Turning Your SWOT Analysis into Actionable Strategies

SWOT analysis TOWS analysis

You’re invited to take the SWOT analysis challenge—see if you can complete all five steps in five days or fewer! Then invite your network to do it too. Share this article on LinkedIn, Facebook, or Twitter and use the #SWOT hashtag.

If you’re looking for the rest of the steps in the series, find them here:

Sedibeng Brewery SWOT analysis example

An example of a completed SWOT analysis.

If you’ve completed the first four steps of a SWOT analysis, your SWOT matrix should be complete. Congratulations! Now it’s time to take the ideas and information in your analysis and use them to create actionable strategies to guide your business. Here’s a quick overview of how to do it.

Before you develop actionable strategies:

  • Your SWOT matrix should be complete. At the beginning of the challenge, you probably downloaded the SWOT matrix template. It’s easier to use if it’s in this format rather than on separate pieces of paper or computer files.
  • Look at other examples. If you haven’t done so already, take a look at a few completed SWOT reports so you know what yours should look like. Here are a few SWOT examples you can look at.
  • Use bullet points. Everything listed in your analysis should be in a bulleted format. You don’t need complete sentences.
  • Boil down each point. Each bullet point should be short—a few words will do. If you need to, simplify your points.
  • Refine your information. If you came up with a healthy list for each of your strengths, weaknesses, opportunities, and threats, it’s time to refine the information. Check for redundancies, combine bullets where necessary, and eliminate any information that isn’t vital.
  • Prioritize your information. It’s time to go through each section and rank the information. Put the most important or pressing item on top of each square.

Click here to download our free SWOT Analysis template

From SWOT analysis to TOWS analysis

A list of strengths, weaknesses, opportunities, and threats makes for a handy business guide, but you’ll want to take this exercise one step further to create strategies and plans to improve your business.

The exercise you’re about to do is called a TOWS analysis. It helps you make connections between each quadrant of your analysis. You’ll work around the square, combining information from two quadrants to create actionable strategies.

Here’s how:

  • Strengths–Opportunities. Use your internal strengths to take advantage of opportunities.
  • Strengths-Threats. Use your strengths to minimize threats.
  • Weaknesses-Opportunities. Improve weaknesses by taking advantage of opportunities.
  • Weaknesses-Threats. Work to eliminate weaknesses to avoid threats.

The chart below is a great visual explanation of the TOWS exercise:

TOWS

As you answer these questions, you’ll start to create actionable strategies. For example, if one of your strengths is an experienced grant writer on your team, you should put that person in charge of taking advantage of new federal grant opportunities that are available this year. That’s a strategy that you can implement immediately to improve your business.

You can simply add a few blocks to your SWOT analysis to get these strategies down on paper. Here’s an example of a completed TOWS analysis from the University of San Francisco, which shows a TOWS analysis for Volkswagen. It shows you what the exercise looks like and gives you an idea of the strategies that can come from this analysis.

TOWS2

Your finished product

When you’re finished with the SWOT and TOWS analysis, you’ll have an insightful look at your business that’s accompanied by a list of strategies that you can implement to better your business.

Take this list of strategies and start implementing them. If some strategies are long-term plans, break them into steps with specific milestones and put each one on your calendar so you can implement the change over time.

Now that you have this business resource, you’ll want to keep it handy. Hang it on your office wall, or keep it on your desktop so you can reference it throughout the year as you make decisions. Your hard work will pay off.

Aside from strategic plans, here are additional benefits from your participation in the SWOT challenge:

  • Improved focus. This analysis should put everyone on the same page. It identifies what you should be working toward this year.
  • Strategic alignment. With everyone working on the same goals, managers and employees can build better strategies together.
  • Identify unknown aspects. You’ll likely discover aspects of your business that you didn’t know about. From unknown strengths to hidden threats, uncovering this information will help you move forward.

If you are one of the many business owners who set aside time to finish each step of your SWOT analysis, we’d like to congratulate you. You have made great strides toward improving your business this year.

We’d love to hear how the process went for you. What did you learn? How will your SWOT analysis help you make effective business decisions? Tell us on Twitter @Bplans.

Editor’s note: This article was originally published in 2015. It was updated in 2019.

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Lisa Furgison

Lisa Furgison is a journalist with a decade of experience in all facets of media.



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SWOT Analysis Challenge Day 4: How to Identify Threats

SWOT analysis threats

You’re invited to take the SWOT analysis challenge—see if you can complete all five steps in five days or fewer! Then invite your network to do it too. Share this article on LinkedIn, Facebook, or Twitter and use the #SWOT hashtag.

If you’re looking for the rest of the steps in the SWOT analysis series, find them here:

Small business owners are notoriously busy people. We understand that you have a lot of items on your daily to do list, but we’re about to suggest one more. Every business owner should sit down and conduct a SWOT analysis, which gives you an inside look at the strengths, weaknesses, opportunities, and threats that can impact your business.

If you’ve been working through each step along the way, you’re already up to speed on the finer points on why companies, whether they’re brand new or they’ve been around for 100 years, should make SWOT analyses part of their regular planning and review process.

But here’s something you might not know about yet—the history of SWOT, or where it came from and why. Then we’ll jump down to how to assess threats.

Click here to download our free SWOT Analysis template

The history of SWOT analysis

We know you’re anxious to complete your SWOT matrix, but before you start brainstorming, we thought we’d look at how this process came to be.

Here’s the quick history:

While there is some debate over who came up with it, most research suggests that Stanford professor Albert Humphrey was the father of this process.

How did the strategy come about?

Humphrey led a research project at Stanford University in the 1960s and 1970s that tried to figure out why corporate planning failed within several big companies. The team started breaking the data into categories like opportunities and threats.

Eventually, other strategists tweaked Humphrey’s categories into the SWOT matrix that we know today.

O.K., history class is over. Time to pull out your SWOT templates and start thinking through the threats that your business is facing.

How to define your company’s threats

A threat to your company is an external factor, something that you can’t control, that could negatively impact your business. A threat is different than a weakness, which is internal, or part of your company as it exists right now.

Identifying threats to your business is a powerful first step to reducing their risk, or at least mitigating them enough that they won’t shut down your business. It’s all about being prepared and taking proactive steps to minimize the hurt.

Coming up with a list of threats can be difficult—you just don’t know what you don’t know. They might not spring to mind as easily as your strengths, but there are certain categories that most external threats fall into.

You can use these categories to brainstorm possible threats to your business:

Questions to ask to find threats

These categories should get your wheels turning. By thinking through each category, outside threats should come to mind. If you identify weaknesses, or internal challenges as you go, just add them to your SWOT matrix. And if you’re just getting started, download a free SWOT analysis template here.

We’ve also created a list of questions that coincide with the categories above to help you think critically about the threats that could be out there.

Economic trends

  • Is the economy in your area in a recession?
  • Will the economy negatively impact your customers’ ability to make purchases?
  • Are economic shifts happening that impact your target audience?

Market trends

  • How is your market changing?
  • What new trends could hurt your company?
  • Is there more competition in your market that’s pushing you out?

Funding or cash flow changes

  • Do you expect to have any changes in your cash flow that might have a negative impact? Delays in payment, seasonal issues, etc.
  • Will funding changes hurt your business? If so, how?
  • Do you expect a decrease in grant funding or donations this year?

Political support

  • Do you anticipate a shift in political support this year?
  • Is there reason to be concerned over political shifts?
  • What does your business stand to lose because of political changes?

Government regulations

  • Are any regulations shifting that could cost more money or hurt production?
  • What kind of damage could new regulations have?

Changing relationships

  • Are any outside business relationships changing?
  • Is there any turmoil with partners or vendors?

Target audience shift

  • How is your demographic shifting?
  • What threats accompany these changing demographics?
  • Is your audience changing in a way that you can’t accommodate?

Tips to find threats

  1. Do market research. As you’re looking into possible threats, you’ll want to conduct market research to see how your target audience is shifting.
  2. List every threat you can think of. If you think of a threat, list it. Even if that threat has consequences that won’t be felt immediately, it’s still better to have it on your radar.
  3. Threats exist, don’t panic. Listing threats may cause some anxiety, but remember that all businesses have threats. It’s better to know about threats than it is to turn a blind eye to them. Plus, we’ll give you some strategies in step 5 of this series on how to minimize these threats.

Once you’ve listed your threats, your SWOT template should be filled in. You’re almost done! The last step, number 5, is turning what you found in your SWOT analysis into actionable strategies.

Editor’s note: This article was originally published in 2015. It was updated in 2019.

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Lisa Furgison

Lisa Furgison is a journalist with a decade of experience in all facets of media.

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SWOT Analysis Challenge Day 3: How to Identify Opportunities

SWOT analysis opportunities

You’re invited to take the SWOT analysis challenge—see if you can complete all five steps in five days or fewer! Then invite your network to do it too. Share this article on LinkedIn, Facebook, or Twitter and use the #SWOT hashtag.

If you’re looking for the rest of the steps in the SWOT analysis series, find them here:

A good entrepreneur is always on the hunt for new opportunities. One of the best ways to identify opportunities within your business is to complete a SWOT analysis. The acronym SWOT stands for strengths, weaknesses, opportunities, and threats.

In step one, you identified business strengthsIn step two, you evaluated your weaknessesand now you’re ready to consider your opportunities. Think of opportunities as things that are external to your company. Strengths, on the other hand, are internal, or existing aspects of your business.

The best time to conduct a SWOT analysis

Before we walk through today’s SWOT brainstorming exercise, we thought we’d take a second and talk about when you should do an opportunities analysis.

In some ways, opportunities analysis might seem like the easiest element of a SWOT matrix to complete, especially if you’re the type that enjoys entertaining the possibilities. But you’re missing out if you only ever look at your strengths and opportunities. Assessing your weaknesses and threats at the same time is guaranteed to give you some interesting and valuable insight.

A business professor will tell you it’s always a good time to conduct a SWOT analysis. Any time you can take to critically look at your business and see how it’s performing is a good thing. However, there are strategic times when a SWOT analysis is most beneficial.

Ideal times to conduct a SWOT analysis:

  • At the beginning of the year: As a new year begins, it’s a natural time to review the past year’s business strategy and look ahead. By conducting an analysis at the beginning of a new year, you’ll be ready to make decisions in the coming months.
  • Annually: Just like you should visit the doctor annually, your SWOT analysis should get a check-up at least once a year too. You’ll be amazed how much can change within a year.
  • When a shift occurs: If something big is changing in your business, it’s time to fill out a new SWOT matrix. Maybe you just took on a big client and plan to increase your revenue, or maybe the political support that you once had is shifting. Maybe you’ve been comparing your sales forecast to your actuals, and you’re not sure exactly what to adjust—but you know you need to do something. When a noticeable change like this happens, it’s always a good idea to re-evaluate where your business stands.
  • If you haven’t launched yet: If you’re planning to start a business, conducting a SWOT report is a great way to check the viability of your idea and your proposed strategic plan.

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How to define your company’s opportunities

Ok, it’s time to pull out your SWOT templateYou can download our template if you need it. Let’s talk about opportunities.

Here are a few categories to consider when looking for business opportunities:

  • Economic trends: Look at the economy in your area.
  • Market trends: Your target market could be driving new trends that could open doors for your business.
  • Funding or cash flow changes: Think about that new big fish customer, or maybe you’ve received a business loan or some outside investment.
  • Political support: Consider changes in political ties.
  • Government regulations: Think of regulations that are changing that might afford you new opportunities.
  • Changing relationships: Consider shifting relationships with vendors, partners, or suppliers.
  • Target audience shift: Your target market might be expanding, aging, or shifting.

Questions to ask to find opportunities

To help you brainstorm possibly opportunities, we’ve created a list of questions to help. The questions are broken up by the categories that we just went over. If a question doesn’t apply to your business, simply move on to the next.

Economic trends:

  • Is the economy in your area looking up?
  • Will the economy enable your audience to make more purchases?
  • Are economic shifts happening that impact your target audience?
  • Is the price of sourcing materials going down?

Market trends:

  • How is your market changing?
  • What new trends could your company take advantage of?
  • What kind of timeframe surrounds these new trends? Could it be a long-term opportunity?

Funding changes:

  • Do you expect an increase in grant funding or donations this year (if you’re a nonprofit)?
  • Did you land a new contract (assured new income)?
  • Did you secure a loan or investment funding?
  • How will funding changes help your business?

Political support:

  • Do you anticipate a shift in political support this year?
  • What opportunities could be created with new political partnerships?

Government regulations

  • Are any regulations shifting that could lead to a positive change?

Changing relationships:

  • Are there positive changes happening within any of your outside business relationships?
  • Are vendors changing or expanding?
  • Has your partner decided to move on, creating an opportunity to work with someone new?

Target audience shift:

  • How is your demographic shifting?
  • What opportunities can you think of that can move with these changing demographics?
  • Is your audience expanding? If so, how can you capitalize on this increase?
  • Is there a related product or service that you could launch that allows you to gain a new market share?

Tips to list your opportunities

  1. Do your research. Finding answers to some of these questions might require some digging. Don’t be afraid to make some calls, set up meetings, and do some market research to gauge upcoming changes.
  2. Be creative. To find an opportunity where your competitors cannot will take skill and creativity. Don’t be afraid to think outside the box when you’re listing possible opportunities.
  3. Keep your list of opportunities handy. We’ll revisit all the sections of your SWOT matrix so you can develop actionable strategies in step 5. For now, go ahead and get started on step 4: Threats.

What opportunities did you come up with for your business? Share your insights with us on Twitter @Bplans.

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Lisa Furgison

Lisa Furgison is a journalist with a decade of experience in all facets of media.



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SWOT Analysis Challenge Day 2: How to Identify Weaknesses

SWOT analysis: identifying weaknesses

You’re invited to take the SWOT analysis challenge—see if you can complete all five steps in five days or fewer! Then invite your network to do it too. Share this article on LinkedIn, Facebook, or Twitter and use the #SWOT hashtag.

If you’re looking for the rest of the steps in the SWOT analysis series, find them here:

Whether you’re new to the business world or a veteran, a SWOT analysis is a valuable tool to have in your toolbox. Doing a SWOT analysis is a well-rounded approach to evaluating your business, looking specifically at strengths, weaknesses, opportunities, and threats.

SWOT analysis matr

Looking at your SWOT weaknesses for business planning

There are some good reasons to include a SWOT analysis in your business planning process—funders will be interested in seeing your approach to handling the risks that you’ll face based on internal weaknesses.

You won’t get anywhere with pretending you don’t have any, so be honest with yourself about your company’s weaknesses. That’s a good first step to putting a plan in place to address them.

Looking at SWOT weaknesses as part of an ongoing strategic plan

If your business doesn’t need a business plan for a loan or because you’re seeking investment, don’t cross conducting a SWOT analysis off your list just yet.  

Many established companies include SWOT in their regular strategic planning. The end goal isn’t just documenting facts and information, it’s to use what you uncover to develop strategies for growth and mitigating risk.

The purpose of a SWOT analysis

Today you’re diving into the weaknesses of your business. Since cataloging your business’s weaknesses can be tough, we thought it was a good idea to recap why this analysis is important.

For existing businesses, a SWOT matrix will:

  • Give you a new perspective about your business
  • Provide valuable information about internal and external factors that can be used to make strategic decisions
  • Allow you to assess the health of your business in real time
  • Identify areas for improvement
  • Give your team a chance to share insights and take a role in affecting business strategy
  • Provide a framework for updating your strategic plan

For new businesses, a SWOT matrix will:

  • Highlight the benefits of your proposed business
  • Provide valuable information about internal and external factors that can be leveraged in your business plan
  • Identify potential problems
  • Encourage you to think critically about starting a business
  • Provide valuable information that you’ll need to consider now and in the future

Click here to download our free SWOT Analysis template

How to define your company’s weaknesses

Every owner wants to believe his or her business is running smoothly, so this element of the SWOT analysis might not be your favorite.

But, it’s vital. You need to truthfully assess your business’s weaknesses for this analysis to be a useful strategic tool.

Weaknesses are internal, threats are external

In a SWOT analysis, think of weaknesses are internal factors that take away from your business or leave you at a disadvantage. Resist the urge to list threats–or external risk factors. The same categories that applied to your strengths column from step 1 can be reapplied here.

So, your brainstorming session should include your team if you have one, or at least your business mentor or trusted business advisor.  

You can download the free SWOT matrix template here if you haven’t done so already.

You’ll start with brainstorming around the different aspects of your business.

Assess your business for weakness in the following areas:

  • Financial resources: This includes revenue streams, investments, diversified income, and grants.
  • Physical items: Consider the buildings and equipment that you rent or own.
  • Intellectual property: Patents, copyrights, and trademarks fall into this area.
  • Human resources: Think of your employees, volunteers, and mentors.
  • Key players: Think of vital personnel to your business.
  • Employee programs: Think of any programs that help your employees excel.
  • Company workflow: This includes best work practices.
  • Company culture: This is the environment that your employees work in.
  • Company reputation: Think of how your business has grown its reputation.
  • Market position: You’ll consider how your business fits in the overall market.
  • Growth potential: Think of how your business is positioned for future growth.

Questions to ask to find your company’s weaknesses

Here are some questions that should help you identify weaknesses. They mirror the list of different aspects of your business that you’ll want to assess.

Keep in mind that some questions might not elicit a negative response. If that’s the case, just move on to the next question.

Starter questions:

  • In what areas does your company struggle?
  • Are there reasons that customers select competitors over you?
  • Does something specific stop you from performing at your best?

Financial:

  • Are financial resources holding you back? If so, how?
  • Does your business get its revenue from one main stream? If so, is diversification a concern?
  • How are you preparing for your financial future?

Physical:

  • Are any of your physical assets creating a problem?
  • What condition is your office in?
  • What condition is your equipment in?

Intellectual property:

  • Are any of your patents, trademarks, or copyrights in jeopardy?
  • Is there any government red tape that’s keeping a patent from moving forward?
  • Does your company take too long to file for patents, etc.?

Human resources:

  • What kind of human resources do you have?
  • Are there any departments that are lacking or inefficient?
  • Are employee programs in place to improve your business? If so, are they working?

Company workflow:

  • What areas could be improved upon when it comes to workflow?
  • What slows you down? Is there too much red tape in certain areas?
  • What are the areas where you’ve made mistakes in the last year or quarter?

Company culture:

  • Are you happy with the company culture that you’ve created? If not, why?

Company reputation:

  • How does the public see your company? Are you happy with that image?

Market position:

  • What kind of position does your business hold in the marketplace?

Growth potential:

  • What plans do you have for growth?
  • Are your competitors growing in ways that you can’t?
  • What keeps your business from growing?

Tips for gathering insight and information on your weaknesses

1. Be open-minded

As your employees suggest weaknesses, remain open-minded. It’s likely that an employee will bring up a weakness that you hadn’t thought of, or that you disagree with. When it happens, don’t be judgmental.

2. Be critical of your business

Now isn’t the time for rose-colored glasses—it’s the time for pure honesty. Be prepared to look at your business critically, both inside and out.

3. Remember, every business has weaknesses

When you’re finished talking about the negative aspects of your business, you might feel a bit deflated. Just remember, every business has weaknesses. Today is just part of a larger process that will help you better assess your business overall.

4. Keep your list of weaknesses handy

Keep your list in an accessible spot. You’ll analyze all of the data that you collect over the next few days at the end of the week.

In Step 5: Turn your SWOT into actionable strategies, you’ll combine everything you’ve learned, and think about which tactics or strategies you need to adjust to sustain growth and your overall business health.

For now, move on to Step 3: Identify Opportunities.

Editor’s note: This article was originally published in 2015. It was updated in 2019.

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Lisa Furgison

Lisa Furgison is a journalist with a decade of experience in all facets of media.

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Create a Business Plan for Fewer Hassles and Faster Growth

Office Space movie

Writing a business plan can help make sure Office Space doesn’t feel relatable [source].

There’s a famous scene in the cult-classic 1999 movie Office Space where the main character, Peter, is confronted by his boss, Bill. Amidst the dull hum of white-collar cubicle bliss, Bill passive-aggressively asks Peter if he got the memo about putting cover sheets on all “TPS Reports” (if you’ve seen it, you’re probably already chuckling).

Apparently, Peter neglected to include a cover sheet on his most recent TPS report, and Bill wants to make sure he got the memo so he can rectify this moving forward. Note that he’s not even directly asking Peter to make sure he includes a cover in the future. He wants to know if he got the memo. Bill leaves, saying he’ll make sure he sends another copy of the memo to Peter.

The anti-drama is painfully relatable to anyone who has ever held a desk job in a large, corporate bureaucracy. The takeaway from the scene is clear. The cover sheets, the TPS reports—they’re not important. Neither are even difficult to complete. And yet, these minor interruptions and annoyances from his boss form the cadence of Peter’s day. His week. His life. His miserable, soul-sucking life.

All these things are a hassle. These hassles pile up so high that they make him dread going to work every day. They make him feel like a useless cog in a wheel (in truth, he is). And the fact that they are so small and minor individually is what makes them even more infuriating. What literally haunts his dreams are not big things like salary or responsibilities or key projects. No, his nightmares are filled with these daily hassles—with Bill “just checking in” about that latest memo.

If you’re coming up with a business plan for a new venture, there’s a good chance you can relate to this scene. Perhaps it represents what drove you to become an entrepreneur in the first place. Now that you’ve managed to escape Peter’s situation, make sure you don’t replace it with an entirely new set of hassles that you can’t do anything about.

Business planning reduces hassles and friction

There are many reasons to write a business plan, but one of the primary goals is to reduce friction as you build your venture. Friction is anything you rub up against you that creates tension and slows you down. By creating a “low-friction plan,” you can avoid or at least mitigate problems down the road—plus, it’s what potential lenders or investors expect when you approach them for funding.

A good business plan can reduce the hassle in many ways.

Align on a mission statement that ensures all partners understand what you want to accomplish and what is outside of that core. Embrace your financial plan—financial assessments give you a clearer vision of cash flow and what resources might be needed.

Accounting for risk is one of the best ways to reduce friction in the long term. Doing a SWOT analysis is a great way to assess your internal (weaknesses) and external (threats) risks, in addition to strengths and opportunities. When you do an honest, thorough analysis, seeking diverse input, it can illuminate a wide array of risks, giving you the opportunity to explore and mitigate them as you work through your plan.

The layout of a SWOT analysis

When humans are involved, hassles follow

As the scene from “Office Space” demonstrates, though, it’s not always traditional business risks that plague a venture. It’s the daily hassles that can stifle progress and suck away your drive to succeed. Hassles are the inevitable human cost of any venture. Hassle encompasses all the stress and unpleasantness that can come along with a project. Like risks, they’re not necessarily bad—just something to be managed.

Risk is about outcomes. Hassle is the human element. Both can overwhelm you if there isn’t a plan.

Managing hassle may take the form of putting your reputation on the line to get someone to partner with you. It may creep up in the form of a family member who is hurt that you didn’t ask them to help you with a certain project. It could be a small investor who calls you ten times more than your primary funder. Or worse, it might be a business partner who is directly complaining to one of your investors without your knowledge.

In the research for our upcoming book “Fruition: How Great Ideas Come to Life,” we found that the hassle (human) side of your low-friction plan is just as important as the risk (outcome) focus.

The conventional wisdom is to put these hassles in the bucket of small stuff you shouldn’t sweat. But many hassles don’t stay small for long. Hassles can fester day-in-day-out and become a major liability.

That primary investor may tolerate financial risks if the venture is interesting, fun, and potentially rewarding. But if it becomes a hassle? If it creates everyday annoyances? You’ll hear about it. You need to “budget” for these human costs just as you would financial costs, and show others that you’re on top of it.

That’s because hassles can swim around your head as you try to fall asleep at night and fill your mornings with anxiety and dread. Dread is an insidious emotion. It’s not pain—but rather, the anticipation of pain. Research has shown that the dread of pain fires up the same regions of the brain as the pain itself. Yikes.

Techniques to overcome hassles and friction

The most important remedy we’ve effectively already taken care of: being aware of the problems that hassles can create, and being on the lookout as you progress. Consider this your “The More You Know” moment.

Ideally, though, you should anticipate potential hassles like any of the other risks—and take proactive steps to mitigate and plan for them. Like everything else in your business plan, the whole point is to reduce friction. Here are some techniques to guide you.

1. Create your “who inventory”

The “who inventory” lists and briefly describes all the potential players involved with your venture as you progress from the current world to the better, future world that you envision. Take time to catalog everyone with whom you may intersect. Where possible, be specific with names.

Some will be obvious: investors, consumers, business partners, employees.

But let your mind wander through your vision for your business, and you will inevitably come up with many, many more:

  • New suppliers if you expand in year two
  • Government bureaucracies for obtaining permits
  • Compliance professionals with lending institutions
  • Family members (those can be the trickiest of all!)

When you reach a critical mass, earmark and detail potential hassles with anyone on the list. This is a place to be brutally honest (and perhaps keep your conclusions private). Consider personalities and personal histories. Where you have questions or unknowns, reach out to others for their opinions and experiences—a business mentor can be helpful here.

It may be helpful to categorize your list and/or diagram it out over the steps it will take to build and sustain your venture. What’s important is that you spend the time thinking through this and documenting it. Include others to get their input and suggestions. Update it as you go. The final inventory may be somewhat messy, but a mess you can see is better than a mess you are blind to.

2. Go beyond user or buyer personas

Personas are a deep dive into the profile of various players involved in your venturetheir actions, motivations, needs, thoughts, daily life, and more. The goal is to develop a deep knowledge of what makes them tick and what to expect when interacting with them.

Each persona will allow you to play out what to expect and identify potential hassles. After completing the who inventory, choose only the most important to expand on.

Buyer or user personas—fictional representations of your ideal customers based on their demographics and other characteristics—have been used successfully for many years in industries like software development, and you can find many resources and templates online. Typically, they are a more generic profile—such as “angel investor” or “premium consumer”—but you may also find it necessary to hone in on specific individuals.

The primary personas are traditionally created for end users/consumers of your business—your target market. It’s just as important to understand who you are targeting as it is to know who you are not targeting or working with. Many ventures fail because they try to have an appeal that is too broad. They end up lacking focus and never find their place in the market.

As the name suggests, the personas should feel personal. Give each a name and a stock photo. Make them part of your team. Ask questions like, “Would Sandra complain about having to wait 10 minutes for confirmation, given her tight schedule?” Or, “Will Luis call at the first sign of bad news?”

Use these personas to conceptualize the potential hassles you might encounter. Create scenarios and let them play out in your head. Then, plan accordingly.

3. Do a SWOT analysis

A SWOT analysis is a typical part of preparing any business plan, and you may even include it in the main body.

As discussed above, the tendency is to focus only on more “functional” risks like finances or competition. But, don’t forget to consider the human element—the hassles. Use this awareness and the other techniques to bring this part to life and create a more comprehensive analysis.
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Tie it all together

How you take what you’ve learned about your potential hassles and formally integrate it into your business plan will depend on your specific situation. As with any risks you’ve outlined, you likely won’t have a section titled “Hassles”; the learnings should permeate various parts of the plan. Outputs from some of the techniques above may make sense to include in an appendix, and you will at least want to document everything for your own use.

As always, know your audience and focus on what will be most beneficial for them. Investors will want to know that you’ve anticipated what might become a hassle for them (and you) and that you have a plan. You can give your credibility a major boost by showing you’re on top of this part of building your business.

With some foresight and a little healthy paranoia, you can be much better prepared for the journey toward a successful future. Ideally, it’s a future that keeps to a minimum the hassles, friction, and memos about TPS cover sheets.

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John Lavelle

John believes that everyone—from multinational manufacturers to PTA parents—can unleash their ideas and build a better world. He has worked with top consumer packaged goods companies to revolutionize how they innovate and bring their ideas to market. He also has extensive experience leading innovation consulting teams, selling and executing custom research, and econometric forecasting. Along with Chris Adrien, he is co-author of the forthcoming book, “Fruition: How Great Ideas Come to Life.”

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How a Medical Private Practice Can Overcome Obstacles to Success

As I traverse the medical private practice landscape across the U.S. through consultations and speaking engagements, I’ve observed that private practices suffer from a very high failure rate.

According to Dave Chase, author of CEO’s Guide to Restoring the American Dream, 43 percent of healthcare-related businesses fail within their first five years. The only industry that appears to have a higher failure rate is the restaurant industry.  

The main reasons “private practice-preneurs” fail in today’s environment is that they’re simply not identifying their risk factors. Too many health practitioners underestimate the resources that are needed for a successful practice.

Most healthcare practitioners aren’t trained to develop a business as a successful entrepreneur. They’ve built their careers around their passion for health and wellness—not analyzing financial statements and maximizing profits.

But to succeed at building a financially sustainable business, you need a strong organizational foundation. To protect your private practice from failure, take these essential steps upfront.

1. Define your vision of success

Take a moment to consider your true intentions. It’s essential that you define your professional and personal goals and your ideal vision for success.

Begin the vision process by naming your net financial goals so that they’ll lead you to the follow-up step of identifying the how and the when. Determine whether your private practice vision involves using other practitioners in your service delivery method, or if you intend to be a sole proprietor.

2. Set out to run a profitable business

If I could change one thing about our society’s view on service-based business models related to healthcare, it would be the notion that private healthcare practices operating as successful and profitable businesses runs contrary to their mission.

Still, clinicians and healthcare providers are often so invested in their own passion for their work that they overlook the profitability side of the business.

Borrowing a page from investment legend Warren Buffet: Priority #1 is to never lose money, priority #2 is to never lose money, and priority #3 is to never lose money.

3. Invest the time in a solid business plan

There’s enormous value in articulating your vision of the path forward. Writing a business plan—even a Lean Business Plan that’s short and easy to update—will help. It’s proven that companies that do business planning grow 30% faster. Doing so will help you better determine your specific objectives for the business, as well as give you an understanding of how to support sustained growth.

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Some might be tempted to just launch into action and figure out the process of building a business along the way as they go—what we might call “building the airplane while flying it.” Simply put, this is not the most effective or efficient approach.

Start by clearly understanding why you wish to open your own practice.

Part of defining your why is identifying its relationship to other key questions, including:

  • Who is the target demographic?
  • What is your core service or product?
  • When are you looking to start?
  • And how are you going to execute your vision?

Be as specific as possible with your goals and milestones. A well-constructed business plan helps to ensure that you aren’t just spinning your wheels, but are executing against a clearly drawn strategic roadmap that aligns with specific, measurable goals for your business.

If you’re not sure what a medical practice business plan should look like, check out some examples in Bplans’ sample business plan gallery.

4. Create accountability through metrics

It’s one thing to create a plan, but it’s another to execute it and achieve your goals. The secret to executing your private practice strategy is through metrics. Besides thinking through your who, what, where, when, why, and which questions, define what will be the measurable metrics that will tell you when you’ve arrived at your goal.

They should include a time limit—when are you going to achieve that goal? I recommend that you develop weekly, monthly, and quarterly metrics. Key financial metrics include your balance sheet, income statement, and net income. Others include cash flow statement analysis, payer mix, cancellation report, and marketing/referral effectiveness.

You can set up your financial statements in Excel, and a business management tool like LivePlan that connects to your online accounting system and offers a business dashboard can make it quicker and easier.

The added benefit of using metrics is that they help empower your team to be accountable without having to micromanage their every move. Adding incentives for staff to reach their goals can be a helpful motivator.

5. Understand the funding model of health insurance

A fundamental reality that all private practice entrepreneurs must realize is that there’s never a guarantee of coverage.

Do this: Call the phone number on the back of your health insurance card and verify your own benefits for whatever service you’re offering (occupational therapy, speech therapy, chiropractic, and so on).

The bottom line is that you must understand the limiting factors and trends related to medical billing depending on your patient demographics, diagnosis, service offering, and so on. The rule of thumb is 60 percent of your funding should be cash flow positive in 30 days or less from the date of service. This will keep your private practice financially moving in the right direction.

6. Prepare for worst-case scenarios

As you build your strategy, you must be prepared for conditions that could impact your survival. Ask yourself a variety of questions, spanning from what would happen if your best therapist left to go into competition with you, to what if your funding source stopped making payments (Medicaid, etc.)?

Formulate a strategy to overcome these obstacles before they happen. For example, get out ahead of clinical and personnel issues by clearly communicating your expectations with your staff, and articulate policies in both your employee and client packets on everything from HIPAA to expected response times to inquiries.

7. Hire the best staff you can find

A unified team can transform your practice. Hire the best staff you can find—it will pay off. If you have staff members who aren’t fully behind the mission of the practice and are simply clocking in and clocking out each day, they aren’t contributing to the success of the organization.

In particular, I’ve seen this happen when practitioners recruit their friends to work for them. Employees who have a passion for their work, who always act with the company’s best interests in mind, who look for ways to contribute, and who bring new ideas will be vital team members for ensuring the success of the practice.

8. Build a support team to help with essential decisions

Surround yourself with people who can give moral or professional support. They can be employees, friends, consultants and more. As you build your strategy, you need a team who can watch over your shoulder.

Know when to hire help; there’s no need to tackle every challenge alone. Find those with expertise in the areas you know aren’t your strong points. If you’re not sure where to start, SCORE offers a great mentorship program that can help you build your medical practice with confidence.

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Brandon Seigel
Brandon Seigel

Brandon Seigel is an internationally known business coach and president of Wellness Works Management Partners. He currently manages multiple private practices and consults with entrepreneurs and private practices throughout the world. A recognized leader in today’s private practice environment, he is a frequent keynote speaker and trainer for organizations, associations and universities. His new book, The Private Practice Survival Guide: A Journey to Unlock Your Freedom to Success (Rebel Press, February 5, 2019) covers the essential how-to questions of opening a successful private practice. Learn more at wellnessworksmp.com or brandonseigel.com.

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Why SWOT Analysis Belongs in Your Business Plan

SWOT analysis

Why add a SWOT analysis into your business plan and the strategic planning process?

I believe in it because the SWOT phase was vital to my planning process as I grew Palo Alto Software from zero to over $5 million in annual sales.

If you’re not familiar with the SWOT matrix, it stands for strengths, weaknesses, opportunities, and threats. Read more about what it is and how to do your analysis, and download our free SWOT analysis template to help you get started.

SWOT analysis example

Here’s an example of what a SWOT analysis can look like.

Real-world examples of SWOT analysis in action

Let me tell you some true stories about SWOT analysis in action, in a real business setting.

The key here is that you should try to avoid performing your SWOT analysis alone in your office. It’s a great tool for bringing your team and your stakeholders in on the conversation.

If you’re holding regular business plan review meetings, SWOT analysis is a good framework for thinking through how you need to adjust your business strategy to meet your goals.

Brainstorm together

I used SWOT sessions every few months to gather my team leaders and engage in brainstorming discussion about our business situation.

We divided the discussion into four parts, opened it up, set the tone as brainstorming—no bad ideas, and no taboos—and had good discussions about all four elements: strengths, weaknesses, opportunities, and threats, as they related to our financials and key metrics, the business climate in our industryand the work we were doing together to grow our business.

Save time

Our SWOT sessions took only an hour or two. We used a whiteboard and worked on bullet points. Just like the Lean Planning approach to business planning, less is more. You don’t need to generate a 40-page report.

The goal of a SWOT analysis is to develop actionable insights—you want to catch opportunities and pitfalls sooner. It’s one way to minimize risk when you’re starting and growing your business.

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Engage your whole team on your strategy and goals

Thinking in SWOT terms put everybody on the team into engagement with the whole business, the broad view of strategy, market, and goals. It seemed automatic to me—the topics themselves, in standard brainstorming mode, invited us all in.

Your business plan should be a roadmap that guides the strategic course of your business. Use SWOT analysis to help people understand how their work translates to the goals and milestones you’re laying out in your business plan.

Gain real, actionable business insights

The SWOT analysis provided a lot of insight.

It was in one of these sessions that somebody suggested that I should change my focus a bit and deal more with the large picture than the specific code. It was also in a SWOT session that we realized we needed to make our product downloadable on the web (back in 1998, when we were among the first). In another session, we realized, as a group, that our key differentiator was the know-how and how-to built into our software. 

If you haven’t done this type of analysis before, check out our SWOT analysis examples article for some tips on how to use it to develop actionable strategies.

SWOT gets people committed, not just involved

In breakfast, the chicken is involved, the pig is committed.

In the business planning process, commitment is essential. Plans need to be implemented, and implementation means commitment. There has to be accountability and peer pressure. You have to follow up on what was planned to make sure that it was actually carried out.

Here are some ways to develop commitment within your team:

You can use the SWOT analysis to bring team members into the strategic discussion—not just the most senior level leaders. Your managers have to be part of the team that discusses the strategy early on, as the first stage of every strategy review and revision.

As you do your SWOT, even if it’s just you, and better yet if it’s with a team, there is an automatic process of moving away from the details and looking at the business in larger, more strategic terms.

I can’t cite research on that, but I can say that I’ve seen that happen dozens of times in my career, first hand, first as a consultant and then later as founder growing my business with a team. People like strategy. They like to be included. And SWOT puts strategy front and center, without requiring lots of buzzwords or windows dressing.

It’s a good strategy summary

The SWOT analysis in your business plan makes a perfect first step of the regular plan review every good business should be doing once a month.

Either by yourself, if it’s just you, or with your team, take a good look at the SWOT. Ask what’s changed in your business.

Normally strengths and weaknesses are long-term, inherent qualities of a business, which can change, but only slowly. Opportunities and threats, on the other hand, are normally external to the business, out in the market and the world. They can change fast. Opportunities come and go, and threats can appear very quickly.

SWOT belongs in your business plan

The bottom line here is that the planning process, for both startups and for growing companies, is about the people more than the plan. Your business plan is there to guide execution. It needs a strategic component like a SWOT analysis, and it should be reviewed and revised regularly.

Whether you’re doing business planning as a way to strategically guide your company, or you’re writing a business plan because you’re seeking funding, conducting a SWOT analysis will help. Funders will want to know you’ve thought through every aspect of your plan. But even if you’re not seeking funding, the strategic planning process—business planning—is proven to help your business grow faster, and a SWOT analysis can help.

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6 Mistakes to Avoid When Writing Your Restaurant Business Plan

restaurant business plan mistakes

If you’re serious about opening a restaurant, you’ll have to draft up a formal and accurate business plan to pitch to banks, investors, and even potential employees.

I won’t lie—writing a formal business plan isn’t exactly a breeze. It takes a lot of time, effort, dedication, knowledge, and passion to get it right. But if starting a restaurant is your goal, a business plan is one of the first steps toward reaching it.

There’s scientific evidence that businesses that plan even grow faster. But, you probably only need a formal business plan if you’re seeking investment funding from an angel investor or a loan from a bank. If you don’t need either of those, putting together a strategic Lean Plan that you can update often and that takes less time to write and maintain is probably a better use of your time.

The reality is that 26 percent of restaurants fail within one year, and 60 percent fail within three. If you want to beat the odds, you need to be prepared for running your restaurant long before the doors open. You can set a clear vision for your restaurant’s path to success with a business plan.

Unfortunately, you can easily make a lot of mistakes when writing up your first business plan. To help you avoid those errors, take a look at some of the most common, and how you can avoid making them yourself.

Mistake #1: Putting in minimal effort

A restaurant business plan is not the midterm essay you wrote in college for that class you didn’t care about. This document actually matters. As such, you can’t push it off until the last minute, half-ass it, and expect good results.

Serious investors will recognize a poorly-constructed business plan when they see one. They’ve earned their money because they know which kinds of businesses (and business leaders) turn a profit and which ones do not. If they look at your business plan (or listen to your investor pitch) and can tell you didn’t put much effort into it, they’ll laugh you right out the door—as they should.

Your restaurant business plan is the key to opening your doors. If you know you want to run a restaurant, prove it. Do the work.

Find your information. Research your competition. Crunch your numbers and put together a realistic sales forecast for your restaurant. Do everything it takes to flesh out a fully-detailed business plan.

Show your effort and it will pay off. Breeze through it and your restaurant may never have its opening day.

Mistake #2: Being too dull and dry

The people reading your business plan don’t have all day. It’s best to get right to the point and make it an interesting read. Remember—more words don’t always make it better!

Throw in some visuals to make your business plan clear and exciting. Some ideas are:

  • Headshots of your restaurant’s leadership team
  • Your restaurant’s logo
  • Photos of your concept or design
  • Drafts of your menu
  • Maps to show your location compared to competitors
  • Any existing or planned marketing collateral
  • Charts and graphs to explain your numbers in a visual way

If you hand in another dry business plan, potential investors will do everything they can to finish reading it before their next meeting or lunch break. That means they’ll probably skip over important details, especially if they’re hidden in overly-complex writing.

It’s crucial to deliver all the details to investors upfront and in an intriguing way. Remember, it’s a human being reading that business plan. Be clear, concise, and get to the point, and they’ll be thankful.

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Mistake #3: Not making your competitive advantage clear

What makes your restaurant special in the company of one million other restaurant locations nationwide?

More importantly, what makes you stand out from the other restaurants in your state, town, or street? Answer: your competitive advantage. If you don’t have one of these, there is absolutely no reason for diners to go to your restaurant over a competitor’s.

On top of building and explaining your competitive advantage, your restaurant’s business plan should have an entire section completely devoted to competitive analysis. This analysis should include how you plan to differentiate yourself from other restaurants, whether it be through menu items, concept, price, location, atmosphere, or management tactics.

Whatever your competitive advantage may be, make sure it is justified, fleshed out, and very difficult to argue against. This will take some time to get right, but your competitive advantage is what will sustain your restaurant longer than others.

Mistake #4: Glossing over the executive summary

Your executive summary acts as the foundation for your entire business plan, and your business plan is the foundation of your restaurant.

So, why would you not take the time to craft an amazing executive summary? Use this opportunity to reel your readers in, show them you are passionate and knowledgeable about the industry, and that you mean business.

Your executive summary should contain your mission, the key facts of your business, your competitive advantage, and the main takeaways readers can expect to see fleshed out when they read your entire business plan.

If you fail to hook someone with an executive summary, or if yours is simply there as a formality, you’ve wasted a huge opportunity to interest investors.

In the immortal words of Eminem: “You only get one shot.” Well said, Slim. Well said.

Mistake #5: Underestimating the value of marketing

In the marketing section of your restaurant business plan, don’t just mention a budget and that you “plan on using social media.”

Marketing is how you make your competitive advantage clear to potential and existing customers.

Consider answering all of the following questions in your marketing section:

  • Will you be offering a customer loyalty program?
  • How do you plan on getting involved with a charity or sponsoring community events?
  • Will you be working with a PR company or a local news outlet?
  • Do you intend to advertise through Google AdWords, social media, or some other paid digital marketing platform? What about print ads?
  • Do you have/plan to have a restaurant website?
  • Will you keep a customer database through your restaurant POS to micro-target your customers and keep track of guest behavior and buyer patterns?
  • Will you use a WiFi marketing tool to boost customer loyalty?

Remember, restaurant marketing is not just about bringing customers in—it’s about bringing them back. Have a plan to leverage your competitive advantage with your target market with modern, creative marketing tools and strategies, and investors will be impressed.

Mistake #6: Guesstimating sales and costs

Nothing drives investors crazier than seeing numbers that don’t make sense. If you simply write that you will do $1 million in sales for your first year, readers will want to know why.

Investors will want to know your financial forecast, your profit margins, your labor expenses, your fixed and variable costs, and so on. Without a clear layout of expected cash flow, investors won’t be thrilled to throw cash your way.

Take as much time as needed to project your sales and expenses as accurately as you can. These numbers can be based on industry standards, historical documents, or numbers from another restaurant you operate. It’s not necessary to be a financial expert—but it wouldn’t be the worst idea to consult one if it means procuring funds for your business.

Get your free business plan quote today!

Crafting the perfect restaurant business plan

While these mistakes can be simple slip-ups in your first business plan, it’s important to avoid them to the best of your ability. This document can put you in business, but when it isn’t given the attention, dedication, or resources it deserves, it might postpone your grand opening indefinitely. Put ample time, effort, and resources into developing your restaurant business plan and you will soon reap the rewards.

Remember, this business plan is not just for banks and investors; it’s also for you. Writing a business plan is a great way to make the vision for your new restaurant clear and define your path to success. There will always be bumps along the way, but writing a solid, well-researched restaurant business plan will help you make sure you’re moving in the right direction.

If you’re looking for examples of business plans for restaurants, Bplans offers a library of free samples you can download. And to make it easier to get started writing your plan, download our free business plan template.

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AJ Beltis
AJ Beltis

AJ Beltis is a blogger and content marketer for Toast POS, a Boston-based restaurant technology company offering an all-in-one point of sale solution for restaurants nationwide. AJ is a certified inbound marketer committed to connecting restaurants with the resources they need to form successful relationships with their customers. You can follow AJ on Twitter @AJBeltis.



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How to Build a Restaurant Sales Forecast

how to do a restaurant sales forecast

This article is part of our Restaurant Business Startup Guide—a curated list of articles to help you plan, start, and grow your restaurant business!

With restaurants, as with most businesses, there is no single right way to do a sales forecast. The best sales forecast method will vary according to how you manage information, how much past data you have access to, and what special factors drive your business. With this example, I want to show you one way that one person did it, so you can copy this method or use it to inspire your own method or this one with modifications.

For the case sample here, I’m looking at how Magda forecasts her sales for a café she wants to open in an office park. She wants a small locale, just six tables of four. She wants to serve coffee and lunches. She hasn’t contracted the locale yet, but she has a good idea of where she wants to locate it and what size she wants, so she wants to estimate realistic sales. She assumes a certain size and location and develops a base forecast to get started.

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Establishing a base case

She starts with understanding her capacity. She does some simple math. She estimates that with six tables of four people each, she can do only about 24 sit-down lunches in an average day, because lunch is just a single hour. And then she adds to-go lunches, which she estimates will be about double the table lunches, so 48 per day. She estimates lunch beverages as .9 beverages for every lunch at the tables, and only .5 beverages for every to-go lunch.

Then she calculates the coffee capacity as a maximum of one customer every two minutes, or 30 customers per hour; and she estimates how she expects the flow during the morning hours, with a maximum 30 coffees during the 8 to 9 a.m. hour. She also estimates some coffees at lunch, based on three coffees for every 10 lunches. You can see the results here, as a quick worksheet for calculations.

Where do those estimates come from? How does Magda know? Ideally, she knows because she has experience. She’s familiar with the café business as a former worker, owner, or close connection. Or perhaps she has a partner, spouse, friend, or even a consultant who can make educated guesses. And it helps to break the estimates down into smaller pieces, as you can see Magda has done here.

And, by the way, there is a lesson here about estimating and educated guesses: Magda calculates 97.2 coffees per day. That’s really 100. Always round your educated guesses. Exact numbers give a false sense of certainty.

She then estimates monthly capacity. Look at the above illustration and you’ll see that she estimates 22 workdays per month, and multiplies coffees, lunches, and beverages, to generate the estimated unit numbers for a baseline sample month.

So that means the base case is about 1,500 lunches, about 1,000 beverages, and about 2,000 coffees in a month. Before she takes the next step, Magda adds up some numbers to see whether she should just abandon her idea. At $10 per lunch and $2 per coffee or beverage, that’s roughly $15,000 in lunches, $2,000 in lunch beverages, and $4,000 in coffees in a month. She probably calls that $20,000 as a rough estimate of a true full capacity.

She could figure on a few thousand in rent, a few thousand in salaries, and then decide that she should continue planning, from the quick view, like it could be a viable business. (And that, by the way, in a single paragraph, is a break-even analysis.)

From base case to sales forecast

With those rough numbers established as capacity, and some logic for what drives sales, and how the new business might gear up, Magda then does a quick calculation of how she might realistically expect sales to go, compared to capacity, during her first year:

Month-by-month estimates for the first year

From there, it’s using a simple model, like a spreadsheet. She inputs the row definitions, unit sales estimates, average prices, and average direct costs to create a complete sales forecast. The first illustration here shows the table results for sales for the first few months. The numbers come from multiplying projected unit sales times projected average price per unit.

These are all based on Magda’s calculations above, with an additional row added for “other,” which is t-shirts and mugs and such.

And this illustration from LivePlan (you can do this on a simple DIY spreadsheet as well) shows the data input for unit sales of lunches, one of the four rows of sales. Compare the ups and downs of these estimated unit sales to the capacity estimates above; you can see, visually, that they are related. No need, however, to go into the details; that might make it seem more scientific than it really is.

I’m not including an illustration here of price assumptions. They are simple estimated averages over the entire business. Magda estimates lunches at $10 each, coffee at $2 each, and beverages also at $2 each. These are general guesses, based on experience.

Furthermore, you can see here throughout, how she’s working with educated guessing. She isn’t turning to some magic information source to find out what her sales will be. She doesn’t assume there is some magic “right answer.” She isn’t using quadratic equations and she doesn’t need an advanced degree in calculus. She does need to have some sense of what to realistically expect. In this case, she’s worked in a restaurant (or knows somebody who has), so she has some reasonable information to draw on.

The right level of detail

Notice here that Magda doesn’t try to break lunches down into sandwiches, soup, burgers, ham versus cheese, turkey versus beef, or any of that detail. Too much detail doesn’t work well in the real world. Instead, she summarizes and aggregates enough to make a useful forecast that she can track, review, and revise as needed with the ongoing business.

Estimating direct costs

Along with sales, it’s advisable to estimate direct costs, also called COGS, or cost of goods sold, or unit costs. These are costs that the business incurs only in delivering what it sells. In Magda’s case, it’s what she pays for the coffee beans, beverages, bread, meat, potatoes, and other ingredients in the food she serves. For a bookstore, it’s what the book paid for the books it sells. For a taxi business, it’s the gasoline and routine maintenance. Direct costs are useful for comparison basis.

So, with her unit sales estimates already there, Magda needs only add estimated direct costs per unit to finish the forecast. The math is as simple as it was for the sales, multiplying units times per-unit direct cost. Then it adds the rows and the columns appropriately. Here’s the finished example showing direct costs in a table. If you’re following along, Magda estimated per unit direct costs (not shown here) as 50 percent of the sales price for lunches, 20 percent of the coffees, and 35 percent of drinks.

So you can see illustrated here the idea of educated guessing, estimates, and summary. Here too, as with the sales above, Magda doesn’t break down all the possibilities for lunches into details, differentiating the steak sandwich from the veggie sandwich, and everything in between—that level of detail is unmanageable in a forecast.

She estimates the overall average direct cost. Coffees cost an average of 40 cents per coffee, and lunches about $5.00. She estimates because she’s familiar with the business. And if she weren’t familiar with the business, she’d find a partner who is, or do a lot more research.

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How to Write a Business Plan [Updated for 2019]

how to write a business plan

This article is part of both our Business Startup Guide and our Business Planning Guide—curated lists of our articles that will get you up and running in no time!

If you’ve reviewed what a business plan is, and why you need one to start and grow your business, then it’s time to dig into the process of actually writing a business plan.

In this step-by-step guide, I’ll take you through every stage of writing a business plan that will actually help you achieve your goals. If you’re just looking for a downloadable template to get you started, you can skip ahead and download it now. Or, if you just want to see what a completed business plan looks like, check out our library of over 500 free sample business plans.

Download the Business Plan Template today!

3 rules for writing a business plan:

1. Keep it short

Business plans should be short and concise.

The reasoning for that is twofold:

  1. First, you want your business plan to be read (and no one is going to read a 100-page or even 40-page business plan).
  2. Second, your business plan should be a tool you use to run and grow your business, something you continue to use and refine over time. An excessively long business plan is a huge hassle to revise—you’re almost guaranteed that your plan will be relegated to a desk drawer, never to be seen again.

2. Know your audience

Write your plan using language that your audience will understand.

For example, if your company is developing a complex scientific process, but your prospective investors aren’t scientists, avoid jargon, or acronyms that won’t be familiar.

Instead of this:

“Our patent-pending technology is a one-connection add-on to existing bCPAP setups. When attached to a bCPAP setup, our product provides non-invasive dual pressure ventilation.”

Write this:

“Our patent-pending product is a no power, easy-to-use device that replaces traditional ventilator machines used in hospitals at 1/100th the cost.”

Accommodate your investors, and keep explanations of your product simple and direct, using terms that everyone can understand. You can always use the appendix of your plan to provide the full specs if needed.

3. Don’t be intimidated

The vast majority of business owners and entrepreneurs aren’t business experts. Just like you, they’re learning as they go and don’t have degrees in business.

Writing a business plan may seem like a big hurdle, but it doesn’t have to be. You know your business—you’re the expert on it. For that reason alone, writing a business plan and then leveraging your plan for growth won’t be nearly as challenging as you think.

And you don’t have to start with the full, detailed business plan that I’m going to describe here. In fact, it can be much easier to start with a simple, one-page business plan—what we call a Lean Plan—and then come back and build a slightly longer, more detailed business plan later.

how to write a business plan

6 elements to include in a business plan

Now that we have the rules of writing a business plan out of the way, let’s dive into the elements that you’ll include in it.

The rest of this article will delve into the specifics of what you should include in your business plan, what you should skip, the critical financial projections, and links to additional resources that can help jump-start your plan.

Remember, your business plan is a tool to help you build a better business, not just a homework assignment. Here are the basic components of the business plan you’re going to write.

1. Executive summary

This is an overview of your business and your plans. It comes first in your plan and is ideally only one to two pages. Most people write it last, though.

2. Opportunity

This section answers these questions: What are you actually selling and how are you solving a problem (or “need”) for your market? Who is your target market and competition?

3. Execution

How are you going to take your opportunity and turn it into a business? This section will cover your marketing and sales plan, operations, and your milestones and metrics for success.

4. Company and management summary

Investors look for great teams in addition to great ideas. Use this chapter to describe your current team and who you need to hire. You will also provide a quick overview of your legal structure, location, and history if you’re already up and running.

5. Financial plan

Your business plan isn’t complete without a financial forecast. We’ll tell you what to include in your financial plan.

6. Appendix

If you need more space for product images or additional information, use the appendix for those details.

Let’s dive into the details of each section of your business plan and focus on building one that your investors and lenders will want to read.

how to write a business plan

Executive summary

The executive summary of your business plan introduces your company, explains what you do, and lays out what you’re looking for from your readers. Structurally, it is the first chapter of your business plan. And while it’s the first thing that people will read, I generally advise that you write it last.

Why? Because once you know the details of your business inside and out, you will be better prepared to write your executive summary. After all, this section is a summary of everything else you’re going to write about.

Ideally, the executive summary can act as a stand-alone document that covers the highlights of your detailed plan. In fact, it’s very common for investors to ask for only the executive summary when they are evaluating your business. If they like what they see in the executive summary, they’ll often follow up with a request for a complete plan, a pitch presentation, and more in-depth financials.

Because your executive summary is such a critical component of your business plan, you’ll want to make sure that it’s as clear and concise as possible. Cover the key highlights of your business, but don’t into too much detail. Ideally, your executive summary will be one to two pages at most, designed to be a quick read that sparks interest and makes your investors feel eager to hear more.

The critical components of a winning executive summary:

One sentence business overview

At the top of the page, right under your business name, include a one-sentence overview of your business that sums up the essence of what you are doing.

This can be a tagline, but is often more effective if the sentence describes what your company actually does. This is also known as your value proposition.

Problem

In one or two sentences, summarize the problem you are solving in the market. Every business is solving a problem for its customers and filling a need in the market.

Solution

This is your product or service. How are you addressing the problem you have identified in the market?

Target market

Who is your target market, or your ideal customer? How many of them are there? It’s important here to be specific.

If you’re a shoe company, you aren’t targeting “everyone” just because everyone has feet. You’re most likely targeting a specific market segment such as “style-conscious men” or “runners.” This will make it much easier for you to target your marketing and sales efforts and attract the kinds of customers that are most likely to buy from you.

Competition

How is your target market solving their problem today? Are there alternatives or substitutes in the market?

Every business has some form of competition and it’s critical to provide an overview in your executive summary.

Company overview and team

Provide a brief overview of your team and a short explanation of why you and your team are the right people to take your idea to market.

Investors put an enormous amount of weight on the team—even more than on the idea—because even a great idea needs great execution in order to become a reality.

Financial summary

Highlight the key aspects of your financial plan, ideally with a chart that shows your planned sales, expenses, and profitability.

If your business model (i.e., how you make money) needs additional explanation, this is where you would do it.

Funding requirements

If you are writing a business plan to get a bank loan or because you’re asking angel investors or venture capitalists for funding, you must include the details of what you need in the executive summary.

Don’t bother to include terms of a potential investment, as that will always be negotiated later. Instead, just include a short statement indicating how much money you need to raise.

Milestones and traction

The last key element of an executive summary that investors will want to see is the progress that you’ve made so far and future milestones that you intend to hit. If you can show that your potential customers are already interested in—or perhaps already buying—your product or service, this is great to highlight.

You can skip the executive summary (or greatly reduce it in scope) if you are writing an internal business plan that’s purely a strategic guide for your company. In that case, you can dispense with details about the management team, funding requirements, and traction, and instead treat the executive summary as an overview of the strategic direction of the company, to ensure that all team members are on the same page.

how to write a business plan

Opportunity

There are four main chapters in a business plan—opportunity, execution, company overview, and financial plan. The opportunity chapter of your business plan is where the real meat of your plan lives—it includes information about the problem that you’re solving, your solution, who you plan to sell to, and how your product or service fits into the existing competitive landscape.

You’ll also use this section of your business plan to demonstrate what sets your solution apart from others, and how you plan to expand your offerings in the future.

People who read your business plan will already know a little bit about your business because they read your executive summary. But this chapter is still hugely important because it’s where you expand on your initial overview, providing more details and answering additional questions that you won’t cover in the executive summary.

The problem and solution

Start the opportunity chapter by describing the problem that you are solving for your customers. What is the primary pain point for them? How are they solving their problems today? Maybe the existing solutions to your customer’s problem are very expensive or cumbersome. For a business with a physical location, perhaps there aren’t any existing solutions within reasonable driving distance.

Defining the problem you are solving for your customers is far and away the most critical element of your business plan and crucial for your business success. If you can’t pinpoint a problem that your potential customers have, then you might not have a viable business concept.

To ensure that you are solving a real problem for your potential customers, a great step in the business planning process is to get away from your computer and actually go out and talk to potential customers. Validate that they have the problem you assume they have, and then take the next step and pitch your potential solution to their problem. Is it a good fit for them?

Once you have described your target market’s problem, the next section of your business plan should describe your solution. Your solution is the product or service that you plan on offering to your customers. What is it and how is it offered? How exactly does it solve the problem that your customers have?

For some products and services, you might want to describe use cases or tell a story about a real user who will benefit from (and be willing to pay for) your solution.

Target market

Now that you have detailed your problem and solution in your business plan, it’s time to turn your focus toward your target market: Who are you selling to?

Depending on the type of business you are starting and the type of plan you are writing, you may not need to go into too much detail here. No matter what, you need to know who your customer is and have a rough estimate of how many of them there are. If there aren’t enough customers for your product or service, that could be a warning sign.

Market analysis and market research

If you are going to do a market analysis, start with some research. First, identify your market segments and determine how big each segment is. A market segment is a group of people (or other businesses) that you could potentially sell to.

Don’t fall into the trap, though, of defining the market as “everyone.” The classic example is a shoe company. While it would be tempting for a shoe company to say that their target market is everyone who has feet, realistically they need to target a specific segment of the market in order to be successful. Perhaps they need to target athletes or business people who need formal shoes for work, or perhaps they are targeting children and their families. Learn more about target marketing in this article.

TAM, SAM, and SOM

A good business plan will identify the target market segments and then provide some data to indicate how fast each segment is growing. When identifying target markets, a classic method is to use the TAM, SAM, and SOM breakdown to look at market sizes from a top-down approach as well as a bottom-up approach.

Here are some quick definitions:

  • TAM: Your Total Available or Addressable Market (everyone you wish to reach with your product)
  • SAM: Your Segmented Addressable Market or Served Available Market (the portion of TAM you will target)
  • SOM: Your Share Of the Market (the subset of your SAM that you will realistically reach—particularly in the first few years of your business)

Once you have identified your key market segments, you should discuss the trends for these markets. Are they growing or shrinking? Talk about the market’s evolving needs, tastes, or other upcoming changes to the market.

Your ideal customer

When you have your target market segments defined, it’s time to define your ideal customer for each segment.

One way to talk about your ideal customer in your plan is to use your “buyer persona” or “user persona.” A buyer persona is a fictitious representation of your market—they get a name, gender, income level, likes, dislikes, and so on.

While this may seem like additional work on top of the market segmentation that you have already done, having a solid buyer persona will be an extremely useful tool to help you identify the marketing and sales tactics you’ll need to use to attract these ideal customers.

Key customers

The final section of your target market chapter should discuss key customers.

This section is really only required for enterprise (large) companies that have very few customers. Most small businesses and typical startups can skip this and move on.

But if you selling to other businesses (B2B), you may have a few key customers that are critical to the success of your business, or a handful of important customers that are trend leaders in your space. If so, use this final portion of your target market chapter to provide details about those customers and how they are important to your business’s success.

Competition

Immediately following your target market section, you should describe your competition. Who else is providing solutions to try and solve your customers’ pain points? What are your competitive advantages over the competition?

Most business plans use a “competitor matrix” to easily compare their features against their competition. The most important thing to illustrate in this section of your business plan is how your solution is different or better than other offerings that a potential customer might consider. Investors will want to know what advantages you have over the competition and how you plan on differentiating yourself.

One of the biggest mistakes entrepreneurs make in their business plans is stating that they don’t have any competition.

The simple fact is that all businesses have competition. Competitors may not always come in the form of “direct competition,” which is when you have a competitor offering a similar solution to your offering. Often times, you may be dealing with “indirect competition,” which is when consumers solve their problem with an entirely different kind of solution.

For example, when Henry Ford was first marketing his cars, there was very little direct competition from other car manufacturers—there weren’t any other cars. Instead, Ford was competing against other modes of transportation—horses, bikes, trains, and walking. On the surface, none of these things look like real direct competition, but they were how people were to solving their transportation problems at that time.

Future products and services

All entrepreneurs have a vision of where they want to take the business in the future if they are successful.

While it’s tempting to spend a lot of time exploring future opportunities for new products and services, you shouldn’t expand too much on these ideas in your business plan. It’s certainly useful to include a paragraph or two about potential future plans, to show investors where you are headed in the long term, but you don’t want your plan to be dominated by long-range plans that may or may not come to fruition. The focus should be on bringing your first products and services to market.

how to write a business plan

Execution

Now that you’ve completed the opportunity chapter, you’re going to move on to the execution chapter, which includes everything about how you’re actually going to make your business work. You’ll cover your marketing and sales plans, operations, how you’ll measure success, and the key milestones that you expect to achieve.

Marketing and sales plan

The marketing and sales plan section of your business plan details how you plan to reach your target market segments (also called target marketing), how you plan on selling to those target markets, what your pricing plan is, and what types of activities and partnerships you need to make your business a success.

Before you even think about writing your marketing plan, you must have your target market well-defined and have your buyer persona(s) fleshed out. Without truly understanding who you are marketing to, a marketing plan will have little value.

Your positioning statement

The first part of your marketing and sales plan is your positioning statement. Positioning is how you will try and present your company to your customers. Are you the low-price solution, or are you the premium, luxury brand in your market? Do you offer something that your competitors don’t offer?

Before you start working on your positioning statement, you should take a little time to evaluate the current market and answer the following questions:

  • What features or benefits do you offer that your competitors don’t?
  • What are your customers’ primary needs and wants?
  • How are your competitors positioning themselves?
  • How do you plan on differentiating from the competition? In other words, why should a customer choose you instead of someone else?
  • Where do you see your company in the landscape of other solutions?

Once you’ve answered these questions, you can then work on your positioning strategy and define it in your business plan.

Don’t worry about making your positioning statement very long or in-depth. You just need to explain where your company sits within the competitive landscape and what your core value proposition is that differentiates your company from the alternatives that a customer might consider.

You can use this simple formula to develop a positioning statement:

For [target market description] who [target market need], [this product] [how it meets the need]. Unlike [key competition], it [most important distinguishing feature].

For example, the positioning statement for LivePlan, our business planning product, is: “For the businessperson who is starting a new company, launching new products or seeking funding or partners, LivePlan is software that produces professional business plans quickly and easily. Unlike [name omitted], LivePlan creates a real business plan, with real insights—not just cookie-cutter, fill-in-the-blank templates.”

Pricing

Once you know what your overall positioning strategy is, you can move on to pricing.

Your positioning strategy will often be a major driver of how you price your offerings. Price sends a very strong message to consumers and can be an important tool to communicate your positioning to consumers. If you are offering a premium product, a premium price will quickly communicate that message to consumers.

Deciding on your price can feel more like an art than a science, but there are some basic rules that you should follow:

  • Covering your costs. There are certainly exceptions to this, but for the most part, you should be charging your customers more than it costs you to deliver your product or service.
  • Primary and secondary profit center pricing. Your initial price may not be your primary profit center. For example, you may sell your product at, or even below, your cost, but require a much more profitable maintenance or support contract to go along with the purchase.
  • Matching the market rate. Your prices need to match up with consumer demand and expectations. Price too high and you may have no customers. Price too low and people may undervalue your offering.

3 approaches to pricing strategy

  • Cost-plus pricing. You can establish your pricing based on several factors. You can look at your costs and then mark up your offering from there. This is usually called “cost-plus pricing” and can be effective for manufacturers where covering initial costs is critical.
  • Market-based pricing. Another method is to look at the current landscape of competitors and then price based on what the market is expecting. You could price at the high-end or low-end of the market to establish your positioning.
  • Value pricing. Yet another method is to look at a “value pricing” model where you determine the price based on how much value you are providing to your customer. For example, if you are marketing lawn care to busy professionals, you may be saving your customers 1 hour/week. If that hour of their time is valued at $50/hour, your service could charge $30/hour.

Promotion

With pricing and positioning taken care of, it’s time to look at your promotion strategy. A promotion plan details how you plan on communicating with your prospects and customers. Remember, it’s important that you’ll want to measure how much your promotions cost and how many sales they deliver. Promotional programs that aren’t profitable are hard to maintain in the long term.

Here are a few areas that you might consider as part of your promotional plan:

Packaging

If you are selling a product, the packaging of that product is critical. If you have images of your packaging, including those in your business plan is always a good idea.

Be sure the packaging section of your plan answers the following questions:

  • Does your packaging match your positioning strategy?
  • How does your packaging communicate your key value proposition?
  • How does your packaging compare to your competition?

Advertising

Your business plan should include an overview of the kinds of advertising you plan to spend money on. Will you be advertising online? Or perhaps in traditional, offline media? A key component to your advertising plan is your plan for measuring the success of your advertising.

Public relations

Getting the media to cover you—PR—can be a great way to reach your customers. Getting a prominent review of your product or service can give you the exposure you need to grow your business. If public relations if part of your promotional strategy, detail your plans here.

Content marketing

A popular strategy for promotion is engaging in what is called content marketing.

Content marketing is what Bplans is all about. It’s when you publish useful information, tips, and advice—usually made available for free—so that your target market can get to know your company through the expertise that you deliver. Content marketing is about teaching and educating your prospects on topics that they are interested in, not just on the features and benefits that you offer.

Social media

These days, having a social media presence is essentially a requirement for the vast majority of businesses.

You don’t need to be on every social media channel, but you do need to be on the ones that your customers are on. More and more, prospects are using social media to learn about companies and to find out how responsive they are.

Strategic alliances

As part of your marketing plan, you may rely on working closely with another company in a form of partnership.

This partnership may help provide access to a target market segment for your company while allowing your partner to offer a new product or service to their customers.

If you have partnerships already established, it’s important to detail those partnerships in your business plan.

Operations

The operations section is how your business works. It’s the logistics, technology, and other nuts and bolts. Depending on the type of business you are starting, you may or may not need the following sections. Only include what you need and remove everything else.

Sourcing and fulfillment

If your company is buying the products it is selling from other vendors, it’s important to include details on where your products are coming from, how they get delivered to you, and ultimately how you deliver the products to the customer—that’s sourcing and fulfillment.

If you are sourcing products from manufacturers overseas, investors are going to want to know about your progress working with these suppliers. If your business is going to be delivering products to your customers, you should describe your plans for shipping your products.

Technology

If you are a technology company, it’s critical for your business plan to describe your technology and what your “secret sauce” is.

You don’t have to give away trade secrets in your business plan, but you do need to describe how your technology is different and better than other solutions out there. At a high level, you will want to describe how your technology works. You don’t need to go into excruciating detail here, though—if an investor is interested in more detail they will ask for it, and you can provide that information in your appendix.

Remember, your goal is to keep your business plan as short as possible, so too much detail here could easily make your plan much too long.

Distribution

For product companies, a distribution plan is an important part of the complete business plan. For the most part, service companies can skip this piece and move on.

Distribution is how you will get your product into the hands of your customers. Every industry has different distribution channels and the best way to create your distribution plan is to interview others in your industry to figure out what their distribution model is.

Here are a few common distribution models that you may consider for your business:

Direct distribution

Selling directly to consumers is by far the most simple and most profitable option.

You could consider passing the savings of selling directly on to your customers or you could simply increase your profit margins. You will still need to cover the logistics of how you will get your products to your customers from your warehouse, but a direct distribution model is usually fairly simple.

Retail distribution

Most large retailers don’t like the hassle of dealing with thousands of individual suppliers.

Instead, they prefer to buy through large distribution companies that aggregate products from lots of suppliers and then make that inventory available to retailers to purchase. Of course, these distributors take a percentage of the sales that pass through their warehouses.

Manufacturers’ representatives

These are typically salespeople who work for a “repping” agency. They often have relationships with retailers and distributors and work to sell your products into the appropriate channel. They typically work on commission and it’s not uncommon for a rep to be necessary for getting a new company access to a distributor or retailer.

OEM

This stands for “original equipment manufacturer.” If your product is sold to another company that then incorporates your product into their finished product, then you are using an OEM channel.

A good example of this is car parts suppliers. While large auto manufacturers do build large components of their cars, they also purchase common parts from third-party vendors and incorporate those parts into the finished vehicle.

Most companies use a mixture of distribution channels as part of their plans, so don’t feel that you need to be limited to a single channel. For example, it is very common to both sell direct and via distributors—you can purchase an iPhone directly from Apple, or go into a Target store and get one there.

Milestones and metrics

A business plan is only a document on paper without a real path to get the work done, complete with a schedule, defined roles, and key responsibilities.

While the milestones and metrics section of your business plan may not be long, it’s critical that you take the time to look forward and schedule the next critical steps for your business. Investors will want to see that you understand what needs to happen to make your plans a reality and that you are working on a realistic schedule.

Start with a quick review of your milestones. Milestones are planned major goals. For example, if you are producing a medical device, you will have milestones associated with clinical testing and government approval processes. If you are producing a consumer product, you may have milestones associated with prototypes, finding manufacturers, and first-order receipt.

Traction

While milestones look forward, you will also want to take a look back at major accomplishments that you have already had. Investors like to call this “traction.” What this means is that your company has shown some evidence of early success.

Traction could be some initial sales, a successful pilot program, or a significant partnership. Sharing this proof that your company is more than just an idea—that it has actual evidence that it is going to be a success—can be critically important to landing the money you need to grow your business.

Metrics

In addition to milestones and traction, your business plan should detail the key metrics that you will be watching as your business gets off the ground. Metrics are the numbers that you watch on a regular basis to judge the health of your business. They are the drivers of growth for your business model and your financial plan.

For example, a restaurant may pay special attention to the number of table turns they have on an average night and the ratio of drink sales to food sales. An online software company might look at churn rates (the percentage of customers that cancel) and new signups. Every business will have key metrics that it watches to monitor growth and spot trouble early, and your business plan should detail the key metrics that you will be tracking in your business.

Key assumptions and risks

Finally, your business plan should detail the key assumptions you have made that are important for your businesses success.

Another way to think about key assumptions is to think about risk. What risks are you taking with your business? For example, if you don’t have a proven demand for a new product, you are making an assumption that people will want what you are building. If you are relying on online advertising as a major promotional channel, you are making assumptions about the costs of that advertising and the percentage of ad viewers that will actually make a purchase.

Knowing what your assumptions are as you start a business can make the difference between business success and business failure. When you recognize your assumptions, you can set out to prove that your assumptions are correct. The more that you can minimize your assumptions, the more likely it is that your business will succeed.
how to write a business plan

Company overview and team

In this chapter, you’ll review the structure of your company and who the key team members are. These details are especially important to investors as they’ll want to know who’s behind the company and if they can convert a good idea into a great business.

Team

The old adage is that investors don’t invest in ideas, they invest in people. Some investors even go as far as to say that they would rather invest in a mediocre idea with a great team behind it than a blockbuster idea with a mediocre team.

What this really means is that running a successful business all comes down to getting the work down. Can you actually accomplish what you have planned? Do you have the right team in place to turn a good idea into a great business that will have customers banging down your doors?

The company overview and team chapter of your business plan is where you make your best case that you have the right team in place to execute on your idea. It should show that you have thought about the important roles and responsibilities your business needs in order to grow and be successful.

Include brief bios that highlight relevant experiences of each key team member. It’s important here to make the case for why the team is the right team to turn an idea into a reality. Do they have the right industry experience and background? Have members of the team had entrepreneurial successes before?

A common mistake novice entrepreneurs make in describing the management team is giving everyone on the team a C-level title (CEO, CMO, COO, and so on). While this might be good for egos, it’s often not realistic. As a company grows, you may require different types of experience and knowledge. It’s often better to allow for future growth of titles rather than to start everyone at the top with no room for future growth or change.

Your management team doesn’t necessarily need to be complete in order to have a complete business plan. If you know that you have management team gaps, that’s O.K. In fact, investors see the fact that you know you are missing certain key people as a sign of maturity and knowledge about what your business needs to succeed. If you do have gaps in your team, simply identify them and indicate that you are looking for the right people to fill certain roles.

Finally, you may choose to include a proposed organizational chart in your business plan. This isn’t critical and can certainly live in your business plan’s appendix. At some point, as you explore funding options, you may be asked for an “org chart,” so it’s good to have one. Beyond raising money, an org chart is also a useful planning tool to help you think about your company and how it will grow over time. What key roles will you be looking to fill in the future and how will you structure your teams to get the most out of them? An org chart can help you think through these questions.

Company overview

The company overview will most likely be the shortest section of your business plan. For a plan that you intend to just share internally with your business partners and team members, skip this section and move on.

For a plan that you will share with people outside of your company, this section should include:

  • Mission statement
  • Intellectual property
  • A review of your company’s legal structure and ownership
  • The business location
  • A brief history of the company if it’s an existing company

Mission statement

Don’t fall into the trap of spending a day or more on your mission statement. An hour or two should be plenty of time.

Avoid putting together a long, generic statement about how your company is serving its customers, employees, and so on. Your company mission should be short—one or two sentences at most—and it should encompass, at a very high level, what you are trying to do. Frankly, your mission statement and your overall value proposition might even be the same thing.

Here at Palo Alto Software (makers of Bplans), our mission statement is this: “We help people succeed in business.” It’s simple and encompasses everything we do from the types of products that we build to the kind of marketing that we do.

Intellectual property

This mostly applies to technology and scientific ventures, so just skip this if you don’t need to discuss your patents and other intellectual property.

But, if you have intellectual property that is proprietary to your business and helps your business defend itself against competitors, you should detail that information here. If you have patents or are in the patent application process, this is the place to highlight those patents. Equally important to discuss is technology licensing—if you are licensing core technology from someone else, you need to disclose that in your business plan and be sure to include details of the financial relationship.

Business structure and ownership

Your company overview should also include a summary of your company’s current business structure. Are you an LLCA C-corpAn S-corpA sole proprietor? In a partnership?

Be sure to define provide a review of how the business is owned as well. Does each business partner own an equal portion of the business? How is ownership divided? Potential lenders and investors will want to know the structure of the business before they will consider a loan or investment.

Company history

If you are writing a business plan for an existing company, it’s appropriate to include a brief history of the company and highlight major historical achievements. Again, keep this section short—no more than a few paragraphs at most.

This section is especially useful to give context to the rest of your plan, and can also be very useful for internal plans. The company history section can provide new employees with a background on the company so that they have a better context for the work that they are doing and where the company has come from over the years.

Location

Finally, the company overview section of your business plan should describe your current location and any facilities that the company owns.

For businesses that serve consumers from a storefront, this information is critical. Also, for businesses that require large facilities for manufacturing, warehousing, and so on, this information is an important part of your plan.
how to write a business plan

Financial plan

Last, but certainly not least, is your financial plan chapter. This is often what entrepreneurs find most daunting, but it doesn’t have to be as intimidating as it seems. Business financials for most startups are less complicated than you think, and a business degree is certainly not required to build a solid financial forecast. That said, if you need additional help, there are plenty of tools and resources out there to help you build a solid financial plan.

A typical financial plan will have monthly sales and revenue projections for the first 12 months, and then annual projections for the remaining three to five years. Three-year projections are typically adequate, but some investors will request a five-year forecast.

Following are details of the financial statements that you should include in your business plan, and a brief overview of what should be in each section.

Sales forecast

Your sales forecast is just that—your projections of how much you are going to sell over the next few years.

A sales forecast is typically broken down into several rows, with a row for each core product or service that you are offering. Don’t make the mistake of breaking down your sales forecast into excruciating detail. Just focus on the high-level at this point.

For example, if you are forecasting sales for a restaurant, you might break down your forecast into these groups: lunch, dinner, and drinks. If you are a product company, you could break down your forecast by target market segments or into major product categories.

Your sales forecast will also include a corresponding row for each sales row to cover Cost of Goods Sold, also known as COGS (also called direct costs). These rows show the expenses related to making your product or delivering your service. COGS should only include those costs directly related to making your products, not regular business expenses such as rent, insurance, salaries, etc. For restaurants, it would be the cost of ingredients. For a product company, it would the cost of raw materials. For a consulting business, it might be the cost of paper and other presentation materials.

Personnel plan

Your personnel plan details how much you plan on paying your employees. For a small company, you might list every position on the personnel plan and how much will be paid each month for each position. For a larger company, the personnel plan is typically broken down into functional groups such as “marketing” and “sales.”

The personnel plan will also include what is typically called “employee burden,” which is the cost of an employee beyond salary. This includes payroll taxes, insurance, and other necessary costs that you will incur every month for having an employee on your payroll.

Profit and loss statement

Also known as the income statement, the profit and loss (or P&L) is where your numbers all come together and show if you’re making a profit or taking a loss. The P&L pulls data from your sales forecast and your personnel plan and also includes a list of all your other ongoing expenses associated with running your business.

The P&L also contains the all-important “bottom line” where your expenses are subtracted from your earnings to show if your business is making a profit each month or potentially incurring some losses while you grow.

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A typical P&L will be a spreadsheet that includes the following:

  • Sales (or income or revenue). This number will come from your sales forecast worksheet and includes all revenue generated by the business.
  • Cost of goods sold (COGS). This number also comes from your sales forecast and is the total cost of selling your product. For service businesses, this can also be called cost of sales or direct costs.
  • Gross margin. Subtract your COGS from your sales to get this number. Most profit and loss statements also show this number as a percentage of total sales (gross margin / sales = gross margin percent)
  • Operating expenses. List all of your expenses associated with running your business, excluding the COGS that you already detailed. You should also exclude taxes, depreciation, and amortization. However, you do include salaries, research and development (R&D) expenses, marketing expenses, and other expenses here.
  • Total operating expenses. This is the sum of your operating expenses.
  • Operating income. This is also known as EBITDA, or earnings before interest, taxes, depreciation, and amortization. This is a simple calculation where you just subtract your total operating expenses and COGS from your sales.
  • Interest, taxes, depreciation, and amortization. If you have any of these expense streams, you will list them below your operating income.
  • Total expenses. Add your operating expenses to interest, taxes, depreciation, and amortization to get your total expenses.
  • Net profit. This is the all-important bottom line that shows if you’ve made a profit, or taken a loss, during a given month or year.

Cash flow statement

The cash flow statement often gets confused with the profit and loss statement, but they are very different and serve very different purposes. While the P&L calculates your profits and losses, the cash flow statement keeps track of how much cash (money in the bank) that you have at any given point.

The key to understanding the difference between the two statements is understanding the difference between cash and profits. The simplest way to think about it is when you make a sale. If you need to send a bill to your customer and then your customer takes 30 or 60 days to pay the bill, you don’t have the cash from the sale right away. But, you will have booked the sale in your P&L and shown a profit from that sale the day you made the sale.

A typical cash flow statement starts with the amount of cash you have on hand, adds new cash received through cash sales and paid invoices, and then subtracts cash that you have paid out as you pay bills, pay off loans, pay taxes, etc. This will then leave you with your total cash flow (cash in minus cash out) and your ending cash starting cash + cash in – cash out = ending cash).

Your cash flow statement will show you when you might be low on cash, and when it might be the best time to buy new equipment. Above all, your cash flow statement will help you figure out how much money you might need to raise or borrow to grow your company. Since an operating business can’t run out of cash without having to close its doors, use your cash flow statement to figure out your low cash points and consider options to bring in additional cash.

Balance sheet

The last financial statement that most businesses will need to create as part of their business plan is the balance sheet. The balance sheet provides an overview of the financial health of your business. It lists the assets in your company, the liabilities, and your (the owner’s) equity. If you subtract the company’s liabilities from assets, you can determine the net worth of the company.

Instead of providing additional detail on the balance sheet here, I’ll refer you to this article on building and reading balance sheets.

Use of funds

If you are raising money from investors, you should include a brief section of your business plan that details exactly how you plan on using your investors’ cash.

This section doesn’t need to go into excruciating detail about how every last dollar will be spent, but instead, show the major areas where the investors’ funds will be spent. These could include marketing, R&D, sales, or perhaps purchasing inventory.

Exit strategy

The last thing that you might need to include in your financial plan chapter is a section on your exit strategy.

An exit strategy is your plan for eventually selling your business, either to another company or to the public in an IPO. If you have investors, they will want to know your thoughts on this. If you’re running a business that you plan to maintain ownership of indefinitely, and you’re not seeking angel investment or VC funding, you can skip the exit strategy section. After all, your investors will want to get a return on their investment, and the only way they will get this is if the company is sold to someone else.

Again, you don’t need to go into excruciating detail here, but you should identify some companies that might be interested in buying you if you are successful.

how to write a business plan

Appendix

An appendix to your business plan isn’t a required chapter by any means, but it is a useful place to stick any charts, tables, definitions, legal notes, or other critical information that either felt too long or too out-of-place to include elsewhere in your business plan. If you have a patent or a patent pending, or illustrations of your product, this is where you’d want to include the details.

Further reading

If you want even more details on creating your business plan, please take a look at these articles. They will guide you through the details of creating a winning plan that will impress your investors:

Business planning tools and downloads

It can be very helpful to view some completed business plans as you go through the planning process. I encourage you to take a look at our sample business plan library and download our free business plan template.

You might also want to check out our business plan template available through our software, LivePlan. You can also check out LivePlan’s business plan consulting, which will give you a professional business plan written by an MBA in five business days.

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