You’ve probably encountered the adage that neglecting to prepare is akin to preparing for failure.
This saying is frequently linked to Benjamin Franklin, the 18th-century inventor and statesman who held a deep conviction in the importance of being prepared. He was so committed to this belief that he once compiled a list of over 12 personal traits he aimed to cultivate in his life.
Franklin’s foresight bore fruit. Nowadays, he is recognized not only for endorsing the Declaration of Independence but also for his discoveries in electricity, his role as the U.S. ambassador in France, and for founding the University of Pennsylvania.
Such achievements underscore the significance of preparation for entrepreneurs who are either launching or growing their businesses, particularly since only about half of start-ups manage to survive beyond their first five years. The key insight is: A thoughtfully developed business plan can position you among the success stories.
Moreover, having a business plan is often essential for attracting lenders and investors; it serves as a guide that helps entrepreneurs pinpoint both risks and opportunities within their markets, preparing them for various scenarios.
In fact, several of the most prosperous entrepreneurs in the United States were celebrated for their strategic planning. John D. Rockefeller, the oil tycoon whose name became synonymous with wealth during the late 19th and early 20th centuries, frequently referenced “our strategy” when discussing the development of Standard Oil Trust.
Rockefeller’s approach revolved around consolidating an unorganized oil supply that often exceeded demand, which negatively impacted producers due to depressingly low prices. His business expanded significantly, ultimately controlling a large portion of the oil production in the U.S. Although it was subsequently dismantled by the federal government, its successor companies—ExxonMobil, Chevron, and ConocoPhillips—continue to lead the industry today.
“Business planning empowers entrepreneurs to work more efficiently, remain vigilant for challenges, experiment with new concepts, maintain drive, help synchronize expectations with stakeholders and investors, and even alleviate stress,” noted Robert Price, executive director of the Global Entrepreneurship Institute, in an article published on the organization’s site.
“Creating a business plan compels you to engage in disciplined reasoning if approached honestly,” he states. “An idea might seem fantastic in theory, but when you detail the specifics and figures, it could crumble.”
Another benefit of your strategic plan is that, ideally, it evolves alongside your business. It is regarded as a dynamic document, yet despite its flexibility, the Small Business Administration identifies essential components that any effective plan should encompass. These include:
1. Executive Summary:
A concise overview of your plan. This will be the last section you compose, yet it holds significant weight, as many readers may abandon the document if it fails to capture their interest. For a start-up, emphasize your background and experiences, as well as those of your partners, to lay a solid foundation for the company, as the agency suggests. For more established businesses, be sure to provide pertinent information such as the inception date of the business, the names of founders and their roles, workforce numbers, and operational locations.
2. Company Description:
Clarify what your company does and what differentiates it from rivals. Highlight major clients as well as prospective markets you intend to target. It’s essential to note competitive advantages, such as exceptional team members like that brilliant coder you recently hired or your prime location—which, for instance, could be right next to a 24-hour wedding chapel for your floral shop.
3. Market Analysis:
Understanding the market you plan to enter is vital. Identify your competitors, analyze their revenue streams and profit margins, and investigate any technological advancements within the industry that could be pivotal. Part of defining your customers involves having a general sense of their spending behaviors and timelines. For example, Black Friday derives its name from its ability to initiate the profitable Christmas shopping period, propelling many retailers into profitability for the entire year. If your business faces a similar situation, ensure you have the necessary resources and cash flow to endure potential losses throughout most of the year.
4. Organization and Management:
Detail the ownership structure, including any investors, and illustrate your organizational hierarchy. Indicate whether your business operates as a sole proprietorship, partnership, or corporation, and specify the kind of corporation if applicable.
5. Service or Product Line:
What products or services do you offer, how do they benefit customers, and how frequently will they need replacements? The responses to these queries can significantly influence your business’s sustainability. Be sure to include any patents or copyrights that you hold.
6. Marketing and Sales:
The most innovative idea won’t succeed if potential clients are unaware of it. Are you planning on relying on word of mouth, special promotions, or advertising? Keep in mind that your strategy should be tailored to your market’s particular characteristics. For instance, businesses in New York often hire individuals to promote discounts on the streets, but this tactic may not be as effective in areas lacking high foot traffic.
7. Funding Request:
Specify how much funding you currently require, as well as additional amounts you might need over the next five years. It’s critical to articulate your strategy for repaying any borrowed funds to lenders (if you choose debt financing) or, alternatively, to provide returns for investors. Both groups will be interested in understanding how you allocate their funds and when they can expect to see a return.
8. Financial Projections:
If funding is necessary, present realistic forecasts that demonstrate your plans to generate income moving forward. Unless you are borrowing from family members, your financial backers will want to be informed. It’s beneficial if you can provide recent financial statements and base your projections on those, as this will give lenders a clearer idea of the feasibility of your projections.
