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One of the key documents for starting a business is a business plan. A business plan acts as the foundation of your new company and is often used for loan applications. If you’re looking for investment capital, it’s an important document for investors to review to learn more about your company.
2020 was a challenging year for startups and small businesses, as many struggled to stay in business amid the coronavirus pandemic. New and existing businesses alike may find the idea of drafting a business plan in this challenging time to be an impossible task.
Traditional business plans are often 30 to 40 pages long. What if you don’t have enough information about your startup to fill all those pages? These documents also tend to be written three to five years in advance. How is it possible to determine where your startup will be in five years from now when you don’t know what will happen tomorrow?
Writing a business plan does not mean that the business will be immediately successful. It’s OK not to know exactly what will happen next. The plan itself, as mentioned earlier, acts as a foundation for the business. In your business plan, you should be able to set goals and outline necessary steps and timelines to achieve each milestone. It should also be highly flexible — ideally, a hybrid between a traditional business plan and a lean startup plan.
Here’s a glimpse of what entrepreneurs should focus on covering in a flexible business plan:
Executive Summary/Value Proposition
This is a brief introduction to your business. In a traditional business plan, an executive summary uses a few pages to detail more information about what the business does. In a lean startup plan, the value proposition is a statement about the value the business brings to its market.
A flexible business plan may merge these two sections together, creating an introduction that sums up the following business details:
- Brief business description. What does your business do? Where did the idea for the company come from? Where are you located and what industry are you in? How does the business earn money?
- Value. What value can your business bring its respective market? What kinds of problems does the business solve? Why would consumers choose to purchase your offerings and services?
This section is a bit of a hybrid between a traditional business plan’s section on business description and concept and a lean startup plan’s notes on key partnerships and activities.
Essentially, you should sum up the following strategic information about your business:
- What do your offerings do and how do they work?
- If your business is still in development stages, where is it currently and when will it be projected to launch?
- What are some of the goals for the business?
- Are there are strategies/steps in place for reaching each goal? What do these projected timelines look like?
- Does your business have any partners or is utilizing resources that may allow it to have an advantage in reaching these goals?
A critical part of a business plan is its market analysis. This is where you are able to answer key questions about your target market and customer base. These are going to be the people who invest in your products and offerings.
Here are a few questions you’ll need to answer in a flexible business plan:
- Who is your target audience?
- What are the demographic profiles of your customers?
- What are their needs?
- How is your business able to attract, capture and retain this audience over time?
Understanding your customer base will be an ongoing component of a flexible business plan. As demographics change in and out of your target market, you must be able to study emerging markets and determine how your business will be able to serve these needs in order to build lasting relationships.
This section is often referred to under “organization and management” in a traditional business plan. It provides a basic snapshot of your startup and its leadership.
Here are a few quick items to cross off for inclusion:
- Leadership. Who is running the business and what are his or her current responsibilities? Share all relevant background information and previous experience in the field.
- Location. Which city and state does your company do business out of?
- Business entity. Which legal entity have you incorporated under, such as a corporation or LLC?
- Mission statement. If your business has a values statement, be sure to add it here as well.
Every business plan is required to have a section dedicated to its financial projections. Within this section, you’ll be able to cover more information about the company’s cash flow. You can take a deep dive into the startup’s projected profit and loss, expenses budget, sales forecast and break-even analysis.
Having financial documents is critical if you would like to have investors invest in your business, because they will need to view these documents first. This gives them a good idea of what the startup’s future profitability looks like and encourages lenders to provide the startup with capital.
While we are unable to give financial advice, we do recommend entrepreneurs work alongside an accountant to prepare any financial documents. An accountant will work with you to create forecasts that are realistic and thoughtful. It’s also important to be honest when working on this section. Even if your initial projected revenue is a bit lower than anticipated, this may change over time — especially the longer you continue to conduct business in 2021 and beyond.