Writing a business plan

What is a business plan, and why do you need one? A business plan lays out your goals for your business and how you plan to achieve them. If you intend to seek financing from outside sources such as banks or investors, you need a business plan.

Even if you aren’t looking for financing, writing a business plan is a smart first step. Creating your business plan forces you to think through everything you’ll need to do to get your business off the ground. You’ll discover potential problems and come up with solutions. You’ll also uncover new opportunities.

A business plan has seven sections:

1. Executive Summary: If you’re using your business plan to get financing, be aware that the executive summary is the first thing the recipient reads. If it doesn’t impress him, it will be the only thing he reads. Craft a summary that concisely and compellingly explains what your business will do and why readers should be willing to invest. Describe the company’s legal form of business, the amount and kind of financing you need, how it will be repaid, and how much equity the lender or investor will receive. Keep this part short—no more than a page.
2. Business Description: Expand on the executive summary, describing your business in much greater detail. Start by describing your industry. Explain the target market for your product or service; how the product will be distributed; and the advertising, marketing and customer service strategies you plan to use. Next, describe your product or service. If seeking financing, explain how you’ll use the money to make your business more profitable.
3. Market Strategies: Define the size and projected growth of your market, and what percentage of the market you expect your business to control. Explain the strategies you’ll use to meet those goals, including your pricing strategy, distribution method and sales structure.
4. Competitive Analysis: Every business has competitors. This section must show that you understand your competition’s strengths and weaknesses. Explain what business strategies will help you beat the competition and the methods you will use to prevent future competitors from getting into your market.
5. Design/Development Plan: Here, you explain how you plan to design and develop your product or service. In the design section, detail the product’s design and the how it will be constructed. In the development section, explain how you will develop the product, the market for it, and the organization of the business.
6. Operations/Management: This section explains how your business will operate from day to day. It includes a profile of your key managers, their experience and responsibilities, what each department of the business will do and what your operating expenses will be.
7. Financial Section: This section includes financial statements that detail your business’s projected profits.
   • The income statement shows how much cash the business will generate. Provide a monthly income statement covering your first year in business. Provide quarterly income statements for the second year and annual statements for the next five to 10 years, depending on how far out your plan is projecting.
   • The cash-flow statement shows how much money you expect to come into and go out of the business for each month of the first year and each quarter of the following years.
   • The balance sheet shows your business’s assets and liabilities. Create a balance sheet for each year projected in your business plan. You may want to include other financial information; your accountant can advise you about this.

Your business plan isn’t something you work on once and then forget about. As your company grows, review your plan every year to see if you’re on track and to make adjustments that reflect your new goals.