Business Plans - The Basics of Creating a Business Plan

What You Need to Know About Business Plans

Businesswoman discussing plan. Morsa Images/Getty Images

A business plan is a vital tool for any business. If you operate or plan to operate a home business, the more you know about business plans the more likely your business will succeed. This article discusses what a business plan, why you might need one, and how to write a business plan.

What are Business Plans?

A business plan is a document that is a valuable tool that can act as a blueprint for your home business.

Business plans are essential for getting a business loan, but they're also important even if you don't need outside funding for your small or home business.

What Types of Business Plans are There?

Formal business plans are detailed documents, usually prepared for the primary purpose of securing outside funding for the business. Informal business plans are road maps of the business that may only consist of handwritten notes that act as a guide to the owners of a business in day to day operations and in planning expansions.

Whether formal or informal, when properly written and maintained, business plans provide a means to help you stay focused.

Do You Need a Business Plan?

If you intend to secure outside funding for your business, you can expect a business plan to be a requirement. However, even if you're starting small or have your own resources to fund your business, informal business plans can greatly improve the chances that your home or small business will succeed.

They also provide a blueprint for growing your business.

The US Small Business Administration (SBA) estimates that as many as 90 percent of all small businesses fail in the first two years. Those statistics can be very frightening. After all, why would you want to spend a lot of time and effort as well as risk your own money when there is only one chance in ten your business will survive?

Keep in mind that a large proportion of those who start a small business don't know how to plan. They may also not be willing to take the time to learn how to write a business plan and keep it up to date. While you might be able to succeed without one, being armed with information on how to write good business plans will give you a considerable leg up in starting a business, keeping it operational, managing your money, and cultivating business growth.

Can I Write the Business Plan Myself?

The answer to this question depends on two key factors:

  • Is the business plan for internal use or external use? If you merely want to create a road map for yourself you probably don't need to hire a professional to create it for you. If you're trying to secure outside funding, professionals who write business plans for a living bring a lot to the table even if you only get outside help to review the plan to make sure your bases are properly covered in the document. Additionally, business plans need to be edited and proofread for grammar and good sentence structure. Well-written business plans increase the chances of securing needed outside funding.
  • How are your writing skills? If you're a good writer you can probably write a business plan yourself, at least with some assistance. Software and samples are available to help prepare business plans. Additionally, the SBA is a terrific resource for guiding you through the process. If you haven't already, you'll want to take their online Develop a Business Plan Workshop to get started. You'll find that the outline presented in this course varies from what the SBA now recommends on their website, but the information contained within the plan is the same. While you can easily learn how to write a business plan yourself, you will still benefit from having someone else read through your plan and you may still need outside assistance, such as a CPA to create your financial documents and/or a market research firm to develop statistics about your markets.

    Whether you decide to hire someone who writes business plans, write it yourself or use software, you still need to take an active role in the process. Whoever writes your plan needs accurate information for each section of the document and a clear understanding of your business. To a large degree, this is information only you can provide. Gathering the information is also of great benefit to you because it helps you understand your business and what you need to do in order to succeed, and it gives you a clearer picture of your competitors and your market.

    The added benefit of being prepared to provide the information needed to write your business plan is that the more accurate and detailed the information you provide, the lower the cost of having the business plan written by someone else for a fee.

    Developing a Business Plan?

    What you should include in your business plan may vary somewhat, based on the type of business you're operating and the purpose of the plan itself. While general guidelines are available, if the plan is being written primarily to secure outside funding, such as a small business loan, it's not a bad idea to see in advance if the financial institution has any specific requirements it likes to see in its loan applications and business plans.

    If the business plan's purpose is primarily for your own use or the financial institution has no specific requirements, the SBA is an excellent unbiased source of what should be included when developing a business plan. In a way, they are biased because they act as guarantor of many small business loans, but their suggested business plan outline is an excellent place to start and is included on the next page, How to Write a Business Plan.

    Participate in the Business Plan Poll

    Poll Question: Do You Have a Formal Business Plan?

    • I have a formal business plan that I created
    • I have a formal business plan created by others
    • I don't have a formal business plan yet, but I'm working on one now
    • I don't have a formal business plan yet, but I'll probably prepare one in the future
    • I don't have a formal business and I don't plan to create one

    Next: How to Write a Business Plan

    While informal business plans can be written in any format and in any order you like, a formal business plan that will be used to request funding for your small business should be written in a format that is familiar to the financial institutions, private investors and government agencies that will be reading it.

    For the purpose of explaining how to write a business plan, this article provides an overview of the business plan sections included in a formal business plan as espoused by the U.S. Small Business Administration (SBA).

    Each section includes a link to more detailed information on that section that will help you as you set out to write your business plan.

    Even if you are having someone else write your business plan, knowing what's expected in advance will help save you time and money in writing your business plan.

    How to Write a Business Plan - Outline

    • Executive Summary – A high-level overview of the document that is placed first in the finished document but that needs to be written last.
    • Company Description - A high level look at how all of the different elements of your business fit together.
    • Products or Services - Information on the products or services you plan to offer and how they compare to your competitors products or services.
    • Market Analysis – A description of your market, your niche, and the demand for your product or service (supported by documentation). The percentage of market share you envision and conclusions of any marketing research data.
    • Financial Data – Your balance sheet, a breakeven analysis, an income statement and a statement of cash flows. You'll want to include both historical financial statements and forward-looking financial statements.
    • Funding Request – This is the section when you'll be requesting funding for the business. If you are not seeking outside funds right now, you can leave this section out.
    • Appendix – Contains supporting information, such as resumes, details of market research findings, estimates, and all other documentation required to support what's contained in the body of the business plan.

    As you can see, this is, in large part, the information you should have gathered if you completed my 10 Steps Before You Start a Home Business. If you completed that exercise and collected some notes, you may already have a fair amount of information needed that you can plug in when you or someone else write your business plan.

    What Happens Once I Write the Business Plan?

    Your business plan is a valuable reference. Therefore, it needs to be a living document. Once you've learned how to write a business plan, keeping it updated should be easy.

    As you operate and grow your business, it's nearly certain that you will make adjustments to how you do business, make decisions on which additional products or services to offer and/or which to discontinue, change how you market or distribute your products or services, and discover ways to improve how your business is run.

    Keeping your business plan current offers some important benefits, such as:

    • If you ever need to apply for additional funding through either SBA loan programs or other sources of private funding, up-to-date information will already be available. When it comes time to submitting updated business plans, you'll save time and money.
    • It forces you to revisit the document, which helps keep you focused on what's important to the success of your business.

    How Often Should I Update My Business Plan?

    You can either update your business plan on a schedule, such as quarterly or twice annually, or you can update it on a real-time basis – as changes occur.

    Keeping business plans updated in real time may seem like a nuisance, but it's really ideal. It allows you to act quickly when you need funding or if you need to sell your business and it makes your business plan more useful as a road map because it keeps you on top of things at all times. And that's where you need to be to improve the chances that your home business will succeed and grow. Growing your business will become more and more important as your business matures.

    Learning how to write a business plan can be a very valuable experience for you and your business. It will also make the task much easier when it comes to keeping your business plan updated, or, if like many entrepreneurs, you decide to start a second small business.

    Participate in the Poll

    Poll: Do You Have a Formal Business Plan?

    • I have a formal business plan that I created
    • I have a formal business plan created by others
    • I don't have a formal business plan yet, but I'm working on one now
    • I don't have a formal business plan yet, but I'll probably prepare one in the future
    • I don't have a formal business and I don't plan to create one

    View Poll Results

    Discuss Business Plans in the Forum

    For those of you who would like to go into a bit more detail on how to write a business plan or voice your ideas, suggestions or frustrations with writing business plans, I welcome you to participate in the discussion on this topic in the Business Plans folder in the About Home Business Forum.

    Next up in How to Write a Business Plan: Business Plan Example - Company Summary