A business plan is a written document that defines your business concept and maps out how you'll create a profitable operation. Creating a small business plan is an important piece of the startup process because it helps business owners get clarity around concept viability and what it will take to succeed.
If you're seeking bank or investor funding, a business plan is essential because it's a core component of funder decision-making. To make sure yours does the job it's intended for, both internally and externally, follow this advice from the pros.
1. Research Your Audience and Competitors Before You Start Writing
An in-depth study of the industry, competition, and audience will help you refine your offering, price, and positioning. Be prepared for a few surprises, especially if you haven't done a deep dive yet.
"You will definitely find a lot of loopholes in the business plan you had in your head," says Will Ward, CEO of Translation Equipment HQ.
2. Include Original Research
As part of that audience and competitor research, pick industry experts' brains and get input from potential future customers. Both will give you insights you need to succeed.
"I consider this a crucial step because it gets the ball rolling on product-market fit and, if all goes well, reaffirms your target market," says Darshan Somashekar, founder and CEO of FreeCell Challenge.
3. Set SMART Goals
Without goals, you will have no success or failure milestones. Best practice is using the "SMART" approach—specific, measurable, attainable, relevant, and time-based.
This is important, says Mike Miller, founder of Wilderness Times, because "One of the biggest problems with new business owners is that their goals are often poorly designed." Either they don't set goals, he says, or they set goals that are so high they can't achieve them.
4. Define the Business's Legal Structure Early
The legal structure defines your organizational and management approach, so it's important to follow the legally accepted protocols of the business entity you've chosen.
In addition, notes Max Harland, CEO of Dentaly, the legal structure influences stakeholders' liabilities and owner taxation. "If owners choose the incorrect legal structure, they end up losing money by paying more taxes, or they put themselves at more risk with their liabilities," he says.
5. Understand That Your Financial Projections Need to Be Fluid
Without a track record, it will take time to know if your estimates are accurate.
"Unlike other portions of the plan that are tangible and something you can objectively commit to, such as your business structure and organizational hierarchy, financial models right now will come based on a mix of market research and your own early funding decisions," says Jim Pendergast, senior vice president of commercial lender altLINE Sobanco.
6. Document How and Why Your Concept Will Succeed
How you'll handle that documentation depends on the business concept, but if it's product-related, include a prototype if you have one. You can also reference as evidence a similar service or product idea that's already taken off.
"This would be a good opportunity to highlight your concept's key differences and identify elements you intend to innovate or improve upon," says Somashekar.
7. In the Beginning, Keep It Simple
So simple, in fact, that Ward recommends keeping it to a page or two until the business grows and you have more experience to draw on.
"If you're successful enough, by the time you gear up for funding, you'll have a business plan which is at least a hundred pages. See the business plan you write now as a seed that will eventually grow into a tree and bear fruit," he says.
8. Make It a Team Project
If you have employees already, or even trusted colleagues who have done this before, get their opinions as you're creating the business plan.
"Planning as a team will help you find out what your priorities should be and create beneficial benchmarks," says Arnold Chapman, founder of fleet technology resource ELDFocus.com.
9. Write the Executive Summary Last
While that might seem counterintuitive, it's the best way to make sure the summary and the plan's content are aligned.
"The last thing you want is an executive summary that seems incoherent with the rest of the business plan. It will make the company leaders look like they don't have any vision," says Ward.
10. After You've Finished, Keep It Handy
A small business plan is your road map, and businesses often change directions.
"Business plans are only as good as your ability to execute them. Revisit your strategy every six to 12 months. Does it still make sense?" asks Deepak Shukla, founder of SEO agency Pearl Lemon.