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There are many articles on what to include in your business plan. But what about before you even start writing? Are there things you need to know? Information you need to collect? What should be considered? You bet. Below, you’ll learn five things you need to know and do before you start writing your business plan:
1. Your business plan is a marketing document
The first thing you need to understand before writing a business plan is that your plan is a marketing document. It’s not a 50-page dossier that explains everything there is to know about your business. Rather, the purpose of the document is to convince others, such as investors, lenders, partners, employees, etc., to invest their time, money and/or resources in your company.
As such, your plan is a marketing document. It must compel readers to take the actions you want them to take. So, for example, instead of presenting a database listing every possible fact about your industry, focus on listing the most relevant facts and, more importantly, discussing how those facts make your company more likely to succeed.
Related: 7 Steps to a Perfectly Written Business Plan
2. Conduct market research
Before you start writing your business plan, you must also conduct market research. This includes gathering information about potential customers, competitors, and industry size and trends.
The purpose of this research is twofold: First, it helps you understand the competitive environment you will be entering. Second, it helps you craft a sound and compelling strategy and properly position your company to readers as a company poised for success.
Much of the market research you need will be readily available to you. Check out industry associations or vertical websites that analyze your industry. For example, if you’re looking to research a business plan for starting a vending machine business, take advantage of sites like Vending Mavericks.
3. Determine how exactly you use the funds
Most business plans are presented to funding sources such as banks, angel investors or venture capitalists in the hope of raising capital. One of the most important questions these funding sources will ask is how much funding you need and what it will be used for.
Before you develop your plan, you need to get a firm grip on this answer. For this, it is necessary to conduct market research. For example, if you are planning to hire a new VP of sales with financing, research the annual salaries for such positions in your geography and/or market. Likewise, if your financing is to build a restaurant, you should talk to and get quotes from interior designers, contractors, and equipment suppliers among others so that you have solid estimates of the costs you will encounter.
Related: The Basic Guide to Writing a Business Plan
4. Compile historical financial statements and develop financial forecasts
If you are writing a business plan for an existing company, you need to gather all of your historical financial data. This includes past profit reports and your current balance.
For both existing and new businesses, your plan must also include financial projections. These projections include income statements, balance sheets and cash flow statements for five years. It’s important that these projections give investors and lenders confidence that if they secure the funding you’re looking for, your company will be able to repay the funds (if it’s a loan) from operating profit or gain tremendous value over time (if it’s an equity investment) so that the investor can later sell his share at a significant profit.
5. Determine how your company is uniquely qualified to succeed
Finally, you need to determine how your company is uniquely qualified to succeed. This includes analyzing your competitive advantages and discussing how they will help you achieve success despite the challenges that may stand in your way.
For example, if you’re entering a crowded market with dozens of competitors, discuss how your company’s product or service differs from theirs and why it matters. Or if you have a long-term relationship with an established partner or customer, discuss what this means for your business and how it will help you secure additional resources, customers or profits in the future. Likewise, you may be uniquely qualified to succeed based on the intellectual property you have or the quality employees you hire.
Importantly, you must recognize that the most successful companies have unique qualities of success. Think about each key aspect of your business, your team, products, services, marketing plan, operations, etc. and understand what it takes to be uniquely qualified to succeed in each of these areas.
Related: How to prepare and write the perfect business plan for your company
Anyone can write a business plan. But writing a business plan that achieves your goals is much more challenging. These goals may include raising funds, convincing a company to partner with you, or developing a solid plan for success among others. Either way, knowing and doing the five things above will allow you to create a winning business plan and achieve lasting success.