Small Business
Jun 7, 2024

How To Write A Business Plan & Free Template

Benjamin Franklin’s famous quote: “If you fail to plan, you plan to fail,” may sound cliche, but it applies to several choices we make in life, including in the business world.

While there’s so much argument about whether or not a startup or small business needs a business plan and its impact on its success, we can all agree that planning creates a sense of direction.

It’s like making a list of items to buy at the grocery store or having a checklist of activities to accomplish daily.

Yet, most startup founders make several mistakes when creating a business plan, especially while planning to secure funding, which can reduce the chances of getting their business idea into the limelight.

After creating and analyzing several business plans for startup firms, most of which have secured funding from venture capitalists, we’ll outline the proper steps to write a plan for your business.

Part One: What to Do Before Writing a Business Plan

Proper preparation precedes proper performance. But this is among the mistakes in creating a business plan—failing to prepare for it.

From research, companies that take time to create business plans grow 30% faster than others that don’t.

However, the distinguishing factor here isn’t the business plan but making a well-prepared one.

Before you start writing a solid business plan, invest some time to:

  • Define your business concept
  • Conduct market research
  • Conduct a competitor analysis
  • Develop a marketing strategy
  • Determine your financial projections

Defining Business Concept

Business ideas are like fragments or parts of a puzzle. You’ll need a plan defined by your business principles to fix them into a working structure.

The first step toward this is identifying the skills and experiences that drive your decisions.

It could be financial literacy, analytical thinking, or strategizing. Ideally, these things should align with your business.

With these in mind, you can determine your value proposition – the unique values your business will offer customers.

It could be your product or service that solves a problem or fulfills a need in the marketplace but differentiate your business from competitors.

While you identify these needs through your value proposition, you know your ideal customersbetter. This way, you can work on ways to find them and position your business as a solution.

To determine your solutionmeans to outline your business model. Think of it as ways you can generate revenue for your business. It could be selling products or services, advertising, or other means.

But you must know that other businesses already offer such solutions – your competitors.

So,research the competition to identify gaps and opportunities to differentiate your offerings.

Conducting Market Research

If there’s one thing to note, it’s the importance of researching your market. Through it, you can:

  • Identify customer needs and preferences.
  • Evaluate market trends.
  • Assess the competitive landscape.
  • Inform product development.
  • Support effective marketing.

We’ll walk you through the steps to conduct in-depth research without breaking a sweat.

Step One: Define Your Research Objectives

What questions do you want to answer? What information do you need to collect?

You can tailor your research efforts and ensure you’re collecting relevant data through these questions.

Step Two: Identify Your Target Market

In running a business, customer satisfaction is a primary goal. But you can’t satisfy customers if you don’t know who they are and what they need.

To identify your target market in one sentence: Define your offerings and find customers with those needs.

Here are some points to help:

  • Define Your Product or Service: Start by defining what you are offering. What problem does your product or service solve? What benefits does it provide? This helps provide a basis for navigating your research.
  • Research: Identify your service industry and existing problems that align with your offerings.
  • Create Customer Personas: A customer persona is a profile that represents your ideal customers. It includes information about their needs, preferences, and behavior. You can use free tools like Hubspot and SEMrush to create customer personas.
  • Evaluate the Market Size: Look for data on the number of people in your target market and how much they spend on products or services like yours.
  • Test Your Assumptions: By conducting surveys or focus groups. It’ll help you to validate your assumptions and ensure you’re on the right track.

Step Three: Collect Secondary Data

Identify existing data and information about your industry, market, and competitors. You can check industry reports, government publications, academic journals, and trade publications.

However, data accuracy is vital, so verify the sources and methodology used to collect it.

If possible, compare the data from multiple sources to ensure accuracy. For easy reference, you can document your sources.

Step Four: Conduct Primary Research

Primary research focuses on identifying direct opportunities within your industry. To do this, you can use methods like surveys, interviews, and focus groups.

Depending on your method, you may need to design a questionnaire, interview guide, or observation protocol for your sample audience – the individuals or organizations participating in your research.

After collecting your data, compare them with the findings from your secondary research and load them into a spreadsheet for analysis.

Step Five: Analyze the data

From your spreadsheet, analyze data points to identify key insights and trends. Look for emerging patterns and themes that provide a chance for growth, refining your target market and adjusting your product or service offerings.

Conducting a Competitor Analysis

Competitor analysis helps you identify businesses that directly or indirectly share your customer base.

When an investor or potential business partner looks at your business plan, they want to evaluate your competitive position and chances of success in the market. You can show this through a competitor analysis.

While a competitor analysis can include various parts, we prefer a simple three-step process. Here’s how it works.

Step One: Group Competitors

To group your competitors, you can start by listing the top businesses that directly offer your products or services, including those with different offerings but can still satisfy your customer needs.

For instance, as an accounting software service, your direct competitors offer the same services. Your indirect competitors, on the other hand, offer services like bookkeeping.

While you don’t need to focus on your indirect competition, you can keep them in view since they can change positions.

Step Two: Gather Data on Your Competitors

This is where you employ spy tools like SEMrush to see what your competitors are doing. What are you looking for? Information on their:

  • Products or services.
  • Pricing.
  • Marketing strategies.
  • Target customers.
  • Strengths.
  • Weaknesses.
  • Market share.

You can also gather this information by visiting their website, analyzing their social media profiles, reading customer reviews, and conducting surveys.

Step Three: Analyze the Data

There are several competitive analysis frameworks. The most popular ones are SWOT, Porter’s Five Forces, Strategic Group Analysis, Growth-Share Matrix, and Perceptual Mapping.

While these frameworks use different approaches, we recommend SWOT analysis because it helps you identify your competitor’s strengths, weaknesses, opportunities, and threats.

Strength Analysis

Identify your competitor’s internal strengths and the key resources that give them an advantage over you. For example, one of Apple’s strengths is its vast range of innovative products and robust distribution network.

You can learn about the strengths of your competitors by answering these questions:

  • What are your competitor’s unique strengths that distinguish it from yours?
  • What resources and capabilities do they have that are valuable, rare, and difficult to imitate?
  • What advantages do their products or services offer that make them superior to yours?
Weakness Analysis

Learn about your competitor’s internal weaknesses that can make them vulnerable. It could be due to an inflexible system or lack of innovation.

To conduct a weakness analysis, consider the following:

  • What are the company’s limitations and areas it needs to improve to remain competitive?
  • What are the vulnerabilities that could hinder its growth or profitability?
  • What are the factors that put it at a disadvantage in the market?
Opportunity Analysis

While analyzing for opportunities, check the external factors that could benefit you in the market. It can include the growing demand for AI innovations or cloud computing solutions.

Answering the following questions can help:

  • What are the emerging trends or technologies you can leverage to gain a competitive advantage?
  • What are the untapped market segments or customer needs you can address?
  • What are the potential partnerships or collaborations you can explore to expand your business?
Threat Analysis

Like weakness analysis, this checks for vulnerabilities. However, you consider external factors in this case.

For example, in the automobile industry, potential threats can be ride-hailing services like Uber and Lyft, disrupting the traditional car rental market.

You can identify threats by answering the following:

  • Who are the emerging competitors or substitute products that pose a threat to your market share?
  • What are the regulatory or legal issues that could affect your operations?
  • What are the economic, social, or environmental factors likely to impact your profitability?

Developing a Marketing Strategy

A market strategy can define a lot, especially for a small business. From identifying your target audience and unique offerings, you want to find relevant channels to interact with them and ways to do it better.

In a business plan, this strategy can help you communicate how you intend to reach your final consumers, position your product or service, and differentiate your brand from the competition.

Considering that you know your target audience and unique offerings, the best marketing strategies outline marketing channels and a sales/distribution plan.

  • Marketing Channels: Investors want to know that you have a plan for promoting and selling your product or service. So, outline your marketing methods, such as social media, email marketing, or advertising, to achieve this. We suggest starting with a channel you find most comfortable before branching out.
  • Sales and Distribution: Include a plan for distributing your product or service and generating sales. Some approaches include creating strategies for pricing, packaging, and distribution.

Determining Your Financial Projections

People want to invest in a financially healthy business.

You’ll need to show this through projections in your business plan that forecast your company’s financial health, performance, and potential profitability.

To create a financial projection, gather data about your business, such as past financial statements, market research, and sales projections. Then, use it to design models that forecast your:

  • Revenue: An estimate of the amount your business will generate over a specific period. It considers your target market, pricing strategy, and sales projections.
  • Expense: An estimate of how much you’ll incur to operate your business. It includes fixed costs like rent and salaries and variable costs like materials.
  • Profit and Loss Statement: A summary of your revenue, expenses, and profit over time. It shows investors how much you’re making or losing.
  • Cash Flow Statement: The estimated cash inflows and outflows of your business.

Also, consider comparing these forecasts to actual results from industry benchmarks to refine your estimates and get accurate results.

Part Two: How to Write a Business Plan

To put all the pieces of your research, analysis, and planning done in the first part together, we’ll explain ten steps to draft a successful business plan.

Step One: Choose a Type of Business Plan

When creating a business plan, a one-size-fits-all approach wouldn’t cut it.

This is because there are several types of business plans, and it can even get confusing when naming them.

Some popular types of business plans include:

  • Traditional business plan.
  • Lean business plan.
  • Feasibility business plan.
  • One-page business plan.
  • Standard business plan.

The secret to choosing a business plan is to identify its purpose. In this case, we’ll use the best fit for a startup.

While a traditional business plan goes all in to cover every detail, it’s not necessary for a startup whose positioning isn’t as stable as established firms.

The best approach will be to start with a lean business plan that doesn’t include all the summaries and background details.

Then, you can move into a standard business plan, which includes all the vital information required by investors, banks, or partners during presentations.

It’s also necessary to have a one-page business plan that serves as a summary during pitch decks.

Step Two: Create an Executive Summary

As the first section of your business plan, your executive summary should provide a quick understanding of the plan’s vital elements.

It can highlight your mission statement, products or services, ideal customer, competitive advantages, business financials, and funding needs.

You can follow these steps to draft an executive summary:

  • Start with a strong opening statement that captures the essence of the business plan.
  • Clearly describe your business and mission, including what products or services it offers and the problems it solves.
  • Identify your target market and the size of the opportunity. Take note of any relevant trends or growth projections.
  • Highlight your competitive advantages, such as unique features, proprietary technology, or a strong brand.
  • Provide an overview of your financial forecast that show revenue, expenses, and profit margins.
  • State your financial needs, like how much capital you need and how you’ll use it.
  • Conclude with a call to action or summary statement that reinforces your value proposition and why it’s a compelling investment opportunity.

Step Three: Write Your Company Description

Your company description aims to explain what your business does, its industry and market, and its unique selling proposition.

Here are some tips you can use to write one:

  • Write a summary statement to describe what your business does and its primary products or services.
  • Write your company history, including its founding date, ownership structure, and significant milestones or achievements.
  • Explain your industry or market size, growth potential, and trends or challenges.
  • Define your customer segment. Add information on their demographics, needs, and preferences.
  • Describe your competitive landscape, including your main competitors, their strengths and weaknesses, and how your business differentiates itself.
  • Provide an overview of your business operations, including your physical location, manufacturing or production process, distribution channels, and other relevant details.
  • Explain your unique proposition and how your products or services meet the needs of your ideal customers better than your competitors.

Step Four: Explain Your Market Analysis

From what you gathered in your analysis, explain each point in your business plan. Here’s how:

  • Highlight the size of your ideal audience, its growth potential, and any changes or trends that could affect prospects.
  • Define your competitors and assess their strengths and weaknesses.
  • Explain what makes your products or services unique and how.
  • Explain how you’ll reach your target customers, what channels you’ll use to promote your business, and what pricing strategies you’ll employ.
  • Add reliable sources of data to support your market analysis.

Step Five: Describe Your Products or Service

In this section, do the following:

  • Write a detailed description of your product or service and how it works. Try being specific about its features, benefits, and unique selling proposition.
  • Highlight the problem your product or service solves and how it meets the market demand. Also, highlight the benefits and advantages that set your product or service apart from competitors.
  • Detail your plans for developing and improving your product or service over time. It could include plans for new features, upgrades, or expansions.

Step Six: Explain Your Marketing and Sales Strategy

You can define what works best for your industry from research and analysis of your competitor’s marketing plan and sales strategy.

In this section, you need to do the following:

  • Describe your marketing plan to reach your target markets. It can include social media marketing, email marketing, search engine optimization (SEO), pay-per-click advertising, or traditional advertising methods such as billboards.
  • Define a set of marketing goals and metrics to measure the success of your marketing efforts. Include metrics such as website traffic, social media engagement, or conversion rates.
  • Estimate how much money you’ll allocate to marketing and outline how you’ll spend it across different marketing channels.

Step Seven: Highlight Detailed Financial Projections

Highlight your vital business financials – starting costs, operating expenses, revenue, and cash flow statements.

Here are some tips to help:

  • Estimate your month or quarter revenue based on your pricing strategy, market size, and sales channels.
  • Identify your fixed and variable costs, such as rent, utilities, salaries, and marketing expenses.
  • Create a projected profit and loss statement using your sales forecast and expense estimates.
  • Write a cash flow statement to show how much money your business can generate or use up over some time.
  • Determine your break-even point to set realistic revenue and expense goals.
  • Ensure that your projections are from realistic assumptions.

Step Eight: Highlight Your Management and Personnel

Describe your management team, their qualifications, and any key personnel you plan to hire.

Include an organizational chart and explain the roles and responsibilities of each team member.

Step Nine: Describe Your Implementation Plan

This section includes a timeline, milestones, and specific action items. Here’s how to draft one:

  • Outline specific steps you need to take to achieve your business’s goals.
  • Set clear timelines and milestones to help you stay on track and ensure that you’re making progress toward your goals.
  • Identify the resources and requirements needed to implement your plan, including personnel, equipment, facilities, funding, and other critical resources.
  • Assign responsibilities to specific team members or departments.
  • Consider potential roadblocks that’ll likely prevent you from achieving your goals and develop contingency plans to address them.
  • Don’t set yourself up for failure by setting unrealistic expectations.
  • Include a budget that outlines the costs associated with implementing your plan.
  • Use visuals such as charts, graphs, and tables to help communicate your implementation plan clearly and concisely.

Step Ten: Appendix

An appendix is a section where you include supplemental information supporting the main body of your business plan.

To write one, determine what information to include here. It could be resumes of top team members, legal documents, and other relevant materials.

Then, logically organize the appendix, such as by section or category. This way, the reader can locate the information they need.

To make things easier for you, here’s a free business plan template.

Wrapping Up

While seeking a business loan from external investors or banks, a business plan can help describe your offers, customers, financial forecasts, teams, and more.

Traditional business plans might not be necessary for a startup because your goals, offerings, and positions can change with time.

It’s best to start with a lean startup business plan, then add extra details, like an exit strategy, based on what’s required.

Let us know if this guide was helpful. If it was, please share this post and tell us about your processes and challenges in the comments below.