Making A Business Plan
So, you’re thinking about starting a business? How exciting! Whether starting a business from scratch or opting for a franchise model, though, there’s something you should know… Many new businesses fail within a few years of opening. According to the latest information from the U. S. Bureau of Labor Statistics (BLS):
- Around 20% fail during the first two years.
- The failure rate grows to 45% within the first five years.
- Over half (65%) fail within the first ten years.
Yikes! That being said, though, there are new success stories being written every day—25% of new businesses do survive for 15 or more years. By understanding the main reasons new businesses fail, and with rock-solid business planning, you can greatly improve your chances of success. In this blog, we’ll be addressing everything you need to know to create a business plan that will work for you.
Why Do So Many New Businesses Fail?
Obviously every business case is different, but the most common reasons new businesses fail include the following:
- The business doesn’t fill a genuine, unique need. This often results from insufficient market research. Without a unique value proposition, breaking into an existing industry or market is exceptionally difficult.
- There’s not enough money. Getting the financing together to open the doors of a new business is no joke. You’ve got to be able to convince a lender that your business idea is likely to succeed—and you’ve got to have extra cash on hand for (inevitable) unplanned expenses or other challenges.
- The business simply doesn’t gain traction. Marketing is an absolutely essential component of starting a new business and being able to compete. If you settle for a less-than-optimal location for a brick-and-mortar business, or insufficiently promote eCommerce offerings, you risk your revenue falling short of what you need to stay afloat.
- There’s an inability to adapt to circumstances as they arise. Starting a new business—even franchising—requires emotional intelligence, adaptability, and resilience. When the going gets tough, business leaders need to be able to adapt on the fly and learn from each success or failure.
- The business attempts to expand and grow too quickly. Yes, growth is vital, but so is strategic planning. Just because you might have a little extra capital on hand today doesn’t mean it needs to be immediately spent. Sustainable growth—not exponential or meteoric growth—should be the foundation and the goal.
These issues are prevented (to some extent) by writing a business plan—and by considering the route of opening a franchise.
What Is a Business Plan, and Why Does It Matter?
A business plan is a formal document that outlines an organization’s vision and objectives—and how to make them reality. By creating a business plan, you can take constructive steps to avoid the pitfalls that impact so many ventures—like those failures we’ve listed above. Additionally, in broad strokes, a business plan will:
- Devise a sound, effective strategy for establishing and growing the business.
- Determine current financial needs and future projections.
- Prove to investors that the endeavor has a decent chance of success.
What Are the Advantages of Franchising?
There are several compelling advantages to franchising. In a franchising arrangement, you become the franchisee. As such, you essentially purchase the brand rights from the franchise owner (franchisor). Franchising is an option in virtually every industry, with successful franchises ranging from fast food restaurants to retail stores to service providers and more.
The advantages of this approach center around the franchisee/franchisor relationship, and who’s responsible for what. These advantages include guidance around how to operate the business successfully, based on what’s successful for the larger franchise organization. In signing their franchise agreement, the franchisee may receive a turnkey business that’s basically ready to operate from day one—or there may be more room for the franchisee to make certain decisions, with the franchisor serving more as an advisor.
Other high-level advantages include the ability to leverage a recognized brand and established customer base and the chance to be your own boss. Because the franchising model means you inherit many components of the franchisor’s business plan, it’s generally expected that franchising comes with less risk of business failure within the crucial first few years.
What Are the Parts of a Business Plan?
Traditionally, there are 8 main parts of a business plan, as outlined by the U.S. Small Business Administration (SBA). To effectively address each of these, we’ve put together a list of questions you can ask yourself as you plot your next move.
- Executive Summary: What is the company/business, and what’s going to make it a successful endeavor? What’s the mission or vision? What product(s) or service(s) will you be selling, and to whom? Have you chosen a location? What about employees and leadership roles? What are your financing needs?
- Company Description: What unique problems or pain points will your business solve for its customers? Who are your target customers, and how will you connect with them? What do you see as your strengths, and how will you leverage them as competitive advantages?
- Market Analysis: What is your target market, and why? What does the competitive landscape look like, and how will you differentiate your business?
- Organization and Management: How will you manage your business? What does the org chart potentially look like? Who will be the leaders, and what do they bring to the table (in terms of experience and expertise)? What’s the legal structure of the organization (e.g., a corporation, sole proprietorship, LLC)?
- Service or Product Line: What, exactly, will you be offering customers? What are the key benefits and competitive differentiators of your product or service? Is there any additional research and development that needs to be completed?
- Sales and Marketing: What sales and marketing strategies are going to generate brand awareness and grow your customer base? How will you attract new customers, and turn existing customers into loyal brand advocates?
- Request for Funding: What type(s) of funding will you need to start—and sustain—your business? What’s your plan (and timeline) to secure funding? How will funds be allocated (e.g., equipment or technology needs, payroll, etc.)?
- Financial Projections: Is your business going to be stable and successful, from a financial standpoint? How do you know, or how will you gauge success? Are your projections reasonable, and do you have plans for achieving them? What’s the backup plan if funding falls short?
In addition to the elements listed above, it is also advisable to include an Appendix. In this section, you can include any documentation that helps support any of the above points. If starting a new business were an exam, the appendix basically serves as the “show your work” component. Make sure your documents are accurate, neat, easy to comprehend, and well-organized.
Pro Tip: Start with a Business Plan Template
Making a business plan from a template is a fantastic way to make sure no crucial pieces of your plan fall through the cracks. The last thing you want is to devote time, energy, and effort into creating a plan—only to leave out one or more vital components. You can steer clear of this largely-avoidable outcome by either creating your own template or searching for free templates online.
Depending on your preferences, you can search specifically for a “business plan template for Excel”, “business plan template in Google Docs”, or “business plan template for Word”.
How to Write a Business Plan, Step by Step
As we mentioned earlier, writing a business plan is one of the most important—if not the most important—things you can do to start out on solid footing and lay the foundation for success.
So, is it difficult to write a business plan, and can anyone write a business plan? It can be difficult, yes—but it doesn’t have to be. And with the right guidance, anyone can write a business plan. As a matter of fact, if you’ve thought through the essential components we discussed above, then you’re well on your way. Now, you just need to put it all together. Here’s how:
- Write the executive summary. Think of this, the first page of your business plan, as your elevator pitch. Use clear, concise language and make sure to include your mission statement, describe the product/service you’ll be selling, and a brief overview of your growth plan. Note: While this is listed here as Step 1, and should be drafted as a first stage, the executive summary should also be the last section you address. Circle back to make sure it still encapsulates the important content from elsewhere in the plan. Here’s a great resource from NerdWallet.
- Describe your company’s structure. Among the information to include here is your business’s name (as registered), address or location, and key team members like those who will serve in leadership and management roles. Highlight the unique experience and expertise the individuals bring to the table, and how they’ll be able to successfully execute the plan. Describe the business structure, too—whether it’s a sole proprietorship, corporation, or LLC, for example.
- Outline your business goals. Explicitly detail what you’re aiming to achieve, considering both near-term and long-term objectives—and how you’ll do it. When possible, establish clear links between the company objectives and the funding you’re requesting. How, specifically, will you use the funds to accomplish your goals?
- Describe the product(s) or service(s) your business will provide, and to whom. Use enough specifics that potential investors can really understand your vision. Include details of how your product or service works, the pricing model you’ll employ, how supply chain and other logistics will be handled, sales or distribution strategies, and so on. This section provides a great opportunity to differentiate yourself from your competitors.
- Explain your sales and marketing plans—and the market research that informs their development. After mentioning potential competitive advantages in the previous section, here you can dive deeper into the details. This not only helps investors better understand the business’s potential viability, but also positions you as a competent, research-driven company leader well-positioned for success. Describe the sales and marketing strategies you intend to use, and what their development and deployment will look like (and what further resources they may require).
- Address financial projections and needs. Here, you’ll need to show that your business makes sense from a financial perspective. For established businesses, the “financial analysis” piece of the puzzle considers items like profit-and-loss statements, balance sheets, or cash flow statements. In the case of a brand new enterprise, you’ll need to take a different approach and focus instead of financial projections (and projected needs).
- Organize supporting materials in an appendix. Go through each section of your business plan, specifically looking for opportunities to provide supporting data and other resources. These materials not only serve an essential purpose in validating your ideas and strategy, but also demonstrate your credibility and ability as a thinker and a leader—someone that “does their homework” in order to mitigate risks.
- Revise and proofread. Once everything’s been assembled, give your drafted business plan a minimum of (at least) one very careful, thorough read-through. Is everything clear, or are there areas where you use vague or ambiguous language? Do any sections contradict each other, or raise new questions that should be investigated? Finally, give everything an extremely careful proofreading. For both revision and editing, it’s also recommended that at least one other person serves as an extra set of eyes, helping you iron out anything that could cause misunderstandings or give the wrong impression.
Again, by opting for a franchise rather than building a brand-new business from scratch, many components of an effective business plan have already been developed and tested. In other words, depending on the nature of the franchise, you may find that there is very little business planning to worry about!
Find Your Next Franchising Opportunity with Franchise Gator
Like we’ve mentioned, many of the risks and pitfalls of starting a new business from scratch can be largely avoided through franchising. At Franchise Gator, we’re passionate about connecting the right people with the right franchising opportunities. Our website is home to a library of resources for franchise beginners and hundreds of available franchising opportunities across dozens of unique industries. Where to start? We recommend browsing our annual lists of the Top 100 Franchises, the Fastest Growing Franchises, and Top Emerging Franchises.