How to Write a Business Plan

Creating a business plan will help you achieve your entrepreneurial goals. A clear and compelling business plan provides you with a guide for building a successful enterprise focused on achieving certain goals within defined periods; it is also a document that can persuade others, including banks, to invest in what you're creating and running. While there are many types of businesses out there, the basics of a business plan are fairly standard and widely applicable. This article sets forth these basics, which you can tailor to your business as needed.

Method 1 of 5: Analyzing the Market of Your Business

1.   Analyze your potential markets. Consider which segment of the local (and/or international) population will be seeking to use your products or services. This needs to be more than mere guesswork and involves doing decent research.

• Do your research first. Is there a viable market for the product or service you want to sell? This always involves analyzing secondary research (data already collected), but it often also involves getting primary research (data you collect through surveys or observation). To begin with, contacts such as friends and family might be a good place to start, and ask them to be honest with you!
• To determine your targeted market, write down the demographics of the people who will use your product or service. How old are they? What do they do for a living? Will mostly women use your service? Is your product or service attractive to a particular ethnic or economic group of people? Will only wealthy people be able to afford it? Does your ideal customer live in a certain type of neighborhood, such as a suburb with grass lawns, in order to use your lawn mower? Answering these questions about the demographics of your prime market will help you establish the clear characteristics of the people you need to reach.

For example, if you are selling soap, you may believe that every dirty body needs your product, but you can’t start with the entire world as your initial market. Even if you’ve developed such a universally needed item as soap, you need to identify a smaller, more targeted customer group first, such as children under eight who might like bubblegum scented bubble bath. Or, if your soap only works with pumped well water without fluoride, you must acknowledge that your intended market has geographical limits as well; this may be ideal in some locations though, and you need to focus on whether that market is big enough to support your business, and look beyond the residents to providers such as doctors, health services, aid workers, etc.

 2.   Establish the size of your potential market. This will be easier once you’ve completed the demographic analysis. Then you’ll be able to research the numbers: How many car mechanics, house painters or bathroom contractors are there in any given community? How many children in the United States are currently under the age of eight? How much soap will they use in a month or a year? How many other soap manufacturers already have a share of the market? How big are your potential competitors? And where do you find the answers to all of these questions? Identifying your market is one of the great satisfactions of starting your own business. You’re thinking about the actual people who will use your product or service and how pleased they will be buying it as you are selling it.

 Method 2 of 5: Covering All the Bases

1.   Put yourself in the investor’s shoes. Ask yourself, “If I were going to invest X amount of dollars into a concept or idea, or even a product, what would I want to know?” Gather as much helpful and credible information as you can. Depending on your product, you may need to search long and hard for relevant information. Most importantly, do not lose heart if finding information, statistics, and graphs is more daunting than you initially anticipated. Your hard work will pay off when a potential investor becomes an actual investor!

• Equally, don't lose heart when you discover some, or even all, of your ideas have been adequately covered by the market. Don't ignore this reality; instead, work with it. Can you still do a better job or provide a better widget than your competitors? In many cases, it's likely that you can provided you know the market well and how to add value in ways your competitors are not doing. In other cases, it may be a case of focusing more narrowly or more broadly than your competitors are doing.

2.   Take advantage of your competitors' business plans. There are a few valuable online archives of business plans that feature companies which have successfully penetrated the market based on a well defined and executed business (and marketing) plan. Take the time to study the market through a successful company's eyes and consider what your company will offer that distinguishes your product or service from the rest. Be certain about what gives your business the competitive edge.

Method 3 of 5: Doing the Groundwork Before Writing the Plan

 1.   Define your company. A business plan won't be useful until you're certain what your company exists for. What will you accomplish for others? What products and services will you produce or provide?

• Write down all the specific needs your company will satisfy. Potential investors need to know that your business will be meaningful and marketable to people who can use your product or service. So concentrate on the external needs your company will meet.
• What will your product or service enable people to do better, more cheaply, more safely, or more efficiently? Will your restaurant make people’s palates delirious with new taste sensations? Will your new mousetrap help people capture mice without feeling sick to their stomachs? Will your new bubblegum scented bubble bath revolutionize the way children agree to take nightly baths?

 2.   Think of all the positive benefits your company will provide. Write them down. Admire them. Absorb them into your consciousness. Believe in them. These are the primary motivators that those reading your business plan will respect and value.

3.   Choose a winning strategy. Once you’ve established the competitive advantage your business offers, you will be able to select the best strategy to reach your goal. How will you distinguish your product or service from others? Although there are millions of types of businesses, there are actually only a few basic strategies that can be applied to make any enterprise successful. The first step in selecting an effective strategy is to identify a competitive advantage for your product or service.
How will you establish that your product or service is better, cheaper, more delicious, or more convenient?

• How can you make your company more noticeable than your competitors? What restraints in your business or its industry might determine which strategy you choose?
• Your competitive advantage may include designing special features not found in rival products. It may entail superior service characteristics such as speedier delivery, a lower price, or more attentive sales people––these are never to be sniffed at as possible winning ways, as many companies grow complacent and can be overtaken by giving customers experiences that are better than the average expectations. Even where your product or service is already well established, perhaps you’re establishing an image or brand of exceptional quality or reputation.
• Does your product or service bestow a certain status on its users? Does it create more profits or other benefits for your customers’ own endeavors? Perhaps you want to position your mousetrap for a primarily upscale market because the best design requires titanium and manufacturing costs will be so expensive only rich people will be able to afford your product. But maybe the mousetrap is so fantastically effective that wealthy people will want hundreds of them around their vast country homes and polo pony barns. You must have a reason why your business will succeed. This is the competitive advantage your product or service will deliver.

 4.   Design your company. Consider how will you hire and organize your workforce. By the time you’ve reached this stage of thinking about your potential business concept, you’ll probably have a good idea of the number of people you’ll need and the skills they’ll require to get your enterprise up and running. Keep in mind that your initial plans will undoubtedly change as your business grows. You may need to hire more managers to supervise your expanding staff or to set up new departments to meet new customer demands. Projected growth and expansion for your company should be mentioned in your business plan, but it’s not the primary focus. For now, you want to secure help in getting started and convince your funding sources that you will become profitable.

• Investors will want to know if you’re capable of running the business. Do you need to bring in experienced managers right away? Will you keep some of the existing employees or hire all new people? And where do you find these potential employees?
• Funding sources will also want to know if any of your partners expect to work alongside you or if their obligations are only financial. Your plan will need to specify the key management jobs and roles. Positions such as president, vice presidents, chief financial officer, and managers of departments will need to be defined along with stating who reports to whom.
• You may hope to run your company as one big happy family – and it may work out that way – but organizations require formal structure and investors will expect to see these issues addressed in your plan.
• Consider how you will handle your employees' entitlements. For example, salaries and wages, their insurance and retirement benefits, as well as analyzing the extent of your knowledge of tax related issues.

 5.   Think about your role as leader or boss of the business. As you think about hiring personnel and organizing your workforce, you must also confront your desire and ability to be a good boss. If you haven’t contemplated this aspect of your commitment to owning your own business, now is the time to give it serious consideration. What sort of leader are you?

 6.   Identify your company’s initial needs. What will you require to get started? Whether you want to buy an existing company with 300 employees or start your own by adding an extra phone line to your home office desk, you need to make a list of the materials you’ll need. Some may be tangible, such as five hundred file folders and a large cabinet in which to store them all. Other requirements may be intangible, such as time to create a product design or to do market research on potential customers.

• You may need to hire an assistant to develop a retrievable filing system for the five hundred folders, or hire a consultant to set up a computer system that’s beyond your technical skills. In some cases, hiring a virtual assistant is more economical at the start than employing someone to sit at a desk.
• If you’re going to build a better mousetrap, you may have constructed a prototype out of used toothpaste tubes and bent paperclips at home, but you’ll need a sturdier, more attractive model to show potential investors. What exactly will your mousetrap look like? What materials will you need? Do you require money for research and development to improve on your original toothpaste tube and paper clip construction? Do you need to hire an engineer to draw up accurate manufacturing designs? Should you patent your invention? Will you need to investigate federal safety standards for mousetraps?
• Next, do your homework. Call a real estate broker and look at actual retail spaces in the neighborhood where you’d like to open your restaurant. Make a chart of the most expensive and least expensive sites by location and square footage. Then estimate how much space you require and how much money you’ll need to allow for rent.
• Make a list of all the tangible and intangible resources you need to get your business going. The total estimated price of all of these items will become your start-up cost whether you’re buying highly sophisticated computers or simply installing a new telephone line on your desk. If there’s any item in your estimates that seems unreasonably high, research other alternatives. But keep in mind that it’s better to include every element you truly need along with a reasonable estimate of the cost of each item, so you don’t run out of money or default on your loans. Be honest and conservative in your estimates, but also be optimistic.
• Don't aim for the best of everything at the beginning. You can forgo the expensive trimmings of an office of a more well-established company and stick to the basics at the beginning. Get what is affordable, works and is actually needed and don't buy frills.

 7.   Target your funding sources. Banks and other funding sources don’t lend money because people with interesting business ideas are nice. They follow specific guidelines, such as the Risk Management Association (R.M.A) database, which are designed to ensure that they will make money by investing in or lending to your business. Lenders will typically look to the company's Capital, Capacity, Collateral, Conditions, and Character or what is known as the 5C's of lending when underwriting a loan. You'll need to have covered all these bases well before seeking funding.

• Where will you find your financing? As your business concept begins to take shape, you can begin to hone in on the most likely financing sources. Issues such as the size of your business, the industry it is in, whether you are starting a new business or buying an existing one, and whether you can provide collateral to a lender are among the issues that must be considered in creating a target list of funding sources.
• For the vast majority of entrepreneurs, the well-known, high profile means of raising money, such as through venture capital companies or by going public, are not viable options. Your own credit, credit rating, and business history are key factors in obtaining financing for your venture through Small Business Administration (SBA) guaranteed loans and other bank credit.
• Your ability to tap into your personal network of friends, family, and professional contacts is crucial to raising money beyond what your own personal funds or credit can provide.
• In all of these cases, there are important considerations such as the potential impact on relationships when family and friends become investors. If they believe in you so much that they're laying their house on the line, be really careful about accepting such generosity. You may need to prove yourself first.
• When you have completed this process of identifying the likely potential funding sources and writing a bankable business plan that addresses investors' needs and answers their questions (even before they ask them!), you will have greatly increased the likelihood of obtaining the financing you need.

8.   Explain your financial data. How will you convince others to invest in your endeavor? By having clear, transparent and realistic financial information that shows you know what you're talking about and that you're not hiding anything.

• The accuracy of your financial figures and projections is absolutely critical in convincing investors, loan sources, and partners that your business concept is worthy of support. he data must also be scrupulously honest and extremely clear.
• Since banks and many other funding sources will compare your projections to industry averages in the R.M.A data, in the United States you can use the R.M.A figures to test your projections before the bank does.
• Your numbers will be more credible if they compare reasonably to the industry averages. The actual number crunching portion of your business plan is the place to discuss how and why you need certain equipment, time or talent, how much these items will cost, when you expect to turn a profit, and how much return and other benefits your investors will receive. More new businesses fail because they simply run out of cash reserves than for any other reason.
• Investors lose confidence in the entrepreneur and the business and become reluctant to invest more when projections are not met. Had the projections been less optimistic and the investors asked to invest more in the beginning, they probably would have done so.
• In most cases, proper planning and more accurate projections could have avoided this problem completely. Your business plan should clearly state the amount of funds you need, how soon you require them, and how long before you start repaying investors. You should also explain what type of financing you hope to acquire, either equity (such as through the sale of ownership shares in your company) or debt (such as loans to the company). If you’re planning to buy an existing business or already own a business you would like to improve or expand, you will also need to provide a detailed historical financial summary of how well––or poorly––the business has done in the past. This analysis should also include a comparison of this venture’s financial performance compared to the industry standards.

9.   Present yourself in the best light. The talents, experience and enthusiasm you bring to your enterprise are unique. They provide some of the most compelling reasons for others to finance your concept. Keep in mind that investors invest in people more than ideas. Even if your potential business has many competitors or is not on the cutting edge of an industry, the qualifications and commitment you demonstrate in your plan can convince others to proffer their support.

• What are your qualifications for bringing your plan to fruition?
• Your resume will be included in the separate appendix of exhibits at the end of the plan, so this is not the place to list every job you’ve ever had or the fact that you were an art history major in college, especially if these experiences have no direct bearing on your ability to start your own business. Focus the resume to the business and what's needed of you.
• The resume is the place to emphasize qualifying skills that may not be readily apparent from your resume. But don’t overlook the impact of some part of your background that might even seem unrelated to your new venture. For example, having been a pilot may demonstrate that you know how to supervise a crew of people working together to make a group experience if not comfortable, at least safe.
• You have undoubtedly handled dissatisfied or enraged customers. Even that BA degree in art history may enable you to make your products or store more appealing to the eye. Your unique qualifications will separate you from all the other people who have sought venture capital for similar ideas.
• Boasting about (promoting) these skills is not hubris; it indicates that you have a highly honed business savvy.

Method 4 of 5: Marketing Your Business and Sales

1.   Develop a strong marketing campaign. Entrepreneurs, especially inventors, often believe that their business concept is so spectacular that promoting their product or service won’t be necessary. Sort of a “build it and they will come” attitude, especially if what you’re building is the proverbial better mousetrap. One of the most common flaws in plans is the entrepreneur’s failure to describe exactly how customers will be reached and how products will be presented to them. Potential investors, staff, and partners won’t be convinced that your idea can succeed until you’ve established well-researched and effective methods of contacting your customers––and the assurance that once you’ve reached them, you can convince them to buy your product or service. Marketing describes the way you will position your product or service within your target market and how you will let your potential customers know about your company. Positioning your company means concentrating on the competitive advantages you have identified: will your product or service distinguish itself by its superior quality, its revolutionary features or its ability to make your customers happier than they’ve ever been in their lives? Marketing helps you focus on identifying your competitive advantage so you can position your product or service. It also establishes the best ways to reach your potential customers and what to say to them. When you have the right marketing campaign in place, you have an operating plan to gain market share, generate revenue, and bring your financial projections into reality.

• Consider how will you reach your customers. What will you say to persuade and convince customers that your product or service is better value, more timely, more useful, etc. to the consumer than the rival product or service? If it currently has no rival, how will you properly explain the purpose of and the consumer's need for the product?
• Marketing must treat customers as intelligent. Never talk down to a consumer or assume that consumers won't dig around for more information. Be open and honest; if there are existing limitations, it is best to be open about them and to say what you intend doing about the limitations in the near future.

2.   Build a dynamic sales effort. The word “sales” covers all the issues related to making contact with your actual customers once you’ve established how to reach them through your marketing campaign. In a nutshell, this part of your business plan is about how you will attract customers or clients for your product or services.

• How will you train your sales staff to approach potential customers? Will you divide up your sales staff so some become experts in selling your bubble gum scented bubble bath to small, independent retail toy stores? Will other salespeople concentrate on developing relationships with major manufacturers so your product could be sold in tandem through their national distribution outlets? Will you have a sales force expert in buying television slots on Saturday morning cartoon shows or placing ads on the backs of kid-oriented cereal boxes?
• What advertising and promotional efforts will you employ? For example, two for the price of one specials or free coupons inside those same kid-oriented cereal boxes? Where can you locate lists of the greatest concentrations of children under the age of eight or whatever group constitutes your market?
• In planning your sales activities, you will also need to answer questions such as: Is it ethical to contact your colleagues and clients from your former job as a door-to-door soap salesperson to tell them about your new business? Will you be the only salesperson in the beginning stages of your company? When will you know it’s time to hire more sales staff? How do you convince your clients that your sales staff will take care of them as well as you did?
• What will your basic sales philosophy be? Building long-term relationships with a few major clients or developing a clientele of many short-term customers?
• You will also need to consider how you will compensate your sales staff––with a base salary plus a commission? Will you hire full-time staff with full benefits, or part-time staff without benefits? How will you motivate your staff to do the best sales job possible?

 3.   Think about what product or service qualities will be the most compelling to your prospective customers. Knowledge of your competitive advantage is just as important in designing a dynamic sales effort as it is in developing an effective marketing campaign. The most important element of an effective sales effort is having a sales staff that thoroughly understands your business and the needs or your potential customers. Therefore, your sales plan must address the issue of how you will create a sales staff that is as knowledgeable about your business as it is about your potential customers.
Devise convincing language that clearly communicates this competitive advantage to your sales staff who will in turn use it when talking to your customers.

Method 5 of 5: Writing the Business Plan

1.   Gather all the information together in readiness to write the plan. You've done all of the hard work researching, deciding what your business is about, targeting it accurately and selling it. It's time to put the business plan together.

2.   Write up a draft of your business plan. At first, do not worry about capitalization, punctuation, and grammar. All you need to worry about is putting your ideas down on paper.
Write down everything you think you need to compile an effective and efficient business plan.

3.   Format your business plan. Begin creating section headings and putting the appropriate information under the appropriate headings. The following outline is found in The Ernst & Young Business Plan Guide. It has been in publication since 1993 and is highly regarded amongst business plan writers. Effectively separating your business' unique approach to each of these headings will organize your plan in a way investors find useful:

• Title Page
• Table of Contents
• Executive Summary – this should be written last
• General Company Description
• Products and Services
• Marketing Plan
• Operational Plan
• Management and Organization
• Major Milestones – This covers the major events that have transformed and made the company what it is today.
• Structure and Capitalization
• Financial Plan.

4.    Check for errors. Once you have a general form, proofread your plan. Correct all the mistakes that you can find. A well written document will always be more impressive than one that lacks logical sequencing and is filled with spelling errors. Have someone else read over it for you and take heed of their comments.

Tips

•  Make sure you cite your information. This way you will have support for any statistics you put into your business plan.

• Many sources exist for finding information for your business plan. Your local library and the internet are always helpful sources. If you live near a university, you may be able to schedule an appointment with one of the college's professors. The professor may be able to give helpful insight.

• In the United States, the Small Business Administration (SBA) is a useful resource for information. Many other countries have a similar resource, either government or industry funded/run, check online for assistance.

Warnings

• Do not submit your draft business plan to potential investors! However, it is advisable to give the executive summary instead of the whole plan after it is completed. Sometimes, busy investors may not have the time to look at an entire plan, which can sometimes be up to 50 pages.

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