If you have an idea for a small business, you might wonder if it's worth going through the process of doing your research, making projections and drafting a detailed business plan. But even if you plan to run a simple business alone, creating a business plan can help you clarify everything from whether you have a lucrative business idea to how you will operate, manage and monitor the business. Not only does the plan serve as important documentation for you now and in the future, but third parties may also request it. Here are some of the many ways writing the parts of a plan can help your small business.
Clarify Mission, Vision and Values
Creating a business plan provides the opportunity to get the big picture of what your small business will do, what it aspires to achieve in the future and which values align with your brand. This information will not only guide you in deciding how to do business every day, but it can also help you foster the right company culture and attract employees who share similar values and aspirations.
- Mission: When writing your small business's mission, you'll get a clear idea of why your company exists and which needs it will serve in the market. For example, if you open a bicycle shop, your mission might be to provide quality bikes at an affordable price in the community. Such a mission would show you need to focus your efforts on keeping product quality high while minimizing costs to compete.
- Vision: Deciding on a vision goes a step beyond the business's basic purpose to outline what you'd like to be known for and what you'd like to achieve. This helps with leading your business and making changes later on. For example, your vision could focus on solving a community issue, gaining a positive reputation in the industry or exhibiting certain values that make you stand out from competitors.
- Values: Knowing your company's values will help you make business decisions that align with your company's ethics and can attract staff and customers who share similar ethical principles. Outlining them in your business plan provides a guideline for extra action your business takes, and a focus on ethics can help avoid reputational issues and legal issues.
Understand Your Market and Customers
One of the parts of the plan includes an analysis of the market that your small business plans to serve. This requires doing thorough research to learn about the current status of your industry, what the demographics of your prospective customers look like and which types of products and services customers demand in your industry. For example, this part of your business plan uncovers data like how saturated the market is, what customer incomes and pricing preferences look like and how big a market there actually is for you to target.
Therefore, writing a small business plan helps you learn how to best serve customers in your industry as well as guides you on developing an effective marketing plan to reach these customers. It also will show you whether demand will grow or fall for what your business offers, and this can offer insight into business viability or potentially guide you toward changing your company's mission, vision or product and service selection so that you have a better chance of success. Further, it might even help you uncover a promising customer base you hadn't originally thought of.
Read More: How to Calculate Change in Relative Market Share
Boost Your Business's Competitiveness
Throughout the process of writing your business plan, you'll uncover a lot of useful information about competitors, the market and your company's unique characteristics. The SCORE Association explains the business planning process involves asking a lot of questions and analyzing your strengths, weaknesses, opportunities and threats (SWOT). Doing so will give you insight into your company's advantages and disadvantages internally and externally so that you can come up with a strategy to boost your competitiveness and chance of success.
For example, if you plan to open a restaurant, you might end up learning from customer complaints that local businesses do not offer the quality of service or menu that you could. On the other hand, if you want to open a clothing shop, your business planning work might unveil that there's too much saturation or no demand in the location you plan to open, and this could save you from opening a shop in an unsuccessful location. In either case, you've gathered valuable information to learn how to compete better.
Assess Your Business's Financial Viability
Along with knowing whether you've got enough customers who want to buy what you offer, you get the advantage of creating a detailed financial plan when you write your small business plan. This is crucial to make sure your business could survive in the marketplace since even if you have a lot of prospective customers, you'll still need to have the financial means to get started in the first place as well as handle daily operations and pay any debts you take on.
The Small Business Administration (SBA) explains a business plan will include up to five years of projected earnings and expenses with key financial documents such as cash flow statements, budgets, balance sheets and income statements. Doing this work will help you see when your business will break even and uncover where and when you might need external funding such as bank loans. It will also come in handy when you meet with lenders or investors for funding.
When doing forecasting for your financial plan, the SCORE Association cautions that you should consider reliable data you find on market demand for your products and services rather than oversimplify or inflate the projection. It also reminds business owners to consider the ups and downs that happen with sales during the year, including seasonal factors and the possibility of market disturbances. By following these tips, you can get more reliable numbers that help with determining your business's financial viability.
Set Milestones to Work Toward
As you write your business plan, you'll be coming up with several short- and long-term goals that you expect your business to achieve over a specific time period. These often include when you plan to open for business, how many products or services you expect to sell, which types of employees you'll need and when you expect to make a profit. Your financial plan especially helps with goal-setting since you'll have projected budgets and statements that you can monitor during operations and identify areas where you need to cut costs or raise sales to stay on track.
You can use all these goals and estimates as milestones that will help steer you in running the business and indicate when changes are necessary. You can also get more specific in your business plan and add a section dedicated specifically to listing some milestones you wish to accomplish over the next five years. For example, you might include an objectives section outlining specific goals and deadlines for achieving a stated amount in sales, improving your gross profit and even adding new products to your lineup.
Develop Your Business's Strategies
When you sit down to write your small business plan, you'll have to think through a diverse range of business areas such as marketing, staffing, logistics, financial management, customer service and research and development. Since the plan provides key details about your business goals, viability, customer base, industry conditions and competitive advantage, having one makes it much easier to develop effective strategies that leverage your small business's strengths and take advantage of opportunities.
For example, the time you spend on doing market research and learning about customers' needs will help you write a marketing plan that covers everything from which price to set for your products to the types of marketing channels that you should use to reach your target group. At the same time, learning about competitors for the industry analysis can give insight into customer preferences so you can develop a training and development strategy for your staff as well as set product standards that will help attract and keep customers.
Read More: What Resources Are Available From the SBA
Prepare Your Business for Financing
Making a business plan involves doing financial projections where you estimate costs and earnings, so you'll have a good idea of whether you'll need to seek some type of financing to get started. You'll often find you need to purchase some equipment and assets before you're ready to open for business, and the cost can be substantial enough to warrant borrowing money. For example, if you want to open a computer repair shop that performs repairs both on-site and at the company location, then you might need to find funds for company vehicles, computer parts, a building to use for repairs and some computers and phones for daily office tasks.
Whether you plan to apply for traditional bank loans or seek private financing, you'll find that the person considering lending to you will require your business plan to make a well-informed decision and see your estimated finances. Having a business plan shows lenders that you're serious about starting a business and have done your research on what the process involves. It will also show them a projection for earnings and expenses, educate them on your target market and help them assess your business's chance of success.
Lenders and investors use all of this information when deciding whether to give you money since they won't want to risk working with businesses that don't have a high likelihood of making enough money to pay back the debt. Therefore, not having a business plan at all – or having a poorly made one – can mean getting turned away from financing.
Provide a Baseline for Changes
While a business plan for your small business offers a blueprint for getting started, it also serves as a baseline for future changes and growth. As you use the business plan to monitor how well you meet your goals, serve your customers and do financially, the information contained in the plan will become helpful to look back on so that you know where you may need to adjust your strategy.
For example, if your small business hasn't accomplished its sales goals during the first year, you might refer to the parts covering your target customers, product and service offerings and marketing strategies, do additional research on current market conditions and customer needs and then make tweaks based on your findings. On the other hand, if you decide to expand your business, your business plan will offer helpful market and financial resources that help you set a budget to open a second location and get the necessary funding.
Read More: Resources for Entrepreneurs
- American Express: How to Get a Business Loan: 4 Requirements to Qualify
- America's SBDC Nevada: Business Plans: The Blueprint, the Action Plan, the Capital Plan What Is the Purpose of Your Plan?
- SCORE: Does Your Small Business Have a Strong Mission and Vision?
- Purdue University: The Elements of a Business Plan: First Steps for New Entrepreneurs
- Small Business Administration: Market Research and Competitive Analysis
- Small Business Administration: Write Your Business Plan
- Small Business Administration: Calculate Your Startup Costs
- SCORE: 48 Questions to Ask in Your SWOT Analysis
- SCORE: How Poor Forecasting Can Sabotage Your Business Plan
- NFIB: Parts of a Business Plan: 7 Essential Sections
- Small Business Administration: Buy Assets and Equipment
Ashley Donohoe has written about business and technology topics since 2010. Having a Master of Business Administration degree, bookkeeping certification and experience running a small business and doing tax returns, she is knowledgeable about the tax issues individuals and businesses face. Other places featuring her business writing include Zacks, JobHero, LoveToKnow, Bizfluent, Chron and Study.com.