Are you thinking about starting a business?
Maybe you already have a business.
Either way, I’m assuming you do planning for your business, right?
That means you have the following in place:
1. A business plan, essentially providing the framework for your business
2. An understanding of the key metrics/data points for your business
3. A cadence of reviewing the key metrics in your business
4. A process for shifting your business based on those key data points
5. A process for periodically updating your business plan
You have all of those elements in place, right?
Well if you don’t, you are not alone. Many would be or actual business owners are lacking in this area.
And that is a problem.
You see, business planning is about more than just creating a business plan once and filing it away. It is an ongoing process of understanding who your customers are, what problems you are solving for them, the opportunities that your business has, the threats that could hurt your business and what the financial projections and actuals look like.
That is why when we describe this topic, we describe business planning, not a business plan. Planning is on ongoing process, as compared to a plan that can be outdated and wrong the moment the ink dries on it.
“Plans are worthless, but planning is everything.” – Dwight D. Eisenhower
What is a Business Plan?
So now that I just finished emphasizing the point that business planning is more than a business plan, I want to go back and start with the basics.
A business plan, in the most simple terms, is a document that contains the goals of a business and a strategy for reaching those goals.
Now there are a lot more elements that exist within a business plan to support those two items, but those two items encompass the purpose of the plan.
Why Does Your Business Need a Plan?
There are 3 primary people who are likely interested in your business plan.
2. Potential Business Partners
3. Potential Investors
Let’s start with you.
Even if you are not seeking business partners or investors, you and your business will greatly benefit from a business plan. You see, a business plan can act as a map or guide for your business. In order to create a business plan, you must do some initial research to understand the goals of your business, who your business is serving (and who your business is not serving), how you are serving them and how you will make money.
In reality, it is the research that goes into creating the business plan that is the most valuable part of this process.
Being able to formulate a business plan with these basic elements is the first step of business validation. That is, understanding a market, their needs and a potential opportunity to generate money from fulfilling that need to that market.
Now what if you are seeking partners or investors?
Well, the same basic business plan template works, but you will want to add some additional content.
Potential business partners are going to want to understand where they fit into the business, and more importantly how they will benefit from becoming part of the business.
Potential investors are going to want to focus on the financials and want to understand potential risks, how they are mitigated, how much of an investment you need from them and when they will get their money back.
What Should Go Into a Business Plan?
We recommend including 7 basic elements in your personal business plan. That is, one that is used to guide you and your business, not necessarily to help find partners or investors.
Those 7 key elements are:
- Overview: What is the company?
- Team: Who are the people involved?
- Operations: How does the company work?
- Audience: Who is the target market and customer?
- Competition: Who else is doing this?
- Financials: How much are you projecting to sell and profit?
- Roadmap: What is the plan for executing?
So now that you know the elements, let’s dive a little deeper into each section.
Section 1 – Overview
Even though this is the first section of the business plan, we recommend writing it last. This section will contain an overview of your entire business, and until you do the research for the other sections, it will be a challenge to describe your business.
Once you have completed the other sections of your business plan, write a few sentence summary of each sentence. This should be ~1 page, but could be two if needed. If you are presenting this to potential partners or investors, you may want to use two pages to better describe and focus on the areas that they would be interested in.
Section 2 – Team
Any successful business comes down to the people. The best idea/product/service and the best process don’t mean much if you don’t have the right people to guide and grow the business.
So in this section, you will provide a brief overview of the owners and their relevant background/experience that will allow them to be successful in this business. You will also want to describe any other key roles that are needed for the business, even if they are not currently filled. This will allow you (as well as anyone else reading the plan) to see a full picture of what roles and capabilities are needed to make the business successful.
Section 3 – Operations
After people, the process and the product come next. So in this section, you get the opportunity to describe what you are selling and the process that supports that.
We are big fans of a visual flow in this section. We like to describe the entire business in a 6 step (or less) process. This forces us to make sure we understand our business enough to simplify it down to 6 steps. It also makes it very clear to anyone reading what our offering is and how it is delivered.
We prefer to show 2 perspectives on this; the first being the customer experience as they interact with us and use our product/service, and the second being the “back-end” or how we deliver and support the customer experience.
This section is also an opportunity to do a SWOT analysis on our business. A SWOT analysis is essentially a way of looking at your business from four perspectives: Strengths, Weaknesses, Opportunities, and Threats. By identifying these 4 areas, you can then explain how you will leverage your strengths and opportunities and mitigate the risk on your weaknesses and threats.
Section 4 – Audience
In order to be able to have a successful business, you must have customers who are willing to pay for your product/service. This means that you will have to identify who your audience/market is and really understand them. People will generally spend money for one of two things: things they want (pleasures) or things they need to cure/avoid (pain).
So this section of your plan will be spent honing in on who your audience is (including who your target/ideal customer is), understanding their wants and needs and doing some preliminary analysis to see if the potential market could support your business.
Section 5 – Competition
Your business is likely not the only business in the market. That means, there will be other businesses who are also targeting your potential customers. If you are the only business in the market, then you will still have to compete with other businesses as you will need to convince people to purchase your product over another product.
So in this section, you will identify who your main competitors are and essentially do a SWOT analysis on them. You want to identify where they are doing well and where their may be a gap/opportunity for your business to differentiate itself and gain some customers.
Section 6 – Financials
A business is only a business if it makes money. And you want to make money, right? Although it will likely take some time to become profitable, you business eventually has to make money or you will be out of business.
So this section of your plan will discuss the money coming into your business (income) and the money going out of your business (expenses). We recommend including the following sections:
- Startup Expenses: One time costs to get your business going.
- Projected Revenue: How much income you think the business will make each year for the first 3-5 years.
- Projected Break Even Analysis: How much income and how long it will take to break even.
- Projected Profit and Loss: A breakdown of the first 3-5 years and how much revenue comes in, expenses go out, debt is paid down and ultimately how much cashflow is left over.
Section 7 – Roadmap
In all of the previous sections, you have define your business, your customers, your competition and your financial targets. So now in this section, you will define the plan for business goals and how to achieve them.
In this section, we like to lay out the goals for the business (at a minimum for 1 year, but we tend to go out 3-5 years). We then break down the next year into quarters and focus on what the smaller quarterly goals are and what we will do to achieve them.
What Do You Do After Creating Your Business Plan?
You finished your business plan, congratulations! You took anywhere from a week to a few months to put your business plan together. Now what the heck do you do with it?
Well, before get into that, a note on how much time you should spend on your business plan. It really all depends on the size of your business and the risk involved. In general, the more risk, the more time spent.
If you are creating a business with little money investment (ex. < $1,000), I would recommend not taking more than two weeks to put your plan together. This should give you enough time to do some research and get a roadmap together.
If you have a more significant investment (ex. $10,000 or more), and especially if you are seeking outside investors, you will want to spend more time to ensure that you vet out the plan and that you really understand the market, your SWOT analysis and your financial projections.
So now that you have your plan, you want to begin executing on the roadmap that you laid out. Given that the roadmap defines your initial goals and some timeframes, now you should be doing some project planning to understand what works needs to be done in order achieve those goals.
We personally recommend a series of check-ins on your business plan.
- Annually – Once a year you should do a deep dive on your business plan and update every section. This should reflect what your business actual looks like at this point, as well as a comparison on how your financial projections compared to reality and what your financial projections should be for the upcoming year.
- Quarterly – Given that there are 4 quarters in a year, the beginning of each quarter is a good time-frame to review progress on your overall year plan, update the objectives for the quarter and break them down into targets for each week.
- Weekly/Bi-Weekly – This is a good chunk of time for breaking down and planning the detailed work, as well as retrospecting back on progress and making adjustments for the upcoming week or two.
- Daily – A quick sync with members of the business on the most important things to do that day in order to move forward, as well as a check in on progress (are we on track, ahead or behind)
Your Turn – Creating Your Own Business Plan
So now that we have given you a walk through the process, we want to help you get started (or update) your business plan and establish a business planning process.
In case you missed it in the post, get the free business plan template (with instructions for completing it). This post + that template will give you the foundation that you need to create your business plan and put your business planning process in place.
And just in case you need a little more, we’ve put together a mini-course to really take you step-by-step through not only creating your business plan (with a deep dive on each section), but also how to incorporate this plan into your business once you have it completed. This mini-course has been pulled directly from Startup Academy, which is our private membership site for entrepreneurs. In addition to many other mini-courses like this business planning one, it also provides more access to us to answer your questions, a monthly call for members and a supportive community of other entrepreneurs. If you would like more information or to join, simply click here to learn more.
Update: Since we’ve published this post, we’ve really shifted to having people use a 1-page business plan called a “Lean Canvas“. We’ve found for most people that this is an easier way for them to get started and to test their idea.
Click below to grab your free copy of this business plan, along with instructions for completing it.