What is a Business Plan?
A business plan is an essential document that performs multiple valuable functions if you want your business to get off the ground and succeed. You must create a business plan to get financing for your company. Potential investors or business partners will want to see your business plan before partnering with you or investing in the enterprise.
A Maryland business attorney can help you prepare your business plan and give you legal advice for your new company. Our law firm can provide a wide range of services for your business.
Your Business Plan – a Roadmap for Your Company
A well-written business plan will guide you through the startup, structure, management, and growth stages of your business idea. Just as a road map shows you how to get from where you are to where you want to be, your business plan will help you navigate these stages.
If done correctly, you will put many hours into generating your business plan. You will research the competition and the target market for your products or services. You will develop a marketing plan, and you will make short-term and long-term financial projections. These are just a few examples of the categories of topics that should go into your business plan.
You will not want to throw your business plan into a drawer and forget about it. Revisit your business plan periodically and compare your projections with your actual outcomes. Sometimes, due to market, supply, or technology developments, it is necessary to revise your business plan. This document can be a living document that adapts to the needs of your company.
Why Lenders, Investors, and Potential Partners Want to See Business Plans of Small Businesses
Just like writing a novel, starting a business is a common American dream. People want to see that you know what you are doing before they risk their money on your idea. They also need to know that your enterprise will be viable and make a profit. Failing to plan thoroughly is one reason so many types of businesses fail every year.
How to Organize a Traditional Business Plan
If you already have multiple established companies with a track record of strong earnings, you might get away with an abbreviated business plan that summarizes the key elements of your plan in a page or two. Most startups, however, will need a detailed, comprehensive business plan that follows a standard structure.
A traditional business plan can be 20 pages or longer. Although you can tailor a traditional business plan to the needs of your business, potential lenders and investors will expect you to have at least some of these sections in your document:
Executive Summary
The executive summary tells the reader about your product or service, your mission statement, and other information to answer the question of what your company will do and why it would succeed.
You will want to include information about your employees and business location. Also, briefly tell the reader about the leadership of your company. Potential lenders will want to see the financial information and some detail about your plans for growing the business.
Company Description
In this section, you can give a little more detail about your company. What advantages do you have over the competition that will help your company succeed? Let the reader know about the talent and experts who are members of your team. Boast about your company’s strengths. Let the reader know if you have, for example, unique intellectual property, a celebrity chef, or a famed designer on board.
Make it clear what problems in the marketplace your company will solve and why there is a need for the product or services you will provide. You should include a list of the businesses, consumers, or organizations you plan to attract as clients or customers. If you have found the ideal location and leased or purchased the real estate, provide that information.
Market Analysis
This section is your opportunity to show the reader how well you know your target market and your industry. Explore your prime competition inside and out and display that knowledge in this section. Include details about industry trends and how you can succeed despite the competition. Explain what you can do better than your successful competitors do.
By way of example, let's say that you want to open a restaurant. Your market analysis should contain a rich depth of information about all of your competitors in the local area. You should show data about all the other restaurants in the area, the amount of business they did in the last few years, their profit margins and other information, and a description of what will set you apart from them in the eyes of the consumer.
Organization and Management
This section covers your organizational structure and who will manage your business. When you start a business, you should talk with a business lawyer about the optimal legal structure of your enterprise. A sole proprietorship or limited liability company (LLC) might be better for one company, while a partnership, C corporation, or S corporation could be better choices for a different business venture.
Potential investors or partners will want to see an organizational chart that shows them who will run your company. Describe the key members of your team so the reader understands how each person will contribute to the success of the business. You might want to include the resumes of the top members of the management team. Also, you can include your operations plans in this section.
Product or Service Line
In this section, you will go into more detail about the goods or services you will offer through this enterprise. Explain the research and development you have put into your product or service and the lifecycle of your product. Let the reader know if you have filed for copyright or patent protection on your intellectual property.
Show more detail on how your product or service meets the specific needs of your clientele. Expand on why a potential consumer would want to choose you over a competitor.
Marketing and Sales
A marketing strategy will be unique to the individual business venture. Your marketing plans should include multiple ways to attract and retain customers, and how you will pivot with market shifts and industry changes. Your marketing and sales plans should be nimble to build and maintain an advantage over the competition.
You will want to be thorough in your description of your strategies for both marketing and sales because your financial projections section will reference those details. Make sure that the reader understands how you expect a sale or transaction to happen, whether online or in a physical location.
Funding Request
People often create or update their business plans when seeking funding for a specific purpose or to generate ongoing capital. A lender or investor will insist upon thorough detail in this section. Start by saying how much funding you need and how you will use it. Typically, a funding request covers projections of capital needed for the next five years.
The reader needs to understand at a glance exactly what you want. State whether you want to borrow good money outright or if you are offering equity in the company in exchange for a capital infusion. The lender or investor will want to know how you will spend the money, for example, on payroll, to purchase materials or equipment, or to maintain cash flow while growing company revenues.
Financial Projections
The reader needs to know if this company is a good investment or if it is on the brink of financial collapse. Provide sufficient information to show the stability and potential for the success of your company.
For an ongoing business, be sure to include a financial summary of the last three to five years, and the balance sheets, cash flow statements, and income statements for that time period. Also, include a detailed forecast of the business is expected financial picture, going five years in the future.
For startup companies, prepare monthly projections of cash flow, capital expenditures, income statements, and balance sheets. Charts and graphs can be useful tools in this section of your business plan.
For both startups and ongoing businesses, make sure that your funding request aligns with your financial projections. If you explored multiple options as a part of drafting your business plan, you will want to go back and make sure that the money you are requesting matches what your projections say your needs and revenues are likely to be.
Appendix
Often, a lender or potential investor will request specific items, like letters of reference, legal documents, contracts, credit histories, patents, licenses, or product details. You will want to summarize or refer to these items in other sections of your business plan and then include them in your appendix as supporting documentation.
Surprising Benefits of Creating a Business Plan
Writing a business plan requires a great deal of thought, research, and data. Entrepreneurs often discover potential problems in their business ideas when going through this exercise. As a result, they can tweak their strategies to increase their likelihood of success in the business enterprise. Finding and fixing problems at the role-playing stage is far less costly than when actual dollars are at stake.
A Maryland business attorney can provide guidance on your business plan, strategies, and company documents. Steve Thienel is ready to help and will be happy to serve your business needs. Give him a call today.
