The decision to create a business plan is an important one, whether you're starting a new business or growing an established one. A solid business plan is fundamental to long-term business success.
It serves two main purposes:
- It acts as a roadmap for your business.
- It is a tool that helps you obtain outside financing.
While the phrase “creating a business plan” may conjure up feelings of trepidation and dread, it will not be as difficult if you break your business plan down into its more essential parts.
Why do you need a business plan?
Benjamin Franklin said it best: “If you fail to plan, you are planning to fail.” While a business plan will not guarantee success, failing to have one almost guarantees that you will not find the success you seek.
Remember the roadmap analogy? It's an accurate one to consider. The first thing you need to do before creating the roadmap, though, is to figure out where you are heading.
In order to do that, you should ask yourself four simple questions.
- How do you want your business to look in one year?
- How would you like it to look in three years?
- Where do you want to see your business going in five years?
- What would you like to have accomplished by your tenth year in business?
Seek the answers to those questions, keeping in mind profits, revenues, expansion, growth and other critical drivers and metrics for your business.
Financing for your business
As your business grows, so will the need to support growth expenses such as expansion, inventory and equipment and cash flow. A loan or line of credit from Old National can help finance these costs.
What does a business plan include?
In order to build the roadmap to reach your intended business destinations in a timely manner, you must include key pieces of information and analysis in your plan. The many moving parts of running your business become the fundamental building blocks of your long-term business plan. Consider each of them a pit stop along the road to business success.
Your business concept is a summation of your company in a few concise and simple sentences. It should clearly communicate the idea, design or value proposition behind your business so that a customer, investor or potential partner can quickly grasp what you will do and the value it will provide. Keep the concept statement to one paragraph.
Your business strategy provides the detail on how you will execute the business concept. It describes your industry, explains your product or service, and the critical factors that will drive your business success. Those factors might include such things as your management team, operational plans or cost advantages. In essence, it is an executive summary that explains why your business is uniquely suited to succeed.
Specific things you should consider while creating the strategy section of your plan include:
- Products or services offered now
- Products or services to offer in the future
- The size of the market
- How the market is changing
- Industry trends
In the market analysis section of your plan, you need to explore the ins and outs of your potential customers or markets.
- Who are they?
- Where are they?
- What motivates them to buy the items or services you offer?
- What do they want or need from you?
- How are you going to attract new customers?
- What do you plan to do to keep them coming back?
Most importantly, though, is to answer this one question: “How are you profitably going to meet the needs of your target customer?”
In order to be complete, your marketplace analysis must pay attention to your competitors. This is necessary whether you are an established business looking to expand or a new business interested in taking business away from other established businesses in the area.
Questions to ask yourself here, include:
- How is your business going to succeed in a market that is already being sufficiently served by another business in your industry?
- Is there sufficient demand to bring another business into the market or expand your existing business?
This section of your business plan will look at the financial aspects of your business. As a new business you will need to include:
- Break-even analysis
- Financial ratio calculations
- Internal and external funding requirements
- Projected revenues and profits over one, three and five-year terms
Don’t forget to include plans for assets the business needs to acquire and the costs of the marketing plan the business intends to follow coming out of the gate.
Existing businesses need to include cash flow statements, balance sheets and pro-forma income statements, for example.
Keep in mind, you should provide information that will assist potential lenders and investors in approving loans or green-lighting investments in your business.
Maintaining your business plan
You should not just write a business plan and place it in a drawer. To get the most benefit from it, it should be a dynamic evolving plan. You must adjust your plan as necessary with changing markets, new product concepts, evolving technology, need for additional financing and goal achievements, just to name a few. An old business plan may not reflect reality any longer, so be sure to revisit your business plan periodically. Having an update checklist helps you to do just that.
In the beginning, making a business plan may seem like a onerous task. It can be simpler if you break it down into its individual components. Once you have a plan in place, you will begin to see the effectiveness of how such a simple business tool can take the guesswork out of starting a business or growing one.
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