- A business plan is a roadmap that defines how a new business will achieve its goals.
- Every business, regardless of size or age, needs a business plan.
- Business plans should answer specific questions. For example, does it have a competitive advantage? Is it in a growing industry?
- This article is for entrepreneurs and business owners who are writing or reviewing a business plan.
A workable business plan is crucial whether your business is brand new or an established player in its field. A business plan is especially vital for SMBs, which often have to deal with low brand awareness, fewer loyal customers, and other typical business challenges. While it doesn’t guarantee success, creating a business plan with research and care can help a business prepare for any future uncertainty.
Entrepreneurs and small business owners should make sure their business plans answer six main questions. Thinking about these questions and developing potential solutions helps you prepare your business for success.
What is a business plan and why is it important?
A business plan is a formal document designed to help you set achievable business goals and outline how you will achieve them. The business plan should include various roadmaps dedicated to the following operational elements:
- Product creation
- Operational objectives
A business plan is a valuable tool internally and externally.
- Internal business plan functions: Internally, a business plan aligns its decisions with an overall roadmap to help it stay on track. Businesses can also use roadmaps to help think through tough choices, such as workforce decisions.
- External business plan functions: Externally, a track record is essential for securing funding from outside investors such as angel investors. A company must demonstrate to investors that it has a solid business plan with achievable goals and a roadmap to success.
Point: When pitching your business idea to investors, emphasize how your product or service solves a problem and frame your pitch as a story to demonstrate your passion.
What should a business plan contain?
Generally, a business plan should include the following elements:
- Summary. An executive summary highlights the essential elements of a business plan. Readers should be able to understand your business plan by reading your executive summary, even if they don’t read the rest of the document.
- Budget. A small business budget should include general operating and personnel costs. Consider your payroll budget, marketing budget, and other departmental budgets.
- Market analysis. A market analysis should include a thorough market assessment that identifies competitors, your target customers, customer buying habits, marketing demographics, and what customers are willing to pay. A market analysis can include a competitive analysis that dives deeper into direct and indirect competitors.
- Product analysis. A product analysis describes decisions about the optimal pricing of the product. While you want to sell as many products as possible, low prices can scare off customers and eat away at your profit margins, while prices that are too high will cause customers to turn to your competitors.
- Marketing strategy. Your marketing plan should describe how best to market the business and its products or services. Consider targeted digital marketing to specific online and social platforms, email marketing, and local marketing.
Business plans vary in length depending on the size, industry, and scope of your business. An SME typically has a shorter, more succinct business plan than a larger, established company that operates in all sectors.
Point: Gather market intelligence for your business plan by conducting customer surveys and researching social media metrics, competitor sales, and target customer data.
Questions Every Business Plan Should Answer
We spoke to six business leaders who shared their thoughts on the critical questions a business plan should answer. Consider these six essential questions to optimize your business plan.
1. What is the competitive advantage?
Scott Locke, chairman of the intellectual property department at Dorf and Nelson LLP, advises researching copyright infringement issues thoroughly when determining your competitive advantage.
“I always look for what will give the company a competitive advantage over companies that want to offer the same or similar goods and services and an analysis of the competitive landscape,” Locke explained. “I pay particular attention to whether there is valuable intellectual property, whether patents, trademarks, copyrights or trade secrets, that will act as a barrier at the entrance for competitors. Likewise, I like to see a discussion of the intellectual property of the most direct competitors and how the new company will avoid infringing it. »
2. Is the company in a growing market?
Walter Recher, principal consultant at SmallBall Marketing, says your business plan should focus on how you plan to grow your business.
“The key to any successful business is to be a growing business in a growing market. A business plan should explain how entrepreneurs will enter the market, apply their investment to prepare them for rapid growth and participate in the expansion of a booming industry, with an above-average growth trajectory,” said said Research. “As I have spent my career working for hyper-growth companies in booming markets, founding several small businesses and adjunct professor of an entrepreneurship course, this has been the common denominator.”
3. Will customers pay for it?
Andi Gray, founder and president of Strategy Leaders, advises looking at the risks of entrepreneurship and determining what and how customers will pay for their products and services.
“When I review business plans, I always want to know how owners plan to get paying customers to commit at a price and quantity that allows them, as owners, to be in business and to support themselves,” Gray advised. “My frequently asked question is, ‘How do you plan to eat and clothe yourself, and where do you plan to sleep while you start this business?’ I hope this inspires students to question why they consider taking the risks of entrepreneurship.”
4. How will the business be staffed?
Larry Holfelder, senior consultant at DJL Insurance Services Inc., emphasizes the importance of staffing considerations.
“In every business plan, I like to see recognition of the need to cover and staff the production, sales and finance parts of the business. Roles should be established for the entity as if it is mature and successful,” Holfelder advised. “Multiple roles should be assigned early on, if necessary, and filled with the right people as the entity grows and the time is right.”
Holfelder says thoughtful staffing coverage shows that business owners are realistic. “I love seeing this type of thought process because it shows me that they recognize that they won’t be able to do everything themselves and that business success is all about collaboration and management” , said Holfelder. “It also shows that they recognize their own limitations, their ability to focus on their strengths, and the need to involve others who know what they don’t know in order to achieve the goals they envision. “
Takeaway key: Consider using a staffing agency if you need to scale quickly and want flexibility and reduced legal risk.
5. Is the product innovative?
Irwin Glenn, Chief Identity Scientist at Hunova, emphasizes the importance of innovation and inventiveness as well as the level of inspiration of the team.
“Is the idea for the product or service innovative, a unique invention, or is the dream really inspired? Glenn asked. “By innovative, I mean whether the business plan is centered on a new twist on an already existing technology or services delivered in a new and compelling way. If inventive, can the idea be protected against new or existing competition? Finally, is the assembled team a great group that can’t be stopped from succeeding? Do they inspire me, each other and their market? »
6. Are plans and goals realistic?
Charles North, former president and CEO of the Dutchess County Regional Chamber of Commerce, prioritizes a realistic business plan with reasonable expectations.
“I’m looking for it to be a realistic business plan, not something that’s pie-in-the-sky. I want to see reasonable expectations,” North explained. “I tend to be more conservative, because I think that’s the safest route. The idea doesn’t have to be reasonable; the plan does. The idea can be anything.
North also emphasizes the importance of sales forecasts. “I’m always looking for projections of what the company will do in year one, year two, year three, and year four showing sales, expenses [and the] result as the business progresses. These assumptions must be reasonable.
How planning for success pays off
A good business idea isn’t a guarantee of success, but a solid business plan is a way to start a new business on the right foot and set your business up for a lucrative future.
Business plans are an essential resource for businesses of all sizes. While business plans should, at a minimum, define a series of goals and a roadmap for achieving them, a business plan should also help answer questions ranging from analyzing competitive advantages to a company to the determination of the realism of its objectives.
If you think about these questions when creating your business plan, your business will be in a better position to achieve its goals and meet any challenges it may face.
David Mielach contributed reporting and writing to this article.