How To Write an Effective Business Plan
You’ve got a business idea, you’re ready to go, and it’s time to put your expertise to work. But first things first — you’ll need to craft a plan. When you get started, you might ask yourself why you even need a business plan. There are many reasons that these plans are important, and chief among them are the creation of effective growth strategies and determining your financial needs.
Before you invest your time, effort, and everything else to cover the cost of your venture, you need to make sure it’s doable. Outcomes need to be measurable, risks need to be assessed, and most importantly, you need to know how hard it will hit your pocket.
Your Comprehensive Business Planning Guide
This eight-step guide on how to write a business plan will help you craft a masterful strategy to reach your long-term goals. If your planning is still a work in progress, you can always bookmark this business plan guide and come back to it until you’ve finally perfected your go-to-market solution.
1. Create an Executive Summary With a Mission Statement
An executive summary is a precise explanation of what your newly formed business does. It provides an overview of the entire business plan and doesn’t need to be overly complicated. Ideally, make it so simple that anyone can understand it so as not to scare away any potential investors. Keep it professional and avoid any fluff.
Don’t worry about getting it all right the first time. Executive summaries can be revised once the rest of your business plan is finished.
Every executive summary should cover the following:
Name of your business
Problem being solved
Value proposition of your solution
Reason why your business will succeed
Objectives, strategy, and key performance indicators
Alongside the executive summary, you should include your mission statement. A mission statement describes the purpose of a business. It communicates why your company exists, what societal benefit it provides, and indicates where your values lie. Mission statements are powerful messages that provide clarity for you, your employees, your investors, and your customers.
To provide a real-life example, let’s say your business is a fintech app that helps people with budgeting and saving. Your mission statement could be: “We strive to help people from all backgrounds get their personal finances in order and stop living paycheck to paycheck.”
2. Develop a Company Description
A business description explains what you do and what makes your product or service unique. It covers all the basic facts and details. In some ways, it’s comparable to a bio you might make for a social media profile. The main details to include will, of course, be your business name, market segment, and legal structure — sole proprietorships or a limited liability company being common examples. Here’s a fictitious sample:
Founded in 2015, Safekeep Ltd is a cybersecurity company specializing in malware, antivirus software, and infrastructure security services. It provides scalable enterprise solutions for small businesses, SMEs, and multinational corporations.
But when the rudimentary items are out of the way, your company description should tell a story. You’ll want to include where you’re based, who the founders of the company are, how and why your business came to be, which products or services you offer, and where you envision your company going. Next, illustrate the problems your target market may be facing and why you have a competitive advantage over others in your sector. Explain the extent of your total addressable market and how you can grab a piece of that market share.
3. Describe Initial Product Lines or Services
The products and services section of your business plan will expand on your competitive profile in a market. You should show comparisons between your product lineup and that of competitors and illustrate how your product stands out in terms of features, functionality, results, price, or filling a new gap in the market.
The most important attributes to explain include:
Functionality: Outline what problem is being solved and why it matters.
Revenue Structure: Define a model of how and from where your business expects to generate sales.
Pricing strategy: This could be premium pricing, a low-cost model, or a subscription service. Justify your price point and show your markup or margin on each sale. If you have any doubts about how to determine your pricing, Noumena can provide you with guidance.
Intellectual property: Always include trademarks and patents that give you a leg up on the competition.
New product development: Show where there is potential for expansion.
4. Perform a Market Analysis To Understand Current Competitors
A market analysis creates a picture of your current standing in the market. It will provide insight into your competitors and give a broader view of the entire market. There are a handful of useful frameworks you can use for your market analysis, including the following:
SWOT analysis: SWOT stands for the strengths, weaknesses, opportunities, and threats in a market. Analyze these factors to better understand your target market environment.
PESTLE analysis: PESTLE stands for political, economic, social, technological, legal, and environmental elements. Analyze these factors to assess market trends, spending patterns, the strength of economies, consumer spending, regulations, tax compliance, and labor laws.
It’s important to distinguish between both direct and indirect competitors in your market, as well. A comprehensive market analysis will consider both. Let’s add perspective. Hilton Hotels operates in travel accommodation. It understands it’s competing with other hotel chains such as Marriott Hotels, but it will also measure the threats of alternative travel accommodation options like Airbnb.
5. Identify Target Customers and Develop a Marketing Plan
You will need to formulate marketing strategies that take into account your target customers. You should start with customer persona templates, which break down the traits of consumers you are targeting. Customer persona templates identify characteristics of your ideal customer based on age profile, salary, geography, values, and interests. Knowing this information will help you to create relevant and effective messaging. Targeting your marketing efforts will help connect you with people who are most likely to be interested in your product or services.
For an older audience, for example, you may decide to opt for traditional marketing approaches such as print, television, or radio. For younger generations, social media and digital ads could be an effective recipe for success. If you’re a local small business owner, you may want to contact your Chamber of Commerce or another town forum to get the word out about your business. You might also try to get a feature for your business on the local news, or — if you have international ambitions — you might need a combination of the above strategies.
6. Come Up With Financial Projections
Maybe you haven’t taken the leap to start your business just yet. Before you say goodbye to a secure job, you need to make sure that you’ll be able to make a living from your new venture. Plus, you’ll need to prove there’s a roadmap towards profitability if you’re trying to get funding. Your financial plan will need to make estimates for sales and the expected profit margin once all expenses are met.
The costs of running a business add up quickly. If you're starting an online business, make sure you have a table or graph tracking your costs. Include your costs for business registration, acquiring domain names, website design, shipping rates, salaries, and production costs. Breaking down each expense can help guide you to finding the cheapest alternatives for better results. Be sure to keep accurate records to submit for tax write-offs, too.
7. Construct Specific Long-Term and Short-Term Goals
Short-term and long-term goals are usually split into tactical and strategic objectives, respectively. Both should be measurable. An excellent method to track your goals in a business plan is to lay out an objective and key results (OKR) framework — a methodology for setting and aligning goals across teams with built-in progress tracking. OKRs can break your strategy down into individual tasks that reach key milestones. Short-term goals refer to achievements in the next two years or less, say, gaining 100 new customers within a certain timeframe. Long-term goals are future-oriented, such as achieving $1 million in sales by 2030 or filing for an initial public offering.
8. Consider Funding Sources and Launch Your Business
Once the wheels are in motion, you might need extra capital to supercharge your business. Noumena provides funding services for businesses starting out as well as entrepreneurs looking to grow rapidly. Even if you are not sure what your next move is, Noumena’s experts can help guide you toward success and get the capital you need to reach your financial goals.
Do You Have What It Takes To Be a Successful Business Owner?
While you are on your journey, a superb way to fast-track your business plan is by communicating with other entrepreneurs. You can find new circles by joining Noumena, a freelancers-only social finance app, which provides freelancers with numerous resources that will help them be successful, including information about the software tools they may need.
Knowing how to write a business plan may not come naturally, but you don’t need to go it alone. Noumena’s Capital Quotient (CQ) service helps you assess the potential of your business before it goes live. What’s more, CQ provides you with the business plan and financial projection templates you need to get a head start. Take advantage of all Noumena has to offer by signing up today.