When do you need a business plan?
As a business owner or an aspiring entrepreneur, you may wonder when it’s necessary to have a business plan. Well, having a business plan is crucial for securing funding, attracting new business partners, or hiring talent. Investors need a solid plan to be convinced that their investment will yield profits. Your business plan is a tool that instills confidence in others that collaborating with you or investing in your business is a wise decision.
A business plan can often be daunting for small business owners or aspiring entrepreneurs. Whether it’s a bank requiring a business plan for a loan application or an investor requesting one before a meeting, it can be frustrating. However, writing a business plan can be an investment in your business rather than a tedious chore. It’s a tool that can help you develop a solid and profitable growth strategy.
Still not convinced? Keep reading for our comprehensive list of why creating a business plan is essential.
Benefits of having a business plan
Whether you’ve just started or have been leading your company for years, business planning can be the key to your growth success. Having a business plan:
- Helps you to prioritize – it gives your business control, defines your goals and objectives, maps out how you’ll achieve your goals, and allows you to deal with likely knocks in the road
- Provides you control over your business – the planning activity helps you learn about the different things that could affect your success. If you’re already in business, it allows you to step back and look at what’s performing and what you can improve on
- Deciding when to hire team members – having a plan gives you the foundation to develop your operational structure and grow your team. As a business owner and leadership team member, you can focus more on growth and less time running the day-to-day procedures.
- It facilitates you to seek financing. If you’re requesting finance for your business, you must show grant providers, banks, and investors why they should invest in your operations.
- Support partner discussion or securing rental agreements – having a business plan makes getting business partners up to speed with your vision easier. It is also helpful for sharing with prospective landlords and real estate companies if you require a space to run your business.
Typical business plan document format
Business plans can be short documents, often called Lean business plans, or slightly more detailed plans (20+ pages), which people call Traditional business plans. In addition, you can flex the scope based on your individual needs. For example, a marketing agency will unlikely require an inventory/ operation section, whereas a hair salon may include this aspect to describe the facilities and product offering.
Business plan sections
The typical business plan sections, which we will touch on below:
- Executive Summary
- Company Overview
- Market Research
- Strategy Execution
- Financial Plan
This is generally completed at the last part of the business plan, but is the first element readers will read – and in some cases, the only part people will read – so it should be concise and articulate your vision.
In the first part, it is essential to include information on your company, products/ services, market opportunity, notable competition/ competitive advantage, goals, achievements, and the document’s purpose. The second part should focus on the financial plan and ideally include the financial highlights, funding needs, and preferred funding source.
Typically, you will start the business plan by describing your company — Its Business, Goals, and Objectives. Use your company description to provide detailed information about your company. For example, go into detail about the problems your business solves. Be specific, and list the consumers, organizations, or businesses your company plans to serve.
This section follows the company overview and comprises various sub-segments depending on your industry and potential growth profile.
Industry Description and Outlook:
You’ll express the present state of your industry and where it is headed. In addition, you’ll want to include key industry metrics such as size, trends, and projected growth.
Determine your expertise about the usual traits of your business type. You should present some statistics about the industry’s size (e.g., total US sales in the last year), key players, and growth rate over the previous few years. You might analyze the industry as a whole or a segment that targets a particular subset of the general market. For example, you could be investigating the technology industry or a narrower niche, like US CRM solutions via mobile apps. Your industry analysis shows investors that you understand the larger landscape in which you compete. More importantly, it helps you know if there will be more demand for your products in the future and how competitive the industry is likely to be.
A market analysis gathers information about a market (or location) within an industry. Your assessment studies the dynamics of focusing on a town, country, or specific market segment. Dimensions may include (but are not limited to):
- Market size (current and future)
- Market Trends and Growth Rate
- Market profitability
- Industry cost structure
- Distribution channels
- Key success factors
- Key success details
The findings of a market analysis may motivate an organization to change various aspects of its investment strategy. Affected areas may include inventory levels, workforce enlargement/ contraction, facility growth, buying of capital equipment, and promotional activities.
Target Customer Analysis:
Who is your ideal client/customer within your market? This data must include the demographics of the target group, incorporating age, gender, income level, and lifestyle preferences. This portion should also contain data on the size of the direct market, the buying potential, reasons for the audience to buy your goods/ services, and how you expect to reach the market. Your company must Identify its target customers, Convey the needs of these customers, and show how its products and services satisfy these needs.
You will need a good understanding of your competition (direct or indirect) and competitive advantage. Competitive research will show you what other businesses are doing and their strengths. In your market research, look for trends and themes.
What do successful competitors do?
- Why does it work?
- Can you do it better?
- What are their strengths and weaknesses?
It is helpful to compile the information into a temporary table and either use a points system or summarise the details; an example of the table format is below:
This section will generally include marketing, sales, pricing, promotional activities, operations plan, location, facilities, hiring strategy, risk management, milestone plan, key performance indicators, and success metrics.
Marketing and Sales:
No single way to approach a marketing strategy exists. This section aims to describe how you will attract and retain customers. You will also explain how a sale will happen. You will refer to this section later when you make financial projections, so please describe your marketing and sales strategies thoroughly.
Explains your business’s location, facilities, equipment, technology, tools, legal considerations, inventory requirements, suppliers, and manufacturing processes.
Your business plan and strategy cannot become a genuine commercial entity without milestones and an actionable plan. Highpoints are used to convert your business strategy and tactics into action. In addition, a milestone helps you to monitor your progress as you grow and implement your plan.
Success Metrics/ KPIs:
Some metrics or KPIs will be fiscal, such as profit, income, and cash flow. You might also choose to monitor metrics related to customer retention, marketing, and sales goals (e.g., website conversions, repeat clients, and business). For growing companies, it is helpful to include operational efficiency (e.g., value creation index), safety (e.g., hours lost to injury), and environmental impact (e.g., energy use). Your metrics should be tied to your strategic objectives and move your employees toward the actions you want
Creating a financial plan may require multiple iterations as you explore different scenarios. Many businesses use economic forecasts to support their plans and highlight growth potential. Established companies can draw on data from their accounting software, such as Quickbooks, Xero, or Sage, and budgets to showcase growth areas. Startups, on the other hand, may use an Excel model. The level of detail in the plan will depend on the business’s needs, ranging from a simple 12-month cash flow and profit and loss statement to a more comprehensive 5-year financial model that includes sales, operating expenses, and associated costs.
It is helpful for the reader to describe how you will use your funding request, which could be to buy new supplies or materials, pay wages, or cover particular bills until revenue starts or increases in line with your forecast. In addition, always explain your future strategic financial plans, like paying off debt, issuing dividends, or selling your business.
Complement your funding request with projections and a financial model. Your goal is to persuade the reader that your business is stable and will be financially successful. Present a financial outlook for the foreseeable future (i.e., the next two to five years). Include forecasted income statements, balance sheets, cash flow statements, and capital expenditure budgets. For the first year, be even more explicit and use quarterly — or even monthly — projections. Explain your estimates clearly and match them to your funding requests.
Identify your goals and develop a roadmap
Any entrepreneur must determine the appropriate time to create a business plan. You have a clear roadmap for where you are headed and how to get there. Therefore, it is recommended that you create a business plan before launching your business or when seeking funding from investors. A well-crafted plan can help you secure financing and provide a detailed analysis of your company’s potential growth and profitability.
Additionally, it can serve as a valuable reference point for making future business decisions. It is never too early or too late to create a business plan, so start planning today to ensure the success of your business.
A business plan can help you secure funding or attract potential business partners. It instills confidence in investors that they will receive a return on their investment. Your business plan is a persuasive tool highlighting the benefits of working with you or investing in your business.
Speak with a Noirwolf consultant to explore how the appropriate business planning software like Liveplan can demonstrate to investors and partners that your retail business plan is serious.
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