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How to Create a Business Plan

How to Create a Business Plan

Is 2018 the year you want to start a business or take your business to the next level? Having a great idea isn’t enough to be successful–you also need capital. If you are considering applying for a small business loan, creating a business plan is an essential first step.

What is a business plan?

 A business plan is a document that defines your business and outlines your company’s goals and your strategies for reaching them. It is essentially a road map that projects the path you expect your business to take within the next three to five years. A business plan is a necessity for securing funding, and creating one can be valuable exercise for scrutinizing virtually every aspect of your business and your objectives.
Why do you need one?
If you are applying for a small business loan, your bank will require a business plan before approving your funding. They want to know the financials including your projected cash flow and your expenses. Banks want to be confident that your business will be successful and that you won’t default on your loan.

What should be included in a business plan

 While business plan formats vary, it is recommended that all plans include the following:
  1. Executive Summary and Overview

    A synopsis of your business, unique selling proposition and why you think your business will be profitable.

    Think about what problem your business solves and how you will stand out in the market. This summary is basically your “elevator pitch” and should entice the reader to continue on to the next sections. While this section should be the first part of your business plan, it should be completed last. Write it after you have taken a deep dive into your business goals, financials, and your marketing and sales approaches.

  2. Market/Industry Analysis

    Information about your market and industry.

    This section should describe the size of your industry, trends, your direct and indirect competitors, the demographics of your target customers, and your position and market share in the industry. Do your research and check–and double check–your facts. If you’ve conducted any market testing, this is the section where you can include your findings. Your analysis should demonstrate that you have a thorough understanding of your market, your competition and how you will distinguish your business from the rest.

  3. Management

    A detailed description about your organizational structure.

    Specify the roles and responsibilities of key people in your organization such as:

    • Owner
    • CEO
    • CFO
    • Other executive team members

    Include information about their educational backgrounds, relevant business skills and experience, and how your team will work together. This section should assure a potential lender that your core team has the expertise to elevate your business.

  4. Marketing Plan

    An explanation of how you intend to market your business.

    Identify and clarify how you are going to reach–and retain–your target customers. How will prospects find your business and how will your business find them?  What does your sales funnel or buyer’s journey look like? Your marketing plan should answer these questions.

    This section is where you showcase your “plan of action.” Describe your sales and marketing strategies in detail and explain your tactics for advertising, distribution, digital marketing, pricing, etc. While tactics are not written in stone and may be altered along the way, you should have a strategic plan in place.

  5. Financial Plan

    The numbers and your financial forecast.

    The financial plan is one of the most critical components of any business plan. This is the “numbers” section and should include information that illustrates the viability of your business idea and its potential for turning a profit.

    The financial plan section consists of the following:

    • Budget
    • Balance sheet
    • Income statement/profit and loss statement
    • Cash flow projection
    • Charts, graphs, statistics and financial documents to help explain or support your data

    A prospective lender will want to know how much revenue you are generating now (if you are an existing business), how you will use your funding, and how that funding will help you generate even more revenue in the future. Include a short-term financial forecast as well as a medium-term forecast.

    When calculating your forecasted sales and revenue, be realistic. You may want to offer both a best-case scenario and a more cautious forecast. Expressing confidence is good but being overly optimistic can be a red flag to banks as it can signal that you may not be prepared for the challenges and risks involved with business ownership.

  6. Funding Request

    The “ask”.

    The previous sections of the business plan illustrate the feasibility of your idea and your ability and qualifications to get it off ground. This section contains your request for a loan that you can use to help bring your idea to fruition.

    Specify how much money you need and how the funds will be used, e.g., inventory, payroll, equipment, marketing, etc.  Include quotes you may have for particular expenses. Your request should state your immediate funding requirements, as well as your projected funding needs for the next five years. This section can also cover how you will pay back your loan based on your projected sales and cash flow.

    Creating a business plan may seem overwhelming, but it is a necessary task that can help transform your idea into reality. Take your time completing each section of the plan and always keep in mind your intended audience. If you are looking to secure funding, your audience is a bank or investor. An effective business plan needs to convince a lender that your business will generate a profit and that you are credible and will repay your loan. It should contain factual information and realistic assumptions that will persuade a lender to make a financing decision in your favor.