A sound business plan is the foundation of any business. A business plan is a starting place. It solidifies ideas into something tangible and serves as a clear, concise plan for the future of the business. A business plan also eases the process of obtaining funding: It’s one of the key documents that a lender will want to see before investing.
The format for a business plan used to be fairly rigid, but with the shift in digitalization, the emerging trend is an online pitch deck. A pitch deck is a quick and clear way to explain your company to investors and provide a high-level overview.
From starting to growing your company, having a business plan, model, or slide deck will help ensure everyone is on the same page in terms of your strategies and next steps. BDC recommends that your business plan include:
- An overview. A brief description of your company and where it stands in the market
- A sales and marketing plan. Strategies that will be used to target your customers
- An operating plan. The physical aspect of your business operations
- A human resources plan. Details on your key staff, HR policies and procedures
- An action plan. Planned next steps over the next few years
- An executive summary. A brief summary of your business operations and why you are seeking financing
- A financial appendix. The numbers that back up what you say in your plan in the form of a forecast
When starting to write your business plan, there is a natural tendency to be optimistic, but make sure you are being realistic. Don’t exaggerate your figures and make sure your forecast is backed up with supporting information. Consider having multiple scenarios in your financial model.
Next, do your research. A market analysis, knowledge of competitor strengths and weaknesses and customer demographics show that you’ve done your homework. Understanding the market you are targeting will enable you to create better products and services that will specifically meet the needs of the market.
An organizational chart and a human resource plan clearly defines the role of top management and the structure of human capital in your business. Will you recruit personally or hire through an agency? How do you plan to retain and manage your employees? If outsourcing, how will you handle production and quality assurance? Your team, top management, and board of directors are useful to include in your business plan; doing so shows that your company is supported by a solid foundation of professionals, which adds to your credibility.
The financial section of the business plan is an essential element. It’s useful to include in this section financial statements, as your company’s assets can be used as security or collateral. Investors will want to know what assets the business owns as that plays a role in determining an investor’s overall risk. Your company’s net worth and cash-flow forecasts are also important to include. In general, all plans and projections you claim in your business plan should be supported and justified by financial information.
When trying to obtain funding, there are some common mistakes that entrepreneurs make. The first thing to consider is how much capital you really need. This number is important – you can’t just say you need one million dollars without any justification behind it. You also don’t want to plan for “as much as I can get.” A detailed breakdown is required to justify the amount and how you plan to use it.
On the topic of external funding, take a look at your assets. What equity does the company need to raise? What could be offered as collateral or used as security? How do you plan on paying back any debts? All of this needs to be determined and agreed upon before any money is released, so be prepared on this front.
The executive summary brings everything together in a concise, one-page highlight. It should provide a brief description of each part of the plan and state what you’re trying to achieve. Executive summaries are generally more effective if they’re written once the other parts of the plan are complete. The summary is your opportunity to intrigue your investor and make them want to know more.
And there you have it – an effective business plan.
Next steps? The business model canvas is a great tool to lay out the details of your business and can lead to insights about your customers, value propositions and revenue streams. It is a way to test and share your business plan.
If you’re looking for inspiration for your business plan or pitch deck, take a look at these popular start-up pitch decks, including those of Facebook and LinkedIn. There are also several templates to get you started.
At the end of the day, when creating your business plan, keep it simple. Yes, your business plan needs to be thorough and detailed, but quality and quantity are not a substitute for one another. A business plan doesn’t need to drag on for it to be effective – short, concise and structured is a better idea.
Your business plan is a representation of you and your business, and the quality of the document will directly reflect upon you. Ensuring that the plan is error-free helps a lender form a good first impression of you and your business and helps lay a solid foundation.
The Business Development Bank of Canada has a great network of free resources, articles, and tools to aid entrepreneurs in creating their business plan. The business plan kit that BDC offers includes a template along with a sample business plan and a few hand-picked articles and instructions. Feel free to browse the many articles and tools available on the BDC website to help guide you along the process.
Banknotes is an occasional column offering financial advice to startups.