Writing a Business Plan – What To Do First
As a professional business plan writer, you can find me writing a business plan or two at any given time. This is definitely something that brings unique challenges and takes a ton of time, effort, and focus.
However, all of the effort in the world means nothing if a few – well, to be specific, 3 – steps aren’t taken before the business plan is started.
- Narrow down why you are writing the business plan.
- Avoid the #1 biggest issue I see, which is not writing with purpose.
- Know when your business plan is really, truly finished.
1. “Why Do I Need a Business Plan?”
Perhaps you are seeking funding from an investor or intend on applying for an SBA loan. You may be writing a business plan for strategy. Whether a startup or an existing business, to build an effective business plan, you want to be sure to include relevant content to ensure a positive outcome.
If You Are Seeking An Investor
Know your goal, equity vs interest?
You need to know – before building your business plan – whether you plan to offer equity or interest. Your business plan financials will be built on this answer, and you need to be able to pitch your investor clearly based on what you plan to offer.
Remember, it’s dangerous to approach an investor without this clarified. Predatory investing terms can destroy your business, and it happens every day when entrepreneurs are unprepared for this discussion. Investors who are close family members and friends can take advantage of you just as much as a stranger can. Be safe and know your goals and add them clearly in your business plan.
Know your investor’s level of involvement
You need to be able to attract the investor you need for your business. One of the ways to do this is by understanding what type of involvement you need. Do you need someone who is totally involved day to day? Or, do you need someone who is simply the wallet for your business when times get rough and is there to offer cash support when needed?
Understanding this before the investor discussion will allow you to better communicate this need throughout your business plan for your investor.
If You Are Seeking an SBA Loan
Know what loan term you need
Before writing a business plan, you need to understand what loan term would make sense for your business. Are you looking for a 7-year term? Maybe a 20+ year payback plan?
You’ll use this information to build out your forecasts, so you need this clarified early in the process. You also need to make sure you’re applying for the right loan type from the start. Talk with your business banker if you feel unclear about the options available for repayment.
Know your approval criteria
You need to be able to understand any roadblocks in your loan application before they arise. Some business bankers are great about explaining the basics – 620 credit score if you plan to personally guarantee the loan; if you for a startup business, 2-3 years of previous tax returns or minimums for previous years’ business revenues for an existing business, asset collateral needed, etc.
If your business banker hasn’t been too forward on these points, schedule a time to sit and chat about this. You want these answers before spending time building a business plan and submitting your application for a loan that has basic minimums you may or may not be able to meet.
Whether You Are Seeking an Investor or an SBA Loan, You Need to Know Your Asking Amount
You need to have an estimate of your asking amount before approaching an investor or applying for a bank loan. You need to have a rough idea of why that amount makes sense so you can explain it to them, too. Many startups botch this because they honestly don’t know how much money they need exactly – but that’s ok. For a startup, a rough ballpark is fine, as long as it reasonably covers your startup costs plus 3-6 months of operation. For existing business, never let past failures in your business make you question your “investability” now. Your business had cash problems in the past? That’s ok. It just means you’ve learned the old school way how to better manage your lender’s money. Never be afraid of asking for what you need.
And remember, include a 20% additional sum of money to cover the unexpected. Your investor or SBA loan underwriters will appreciate that you are mitigating risk that way, and it will allow you to build realistic financial projections in your business plan.
If You Are Writing a Business Plan for Strategy
Know your competitors’ strengths and weaknesses
You need to know – before building your business plan – what your competitors are up to. Not just what they offer, but what their customers are saying. How do public reviews look for your competition? Is there anything they are doing that annoys customers? Or anything their customers love that you would want to copy for your own business?
You need this clarified now so you can attach the strategy portions of your business plan from a fresh perspective. Don’t get stuck only writing what you know based on your experience and limited viewpoint– see what you may be missing for your business idea and growth by studying your competitors thoroughly.
Know your revenue goal for the next 1 year
You need to have an estimate of your revenue goal for your business. Startups can have a really hard time with this. It can feel like you are pulling numbers out of thin air. You are! And that’s ok. For existing businesses, it can feel easier to just escalate based on your current or previous revenues. And that’s ok sometimes.
You have to start somewhere. And once you start building out your business plan, it will be easier to plow forward with that one revenue goal in mind, because then you can back into your costs and what your sales would need to look like to achieve your goal. Next thing you know, you’ll be done with your forecasts! And for the existing business working on your growth strategy, your forecasts will be independent of the piggy-back forecasting based on historical revenues.
Know where you need to get clarity through research
New and existing businesses can get lost in the research portions of their business plan. Existing businesses may even be tempted to skip it altogether. This can be a huge time and energy drain if you spend too much time researching areas that don’t matter much for your business. And a huge mistake and disservice to yourself and your organization if you skip it completely.
One way to avoid this is by targeting 3-5 things you don’t know enough about. This can be related to your market, industry, operations, software options available, trends in your field, customer needs, etc. Map these out now so you can focus on only what matters as you build out your business plan.
2. The Biggest Misstep When Writing a Business Plan
The #1 thing people get wrong when writing a business plan is they forget their purpose or goal while writing. This applies to anyone in any situation. You must understand clearly why you are creating the business plan and write for that goal.
If you are an existing business that is creating a business plan for strategy, then why in the world would you waste any paper space on listing your Mission Statement? ….unless you are designing a new Mission Statement as part of a refreshed business focus (in which case, read this post about the Myth and Truth About Mission Statements).
Rule of Thumb:
If you are adding things to your business plan because it’s simply a blank on a business plan template, then think through whether this will get skipped over later while reading. If that section is something that doesn’t help you meet your goal, or isn’t something that you would ever use, read, or leverage later, then don’t add it when writing your business plan.
One example of this is that silly “aging accounts payable/receivable” section in the typical business plan template.
It drives me crazy.
The vast majority of businesses are not going to have a clue about their future receivables. Bigger yet, most businesses will not even operate in a way where receivables is an issue (thanks to online payment and auto scheduling).
And still, I see entrepreneurs get stuck on this, Googling how to fill in the details asked in their template, and feeling lost and a little helpless. And very overwhelmed.
Remember, if it doesn’t seem to make sense, doesn’t help your goal of securing funding or getting an investor or clarifying strategy, then don’t be afraid to skip that section altogether when writing your business plan.
And, if you aren’t sure if a section is important, consider calling a professional business plan writer for some quick advice.
3. “When IS My Business Plan Finished?”
When to stop writing is a huge question for business owners and startups. There are a few rules of thumb to follow, like the magic word count for a business plan and such. Use these as guidelines to avoid working waaay too hard on your plan.
In theory, you can write for hundreds of pages and still not have a “finished” business plan. It is really about it being complete in nature and typically less is more. Most people don’t realize that usually, shorter is better. Touch on the fact, point, or number and move on. Try to avoid excessive explanation just to fill more pages.
Ok…So When Am I Done Writing a Business Plan That Is “Complete”?
Writing a business plan that is complete, useful, and actionable is something that you may think is a bit unique for each business.
In most ways, yes, every business plan is unique.
However, as far as creating a “complete” business plan for your business, it should include:
- Your goal & purpose for the plan (written in your Executive Summary)
- Who the business owners are. Include why they are qualified (some people realize at this point that they have a partner who has zero value to offer the business…try to be objective here)
- The macro industry overview (big trends that are happening in your space)
- The micro industry overview (the localized research and customer demands that you supply with your product or service)
- The competitive landscape (focus on 3-5 competitors here, and really deep dive what they do well and terrible)
- Your niche market entry or market expansion strategy (what you offer and why it rocks)
- Your operations plan for the next phase of business (includes the team, marketing goals, and some day to day activities)
- A timeline to meet goals set out in the plan
- Financial projections on how your plan will result in profits (cash flows, income statement, balance sheet, break even analysis, etc.)
Now…with allllll of these elements in the plan, there is no need to add fluff.
No need for a “technical specifications” section or aging accounts receivable projections if they don’t make sense. Everything inside of your business plan should somehow help your goals, otherwise it does not belong.
So as you review more basics in writing a business plan, consider templates that come in kit form and that are stripped of all the extra stuff (but that still include helpful details and shortcuts).