While a business plan is not always required when applying for an SBA loan, having one is a smart way to show a lender that you have a solid grasp of how your business and your industry work. This post will provide some tips on how to prepare a business plan, along with some general guidelines you should keep in mind.
What Is a Business Plan?
A business plan is a written document that outlines the history of your company, a description of your industry, your target market, marketing objectives, and business goals, among other things.
Business plans are aimed both at people inside and outside your organization. Some common uses of business plan include:
- Attract investments
- Secure financing
- Guide the executive team in their decision-making
- Communicate ideas to stakeholders
In the next section, we’ll take a look at the different components of a business plan and give you some suggestions about the length of each section.
The Structure of a Business Plan (Recommended by the SBA)
There are no standard rules about the length, structure, or style of a business plan.
In theory, your business plan should be whatever length is necessary to communicate your ideas and goals.
While this may be true in theory, some people may find it to be too vague. If that’s your case, don’t worry: the SBA provides some precise guidelines about what they consider to be a good business plan.
- Part 1- Introduction (3 to 5 pages): cover page, executive summary, table of contents.
- Part 2- Market analysis (9 to 22 pages): Industry description and outlook, market research, pricing and gross market targets, competitive analysis, etc.
- Part 3- Company description (1 to 2 pages).
- Part 4- Organization and management (3 to 5 pages): organizational structure, ownership information, management resumes.
- Part 5- Marketing and sales strategy (4 to 6 pages): market penetration strategy, sales strategy, channels of distribution strategy, etc.
- Part 6- Product or service (4 to 10 pages): Description, benefits, copyright/patent, research and development activities.
- Part 7- Equity investment and funding request (2 to 4 pages): Amount of funding you will need, financial strategy, funding scenarios.
- Part 8- Financial information (12 to 25 pages): Current financial data of the owners, historical financial data, five-year projection of income and expenses, 24-month cash flow budget, charts and graphs, certification letter and review letter by a third-party financial advisor indicating the information complies with Generally Accepted Accounting Principles (GAAP).
Note that part eight is probably the most important section of a business plan and must be reviewed by a professional (your accountant can do this).
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