How To Write An Effective Business Plan

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In a previous article titled Eighteen Reasons For Writing Your Own Business Plan, I encourage aspiring entrepreneurs to craft written business plans before embarking on new business ventures. Now I add these instructions regarding how to write such a plan.

A formal business plan is a written statement of the nature, goals, finances, and strategies of your business. It serves as an internal management tool as well as a document for presentation to third parties who will evaluate the business with a view to extending loans or investing money. Everything in it should assist you in some way.

Three things contribute to drafting an effective business plan:

    1. Research

    Making a business plan requires gathering and organizing information in order to fulfill the needs of the business’s owner and of third parties who evaluate the company.

    2. Writing

    Hone your plan into an effective business-planning tool through good writing and editing. If you do not have the skills to do this, hire a writer or editor to work with you to make the document as clear as possible.

    3. Honesty

    Your business plan is no better than the information upon which it is based. If you make decisions using erroneous data, you may suffer negative consequences later.

Here are some suggestions regarding what to include in your business plan:

1. Mission Statement.

A mission statement is a declaration of the purpose of the business. It should state the overall goal of the company and provide a general guideline for operations. The mission statement is the organization’s raison d’etre (reason for being).

2. Executive Summary

The executive summary is an introduction that outlines the goals, direction, and strategies of the business. You should write it with a view toward marketing your business concept to third parties. The executive summary is a primary section of the business plan and should convince lenders and investors of the viability of your business model.

Your summary should be focused and short, probably no longer than a page, and should present the principal elements of your plan. You should incorporate key financial data to make it complete.

Many people will not read your entire plan, so including the salient points up front is a must. If you are seeking a loan, you should include a statement regarding how you intend to repay it. If you want investors to participate, you should talk about the returns they will receive on their investments.

3. Description of the Business

The description should include a brief history of your business idea and how it developed into a serious proposal. You should discuss what generated the concept, how it evolved, and why you believe it will work.

4. People

People are your business’s cornerstones, and investors and lenders will want to know who is involved and what they bring to the table. You should identify the idea-generators, startup personnel, and full-time employees. Including detailed descriptions of the jobs to be filled is also important. If you plan to use consultants, part-time help, temporary-employment agencies, or contract workers, you should include that information as well.

5. Economic Environment

Understanding the economic environment for your new business is paramount. Investors and lenders will want you to be fully apprised of the difficulties you face.

General economic downturns do not affect every business, but even with a strong business model, avoiding the fallout is not always guaranteed. You’ll need a business plan that will convince investors that your business won’t falter when uncertain economic circumstances present themselves.

6. Marketing Strategy

In the marketing-strategy section of your business plan, you should include information about the marketing options that exist for your business model as well as a scheme for implementing them. Begin with practical marketing ideas that are likely to bring results, and then work toward more speculative ones that you would like to test along the way.

7. Analysis of the Competition

Being familiar with your competition is important no matter whether or not your business model is similar to those of your competitors. If it’s the same, you may want to modify it and create your own niche. If it’s different, you’ll want to get a feel for your competitors’ abilities to co-opt it and your ability to protect it.

8. Financial Projection

Making financial predictions for a new business is tricky. You should be conservative about your profit-and-loss and cash-flow projections. Getting money flowing into a business often takes longer than expected. Erring on the safe side when estimating the amount of cash the business will generate will make investors and lenders more comfortable with your plan.

9. Development Plan

In the event that your business takes off, you should have ideas about the direction it may take when it does so. As your business develops and the cash flows, you may find yourself with greater administrative demands on your time and extra money to purchase the managerial assistance you need. You should include guidance in your business plan in anticipation of such growth.

10. Management Plan

Your management plan should set forth how you intend to administer the business. Will you be the principal manager, or will you hire someone to oversee operations? How will you structure employees’ reporting? How much leeway will you give employees to make decisions? Investors and lenders will expect you to address these things and more.

11. Exit Strategy

Every wisely structured business plan includes an exit strategy. Although remaining optimistic as your business gets underway is important, foreseeing how to escape if things don’t go as planned is equally so. In the event that the business does not succeed, your plan should include a proviso for unwinding the operation. In line with the expectation of success, however, you might decide to include a succession plan.

12. Résumé and Personal Financial Statement

Lenders and investors will want assurance that you have the requisite education and experience to turn your business idea into reality. You should focus your résumé on your experiences that contribute directly to the proposed business. In addition, you should draft a personal financial statement comprised of a balance sheet and an income statement.

Conclusion

Your business plan is a document to which you should refer often and that you should modify as your business evolves and matures. Drafting the plan is not a one-time exercise, but rather an ongoing process that will keep your business on track and help you incorporate concepts that favor growth. Once you learn to use your business plan as a dynamic tool for effecting change and tracking progress, you will extract the maximum benefit from it.

 
Eighteen Reasons For Writing Your Own Business Plan

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