Having written thousands of business plans over the past 20+ years and helped hundreds of thousands of others create their plans, I’ve been asked quite a lot of business planning questions.
Below are my answers to the most common questions I’ve been asked.
The purpose of the business plan is two-fold.
From a strategic perspective, your business plan documents your key goals and action plan to achieve them.
From a communications and investment perspective, your business plan shows investors/lenders that you have a well conceived business opportunity that merits their dollars.
If you are seeking funding, the business plan is critical. Most types of funding sources (e.g., angel funding, venture capital, bank loans, etc.) REQUIRE a business plan. That is, without one you can’t raise funding.
If you want to be successful, you also need a business plan. Study after study proves that entrepreneurs who develop formal business plans are much more successful than those who do not.
There are several types of plans, but they are all similar.
For example, there are three types of plans depending on the goal of your plan. These three types are for funding, for strategy, and for both.
A plan for strategy focuses on ensuring you have the right strategy (marketing strategy, operations strategy, HR strategy, etc.) to grow a successful company. When you add the need for funding to this, you must also spend time convincing funding sources why your company will succeed.
There are also two types of plans based on the level of comprehensiveness. One is a simple business plan, as previously mentioned, that covers just the basic items to give a preliminary assessment regarding whether or not the company is viable. On the other hand, a full or standard business plan includes all of the key 10 sections.
There are also two types of plans based on the company’s stage of growth. There are startup business plans for companies that are just forming, and there are established plans for those that are already operating.
In addition, there are two plan types based on the company’s size. There are small business plans that generally cover companies up to 50 employees. Medium and large company plans are usually for companies with 51-250 employees and 250+ employees respectively.
Finally, there are hundreds of document types based on the sector in which your company is operating. For instance, you may need a nonprofit business plan, a salon business plan, a catering business plan, a coffee shop business plan, a bar business plan, a record label business plan, an app business plan, or many other plans depending on your industry.
Importantly, each of these plans are essentially the same: they must prove the financial viability of the venture and provide a roadmap for success.
A business plan template is a template to make your planning easier; specifically it’s a document that is already laid out and formatted for your needs. It lays out the key sections and sub-sections to include in your plan, and for each, poses the questions you must answer.
If you are using the best business plan template, you are essentially typing in your answers to questions, and then your plan is done. That’s not to say it’s quick and easy. Some questions (e.g., what trends are affecting your market?) will require research to be conducted. While others (e.g., what promotional tactics will you use to acquire customers inexpensively?) will force you to think and come up with optimal strategies.
You may have one or many audiences.
In many cases, your plan will be written for outside funding sources including banks, alternative lenders, angel investors, venture capitalists or private equity firms.
Sometimes your plan is only written for yourself to confirm the venture is worth investing your time and/or money.
And finally, there are often other constituents to which you’ll want to show your plan. These include potential:
- Employees: who will want to see it before joining
- Landlords: who often want to see a plan to feel comfortable you’ll be able to pay your lease long-term
- Vendors: who want to confirm it’s worth selling to your company
- Partners: who need to assess whether or not a partnership could be profitable
- Customers: who want to see your plan before leaving their current product/service provider
No, a business plan is not a legal document.
Unfortunately, there are several websites that promote their “legal plan template” and say you can use it to easily create your plan.
It is important to note that a business plan is NOT considered a legal document in the United States. And there are no state laws with regards to business planning.
The best practice when sharing your plan is to ask the reader to sign a Non-Disclosure Agreement (NDA). As the name indicates, an NDA is a document that prevents the reader from disclosing, or sharing, the information included in the document.
This being said, most investors and lenders will not sign an NDA. They simply see too many plans, many of which are quite similar, and doing so would disrupt their firms. For such investors, we suggest sending a “teaser email” (an email with just basic information on the company) to confirm they are interested before sending your full plan.
The 10 components of a business plan are as follows:
- Executive Summary
- Company Overview
- Industry Analysis
- Customer Analysis
- Competitive Analysis
- Marketing Plan
- Operations Plan
- Management Team
- Financial Plan
By far, the most important part of your plan is your Executive Summary. This is what people read first, and if they are not impressed or excited after literally just 30 seconds, they often won’t read any further.
Within the Executive Summary, the keys are to 1) concisely explain what your company does, 2) explain your Unique Success Factors (detailed later on this page), 3) and provide a summary of your financial projections (also detailed later on this page).
These three items are the most important to readers, particularly investors and lenders.
Your business plan cover page should include your company’s name and contact information including your name, address, email address and phone number.
Your cover page should graphically look nice, as you want to set the tone that you and your company are professional.
Entrepreneurs, business owners and executives often ask me how long should a business plan be.
The answer is that it must be long enough to answer all the key questions you and/or investors have in determining whether your company is a viable investment opportunity or not. And it must be short enough that people will actually read it (since clearly, no one’s going to be psyched to read a 100-page document).
This being said, we’ve found that 15-25 pages is the ideal length. In this amount of space, you can convey your company’s story in a digestible format for readers.
In the United States and most countries, a business plan is a document in which you present your company’s growth plan for the next five years. Oftentimes it is created to present to funding sources to raise outside capital.
In some countries, business people use the term “business proposal” instead. However, in the United States the term “business proposal” simply means a business offer. Most “business proposals” are offers to buy a product or service, partner with a firm, work for a company, etc. In the US, the term “business proposal” rarely relates specially to an offer to invest money in a company. Rather, the term “business plan” is used for the document seeking others to invest money in a business.
A good plan has the following characteristics.
First, the plan is professional. Investors often think if a company can’t even put together a professional plan, how could they possibly build a professional and successful company. Professional business plans are ones that visually look good, are concise and easy to read, and are free of typos.
The second characteristic of a good plan is that it clearly explains why the company is uniquely qualified to succeed. It shows past accomplishments the company has achieved and why it is likely to attain the milestones laid out in the plan.
The third quality of a solid plan is that it is backed up by third-party research. This research should cover your industry, competitors and customers and show that the market supports the type of company you have.
The final quality of a great plan is that it includes realistic growth and financial projections that show, as accurately as possible, how the company might progress in the coming years.
The biggest mistake is that most writers don’t understand that their plan is a marketing document. That is, your plan should convince others to invest in and/or otherwise get involved in your company.
That’s not to say that your plan shouldn’t include hard facts and figures, a step-by-step growth plan, and realistic financial projections. It should. But it should also, if you are using your plan to seek outside funding, present your company in the best possible light. It should NOT read like a boring document. Rather, it should inspire and excite readers.
Most investors and lenders are skeptical when reading plans. Since, if they’ve been doing their jobs for a while, they’ve seen thousands upon thousands of growth claims that were never realized.
Two ways to combat seeming overzealous are to limit or avoid superlatives and make reasonable financial growth projections. With regards to superlatives, if you say we are the “best” management team, for example, you need to back that up with facts and figures. Using phrases like best, world class and disruptive are great if they are true and can be backed up. If not, avoid using them since readers most likely will have been burned by such false claims in past plans they’ve funded.
In regard to reasonable financial growth projections, if, for example, no company has ever grown to $1 billion in revenues in 2 years, the likelihood that your company is going to do it is very small. As such, temper your financial assumptions. As much as possible, base your assumptions on actual fast-growth companies that have come before you. In doing so, they will have much more credibility in the eyes of readers.
Both plans for startups and established companies must include the same sections and sub-sections outlined above.
The key difference is that, since they have longer operating histories, established companies should have more milestones/accomplishments to document. Since the best indicator of future success is past success, it is critical to document such accomplishments in your plan.
Startups should also document the milestones they’ve achieved to date, but this list clearly is going to be shorter than a company that’s been operating for several years.
Yes, there are firms that specialize in writing business plans. Our company, Growthink, has been a business plan consultant for over 20 years.
We specialize in planning that ensure our clients have the best growth strategies and can help them raise funding if needed.
Click to learn more about Growthink’s business plan writing services.
The two core tools used by entrepreneurs to raise funding are business plans and “pitch” presentations.
Oftentimes, entrepreneurs will send the Executive Summary portion of their plan to investors first. If the investor is interested, they will then set up a meeting to discuss. During that meeting, the entrepreneur will give a presentation to the investor.
After the presentation, if interested, the investor will generally request the full plan from the entrepreneur. This is so they can share the plan with their partners and fully vet it.
Business planning documents that seek funding have three additional requirements that others do not. These are as follows:
- Clearly explain how much funding they are seeking and for what purposes
- Present realistic financial projections that show loan interest and principle can easily be repaid (if the funding source is loan)
- Present a reasonable exit plan for equity investors. An exit plan details how the company will exit (e.g., IPO, sale to another company). This is important as exits are how and when equity investors earn their returns.
To attract investors, you need BOTH a plan and a pitch desk.
As mentioned above, most commonly entrepreneurs submit the Executive Summary of their plan to get initial investor interest.
Then, the investor meets with the entrepreneur, during which the entrepreneur presents their pitch deck.
If still interested, the investor commonly requests the full plan so they can review it in detail themselves and with their partners (who may not have been able to attend the pitch meeting).
Both plans to show equity investors (which include angel, seed and venture capital investors) and plans to show banks must prove the viability of the company to grow and earn profits.
The key difference between the two is that banks care that the company will be able to successfully make interest payments and eventually pay off the principle.
Equity investors, on the other hand, are interested in the company exiting (IPO, selling the company) since this is how they get paid on their investment.
As such, these investors want you to show likely exit opportunities (e.g., listing other companies in your industry who have been acquired and at what multiples of revenues or earning). Such facts help paint the picture that your company will eventually exit, and they will earn a high Return on Investment on you.
There are two main types of equity investors you should consider:
1) Angel investors are wealthy individuals who can write you checks to fund your company. They primarily invest to try to earn returns on their money, but some also invest because they like the entrepreneurs and enjoy being involved in exciting new ventures. Some companies are able to find one angel investor who writes a large check. While others fund numerous angels who each commit smaller amounts of funding. In either case, angel investors are a great source of funding and thus a great audience for your plan.
2) Venture capitalists are professional investors. They invest other peoples’ money in early stage companies with the singular goal of earning high returns. Venture capitalists nearly exclusively invest in technology companies, as such companies have the ability to grow quickly. This allows the venture capitalist or VC to exit or “cash out” of their investment within 5-7 years as the company goes public or is sold to a larger entity. Venture capital firms are generally made up of several partners and associates. Importantly, you don’t want to send your plan to the firm; rather you want to research the bios of the partners and associates and contact the one you think would be most interested in your company.
A final and important note is that seed funding is the first outside funding your company receives. This could come from friends and family members, angel investors or venture capitalists. In most cases, new companies raise initial or seed capital from friends and family members or angel investors and use it to achieve initial milestones (e.g., product development) and ideally traction (e.g., initial customer sales). After achieving such milestones, the risk profile of the ventures is reduced which makes them more appealing to venture capitalists who write larger funding checks and want to see as little risk as possible.
After downloading our template below, follow these steps to create your plan:
- Assemble all the key constituents (this is usually a business partner or other executive team members if applicable).
- Set aside time to conduct market research. Specifically, you will need to conduct research with regards to your Industry (market size, market trends), Competition (who your competitors are and their strengths, weaknesses and positioning), and Customers (who your customers are and their wants/needs).
- Carve out time to develop your financial projections
- Schedule time to enter your research and financial projections into your document, answer the other key questions, and edit it so it’s professional, concise and compelling.
Yes, your implementation or action plan is included in the business plan. The main action plans are included in the Operations Plan section. In this section, you need to detail the key milestones (your “risk mitigating milestones”) that you must accomplish and the expected dates for each.
Your action plan must also be closely tied to your financial projections so you know how much money your company needs and when.
Yes and no. You should not include a traditional resume in your business plan. But, in the Management Team section, you should detail the highlights of your resume, and focus on what success you have achieved to-date in your career, and how this supports your ability to successfully run/grow the business.
100% complete. You generally get only ONE chance with investors and lenders. So your business plan needs to be perfect the first time.
Particularly in the Industry and Customer sections of your business plan, you should cite industry statistics. There are two things I like to do here. The first is to include the source of the statistics directly in the text rather than footnote it.
For example, I’ll say, “According to the U.S. Census, there are …” That makes it easier for the reader to digest the information. If there are tons of citations, then you can use footnotes (but not endnotes since the reader needs to be able to access the information quickly).
The second thing that’s important is to tie the research to your company. For example, rather than just saying, “According to research from the National Restaurant Association, 18% of diners want this and that,” you should add that this fact/trend directly supports your company’s success and how.
Yes. However, most successful companies start by offering just ONE key product or service. They gain success with that one product/service. And THEN, they roll out other products and services.
So, in the Operations Plan, you want to explain that you will first focus on penetrating the market with your first product or service and that once you hit a specific milestone (e.g., sell X number of units) will you develop and launch your second product/service.
The Executive Summary is absolutely critical. If the reader isn’t excited after reading it (note that the Executive Summary should be 1-3 pages), then they won’t read the rest of your plan.
Of critical importance in your Executive Summary is to 1) clearly explain what your venture is/does and its value proposition, and 2) explain your unique success factors (what it is about you, your company, your market, etc., that makes your venture uniquely qualified to succeed).
I hope my answers also answered all of your key business plan questions. If you need more help developing your business plan, here are my best resources:
If you want to use Growthink’s Ultimate Business Plan Template to develop your plan, click here.
If you want help from Growthink’s business plan consulting team, click here.
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