsource to other service providers will help you gain and retain clarity about what you must do in your new business. If you have partners or employees, this section will help establish clear expectations for everyone’s responsibilities.
Here are some questions you should answer in this section: Who is the CEO? Will you hire employees? Will you work with interns? What is the source for employees and interns? Do you need a sales team? How will you handle marketing? Who is dealing with the accounting side of the business? What does it mean for you to be a solopreneur?
Step 5: Detail Your Products and Services
Finally, it is time to talk about what made you start this business in the first place: your products or services. While you may feel it would have been better to start here, this step is best left to the end for several reasons:
Hopefully by now, you are very excited about learning how to make a business plan and launching your business the right way. Use your new abilities to craft a business plan that enables you to be perfectly clear not just about your aspirations but also about your goals and the steps you will need to take to reach them.