How To Write A Business Plan And Form Your Company
Coming up with a good idea for a business is just one step toward becoming an entrepreneur. Another part of the journey is making sure you have a solid plan to back up your business.
A business plan is like a roadmap or blueprint for managing your business every step of the way, and it usually includes comprehensive ideas for how you’ll make money, how you’ll market the business and more. You can easily write your own business plan in a document or use online templates. It can take some time for you to fully flesh out your ideas, but it’s time well spent if it helps you get super clear on where you’re going and how to run your business effectively.
Below, CNBC Select walks you through the steps of creating a business plan for a small business. Read on for instructions and links to resources.
The two types of business plans
According to the Small Business Administration (SBA), there are two main types of business plan formats: a traditional business plan and a lean startup plan.
- The traditional business plan gives very in-depth information on your vision for your business, the research you’ve conducted on the industry, regulations impacting your industry or business, product line and more. It’s so in-depth that it can sometimes end up being over a dozen pages long.
- The lean startup plan is a lot more concise and is designed for you to just jot down a few sentences on the problem, solution, revenue streams you plan to implement, how you’ll market the business, expenses, milestones you want to hit and a few others. By comparison, this type of plan ends up being just a one-pager.
The SBA’s website actually offers examples of both types of business plans so you can get a better idea of what they end up looking like and what kind of information is included in each.
And if you don’t want to start totally from scratch or you need more guidance, some business formation services have resources for creating a business plan. ZenBusiness offers different business plan formats, FAQs on writing a business plan and some additional insight on what investors like to see in a business plan.
ZenBusiness
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Cost
$0 + state filing fees for Starter plan; $149/year + state filing fees for Pro plan; $349/year + state fees for Premium plan
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App available?
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Standout features
ZenBusiness offers a wide selection of services that range from formation offerings to compliance, managing your finances and building a website and logo.
Pros
- Order processing within one business day available for Pro and Premium packages; otherwise order processing takes 7–10 business days
- Offers business document templates (included within the Premium plan only); other plans pay an additional fee for access
Cons
- Registered agent service costs an additional $199/year
- Charges a base price plus state filing fee for some pricing plans; some competitors only charge a state filing fee
Xero, a popular accounting platform, offers a business plan template as a free PDF that you can access if you provide your name, email and details about the industry you’re in.
Xero
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Cost
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Benefits administration
Through partnership with Gusto
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HR tools
Includes 30 days of free access to Gusto’s cloud-based HR and payroll platform
Pros
- No limit on the number of users
- Includes W-9 and 1099 management
- Frequently runs limited-time discounts for new customers
- Automated sales tax calculation available in all plans
Cons
- No annual subscription option
- Basic plan limited to 20 invoices/quotes per month
How to write a business plan the traditional way
If you’re writing a traditional business plan, the SBA outlines specific sections that are commonly included. Depending on your needs (or requests from lenders or investors), you may add or subtract some sections.
Executive summary
The executive summary is where you’ll briefly explain what your company is and what product or service it offers. You may include who your target customers are and your high-level vision for your company’s future success.
Company description
You may include your company’s mission statement and the problem it solves here as well as information on the business’ legal structure and the company’s leadership at this point. Sometimes the specific people on your team can be part of your company’s competitive advantage given their professional expertise in an area, so you can highlight that here, too.
Market analysis
This is where you really show that you’ve done the research on your target market, the competitive space, the problems you’re seeing in the space and the advantages that will allow your business to solve those problems. You can also mention industry trends you’re seeing. Be sure to discuss your target customer and their needs as well as the data or research you have to back up those claims. Did you directly speak to 50 people who represent your target customers? Did you use online forums to research customer sentiment? Include that here.
Organization and management
In this section, you explain who runs your business and the type of legal business structure you have (i.e., LLC, C-Corp, S-Corp, etc.).
Service/Product
This section may be self-explanatory, but this is where you list out all your products or services and their pricing. You may mention here any intellectual property (IP) or patents you have going so far or if you have any research development going on.
Sales and marketing
Some people may find this part fun. The sales and marketing section is where you’ll describe your plan for building awareness, reaching target customers, getting them to buy from you and retaining them as customers. You can also discuss specific growth strategies you’re planning, like influencer marketing, networking, creating in-house content or other avenues.
Funding request
If you plan on raising money from investors or getting a loan, this is where you explain how much money you need and how the money will be used. For instance, the money may be used to hire a marketing expert or pay the salaries of your employees.
Financial projections
This section may be optional depending on whether you included a funding request or not, but this is where you’ll create a financial lookahead projecting revenue over the course of the next few years. This part may be a bit more complicated and if you’re writing a business plan to receive investor funding, then you shouldn’t just throw random numbers you “hope” to achieve in there. The numbers should be within reason — investors can usually tell if you’re making stuff up just by being well-practiced in your industry and investing in so many similar deals over the years.
If you don’t have a background in finance, you can actually use online tools to help you with cash flow projections. SCORE, a network of volunteer business advisors, offers a free financial projections template you can download and access with Microsoft Excel.
How to write a business plan the lean startup way
The lean startup business plan is not as intimidating as the traditional business plan. Again, you may not need all the sections the SBA lists and you can make up your own sections where relevant.
Value proposition
This is where you clearly state what your company is and what it does, including what competitive advantage it brings to the market. How is it different from similar companies that are out there?
Key activities and partnerships
List the most important ways your company will maintain that competitive advantage: Do you plan to manage a bespoke community for customers? Run a monthly Q&A on social media? Have a presence at local in-person community events? Write that here. Also list out any other businesses you plan to develop partnerships with to help you reach key audiences and customers.
Customer segments
If you’ve ever been a product marketing manager, you’re likely well-versed in understanding customer segments and their importance. Customer segments are a way of narrowing down your target market and separating them based on attributes like demographics, psychographics, spending behaviors and even geography. The more specific you can be about a customer segment, the more intimately you will understand their needs and how you need to position your product to make them feel like it solves their problem.
Channels
How will you engage with your customers? This is what this section is all about. Common ways to communicate with customers and potential customers include newsletters, social media platforms and podcasts.
Revenue streams
How will your business make money? This might be through online sales, memberships, subscriptions, affiliate links, sponsorships or by offering a service.
Cost/Expenses
List out your main business expenses that you’ll need to account for month to month and even yearly. This can be anything from the ingredients needed to bake cakes at your bakery, to the website you made for your consulting business.
Set aside money for future use in a savings account designed for business
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Which business plan is right for you?
The right business plan for you depends on your goals and how detail-oriented you are.
If you’re someone who prefers to spend time thinking deeply and recording thorough notes around your vision, then a traditional business plan may help you reach all the areas you want to cover. But if you prefer to just get the high-level details out of your head and onto paper, then the lean startup plan is best for you (and you don’t actually have to be a startup in order to use this plan).
If you plan on getting investor funding, or you’ll need to apply for a significant loan from a lender that will require a business plan, you may be better off starting with the traditional plan since it’s more detailed and you may be asked for one.
Additionally, for some businesses, a traditional business plan may actually be more trouble than it’s worth. For instance, if you want to start a simple consulting business, you’re probably better off outlining a lean business plan and spending your time actually building the business and finding clients. But if you’re starting a physical storefront with a lot of moving parts, then a traditional business plan may be ideal.
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