Five steps to writing an effective business plan
It’s no secret that success in business depends on strong planning. From the earliest stages, you need a vision of where you want your company to be and how you'll get it to that point.
A business plan is where you clearly identify what your business is, the value you bring to a target audience, and how you plan to go about achieving your business goals. This helps you stay on track, and gives potential investors a robust idea of why they should invest in your company. Creating a concrete plan will also help you identify opportunities and threats to your business.
We’ve already gone in-depth on the benefits of creating a business plan. Once you’ve completed your business plan, you’ll be able to refer back to it for as long as you choose to continue operating your business. Think of it as a small investment that will continue to pay dividends well into the future.
In this article, we’ll walk you through the five steps involved in creating an effective business plan.
Step one: Vision
Every business needs a vision. A business plan is where you take that vision and put it into words. Start by answering these questions:
- What does my business do?
- How will my business improve the lives of my customers? Why should they care about my business?
- Does my business have competition? What makes my product(s) or service(s) better than other businesses in the field?
You might also describe where you want your business to be in the future and how you expect it to reach that point. Some business owners may prefer to condense this information into a short, snappy mission statement. If so inclined, you can include your mission statement in this section.
It’s also important to have a strong idea of why your business does what it does. Most businesses have a strong grasp of what they do, and how they do it. But no successful business is complete without a compelling raison d'être or motivating ethos. Take a moment to think about what motivates and inspires you and your employees, and why that should matter to consumers and investors.
Step two: Value proposition
The value proposition is one of the most important elements of a successful business plan. Think about what you can offer customers and why they should be interested in your brand.
For example, let’s say you own a tech business that facilitates international hiring for remote businesses. In the value proposition section, you’ll delineate the advantages of outsourcing the work visa and immigration paperwork to your company. Make sure to include a clear description of the advantage of your service compared to its competitors.
You’ll need to do some market research to address the latter question. This will help you identify your company’s competitive advantages and earn the confidence of investors.
By the end of this section, readers should have a firm grasp of what your company’s product or service is, and why it matters. It should be persuasive enough for potential investors to be willing to support your business, and to turn potential customers into paying customers.
Step three: Business organization and structure
Who will run your company, and how will it be organized? Will it have a board of directors? How many employees will you have? Do you expect to hire more employees in the future?
If you’re a start-up, you’ll probably be your company’s chief executive. But there are plenty of other considerations related to your company’s overall structure.
For example, you may choose to incorporate as a limited liability company, or LLC. Alternatively, you may elect to organize as a C-Corporation.
Most startups incorporate as C-Corps, and most large businesses in the United States follow this structure as well. However, the LLC structure is often simpler for small companies — particularly those that don’t plan to seek outside funding. Click here to see whether an LLC or C-Corp is right for your business.
Different structures have different tax and financing implications, so it’s important to choose the structure that’s right for you. We’ve already crafted tax guides for both C-Corps and LLCs.
It’s important to think thoroughly about what structure makes sense for your business, both to aid your planning and to paint a clearer picture for investors. Spend some time describing what your company will look like in this section of the business plan.
Step four: Financial planning
It’s all well and good to have a strong sense of your company vision, and what you’ll offer potential customers. Next, you’ll want to describe how you’ll reach them, and how you expect to turn a profit.
In this section of your business plan, identify your target audience, sales channels, revenue streams, and estimated costs. These considerations will also make it easier to develop a marketing plan. It's critical to use your funds effectively, particularly in the early stages when you have limited resources.
Your ideal customer will, of course, depend on the type of business you operate. Let’s say your business is a third-wave coffee shop that offers high-end coffee products at a higher price point. Your ideal customer will probably be different from chain coffee shops.
Next, describe how you plan to reach customers within this target audience. Marketing plans vary greatly along businesses. Again, you’ll want to tailor your marketing plan to the particulars of your company. Regardless of the route you take, your marketing plan should work in harmony with your targeted sales channels.
For instance, if you’re a brick-and-mortar retail business, will you also offer online sales? Will you have a social media presence? If so, how will you leverage that to reach customers and convert sales?
If your business is already incorporated, be sure to include your numbers: your balance sheet, cash flow statements and income statements. Potential investors will pay close attention to this section of your business plan, and you’ll want to give them a comprehensive idea of how your business is doing and how it projects moving forward.
Step five: Executive summary
The executive summary is the most important part of the business plan. It incorporates all the individual elements and frames the business plan as a cohesive whole. Even though it will come first in the document, it should still be the lat part you write.
It’s the first (and perhaps only) part of your business plan a potential investor will see, so you’ll want to be sure to make a strong first impression.
We advise beginning your executive summary with a brief, engaging introduction. You can tailor this to suit your audience or the type of business you operate. Opening with a relevant industry trend is often a good way to capture the attention of potential investors.
Next, you’ll want to touch on the most critical points contained within the rest of your business plan, which we’ve gone over already. Tell readers who you are, what your business does, where you’re located, and how you’ll operate.
Final thoughts
It’s worth noting that business plans can vary in style and length. Many consultants recommend that business owners keep their business plans in the 20- to 30-page range, and you probably don’t need tens of thousands of words to get all the relevant information onto paper. A potential reader shouldn’t have to spend more than 10 or 15 minutes reading your business plan to get the information they want.
The Lean Canvas, developed by entrepreneurs Ash Maurya and Alexander Osterwalder, is one such example of a streamlined business plan. At just one page, it’s the physical manifestation of a so-called “elevator pitch,” and a great way for you to dilute the essence of your business concisely and effectively. You can find templates for this model online. And don’t worry: the Lean Canvas model touches on the same points we’ve covered in this article, too.
Regardless of the format you choose, remember to treat your business plan as exactly that: a plan. Plans can change, and that’s ok. Successful business owners are ones who stay flexible amid changes and disruptions to the market or business environment, and it’s perfectly acceptable to tweak your business plan in order to adapt as circumstances evolve.