How to Write a Business Plan to Secure Funding & Improve Your Strategy

how to write a business plan to secure funding

Whether you’re looking to secure $5,000, $50,000, $500,000 or $5 million for your business, it pays to know how to write a business plan that captures the attention of lenders and investors. You may feel overwhelmed at the thought of writing a business plan. Don’t worry, this is your step-by-step guide to understanding what a prospective lender or investor expects. Better yet, it’s based on 20 years of experience helping companies, just like yours, not only create their business plan, but land their ideal funding arrangement and improve their strategies for long-term success.

At the end of the day, a potential funding source wants to know if taking a risk in your business is a smart decision.  They are assessing how your business will generate enough sales for a return-on-investment and by when. A well-written business plan builds their confidence. That’s because the plan clearly and concisely presents a viable solution for a specific customer that is well thought out.

Your business plan highlights your unique value to the market, your strategy for business success and your financial outlook. It communicates that your business is meeting a need for which there is a demand. It conveys that your product or service demand is sustainable and your business is uniquely positioned to capture an increasing share of the market year-over-year. That means consistent business growth and profitability. This is achieved by describing your company, your product or service and your marketing strategy. You’ll also specify your funding request and provide financial reports including projections.

The following is an overview of each segment of a business plan and how you can confidently write it to secure funding and improve your business’ strategy.
 

1. Executive Summary

An executive summary is where you impress the reader by highlighting your business and its market strengths. In one-to-two pages, you establish a reason for the investor or lender to consider your funding request. Because the executive summary is an overview, you’ll write it last. This way you are consolidating the key messages from throughout the business plan in one place.

An effective executive summary defines your mission and lays out your strategy for success. It communicates that you have a firm grasp of the market. It also explains what you expect from the reader. But most of it, it captivates the reader’s attention and persuades them to strongly consider becoming your funding source.

 

2. Company Analysis

Now it’s time to describe the nuts and bolts of your business. Investors are interested in your company’s mission, history, structure and achievements. They are assessing who you are and what are your capabilities. Your mission statement summarizes why you are in business and describes the effect your company has on its clients and in society. Mission statements are short and impactful. A mission statement for a new day care center might read: At XYZ Day Care, our mission is to care for children from tot to toddler in a safe, fun and loving environment.

A company history includes some basic information such as your business start date and location. Yet, the value of this section lies in sharing your origin story. Investors are interested in knowing how you developed the business concept and took it to market. For start-ups, this section may be brief. Established businesses can expand this section to highlight major accomplishments since inception.

Here’s an example of a company history for a restaurant:

ABCD Barbecue first opened its doors in Nashville, TN in 20XX. For decades, our family passed down a secret recipe for barbecue dry rubs and sauces. Our barbecues have been a crowd pleaser. After years of winning local barbecue contests, people wanted to know where they could purchase our food and products. That’s when we really knew there was something special about ABCD Barbecue and decided to open a local restaurant. Business has flourished since 20XX.  Sales have grown from $xxx to $xxx in 20XX. We will expand to our second location by the end of 20XX.

You’ll also specify the legal structure of your business in the company analysis. A business can be a sole-proprietorship, a partnership, a corporation, a limited liability firm or a non-profit organization.
 

3. Industry Analysis

Your business is not operating in a vacuum. There are socio-economic factors that have implications for your business’ performance in the marketplace. An industry analysis sheds light at a local, national or global level of how all firms offering similar products or services are performing. This section identifies historical trends that have shaped the industry and pinpoints recent developments that must be considered when creating your business strategy. Research from credible sources is central to your industry analysis. Review both past and present reports to form the broadest understanding of all external factors.

Some key statistics to include in this section are total market size, relevant market size, historical market growth and future growth estimates. You’ll also want to include your market share estimates. While many sources provide a total market size, it may take some additional work to calculate the relevant market size. That’s because this figure is based upon your niche rather than the entire industry market.

Your relevant market size is an estimate of the annual revenue your business could attain if it realized 100% market share. You calculate it by multiplying the following two figures:

  1. Estimate the number of people who might be interested in purchasing your products or services each year.
  2. Estimate the dollar amount these customers might be willing to spend, on an annual basis, on your products or services.

Let’s look at a partial industry analysis example for a food truck:

Food trucks are a rapidly growing business sector. National sales have grown more than xx.x% annually since 2015 to $x.x Billion in 20XX. The most popular markets for food trucks are New York, Atlanta and Chicago. American food (burgers and hot dogs) are among the top-selling Food Truck items. In recent years, healthy options are emerging for vegans and vegetarians.

 

4. Customer Analysis

An effective customer analysis describes your target market, whether a business or consumer, and their specific needs. For starters, a potential funding source is ascertaining how well you understand the buying behaviors and patterns of your customers. They are also assessing the proximity of your business to the customers and the size of the potential customer pool.

In addition, this section answers two key questions: what is the problem your customer is experiencing and how are you solving it? Customer problems, or pain points, are myriad. You’ll need to hone in on the vital ones you are resolving with your products and services. For example, customers may be looking to reduce time or costs to complete projects, or they may want to work with an organization that has a good reputation for customer service.

One approach to writing your customer analysis is to develop an ideal client avatar. An avatar is a figure that represents your client. It defines their age (or years in business), behaviors, values, aspirations, needs and concerns.

Here’s a potential client avatar for a nail salon:

Our nail salon’s target customer is a professional woman aged 25-60 who likes clean, neat looking nails. She enjoys a quiet, luxurious spa experience as an escape to her hectic, demanding scheduling. She’s juggling the responsibilities of being a wife, mother and manager.  She’s involved in the community and likes to travel. She earns between $75,000 and $200,000 annually.

 

5. Competitive Analysis

As previously mentioned, your business is not operating in a vacuum. There are other firms, competing for your ideal client, offering similar products and services. That’s why you need a competitive analysis. This section outlays your strengths as compared to other firms. It unequivocally answers the question, “why this business?” for prospective customers and more importantly potential investors or lenders.

The competitive analysis communicates how you will outperform the competition. This is the place for you to highlight your advantages – your strengths and the opportunities you can seize in the marketplace. Keep in mind that your strengths can be related to people, products, services, processes as well as intellectual property.

Competitors can be direct or indirect. A direct competitor offers a similar product or service to satisfy a customer need. An indirect competitor offers a different product, service or approach that may meet the same customer need as your business. For instance, an indirect competitor for a coffee shop could be a gas station, fast food restaurant or a donut shop.

To write your competitive analysis, you may prepare a competitor profile or a matrix. The profile focuses on a single company while the matrix provides a high-level comparison of the revenues, products, services, pricing, strengths and weaknesses for each key competitor.

Here’s an example of a competitor profile for a real estate agent:

For more than 10 years, XYZ Realty has serviced commercial and residential buyers in Denver, CO. The firm has 5 agents with combined experience of 60 years. The average price of residential properties sold by XYZ Realty is $xxx,xxx. Buyers can view a 3D video of homes on the market.  Staging services are offered to clients. The business owner has been recognized by local business and industry organizations for the past three years. The business owner speaks often on how to purchase your first home.

 

6. Marketing Plan

Let’s face it, people need to know that your business exists. Plus, they need to know the benefits of your products and services. A marketing plan lays out your strategy for communicating this information. It convinces investors and lenders that you know how to reach your ideal client and generate sales.

The marketing plan has three components: products and services, promotions and distribution. Begin with thoroughly defining your products and services. Spell out the features and benefits. Features are the attributes of your product and service, while benefits communicate the value of your product or service to the customer. Be sure to also include your pricing in this section.

A marketing plan for a coffee shop could list coffee, espresso and tea as its products. The shop may sell additional products such as mugs, coasters, pastries and sandwiches.  A beauty salon may have shampoo, dry, trim and curl as its primary services. They may provide complementary services including manicures, pedicures and eyebrow waxing.

Once your products and services are defined. You’ll focus on getting the word out. This is your promotion plan – your strategy for attracting customers. Are you using social media or content marketing? Are you advertising, and if so what are the best advertising channels for your business? Will you have periodic sales and product giveaways? What about referral bonuses? In developing your promotional plan, make sure you convey which channels are most effective for your ideal client.

Promotions is how you communicate. Distribution is how you sell. You need both to succeed in business. So now that you’ve laid out your promotion plan, it’s time to focus on getting your products and services to the client.  Three common distribution channels are retail, wholesale and direct. In retail and wholesale distribution, you are selling your product to another entity who then sells to the customer. Your strategy should include how you’ll best fulfill the needs of your select retailers and wholesalers.

With direct distribution, the customer buys from you either online, by telephone or at your physical location. When developing your distribution plan, study the purchasing tendencies of your ideal client. Do they shop in certain geographies? Are they primarily online shoppers? How long will it take for the package to arrive? Armed with this information, you can effectively determine which distribution mode will get you the greatest results.

Consider an example from ABC Planners, an e-commerce business:

ABC Planners promotes our products and services using social media and content marketing. Our social media channels are updated three times a day. Instant messages are monitored and are responded to within two business hours. We also have a weekly newsletter highlighting planning and productivity tips, success stories from clients and promotions.

Our planners and online courses are distributed solely from our website. Orders are fulfilled and shipped within 24 hours of receipt. Customer may select, next day, two-day or standard shipping.

 

7. Operations Plan

Successful businesses have a strong operations foundation. Defined processes, metrics and milestones are essential to ensure you will effectively manage the business and its associated costs. A thorough operations plan conveys to investors your business results are intentional. It also demonstrates you’ve considered what could go wrong and have preventative and recovery plans intact.

The operations plan can cover a number of functions from human resources and product development to legal. Your business operations are interconnected. Each operation supports how you sell your product or service. Give adequate attention to your production process and quality control. Production describes how you make your product or service. Quality control measures how effectively and efficiently you produce your product or deliver your service. Depending on the size of your business, some of the functions may be outsourced to specialty providers. In this case, you may list your suppliers.

Strategic planning is an internal part of operations. Here’s where you’ll detail your key milestones for the next three years. Milestones can be related to all aspects of your business: financial, products and services as well as operations.

A sample operations plan for a start-up bakery follows:

Any Town Bakery’s in-house operations include several administrative, kitchen and retail functions. The main administrative functions are bookkeeping, marketing and staffing. The bookkeeper records purchases and expenses, tracks invoices and payments and produces financial reports. The marketing department creates annual promotional plans, designs marketing materials, manages social media and content marketing and measures the results of all campaigns.  The staffing departments is responsible for writing job descriptions, recruiting personnel and overseeing the hiring process.

Food preparation and meal planning are the key kitchen functions. Retail functions encompass order taking and fulfillment, plus custodial services.

Our key milestones for the next three years are:

  • Secure building lease by month, year
  • Remodel space for modern bakery operations by month, year
  • Hire bakery manager and staff by month, year
  • Achieve $xx in sales by month, year

 

8. Management Team

Just as investors want to be assured you have a viable product or service, they are especially interested in who’s running the business. Plans spell out your intentions. People carry out those plans. The caliber of your team conveys a great deal about the ability to achieve your business goals. That’s why investors need to know who’s on the team and what expertise they bring to the table.

Here you’ll provide the names and biographies of your management team members and indicate any management gaps. If it applies, you may also highlight your Board of Directors. The background information may contain the individual’s educational achievements, relevant work experience, skills and accomplishments. Sharing personal details helps investors to get to know your management team and provides another layer of transparency.

At the writing of your business plan, it’s possible to have openings on your management team. In this case, you’ll list the position, define the job responsibilities and specify the hiring requirements for the ideal candidate.

For example, the background for a software company’s president may read:

John Doe is founder and president of Any Place Software Development.  He has more than 25 years of experience in Information Technology.

This is Joe’s first business venture. He has risen through the ranks of a corporate IT career to become the Chief Information Officer. Joe has designed multiple software programs and has two patent-protected programs. He has a bachelor’s degree in Information and Systems Management from XXX University and an Executive MBA from XXX University.

 

9. Financial Plan

Remember, an important part of securing funding for your business is conveying it will be financially sound and you can repay the potential funding source in the near future. This is why the financial plan is critical to your business plan. It presents your revenue model, financial projections and funding requirements. You are basically sharing the different ways you will generate income, your plans for financial solvency and your rationale for your funding request.

The revenue model describes how you make money. Some common revenue models are subscriptions, advertising, affiliate marketing, markups, direct sales and commissions.

Financial highlights are essential. Your plan must include a three-to-five-year financial forecast that presents your projected income and expenses while painting a realistic picture of your profitability. It will highlight several reports with the details included in your Appendix. The financial reports include your projected income statement, balance sheet and cash flow statement. Established businesses may choose to include historical financial data. Charts and graphs work well for depicting your financial highlights.

Lastly, you will detail your funding request. Specify how much funding you’ll require and how you will use the funding. Some potential uses are to purchase equipment, pay bills and salaries, rent office space or conduct marketing research for product development.

Here’s an example financial plan summary:

Below is an overview of our expected financial performance over the next five years:

To achieve these projections, we need to raise $125,000 in financing.

Business Plan Financial Summary

 

10. Appendix

The Appendix is the final section of your business plan. It’s used to provide supporting documentation for materials referenced in any of the previous sections. Additionally, it allows the reader to review detailed financials. Investors expect to see your full financial forecast in the Appendix. These are the projected income statement, balance sheet and cash flow statement referenced in your financial plan. Some lenders may request your personal or business credit history.

Investors also use this section to verify your business credentials. Consider including some of these items in your Appendix: resumes for the management team, sample marketing materials, lists of key customers, patents and trademarks in the section.

Summary of How to Write a Business Plan

We’ve just covered 10 essential sections of a business plan. By now you should be confident that you understand what investors look for in a business plan and that you can write one to meet their needs. Just in case you’d like some additional information or examples, check out additional articles and resources on our website below.

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