Companies that start out with business plans are more likely to succeed. When you sit down to create a business plan, you have the opportunity to really think through and formulate how you are going to start the business, operate it and make it grow.
Whether you are going to write a formal business plan that you’ll use to get investors or if you just want to get your ideas down on paper, going through the process is something that should be on every budding entrepreneurs to-do list.
We will walk you through how to do it and will point you in the direction of some great templates that you can use as well. In this article, we discuss:
Do You Need to Write a Business Plan for Your Online Business?
The short answer is yes, you do need to write a business plan for your online business. While many online businesses by nature do not require a lot of overhead, you may not be seeking investors or funding, which means you don’t necessarily need a formal business plan.
However, as you grow, there are situations in which you might need a business plan, such as opening a business account at a bank or increasing your credit limit. Even if you are never asked for your business plan, it will serve you well to have this roadmap of what you expect your business to look like over time.
Why and How Would it Help You?
Above all else, writing a business plan forces you to put pen to paper and flesh out exactly what the business will look like, which means you will need to think about the elements that go into creating a successful business and determine whether or not your idea is sustainable. While going through the process, you will inevitably discover areas of weakness that you will then be able to address, saving you additional costs (and heartache) later on.
Practically speaking, here’s how a business plan will help you:
- Faster growth - think of your business plan as a dynamic working document that you can adjust as needed. It’s your baseline that will help you see where you are starting from and your roadmap to getting where you want to go. By mapping out a plan, you can then be focused on reaching your desired milestones faster.
- Attract funding - if you are at (or one day get to) the stage of looking for investors or loan providers, your business plan will show them that you’ve got a solid foundation and strategy for maintaining a financially stable and viable business. Your business plan will include certain financial statements and forecasts that, combined with the written narrative, present potential investors or loan providers with the full picture in a clear and concise manner.
- Make better strategic decisions - running your own business means making hundreds of decisions all the time. Sometimes you’ll be so busy that you won’t necessarily have the time to gather and analyze the data you need to make the best decision and a “wrong” decision could have dire consequences. If you create a business plan that you can then refer back to and update regularly, you will always have the information you need at your fingertips.
- Research - writing a business plan requires a significant amount of research, both to describe your ideal customer and to understand your target market, general market conditions and the competitive landscape. If you don’t write a business plan, you may be tempted to skip over these important steps and just go full steam ahead starting the business. Of course, you may get lucky, but why risk falling flat when you can increase your chances of success by first taking the time to plan?
A business plan will provide you with a structured plan, with all of the main points and relevant information about your business laid out in one place that you can easily share with potential investors, employees, or partners.
Choose Your Business Plan Type
Depending on what type of business you are starting, your business plan may look slightly different. A corporation will need more detail and different financial documents than a sole proprietorship, for example. Unless you have been given specific requirements by a particular potential investor or loan provider, the choice is really yours in terms of how detailed you want your plan to be.
There are two generally recognized types or formats of business plans: the traditional business plan format is a longer, more detailed plan that is used to seek funding or other official purposes with heavy emphasis on the financials. The lean startup business plan format, on the other hand, is a condensed, often just 1-2 pages, plan that is usually used only for internal purposes.
Step by Step Guide: How to Write a Business Plan
Following is a review of the sections you should include in your business plan and the type of information that goes in each one. Most business plans begin with an executive summary (that you will probably actually write at the end) that is a short introduction highlighting the main points from within the plan itself.
Keep in mind that the sections described below are commonly used, but you should feel free to leave out ones that are less relevant or add other sections that are more relevant to your specific business and needs.
In the business overview section, you need to answer the questions of who you are and what you plan to do. When someone reads this section, they should be able to get an understanding of your business idea and what makes you different from your competitors.
This section should include basic information about your business structure, industry, goals and key personnel with more detail on your USP, the specific market problem that your business addresses and the solution you offer.
Identifying and describing your unique selling proposition is an important exercise and will help you clarify for yourself and anyone who reads your business plan exactly what you have to offer and why it’s better than anything else on the market.
As part of the process of identifying your USP, you will need to understand the market situation and specific problems or challenges that exist that you propose to solve. For example, if you are selling a specialty product online, you will want to research and prove that there is a current demand for that product but a lack of affordable options or lack of high quality items. This section should include some statistics and data analysis to back up your claims.
Solutions You Offer
In this section of your business overview, you’ll describe the service or product that you plan to sell and how it serves as a solution to the market challenge you just described. You do not need to include a lot of technical details, but rather keep the explanation simple and to the point - here is what the business will offer and how it answers a need.
You can choose how detailed you want to be in describing your products and/or services. The level of detail may depend on how complex the product or service is and whether it is something brand new or an already proven concept. You might want to include pricing information in this section as well.
Understanding the market in which your business will operate is key to your success. Your business plan should include information about the demographics and habits of your target customers as well as market trends in the industry as a whole. In researching the market, you will get a good understanding of whether there is actually a viable and sustainable market for your business idea.
Some of the key questions to consider when writing this section of your business plan include:
- How big is the market for this product/service? Is it growing, shrinking or staying the same?
- What’s the status of the industry as a whole?
- Is there a specific market segment that you intend to target? What are the key demographics of that segment?
- Is there clear demand for the product/service?
- What does the competitive landscape look like?
Clearly defining your target market from the start will save you a lot of time further down the road. Here are some of the things to consider when defining and narrowing down your target market:
- Demographics - age, location, company types (if you are a B2B business)
- Is there a particular niche that you want to address?
- Market size - how many people fit your ideal customer description?
- What are the spending habits of your ideal customers?
You also need to consider how you are going to get your product out to customers. Are you going to manufacture the product or work with suppliers? Or are you going to focus on drop-shipping? What systems will you put in place to ensure smooth operations and a clear path from a customer placing an order to receiving their product.
Of course, this section is less relevant if your company will offer a service and not a physical product, but as a service provider you may also want to consider whether you will meet clients in person or what your onboarding process will be.
Unless you are doing something super unique, you are likely to have competitors in your field. A competitive analysis is an important component of your business plan and will help you identify opportunities to fill in the gaps where competitors are falling short. You can also learn from what your competitors are doing well and try to do the same and better.
Your competitor analysis should focus primarily on your direct competitors who are operating in the same space as you. Here are some key questions you will want to answer about each competitor:
- What are their strengths? - i.e. price, quality, customer service etc.
- What are their weaknesses?
- What are their objectives?
- How do they market themselves?
It may take a bit of detective work to uncover all of the information you need. A good place to start is with their websites, and you can also check out their social media and brick and mortar stores if they have them.
As part of your competitor analysis, you’ll likely uncover new ways that you can differentiate your own business - perhaps you can offer a cheaper price or focus on a different market niche.
A SWOT analysis is a great way to really take a look at what’s great and not-so-great about your company. To complete this type of analysis, you look at internal strengths and weaknesses and external opportunities and threats to your business. The SWOT analysis is then laid out in a grid so that it’s very easy to see where your challenges and potential opportunities lie.
a Business Plan blackboard
Marketing Campaign - Planning and Distribution
You need to have a marketing plan in order to let the world (or your target market anyway!) know that your business exists and is ready to serve. A comprehensive marketing plan includes both paid advertising as well as public relations and digital and content marketing.
Creating marketing campaigns will be closely tied to who your target market is and what your competition is doing. This is also the section in which you can consider your brand and how you want to show up in the market and be perceived by your customers and potential customers.
In addition to deciding what the messaging is that you want to convey via your marketing campaigns, you will also need to consider how you are going to spread that message. Important questions to consider as you develop your marketing strategy include:
- What’s your budget for marketing activities?
- How will you monitor and track the success of marketing efforts?
- What’s your positioning statement - how are you going to position yourself in front of your audience?
Finally, there are 4 key components of most marketing plans that you may also want to include in this section:
- Price - how much are you going to charge and why?
- Product - what exactly are you selling and what are the key differentiators?
- Promotion - how will you let your target audience know that your products/services exist?
- Place - where will you sell your products (including online)?
Management Team and Support
If you are a sole proprietor, your whole management team description may be just about you! It’s still important to share your experience and what gives you the skills and knowledge to run this business. Of course, if you do have partners or employees helping you run and manage the business, this is where you can also include information about them and their backgrounds.
You can also use this space to plan for the future and think about the type of management structure you will need or want in place as your business grows.
The financial analysis section is the most important when it comes to pitching investors or asking for a loan. This is where you will present a financial picture of your business - the start-up capital you need and a description of your costs and income projections. The financial analysis section, in essence, tells the story of your business through numbers and should align with the narrative that you’ve shared in the previous sections.
The financial analysis section of your business plan should include some combination of the following financial documents:
- Balance Sheet - this shows the overall financial health of the business by presenting a snapshot of all assets and liabilities.
- Profit and Loss Statement - sometimes called an income statement, this document shows all projected revenues and expenses for a specific time period (usually quarterly) and is used to show whether and how profitable that time will be.
- Cash Flow - this statement projects when cash will come into the business and when expenses will be paid. A healthy cash flow indicates a company’s ability to pay its expenses (including salaries) on time and in full and is a sign of a healthy business.
- Operating Budget - the budget provides details about projected income and expenses and shows how the company will operate in financial terms.
- Break-Even Analysis - this analysis projects when and under what conditions the company will expect to become profitable, meaning when the revenue is projected to be more than enough to cover all expenses.
Business Plan Examples for Your Online Business
If you’re feeling overwhelmed by the thought of having to write a business plan, do not worry! There is a treasure trove of sample plans and templates you can customize and use all over the internet. We suggest checking out Bplans or Venngage for easy-to-use templates.
You can also simply open up your favorite note-taking app or word processor, use the sections described in this article as a guide and just start writing!
Why do Business Plans Fail?
Although it is a proven fact that entrepreneurs who create a business plan are more likely to succeed, not every business plan is a guaranteed success. There are few common mistakes that you can easily avoid to ensure that you put your best foot forward in your business plan and set yourself up for the best chance of success:
- Present a bad business idea - it’s possible that your business is just not viable. If it’s very risky or you can’t prove that there is any market demand, you may not see any success from your business plan. On the bright side - it’s better to realize this when you’re just writing the plan before you’ve actually invested any time or money in the business. You can go back to the drawing board and come up with a better plan!
- Missing an exit strategy - this is especially important if you’re showing a business plan to potential investors as they will want to know what the plan is for them to ultimately “make an exit” and earn a profit on their investment.
- Poor management team - if you present a management team that does not have the right skills or experience necessary to run a business in your chosen industry, it may make your business appear less viable.
- Lacking financial projections - again, especially when it comes to investors the numbers are the most important part of the business plan so make sure that you are not missing any of the key forms.