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How to Write a Business Plan for Small Business
A business plan is vital for any business, no matter small or large. A solid and detailed business plan is a roadmap for your business. It always pushes you to think through your business goals and the validity of your business idea. With a business plan, you can have a clear understanding of where your business stands now and where it is going to be in the future.
A proper business plan makes things ready for the next three to five years, incorporating all your business goals and the actions you have to take to reach those goals. Business plans become a significant part, especially when you are planning to get a business loan from investors or banks. Because you can show the bank how you can repay your loan only with a comprehensive business plan.
Now, let us take a closer look at the various components of a business for your small business.
1. Executive summary
The executive summary is the first element of your small business plan. In the executive summary, you are going to include your mission statement - explain the main focus of your small business, description of the product or service you offer, your ownership structure and a summary of your plans.
2. Company description
Here is where you give a clear picture of your small business. You should include your business information such as registered name, address, names of prominent people in your business, a brief history of your company, nature of your business, and elaborate on the products and services you offer now and in the future.
3. Objective statement or business goals
In this part, you will clearly explain your small business goals. Also, you also include your business strategy and your plans in the pipeline to achieve them. It should describe what you want to accomplish in your small business, your short and long term business goals.
If you are writing a business plan to get loans or other outside funding, you can use this section to explain why you are in need of outside funding, what you are going to do with the finances, and how you are going to hit your target. The purpose of this section is simple - to build trust and confidence in your investors. For example, if you are about to start a second product line, you must explain how the funds are going to help your product launch and improve your sales and margin by 50%, in the next two years.
- Business and management structure
In this section, you will roll out the legal structure of your small business. This comprises elements such as sole proprietorship, partnership or corporation. Also, you must make a note of your key employees, managers, as well as your business partners and shareholders. You must be elaborate here and mention the percentage of ownership each owner has and the involvement of each owner in the business.
5. Products and services
This section is dedicated to your products or services. This includes the products and services you currently offer and planning to offer. You should explain how your product or service works, your pricing model for the products or services, the type of people your services cater to, your marketing and distribution strategies, how your products and services are different from your competitors. You can also talk a bit about your trademarks and patents associated with your products and services.
6. Marketing and sales plan
Here, you are going to discuss your sales and distribution strategy in elaboration. You will also explain how you are going to execute your marketing plans. Also, you will talk about your plans to persuade potential customers into buying your product, how you build customer loyalty, and how you are going to make your customers keep coming back. In this section, you can include your business strengths, and how it is not just another small business.
7. Business financial analysis
When you are just starting out, you will not have much financial information on your small business. However, when you are planning for business loans, you must include your profit loss statement, balance sheet, cash flow statements and details on assets and debts. Overall, you will need to elaborate on the financial stand of your small business in detail.
You can also include other financial information like your net margin, the percentage of revenue you get as net income. Moreover, you can talk about the measurement of liquidity and your ability to repay your loans. And, you can also include how much money you will collect from your receivables and how it contributes to your turn over.
8. Financial projections
This is the most important section of your business plan if you are drawing one for getting external funding. You have to strongly convey how you will generate profit to pay back for the loan you are proposing to get. Conveying your plans strongly builds confidence upon you in your investors. You should include how you will earn a decent return from investors.
And, you will discuss your small business’ quarterly or monthly expenses, sales, profit estimates for a span of at least three years. With these future numbers predicted prior, you can stand confident and show your investor that you can earn profits and pay back their loans without any hassle. But make sure to be honest with your numbers, analyze your older financial statements before you prepare your future financial projections.
You can use automated bookkeeping tools to record your financial movements precisely, and forecasting tools to help you predict your financial projections.
Your plans can seem too high, but they should be realistic and achievable. You can be confident and optimistic and confident about your plans, but make sure you justify them appropriately.
You have to show your investors that your business can generate enough cash flow to repay your regular debts and other loans, if you have any. But it is suggested that you should also include a line about the risk factors in your small business. Your loan officer wants to know that you are aware of your risk factors, and you know how to manage them.
There shall be some supporting documents and additional information that you could not include in the other sections. You can append them in the appendix. You can include the resume of your prominent employees, licences, permits, product patents, bank statements, contracts, business credit history and other things to support your records. If there is a long list of contents to add in your appendix, you can put up a table of contents to get things clear to your investors.
Business plan tips and resources
Now you know how to draw a business plan, here are some extra tips to help your business plan a great one.
Avoid over-optimism: If you are using this business plan for getting loans from a local bank, your loan officer will know your market very well. So, giving unreasonable sales predictions have chances of turning down your loan proposal.
For example, if your report says that you can improve your sales by 50%, the loan officer will know that you are not being realistic and the business plan itself can work against you.
Keep it concise: The ideal business plan is 15 to 25 pages long. You have to keep it clear, short, concise and with all relevant information as well. Make sure to include all the key elements of your business plan and don’t get too much into the technical details of your business. Never use too many industry-related technical terms.
Proofread: Always proofread your documents in terms of spellings, grammar and punctuations. If you are too strong in writing, you can lend a hand from a professional business plan writer or a proofreader. But make sure you don’t miss out on any details.