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How to make a business plan: your step-by-step guide to landing investors and launching your business

Wednesday, August 09, 2023

When you’ve made the decision to start a new business, it’s tempting to dive right in. You’re probably bursting at the seams with ideas, inspiration, long-term goals and passion. But before you take over the world, let’s pump the brakes — have you created your business plan yet? Do you know what a business plan should look like? Who is it actually for, anyway?

That’s where we come in. We’ve developed this step-by-step guide to help you write an effective, comprehensive business plan. It will take some time and a little hard work, but we know entrepreneurs like you never shy away from a challenge. Plus, creating a business plan now will save you time in the long run while setting your business up for success.

One thing to keep in mind: Your business plan may primarily serve as a roadmap on the way to meeting your business goals, but it’s also a critical document for your potential funders and stakeholders. If you’re starting a small business, you likely need investment partners or lenders, and without a solid plan, you won’t have much luck securing them. It’s important to include all the information those lenders expect — and to do it in a compelling way.

Read on to learn how to research and write each chapter of your new business plan, including:

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The executive summary

The executive summary is probably the most important and most read section of your plan. It must capture the reader’s attention in a way that leaves them wanting more. Rather than just a simple company description, think of it as a “meal in a bite.” You need to give your readers a taste of all the “flavors” of your business plan in a very tight, easy-to-read introduction.

If your executive summary is longer than 500 words, you’ve lost the average reader’s attention.

Hook them with these three things:

1. Your condensed story

For the executive summary, condense your business’ full story into a paragraph or two (we’ll go into more detail on writing your full story in the next section). Here is where you summarize:

  • The customer’s unmet need

  • Alternative solutions that try unsuccessfully to meet these needs

  • Your solution and how it’s different

2. Your financial plan

This often includes a chart showing three years of financials. Each year must include the total expected expenses and total expected revenues. It’s okay to show a loss in the first or even second year, but it’s important to show a profit by the third year.

3. Your "ask"

If you’re using your business plan to raise funding, you need to make this proposal clear and concise at the start. Of course, they’ll need full details of your financials, but we can do that further into the document after we’ve captured our reader’s attention.

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Your story

Everyone likes to hear a story. While many new business owners think that a business plan is just a set of financial projections and balance sheets, we believe it’s equally important to convey something deeper, more meaningful or more compelling for your readers. The better your story, the more likely you’re going to win them over (and take home that funding you need).

In your case, your story might be why you’re starting your business, what makes your idea so unique or how you plan to improve people’s lives with your product. In the end, your story should touch on three key elements, answered by these questions:

What is the customer’s problem?

Your business needs to solve a problem. The problem is essentially an unmet need your customers have. Ask yourself what problem(s) your business can solve for them, make a list and try to be as specific as you can.

What alternative solutions may solve their problem?

Put on your “sales hat” and think about the different ways your customer’s needs could be met without your solution. Identify the alternatives — but point out their shortcomings. A major goal of your business plan is to prove that your solution is superior.

Why is your business the best solution to the problem?

First, describe your solution in detail and list its benefits. Next, address why your solution is better than the alternatives you already touched on. Then, cover what makes your solution unique and what you can offer that other businesses cannot.

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Your products and/or services

Next, we get into the nitty-gritty of your offerings. Present a description of the products and/or services you offer, talk about what they are and, most importantly, how they will solve a customer’s problem.

Your product descriptions must talk about what the product will do for the customer — not just what the product does.

While your business’ value propositions may seem obvious to you, don’t assume that they are to a potential customer or stakeholder. If you don’t stress the benefits of your products or services, you’re failing to give them any reason to choose you over a competitor.

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Market research

Now it’s time to do your homework. Your readers will want proof that you have a large enough market to sustain and grow your business, so your market research is paramount.

If you are an online retailer, it might seem like your target market could include anyone on the internet, but that’s not really the case. Depending on what you sell and where you sell it, your target audience could be curbed geographically. There are other possible constraints as well, such as products that only work in certain climates, or limitations due to local or international regulations.

You also have to consider the groups, or demographics, of potential customers within your geography. If your product is for a specific gender or age, this limits the size of your target market.

Next, based on your criteria, give an estimate for the number of potential buyers. This is called the Total Available Market (TAM). You can refer to public information for some of this data, or you can research reports online. State the assumptions that you used to calculate this number and present your findings in a graph to make it easy to digest at a glance.

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Target customer profile

Take your target audience one step further and build your ideal customer profile. As you fill in this profile, be sure to be a) realistic, so that the reader finds it believable, and b) not too specific, in order to create the broadest profile possible.

Here are some characteristics to consider when defining your perfect customer:

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Get specific with traits like age, gender, occupation, household income and education level.

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Where exactly does your ideal customer live?

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How much does your customer have to spend on your product?

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Decision-making factors

What influences whether your ideal customer decides to buy your product? For example, do they put trust in online reviews?

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Preferred media

Is your customer typically scrolling social media? Do they search the web with ease, or are they more likely to go by word of mouth?

Once you have profiled your ideal customer, you can estimate how many new customers you will be able to reach in a certain time period. You should also consider how many returning customers you’ll reach as you build your client base.

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Competitive analysis

Investors and funders want to know how you plan to beat the competition. Before you can answer that, you have to identify your competitors.

For retail and restaurant businesses, your competition falls into one of three types:

1. Like businesses: These are competitors that sell the same category of products that you do, such as another bicycle shop, taco truck or pharmacy.

2. Category businesses: These businesses compete in the same industry category as you, such as food service at large.

3. Location businesses: These direct competitors are vying for the same customers as you are because of a shared location, like a shopping mall or neighborhood. If you are an ecommerce business, these competitors might be similar businesses within the geographical area that you serve online.

Here are some practical steps to research and present your competitive advantage.

1. Narrow down your competitors. One way to do this is to identify who shows up highest in search results. Come up with at least 20 relevant search terms. Take note of who appears on the first few pages for each term. The more they show up, the more likely of a competitor they are.

2. Find your competitors’ weaknesses. If you don’t have much first-hand experience with these businesses, read reviews online. Write about how you’ll succeed where they fall short — be it pricing, quality, service or any other areas of opportunity.

3. Consider a new differentiator. If you aren’t finding ways in which you thrive over the competition, it’s time to create one. Any unique benefit you can offer will serve as a competitive advantage (assuming, of course, it’s something that would be important to potential buyers).

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Your vision statement

By this point, you’ve gone into detail on how you came up with your new business idea, why it’s valuable to consumers, and what sets you apart from the competition. Now it’s time to look to the future.

When composing your vision, ditch the short-term milestones and dream bigger. Your vision should be aspirational, future-oriented and ambitious. Try to encapsulate your company's purpose and values into a concise and inspiring vision statement. In this moment, you’re declaring that not only will you stay in business, you’re going to change the world (wouldn’t that be awesome?).

Here are a few vision statement examples to put you in the right direction:

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To create the most compelling car company of the 21st century by driving the world’s transition to electric vehicles.

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To serve our customers better, to always be relevant in their lives, and to form lifelong relationships.

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To create a better everyday life for the many people.

This is your opportunity to wow stakeholders and investors with your purpose and your potential. So think big picture, and don’t be afraid to aim high. You’ll deliver on the details of how you’ll get there in the next few sections.

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Go-to-market (GTM) approach

You’ve already identified your ideal customer, but now it’s time to answer the question: How will you reach that customer? This is when your go-to-market (GTM) strategy comes in.

A GTM strategy involves an outline of the concrete steps required to launch a new product in the marketplace. You might think that sounds an awful lot like marketing — and it’s true that a GTM strategy may include a marketing plan. But it’s important to note that it also covers much more. Let’s dive in.

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Now that you have an understanding of your target market and the value of your offering, you can more clearly determine the price a customer would be willing to pay for your product or service.

In your business plan, be sure to convey that you’ve considered the following before determining your pricing strategy:

  • How much does it cost to manufacture your product or service?

  • What price do you need to meet in order to make a profit?

  • How much do your competitors charge for a similar product or service?

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Not all promotional techniques will work for every company. It’s important to distinguish which will work best for your business and for your customers.

Your potential investors know this, and they’ll want to hear that you’ve taken into account the following:

  • Which is the best channel to reach your target customer? Online or offline?

  • Where does your target customer spend most of their time, and which channels are effective in that space?

  • What is your realistic marketing budget?

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Sales and distribution

Time to figure out 1) just where will your customer purchase your product, and 2) how will that product get to your customer. Whichever channels you decide on, your stakeholders will want to hear one thing above all else: The buyer’s journey will be quick, seamless and pain-free.

Here are some questions to consider:

  • Does your product have any specific sales and distribution requirements?

  • Where does your target customer shop?

  • How can you make the sale of your product as seamless as possible?

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Your financial plan

You know your product, you’ve done your market research and you’ve prepared a sales strategy to reach your customers. Now for the section of your business plan your potential investors will be most interested in: the numbers. It’s time to put it all together in a three-year financial plan.

Your financial forecast should be laid out by year for each of these metrics:

  • Revenue: The total amount of money brought in from sales, measured over a set amount of time.

  • Cost of goods sold (COGS): This set of expenses includes what you spend on inventory or manufacturing parts — items that you ultimately resell to generate revenue.

  • Gross profit: The difference between revenue and COGS. For example, if it costs you $10 to build a dresser and you sell it for $100, your gross profit is $90.

  • Operating expenses: This covers all other expenses, including payroll, rent, leases, office supplies, travel, utilities, marketing and advertising, professional fees, as well as one-time purchases like machinery, computers or vehicles.

  • Net profit: This is the sum of operations and COGS expenses subtracted from revenue generated.

Heads up: It’s normal to have a negative net profit on your financial statements for the first few months, or even your first year.

This loss can be funded by a loan or investment (and it’s why your business plan is so important). The sum of these negative net profits also tells you (and your financier) how much you will need to start your business. You typically want to raise 200% of the forecasted negative net profit.

If you find all these calculations overwhelming, rest assured there are a number of software programs and accounting tools (even Excel!) that can help. You can also check out our Start Up Path for Entrepreneurs course to access worksheets that will help you craft your financial plan.

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Your people

Next, you’ll present an overview of the people running your business and the reasons why you chose them. Potential investors will want to know about your key management team members. Include a photo and a short description of each person’s background (no longer than one hundred words apiece).

Start with the owner/CEO. This person may also be the founder or co-founder (or you!), and it’s important to mention any relevant background experience that lends to making big-time decisions for your business. Additional people you could mention include your board of directors or other participants in the business. One of these should be a “domain” expert — someone with lots of experience in the industry you are serving. Investors will feel more confident knowing you have experience in your corner.

Next, we think it’s especially important to highlight your sales leader. For online businesses, this may be the person who runs a phone or account team. It could also be your digital marketing manager who knows how to attract customers over the web.

Draw attention to the people who play the most important roles in your go-to-market strategy to emphasize your credibility.

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The offer

Hang tight! We’ve almost made it to the end, but we still have to cover arguably the most consequential section of your business plan — the “ask.” This is where you propose your specific needs to your potential investors. Your ask may be one of three types.

1. Funding request

This is the most common conclusion of business plans. Based on your financial plan, you will ask for money either in the form of a business loan from a financier, or an investment in exchange for shares of your company. State how much you need and how it will be spent.

One thing to make sure of is that you are very clear in your outline of what success looks like with the investment money. If you achieve the goal using the investment, investors will often put in more money for the next obtainable goal, if applicable. Ultimately, these multiple investments lead to profitability, raising the value of the business for future liquidity that ultimately leads to an exit.

2. Sponsorship

Whether you need funding or not, most businesses need help promoting themselves. A promoter could be an industry expert willing to offer you a reference, or sponsorship from a complementary business or person. One of the best ways to gain the confidence of a promoter is to show them your business plan. This process would not necessarily be for every promoter once your business is established; what you are looking for is your first few promoters to get your business started.

3. Board members

You can also use your business plan to recruit board members. Board members have numerous roles in your business, including a general overseeing of the business vitals. They can also provide industry connections and advice for better decision-making.

As you recruit board members, keep in mind that you may need to offer compensation. This often takes the form of stock options over a board term, such as three years. Stock options tend to be very useful as compensation because they not only incentivize them to provide the best help they can, but it also preserves cash in the early stages of your new business.

No matter which situation applies to your business at the moment, ensure that your “ask” consists of only one or two paragraphs. On the other hand, you might not actually have an “ask” yet — and that’s okay. The best businesses start from a clear blueprint, and a business plan (even without this particular section) will still serve as a valuable tool to help reach your goals.

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Start your business on the right foot

Crafting your own business plan is essential to setting your venture on the right path. Whether you need funding for the future or simply want to establish a clear vision and strategy, your business plan will be a vital tool during the launch and growth of your business.

We hope our step-by-step guide has you feeling ready to turn your dream into a success. For more actionable tips on how to build and grow a remarkable business, visit The Entrepreneur’s Studio.

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