A business plan will act as a guide to the business in its direction and growth. It will also be able to help the business achieve its objectives in a structured and controlled manner.
Why is a Business Plan Important?
Every business needs a business plan before it goes live. Without it, a business can end up directionless and without a definitive objective. A business plan is needed for two important reasons: – To attract investors into the business. – To give direction to the growth of the business.
Business Plan Formats
There are two formats for making a business plan. You can choose to do it either ways as there is nothing like a wrong format for a business plan. As long as it suits your needs, you can choose either one. The two formats are:
- Traditional business plan
- Lean startup plan
Traditional Business Plan
A traditional business plan is the most common format used when making a business plan. This format uses a standard structure for a business plan and requires that the prospector put in a lot of work and time into preparing it. The traditional format goes into detail of every step and aspect of the business in the business plan. Such a business plan can be pages long and requires a lot of attention to detail. A traditional business plan is more advantageous when one is looking for investors for the business idea. Any investor would like a comprehensive plan of action that only the traditional business plan can provide. The following are the steps to creating a business plan using the traditional format:
- Executive summary: This should contain a brief idea of what the company is and what the objectives of the business are. You should also add why you think the company will succeed in its venture. Include mission statements, company’s leadership, employees information etc. an executive summary should give the reader a brief and basic idea of what the company is.
- Company description: Unlike the executive summary, a company description must contain a detailed description of the company. Details of the customers and suppliers of the business. The financial status of the business, whether it is in an unfavorable or favorable state. Also explain the standing of the company in the market, whether it is doing well against its competitors or lagging. You should also include the objectives of the company and how you plan on meeting them in the short term and/or long term.
- Management and organisation: Include a detailed review of the organizational structure of the company. How the management and the workforce are organized and how they run in tandem. Write about the leadership of the company.Also include the future legal identity of the company, such as how you wish to incorporate it, whether you will go public with it or make it an LLP etc.
- Market/competitive analysis: It is important to know the standing of the company in the market. Whether the competition to the company has the upper hand on the market share compared to yours. To comprehend the strengths and weaknesses of the competition. Study the trends and operations happening in the market, and whether you can emulate the same successful actions of the competitor.
- Products and services: Provide a detailed description of the product or service that the business provides. The production cost and the profit margin. How you are planning on improving the product or service to get more customers. How you plan on implementing new products and market the same.
- Funding: At this point, you should talk about the funding requirements. Talk about the financial support that is required by the company. It may be either for a short-term or a long-term. Explain why you need the funding and how you plan on investing the funds. You can also explain how you plan on reciprocating the funding, by either taking it on as debt or for equity. Always give a basic overview of your financial plans for the future.
- Financial projections: When putting forward a funding request, you should also give the company’s financial projections alongside it. This is to ensure to the investor that the company is financially healthy and will continue to be so for the long term. No investor will move funds into a company if it does not show financial stability. Make a prospective financial outlook for a five-year plan and support this with financial statements and studies you have done to come to this conclusion. If possible, show all projections using graphs and charts so as to make it easier and more concise to understand.
Lean Startup Plan
A lean startup plan, on the other hand, is a shortened version of a traditional business plan. It follows a similar structure, but unlike the traditional format, it does not go too much into the details. It gives the gist of the important factors of the business in the business plan. Usually, a lean startup business plan can be completed in a couple of hours and fit into a single page. This format is usually used when one isn’t interested in inviting investors into the venture; this is because most investors will ask for a business plan that follows the traditional format as it holds more and detailed information. This helps them decide the pros and cons of investing. It saves time and effort but can still give you a clear idea of what needs to be done. The main idea behind doing a lean startup business plan is to save time and to have a personal road map for your business venture.
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