Tips for Developing a Business Plan

Introduction

A business plan is a formal document that outlines a company’s goals, strategies, financial information, and potential risks. It is used by business owners and entrepreneurs as a tool for evaluating the viability of a business, and for attracting investors and creditors. Establishing a business plan is an essential step for any new venture, as it provides direction and clarity to owners, partners, and employees.

The importance of business plans cannot be overstated. Business plans provide an organized way to present and assess the viability of a business idea. They can also be used to help secure financing from lenders and investors, inform prospective clients and partners of your vision for the business, and serve as a roadmap for the future of the company.

Research

Research is an integral part of developing a business plan and should not be overlooked. It is important to understand the industry trends and your competitors. It is also beneficial to analyze the strengths and weaknesses of your business, as well as its opportunities and threats.

Market Research

Before starting your business plan, it is important to understand the potential target audience and the market you are entering. Conducting market research provides an in-depth understanding of the people and organizations you'll need to reach in order to be successful. You should consider the needs of customers, the competition, and the overall economic environment. This research can take place through surveys, market analysis, focus groups, or other forms of research.

Industry Trends

Business planning is not complete without reflection on the trends and forces shaping the industry. Analyzing industry trends can help you determine what products or services are in demand, how customer needs have changed, and what strategies other competitors have implemented.

SWOT Analysis

SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. This analysis will help you to analyze the position of your business and to create strategies to maximize its potential. This can be done through both internal and external assessments. Internally, you should assess your products and services, resources, finances, and personnel. Externally, you should assess the industry environment, legal aspects, competition, and any social or political events.

• Identify the strengths and weaknesses of your business.
• Analyze opportunities and threats in the industry environment.
• Understand the needs and wants of your customers.
• Examine changes in the industry and the economy.
• Evaluate the strategies of your competitors and determine what makes you unique.

Business Description

An effective business plan should provide an outline of the business, its target customers, and any physical locations. It should also provide an overview of the business and its goals. Knowing this information helps provide stakeholders with a clear vision of what the organization has to offer.

Company Overview

An effective company overview should provide background on the origins of the business, an understanding of its mission, the team and their respective skills, the company values, and any competitive advantages that have been established. This section should provide a brief, but descriptive narrative that captures the enthusiasm and vision of the business.

Target Customers

Retaining customers is key to success. Understanding who the target customers are, their needs, buying habits, and preferences will help the business form a marketing plan and focus its resources. Researching the target customers can help the business understand how to best position and market the product to them.

Location

The physical location of the business is important for a variety of reasons. Whether the business is located in a home office or a commercial space, understanding local regulations, the cost of rent or mortgage, the availability of resources, and how the location affects the company’s operations should all be considered. This information should be included in the business plan.

Financial Elements

Developing a business plan for success requires breaking down the financial elements of the venture. Finances are the lifeblood of any business, so having a complete understanding of the capital required, sources of start-up costs and cash flows need to be detailed. Here are some key tips to note when considering financial elements.

Start-up Costs

Start-up costs are one of the most important considerations for a business and should be broken down into individual and separate costs. Factors to consider include premises, equipment, inventory, wages, taxes, advertising and legal fees. Make sure to include all items and be conservative with your estimates, as expenses often rise above estimates.

Capital

Having the appropriate amount of capital is essential for your business’s survival. Sources of capital might include personal savings, loans or investors. Depending on the route chosen, draw up a plan to ensure that the right amount of capital is available. Remember to ensure that there are proper provisions in place where you receive investments.

Cash flows

It is helpful to create an accurate estimation of future cash flows in the form of a statement of cash flow. This projection of cash flow should detail all transactions made, including receipt and payments of money. This document will help to identify how much money the business will have available and how it will be utilized.

• Make sure to include all items in start-up costs and be conservative with estimates.
• Draw up a plan for the appropriate amount of capital and make sure provisions are in place for investments.
• Create a statement of cash flow to help identify available money and how it will be used.

Operations

Developing a detailed operations plan is an important part of your business plan. When crafting an operations plan, consider the following elements: Employee roles, management structures, and technologies.

Employee Roles

Creating a clear definition of roles for each employee is essential for the efficient operation of your business. Defining job descriptions, responsibilities, and expectations prior to hiring the right people can help you create the right team.

Management Structures

Developing appropriate management structures can help create a well-functioning company. Think about how each department needs to be organized and how decisions will be made. Consider the size, culture, and goals of the organization to ensure it will be successful.

Technologies

Technologies can enable your business to function more efficiently and enable you to offer more services. When developing your operations plan, be sure to consider the technologies you will need to invest in, such as computer networks, software, and other tools. Investing in the right technologies can save you time and money in the long run.

Growth & Exit Strategies

In this section of the business plan, you will discuss the business’s growth and exit strategies. This section is critical because it lays out the roadmap of how you will take the business from its current state to a bigger, more profitable place.

Expansion Goals

When it comes to expansion goals, these will depend on the business’s current resources and unique goals. Identify what can be done to grow the business in the short, medium, and long-term. Consider when additional investments will be necessary for the business to reach these goals.

The expansion goals should be realistic given the resources available to the business. Otherwise, these goals will not be achievable, and this can be discouraging for everyone. Consider the type of expansion goals that can be reached before any additional investments are required.

• Expand the customer base through ads and promotional campaigns
• Start selling in new markets
• Expand product offerings
• Increase market share through partnerships
• Strengthen the brand through innovative strategies

Exit Strategies

This section should be completed once the expansion plans have been identified. It’s important to consider how you can exit a business and in what form. For example, an outright sale of the business or a partial sale. Additionally, consider the potential for an Initial Public Offering (IPO) or for expanding into other markets.

The exit strategies you identify should be realistic and achievable. Otherwise, you may find yourself in a position where you are unable to get out of the business. Make sure to include the backup and safety exit strategies that will be in place if the business isn’t able to meet its goals.

• Sell the business outright
• Sell a portion of the business to an investment partner
• Conduct an Initial Public Offering
• Enter new markets
• Create an Exit Plan B

Conclusion

Behind every successful business is a thoughtful and well-developed business plan. A business plan is a roadmap to take your business idea from concept to execution. The process of getting the plan organized on paper encourages you to do the necessary research and answer important questions. It also plays a vital role in helping you to secure the funding that you may need to get your business up and running. Whether you have a well-established business that needs a plan to take it to the next level, or a new venture that needs a blueprint to follow, investing the time into drawing up a business plan is essential for success.

Benefits of developing a business plan

Creating a business plan has numerous direct and indirect benefits. It forces you to answer difficult questions and develop strategies for growth. It also helps you to measure the performance of your business against objectives, and adapt as new industry trends, technology and customer preferences arise. Ultimately, a business plan can provide you with the knowledge that your business is on the right track to success.

Taking the next steps

You may now be asking yourself why you haven’t yet taken the time to develop a business plan. The good news is that it’s never too late. So, if you haven’t started creating one yet, there is no better time than now. You can use templates provided by the Small Business Administration in developing an effective plan, or reach out to your local small business development center for more in-depth guidance on how to structure and organize your business plan.