A business plan is your North star when starting and growing your own company. It helps you plot your course, focus your efforts, and decide how you’ll operate. With an effective business plan, you can easily lay out new opportunities, revenue streams, innovation, and customer ideas.
A formal business plan is also an important document to demonstrate to interested parties—employees, investors, lenders, partners and yourself—that you are committed to building the business. Creating a business plan pushes you to ask yourself the tough questions—from pricing strategies to evaluating the competition—and ultimately allows you to select the strategies that will propel growth and success.
As you sit down to write a business plan, ask yourself these three questions:
1. Is your business idea feasible?
Creating a business plan forces you to analyze:
- The competition
- The viability of the market you are targeting
- The customer you’re looking to find
Taking into account the factors above, how fruitful is this opportunity? Can you (and how will you) stand out from the competition? Is there sufficient demand for your products or services?
Creating a business plan involves researching your target market as well as the competitive landscape, and it serves as a feasibility study for your success. Knowing and staying on top of trends, market size, and industry views will help you define the role your business plays.
Whether you’re delivering a product or service, what is your differentiator? Can you clearly define that on paper? This keeps you focused on innovation and helps you understand your market, the competition, and your customer.
2. How does your business make money?
This sounds simple, but whether you’re starting, growing, or scaling your business, you need to completely know and understand your numbers and finances. Forecasting, financial projections, and expense management will collectively help address assumptions associated with the business and your profit and loss statement (P&L).
What’s going out every month? What are the costs? What are your expenses? Do you have staff? Do you have a physical space? It’s great to generate revenue, but you also need to manage your expenses and generate profit.
Knowing your finances helps you maximize your operations and assess both ongoing opportunities and the challenges ahead. Being financially intelligent allows you to be agile in adapting and/or pivoting to both positive and negative impacts on your business. It also helps you map out the path to being financially secure—whether that’s achieving goals for increased profit or paying back a lender or investor.
Understanding the numbers shows that you are committed, have a solid plan, and are the right person to not only lead this business but have success doing it.
3. Can you explain both the risk and reward?
Your ability to answer critical questions for yourself and your investors/lenders will help reduce your risk and determine the reward. Proactively analyze potential business scenarios and map out how you’d respond to them.
As a guide, do a SWOT analysis:
What are the most effective parts of your business? What makes you unique?
What improvements can you make? Where are you lacking resources?
What can you take advantage of next? Are there untapped areas you can expand into?
What type of industry complications should you be aware of? Could your competition become an obstacle?
This analysis allows you to proactively address the impact of your business decisions and operations. Consider practicing this exercise annually—you may be surprised how much you discover about your business by writing this out (vs. just making assumptions in your head). This will help you maximize opportunities and minimize threats as you go forward.
So many business owners think “I have an amazing idea. I’m just going to do it,” and that’s incredible. That’s the reason you’re a business owner. The key is being prepared, and it starts with a solid business plan. Are you ready?
About the author
Cate Luzio is CEO and founder of Luminary, a membership-based career and personal growth platform with a mission to uplift, upskill, and propel women forward through all phases of their professional journey.
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