How To Create A Business Plan for A Small Business
Learn how to write a small business plan that guides your decisions and helps you secure funding.
Key takeaways
- Choose a business plan format that fits your goal, using a lean plan for internal clarity or a traditional plan for lenders and investors.
- Include the core sections in your plan: executive summary, company description, market analysis, financial analysis, and business strategy.
- Base your financial analysis on realistic startup and monthly costs, and plan how you will fund the business until it turns a profit.
- Use free resources like the SBA and SCORE, and keep paying your bills on time to protect your cash flow as you launch.
So, what’s a business plan?
A business plan is a written document that describes your business goals and the strategy you’ll use to reach them. It serves as a roadmap for navigating the various stages of starting (and running) your business. It should clearly explain your business’s financial goals as well as any expansion and growth plans. When your goals require hiring more people or renting additional space, your plan should reflect that too.
If you’re looking for funding, your business plan can be shared with investors or lenders to give them a better idea of your business. But it can also be used internally, to help you and your team work together towards common goals.
Why do you need one?
You need a business plan to clarify your idea, test its financial viability, and win over lenders or investors. If you’re thinking of starting a business, it helps refine your idea before you jump in. Founding a business can be expensive, so it’s important to know what you’re getting yourself into and that it’s going to be worth it in the long run.
A business plan isn’t just for beginners, though. Even if you’re already in business, creating or modifying your business plan is a good chance to examine what you’re doing well and what can be improved to fit changing circumstances in your local market.
A coherent business plan can also show potential partners, investors, or lenders your business idea is well thought out and sound.
What format should you use for your business plan?
There are no clear rules for how to write your business plan. The complexity of your idea, the state of the market, your business stage, and your financial situation, can all affect the structure of your plan.
If you’re looking for external financing, you will likely need a traditional business plan. This is a highly detailed document that typically spans about 15–20 pages, and sometimes more for complex businesses. It includes an in-depth analysis of the market and the opportunity as you perceive it, as well as your financial situation.
However, if your plan is just for internal use or your business idea is relatively straightforward, you can typically make do with a lean version. This will typically be around five pages but can even be a condensed one-page document that only contains the most crucial information.
A lean version is also good if you believe your business may pivot in the near future. That’s because it can be produced more quickly and is easier to adjust, should circumstances change.
What to include in your business plan
While there’s no set format or length for a business plan, there are several elements that should typically be included.
Executive summary
The executive summary is a short overview of your whole plan. It gives readers the most important facts about your business and its potential at a glance.
While it appears first, we suggest you write this section last. Since it summarizes your overall plan, it will be easier to write once you have everything else figured out.
Your executive summary should include these main parts:
- Company overview
- Your company’s main goals
- A short description of your products
- Why you think your offering is needed in the market
- Financial overview (especially if you’re requesting funding)
About the company
A longer description of your company and its mission. This should include:
- Mission statement: A short one or two-sentence explanation of why you started the company and what it aims to do better than its competitors.
- What you do: Name your industry and the main needs your company meets.
- Products and services: A detailed list of your company’s offerings. Depending on how unique or complex they are, consider adding a short explanation about each.
- Team: State the number of employees you already have on staff, divided by department (sales, bookkeeping, etc.), if applicable. If your business is small, a department can also be just one person, that’s perfectly okay and quite efficient. If you plan to hire additional workers in the near future, explain how many people you’ll need and how they’ll help your company achieve its goals.
- Key team members: List the names and titles of major stakeholders in the company, such as owner, CEO, partner, manager, bookkeeper, head of sales, etc. It can also be helpful to include contact details and a short description of their roles, responsibilities, and relevant experience.
- Legal structure: Your business’s legal structure affects your paperwork, your financing options, and your taxes. That’s why a business plan should always clearly state whether your company is a sole proprietorship, a partnership, a limited liability company (LLC), or a corporation.
Market analysis
This section should be based on research and outline who you’re planning to target as potential customers and what the market looks like in your target area.
Figure out who your potential customers are and what they need. Consider where they live or work. Outline the problems they are facing and explain how you plan to solve them. This will help you figure out your marketing strategy, where to set up shop, and how to adjust your offering to fit their needs.
A laundromat, for example, typically appeals to people who are single and live in small apartments. Their problem is they either cannot afford to buy a washing machine or they do not have space for it. These people will normally be looking for a cheap solution to washing their clothes without having to lug bags of dirty (and then clean) laundry across town. While their main focus is on a low price, the convenience of a local shop, or one that’s open around the clock, could motivate them to spend a little bit more.
Examine the state of your industry and the products or services already available to your potential customers in the relevant geographical area.
Name your main competitors and examine their strengths and weaknesses. Maybe they are very affordable but use cheap materials or are understaffed, for example. Also look for market shares they are neglecting, such as an underserved neighborhood in an otherwise flooded market.
Explain how you plan to distinguish yourself and compete with other companies. Perhaps you can offer a lower price, a convenient delivery option, better ingredients, a cleaner shop, or a more pleasant experience in general.
For example, vending machines offering food and drinks are a popular and lucrative way to help customers feel more comfortable at your laundromat. You could also offer phone charging stations or even wifi service for customers looking to get some work done while they’re waiting for their load to finish.
Financial analysis
Your financial analysis shows how much money you need to launch and run the business. To estimate startup costs, add up what you’ll spend on machinery, commercial space, equipment, vehicles, and employees. Next, figure out how much your operations should cost in a typical month, after the large initial expenses are made.
Remember that it often takes a new business at least two to three years to turn a profit. So, it’s important to be realistic and plan how you will finance your company until it begins to earn its keep. Do you have money saved for this purpose? Are you maybe eligible for a government or private grant? Can you get in touch with some investors? Or, perhaps take out a business loan?
If you do decide to apply for a loan, it’s also important to outline a realistic repayment plan that will allow your business to grow, while covering its debt.
Whatever the path you end up choosing, it’s important to consider all the options, and make sure you are able to secure enough funding to get your idea off the ground without draining your personal rainy day funds.
Business strategy
Outline your goals and how you plan to achieve them.
Set clear milestones that show success, like reaching a revenue target, growing your customer list, expanding your team, or opening a second location within two years.
Figure out how you plan to attract and retain customers, through marketing, better service, new products, or any other means.
Don’t be afraid to ask for help
Starting a business is exciting but it can also be difficult and stressful. It really does take a village to get your business ready for the real world so take any help you can get while still in the planning stages (and later too).
You can:
- Ask friends and family for their thoughts. They may not be experts in your field—so, take their advice with a grain of salt—but they definitely have your best interest at heart. Sometimes a layman’s opinion can offer a unique perspective you may be missing and could help point you in the right direction.
- Enlist professional experts in your network. Consult with other small business owners you know and trust to see how sound your business idea is. Ask them about their own experiences of starting a business, what their main challenges were, and how they overcame them.
- Survey the target market. Try to arrange a talk with a few potential customers to get a better grasp of their needs and challenges.
- Use accessible professional resources. Utilize free or low-cost local consultation for SMBs offered by the Small Business Administration (SBA) or small business network SCORE.
Ready to write your business plan?
Download our free business plan template to get you started.
Once the download is complete, you can open the docx file with your regular word processor (for example, Microsoft Word or Apple’s Pages). If you use Google Docs, add the file to your Drive so you can edit it directly in the cloud.
Don’t forget to pay the bills
Once your business is up and running, you’ll need a reliable and cost-effective way to pay and get paid. So, take a few minutes to sign up for Melio, an accounts payable and receivable (AP and AR) tool built specifically for the needs of small businesses.
Small business plan FAQs
How long should a small business plan be?
It depends on your goal. A lean or one-page plan works for internal use, while a traditional plan for lenders or investors usually runs longer and goes into more detail.
What is the difference between a business plan and a business model?
A business model explains how your company makes money. A business plan is the full document that lays out your goals, your market, and the steps you’ll take to reach them.
Do I need a business plan to get a loan?
Most lenders and investors want to see a business plan before they commit. It shows them your idea is sound and that you have a clear path to paying them back.
*This blog post is intended for informational purposes only and is not intended as financial advice.
**Melio does not provide legal, tax or accounting advice, and you should consult with a professional advisor before making any financial decisions.
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