Did you write a business plan when you started your firm? Have you kept this valuable management and planning tool current? Given the effects of the coronavirus pandemic and ongoing difficulties for many owners, your business plan is more essential to and vital for your success than ever.
What does updating your business plan do for you and the success of your business? Lots of things.
As the headline states, a business plan provides a proverbial roadmap. Every time your business takes a turn that isn’t on your original map, you need to update the map or you’ll get lost. Your business plan also provides the proposal you make to potential advisors, lenders, partners and others to show how you run your business and what you’ll do with the resources, funds or support they provide.
According to the U.S. Small Business Administration, there are two main types of business plans: the traditional, detailed version and lean startup version. If you’re in the startup or start-over mode, you probably should create a traditional plan. But you could be able to use the lean startup plan.
For established businesses, a streamlined plan that combines elements of the traditional and lean startup plans works well. If you’re looking for financing or investors, you’ll probably have to provide additional information and might want to use the traditional plan.
What goes into a streamlined business plan? This is a top-level document with key information, but not too much detail. It’s usually under five pages. The typical headings, with a brief description of each, are:
Executive summary: This is the last thing you write even though it’s the first thing a reader sees. Briefly summarize the most important points in your business plan, keeping in mind your intended audience and what they value. Don’t exceed a half page.
Company description: You’ve been in business for some time now. When was the last time you tried to describe your company, mission and goals in four to six 50-word paragraphs? Focus and conciseness are critical. Use quantitative, rather than qualitative, terms and minimize descriptors and adjectives. Apply the KISS principle: Keep it short and sweet. Add a simple organization chart.
Marketing approach: Highlight the ways you identify and target your most viable markets. Keep in mind the 80/20 principle: 80 percent of your business comes from 20 percent of your clients or prospects. Divide your market into A, B and C clients. The A list is that top 20 percent. The B list is the next 20 percent to 30 percent. The C list, often referred to as suspects, is the rest of the market. Limit this to half a page, about four, 50-word paragraphs.
Key partnerships: This is the group of suppliers; vendors; subcontractors; attorneys, CPAs and other professional advisors; and organizations you need. If you have an advisory board, this is the place to list the board and its members by position and field rather than name. Briefly elaborate on why each group member is essential to your growth and success. This section shouldn’t exceed one page, or eight 50-word paragraphs.
Key activities: How will you establish and build a competitive advantage? What sets you apart from others in your field? Cite two to four examples with 50-word — or shorter — descriptions or explanations.
Key resources: What particular resources present an advantage over others in your field? If you’re a certified minority or woman-owned business or veteran-owned or service-disabled veteran owned business, include that in this section. If you have trademarked, copyrighted or patented a particular item or own proprietary, unique intellectual property, list that.
Value proposition: What makes your business stand out? Do you guarantee 48-hour turnaround when the industry standard is 96 hours? Have you won awards or recognition others have not?
Revenue streams: How do you make money? Revenue streams change from year to year for both service- and product-oriented businesses. One year you might earn 50 percent of your revenue from one line of business and the remainder from five or six other lines. But when you revisit your business plan the next year, you find you earned 30 percent of your revenue from one of the other five or six lines and only 10 percent from last year’s top revenue source. Reviewing and understanding your revenue sources is critical to growth and success.
There are other elements you might want to include — customer segments and relationships, cost structure or financial projections — depending on your needs and circumstances.
Keep in mind your business plan is a living document. It should be updated annually or whenever big changes to your business, model or market occur. Even better, review your plan at the start of every quarter. Businesses plans quickly grow outdated, particularly in this unsettled business climate. Looking over your business plan on a regular basis offers an excellent way to see how your business evolves and position it for even greater growth.