When I first visited “Money Saved is Money Earned,” I was immediately taken in by the name…I had heard the similar Benjamin Franklin quote (a penny saved is a penny earned) before and have always believed it. I was further attracted to the blog’s goal “to teach people of all ages how financial systems work.”
There is one “financial system” that creates more wealth than any other. And unfortunately, most people don’t know enough about it. That “system” is entrepreneurship. Starting a business creates more wealth than any other occupation. In fact, 80% of pentamillionaires (those worth $5 million or more) achieved their wealth by starting and/or selling their businesses.
The key to launching a successful business is to start with a business plan. Yes, a select few entrepreneurs like Elon Musk have the seemingly magical ability to plan out a company in their heads, jot down some basic ideas on a napkin, and achieve success. But for the rest of us, we need to write a business plan that lays out our strategy and provides a roadmap to follow.
Below you’ll learn some more reasons why you need a business plan and how to create one for your new or existing business.
Why You Need a Business Plan
I’ve identified 20 reasons why you need a business plan. However, the three most important are:
1. To flesh out the business opportunity. Writing a business plan forces you to think through all the key aspects of running a business. For example, it makes sure you think about the customers you’re serving, your competitors, who you’ll have to hire, and so forth. Identifying these issues allows you to launch your business with a true understanding of what will be required for you to achieve success.
2. To understand the financial implications of your business. If I were to start a new airline and offer flights for $10, I’d have an unlimited number of passengers clamoring to purchase tickets. However, financially I’d go bankrupt since my costs would far exceed my revenues, and I wouldn’t be able to make a profit.
Developing your business plan helps you identify the revenue and cost drivers of your business and helps ensure you have a business model that financially supports your long-term success.
3. To attract outside funding. Many businesses never seek outside funding, but many do. And if you’d like outside funding, you absolutely need a business plan. Tell a bank or angel investor that you’re seeking funding, and the first thing they’ll request is to see your business plan.
Importantly, funding sources often provide a lot more value than just the checks they write you. They often have operational experience and can help advise you as you grow your company.
What To Include in Your Business Plan
Your business plan should have 10 sections, as listed below.
1. Executive Summary
While listed first, your Executive Summary should be the last section you complete. That’s because this section summarizes each of your other sections. It is the most important part of your plan because it’s the first thing people read, and if they aren’t impressed or interested, they’ll stop reading.
So, as you can imagine, you want to use your executive summary to get readers psyched to learn more about your company. Tell them in one or two sentences what your company does (e.g., we are an Italian restaurant, we provide dry cleaning services, etc.).
Then, tell them what’s different about the company that makes you likely to succeed. For example, do you have 20 years of experience in the business? Do you have special relationships with customers, vendors, or suppliers that will be helpful? Have you invented a new product or service that will satisfy customers more than the competition?
Finally, if funding is required, detail how much funding is needed, what the key uses of the funding are, and what your financial projections are for the next five years.
2. Company Overview
Your company overview is not a very strategic section. It simply gives background on the company for readers of your plan. In this section, you’ll discuss the history of your company and the milestones you’ve achieved. The best indicator of future success is past successes, so spend time identifying all your milestones if you hope to convince investors and lenders to provide funding.
3. Industry Analysis
In your industry analysis section, you will discuss the market in which your company operates. You’ll identify the market size and key trends that are affecting it. Ideally, you can access third-party research on your industry as it will validate your findings.
The point of this section is to prove to investors and yourself that the market is large enough to support your company and that trends are also in your favor. For example, if market research showed your industry was moving towards high-priced, premium services, and that’s precisely what your company plans to offer, that would be a great sign that your company may be successful.
4. Customer Analysis
Great companies do a great job of satisfying their customers. This is the essence of the customer analysis section of your business plan.
Here you will identify the target customers you will serve. Ideally, you can find third-party research regarding the number of customers in your target segments and their precise wants and needs.
The more you understand who your customers are, the better job you will be able to do in attracting and retaining them. In this section, you will identify your target customers and document their needs to serve them best.
5. Competitive Analysis
Nearly all companies have competitors. If you feel you don’t, think about how customers are currently meeting the needs that your company fulfills — these/these methods are your competitors.
In this section, you want to identify and talk about each of your competitors’ strengths and weaknesses. Then, and most importantly, you need to identify and document your areas of competitive advantage.
It is these areas that will ultimately determine your company’s success. If you don’t have any competitive advantage areas, there will be no compelling reasons why customers will choose you, and it will be hard to succeed. Conversely, if you have compelling competitive advantages, you can enjoy lasting success.
Think about areas where you can have a competitive advantage and document them in this section.
6. Marketing Plan
In your marketing plan, you will document your 4Ps: Product, Price, Promotions, and Place.
Product refers to the products and/or services you will offer customers. Discuss these in this section.
With regards to price, discuss your pricing strategy. Will you offer premium prices? Low prices? Document this here.
Your promotions plan details the methods by which you will attract new customers. Will you run television ads? Do social media marketing? In this section, discuss all the marketing mediums you will use to attract customers.
Finally, in the place sub-section of your marketing plan, you should detail how customers will purchase from you. For example, will they visit your physical storefront, your website, or buy from distributors? Document the answers to these questions in this section of your plan.
7. Operations Plan
Here you will discuss both your key ongoing operations and your long-term milestones. Regarding ongoing operations, detail the key functions your company will perform to offer products and services to customers. With regards to milestones, document your expected milestones over the next 5 years. For example, estimate the dates when you will hire your Xth employee, reach $Y in sales, and/or serve your Zth customer.
8. Management Team
In the management team section, provide the bios of the key members of your team. While you should summarize their resumes in paragraph format, if possible, also detail why each team member is suited to help your company succeed.
Also, if applicable, identify management team gaps that you will fulfill in the future. For example, you can say you plan to hire a VP of Sales next year and that the right candidate will possess these skills.
9. Financial Plan
The financial plan section details how much funding you will need (if applicable), and the key uses of funding to execute your plan. It also provides a summary of your expected profits and/or losses (P&L) over the next five years, along with your key assumptions.
The goal of this section is to prove that your company has a strong chance of achieving financial success and to make sure you will not run out of money.
Finally, in your appendix, you will include supporting evidence proving the case that your company is poised to succeed.
Here you will provide your full Income Statement, Balance Sheet, and Cash Flow Statement to support your claims in the financial plan section. If applicable, provide other documents that support your likelihood of success, such as customer lists, signed contracts, signed leases, etc.
It’s Not as Hard as It Seems
Hopefully, you now understand why you need a business plan if you hope to succeed in your next venture. Sure, it’s real work. But hopefully, you can see that all the work you do will ultimately help you build a stronger business and/or avoid getting yourself into a business venture doomed to fail.
If you’ve never created a business plan before, use a business plan template as a starting point, as that will save you considerable time. And remember that your work in developing your plan will most likely give you knowledge your competitors lack, which should help you achieve lasting success.
Now that you know why you need a business plan and how to get started, you can begin creating your potential path to wealth through entrepreneurship today!