How to write a short-but-effective business plan
June 24th 2020
When you hear the term “business plan,” you probably picture a book-length document filled with pages and pages of financial statements. That’s what many of us picture, because that’s what many of us were taught a business plan should look like.
It had to be long and full of details regarding your idea, how you’ll market it, and who’s going to buy it, with sales projections down to the penny.
Fortunately, over time, the emphasis on length and detail of business plans has evolved. And where such plans previously were used primarily to pursue outside financing from banks or investors, today many entrepreneurs understand that a business plan is a useful exercise to map out a growth strategy, regardless of the funding situation.
In fact, the process of thinking through exactly what your business is, what you sell, to whom, how, and for how much is extremely useful at any stage. It can help assess how viable a new idea is or point out new opportunities for profit that recently emerged for an existing venture.
A Simple Business Plan
So what does a short-but-effective business plan contain?
Actually, it contains a lot of the same information older business plans did, but communicated more efficiently. Meaning, with fewer words.
The Big Idea. In a paragraph or two, explain what problem currently exists in the market, how large your potential market is, and what your solution to that problem is. Why is it better than what’s currently available – what’s your competitive advantage? What proof do you have that there is demand for what you’re offering – any recent statistics that have been reported, for example?
For example, have you invented a new facial mask that signals when you’ve been exposed to the coronavirus? Have you developed a strategy for buying Facebook ads that has a huge conversion rate? Or are you opening a grocery store in a town where the closest supermarket is 50 miles away? What opportunity are you pursuing?
Target customers. Who is most likely to buy what you’re selling, such as soccer moms, the Fortune 500, or employees working from a home office, to name just a few? Who are you trying to sell to and how many of those individuals or companies are there? Also, where are your customers based? That is, will you sell locally, nationally, or internationally?
If you’re selling goods online, you could theoretically serve an international market, but if you’ve opened a catering business, you may have found that serving customers farther than 30 miles could be problematic. So who are your customers and where will you find them?
Business model. How will you make money at this new venture – that’s really what a business model is. How profitable will it be, exactly? You may need to describe the average costs of production and retail price to explain the profits generated. How will you distribute your product or service? How will you scale the business?
For example, if you’re launching a new magazine, you’ll make money through advertisers and paid subscriptions – unless you plan to mail it out free. If you’re a fashion vlogger on YouTube, you may make money through online ads and affiliate relationships from the companies you showcase. Or if you’re a graphic designer, you probably sell your services to companies and individuals on an as-needed basis.
Your management team. One of the most important sections to investors has to do with the people who are involved in running your company. Who are they, what kind of experience do they have, and why are they the absolute best people to help grow your company? Plus, what are your short-term hiring plans, if any, to fill key positions. Briefly talk about your great team and where you hope to add to your team’s skillsets in the near future.
Ideally, you have people working with you who have work experience at successful companies, or at companies in your industry, so they can bring that expertise to help your company grow faster. And having a plan for who you need to hire, and in what order, helps you plan ahead, to avoid getting overwhelmed and overworked because you’re understaffed.
Your marketing plan. What kinds of tools are you going to use to spread the word of your company’s products and services and what is your key message? What major benefit will you emphasize in your promotional materials? For example, do you have a feature no other product does? Are you the lowest cost? Will you save the customer money?
Your marketing plan is driven by how much money you have to invest in marketing, so you’ll want to lead with that information, and then break down how you’ll spend it. How much will go to advertising – print or online, for example, how much will go to social media, how much to printed marketing or packaging materials, signage, publicity, public speaking, freebies, trade shows, and other marketing tactics?
Your financial plan. Use a spreadsheet to lay out your cash flow statement for at least one year, though two or three years is better. Then use those monthly projections to create an annual profit and loss statement. And build a simple balance sheet that breaks down what you own and what you owe. If you’re looking for a loan or investors, explain how much you need, what you’ll use that money on, and how that investment will help grow the company faster than it’s currently growing.
There are templates you can use to lay out your expected revenue by month and then match it up with your expected expenses, to ensure you’re always profitable. Your profit and loss is pulled from your monthly projections and your balance sheet based on what you’ve purchased for the business, such as equipment, real estate, raw materials, and supplies, and what you may still owe for those expenses.
How to Use a Business Plan
Although many entrepreneurs work hard to draft a well-written business plan during startup, not enough existing business owners work through the process once their company is up-and-running. And in both cases, too few businesses actually refer back to their plans once drafted.
Don’t do that.
Refer back regularly to your plan and update it regularly to reflect your company as it exists today. Revise it as needed, such as if you discovered a new, more profitable market segment; you uncovered you could automate part of your production process and reduce expenses; or if you found an effective marketing tool that you want to add to your promotional plan.
As you spot opportunities for refining and improving your business plan, make changes. Then make sure your financial projections mirror the changes you’ve made in other parts of your plan.
Consider printing out and putting the pages of your plan up publicly, so that everyone in the company understands what you’re trying to accomplish.
The most effective business plans aren’t hidden away or kept secret. They’re shared internally so that everyone in the company recognizes how they can play a role in making the company more successful.