Business planning FAQs
Find the answers to questions often asked about preparing a business plan.
Table of Contents
What is a business plan?
A business plan is a written document that describes your business, its objectives and strategies, the market you are targeting and the financial forecast for your business. It will assist in setting realistic and timely goals, help secure external funding, help measure your success, clarify operational requirements and establish reasonable financial forecasts. Preparing your plan will help you focus on how your new business will need to operate to give it the best chance for success.
Why do I need a business plan?
Getting financial assistance to help get your business up-and-running is directly tied to your business plan. To be considered a viable candidate to receive funds from financial institutions or investors, you must fully demonstrate your firm grasp of every aspect of your business, and particularly its ability to generate profit.
Beyond creating a business plan for the sake of lenders and investors, it is also a necessary exercise to help you map out the growth and progress of your business. The success of your business depends on your clear vision of the future:
- How will you generate positive cash flow?
- How will you sustain your business in the ‘lean times'?
- Who is your competition, and how will you coexist?
- Who is your target market?
The above are just a few examples of the questions you will answer in your business plan, providing you with the direction in which you will guide your business.
When should I write a business plan?
The sooner the better! However, it is never too late to write a business plan and, once written, it becomes a living document that should be updated regularly. It is important that you examine and anticipate as many relevant factors early on in the process, so that you are not taken by surprise later.
Who should write my business plan?
Your business plan should be prepared by you, the entrepreneur. It is your business and therefore your business plan; so, you should take the lead in writing it. However, don’t hesitate to seek outside assistance from your management team, consultants, accountants, bookkeepers, copy editors and/or other experienced people.
What are some common guidelines when preparing a good business plan?
Define your business objectives: Think about who is going to read the plan. The objectives can help you decide how much emphasis to put on various sections of your plan.
Research your business plan: A business plan is only as good as the research that went into producing it. For example, you will have to do research in order to find out more about your industry, potential customers, competitors, sales and costs of doing business.
Show drafts of your plan to others: It can be very useful to get feedback on your draft business plan from various people, including people associated with the business and others.
Write your own business plan: A common mistake is to copy too much information from a sample business plan. Your plan must reflect your objectives and should flow like a good story, with the sections working together to demonstrate why the business will be successful. Business plans that borrow too much information from other business plans tend to be disjointed, with some sections contradicting others and some key issues being overlooked.
Ensure your financial projections are believable: For many readers, the financial section is the most important section of the business plan, because it identifies your financing needs and shows the profit potential of your business. A good financial plan will also give the reader confidence that you really understand your business. So, be sure to test how reasonable each of your expectations are. If you are overly optimistic or fail to take into account the full costs of running your business, your business plan will not be credible.
Write the executive summary last: The executive summary can be the most important section of your business plan, because people will read it first and it may be the only section that is read. The keys to a good summary are that it should be short (two pages at most), it should highlight what is important in your plan and it should get the reader excited about your business.
Where do I find market research, industry and competitor information for my plan?
Research is vital to your business plan — the more information you have in your arsenal, the better. When beginning the research phase of your plan, keep in mind that there is a lot of information out there, especially online, but not all of it is accurate. It's always important to consider the source of any information you gather: research is only valuable to you if it's factual. Avoid letting unreliable sources tell you what you want to hear. If you come across information that you find useful, but you're unsure of the source, verify the information, either by contacting the source or by digging deeper on your own.
There are many excellent government market research tools that are available online. Canada Business and Industry Canada both offer market research and statistics resources. For example, a great resource is Industry Canada's Financial Performance Data, which can help you create an accurate financial profile of your business.
If you're having trouble piecing your research together to paint an accurate picture of your business, try brainstorming with a skilled professional. The Canada Business Network has offices across Canada — consider consulting a Business Information Officer, who can help put your information together to create a solid business plan.
How do I write the financial projections for my business plan?
If there's one word to best describe what your financial projections should look like, it is: accurate. Financial forecasting is only helpful, to you and to potential lenders and investors, if your numbers are reasonable and represent a true accounting of your cash flow.
Don't make the common mistake that many business planners do and base your projections on best-case scenarios. Your financial projections are made to guide your business decisions. When you inflate your sales, and therefore, financial expectations, you run the risk of tying large amounts of money up in inventory that sits on your shelves and in operating costs.
If you've been in business for a while, use your past numbers to forecast your projections. These should paint an accurate picture of your cash flow. If your business has not yet started, use market research and statistics to help guide your projections. Benchmarking tools can help you clearly understand what your business' financial situation will look like.
The bottom line is, whether you're doing projections for a business you've been operating for years or for one in which you haven't even opened the doors, you need to be detailed. It can be helpful to look at sales in shorter terms to get a better read on them. The shorter the increments of time you base your numbers on, the more accurate your forecast will be.
What are the most common mistakes in writing a business plan?
Ignoring the competition: There will always be competition. Use your business plan to demonstrate how your business can thrive in a crowded market.
Too many ideas: As an entrepreneur, you are full of great ideas and it can be tempting to “pitch” them all in your plan. Keep in mind that your business plan is about the business around your ideas, such as operations, logistics, management, finances, and marketing.
Relying on a few customers: Some businesses are born from a single customer's need, but they do not want to remain that vulnerable for long. Plan on how you will generate more customers and more contracts.
Diluting priorities: A plan that focuses on dozens of priorities is not really a plan. Focus instead on a few key priorities.
Procrastinating: It's easy to put it off, but your business plan is an essential tool to help you guide the direction of your business — there's no time like the present.
Being overly optimistic: Getting excited and projecting best-case scenarios is easy to do, and it can be a fatal mistake. It is in your best interest to make accurate, reasonable financial and market projections.
Copying a sample plan: Sample plans can be a great resource, but you want to avoid using too much information from them. Ultimately, your business is about you — let yourself shine through.
In what order should I write the sections for my business plan?
Although there is no set-in-stone way to write your business plan, there are a few things to consider before you begin:
- Determine your objectives: Where do you see your business in a year? How about five years?
- Prepare an outline: Create a small guide with the sections and sub-sections of your plan to keep you on track.
- Research, analyze and organize: Research your industry and market inside-out. Arm yourself with facts, and organize them into the key sections of your plan.
- Determine your audience: The business plan you submit to the bank for a small business loan may be different than the one you show to potential investors.
When it's time for you to write the actual plan, go through it one section at a time, ensuring that you prepare the Executive Summary last. This section, which comes at the beginning of your business plan, is perhaps the most important, and should highlight the key elements of your plan. It gives readers an up-front synopsis of what they're about to read. Write this section once you're completely satisfied with the remainder of your plan.
Keep in mind that your plan is never ready for submission until you've read and re-read it several times and made any necessary changes. Get as much feedback from peers as possible and always be willing to revise.
Should I use business planning software?
You may be attracted to business planning software because it can turn the creation of your business plan into a relatively easy process; however, easy is not always best. Your priority when preparing your business plan must be quality. A business plan that you put your best efforts into is going to offer an originality that planning software just can't replicate. Bankers and investors want to read your business plan, and as frequent readers of business plans, they can often pick out the software-generated plans at a quick glance.
How long should my business plan be?
There is no rule for the exact length that your business plan should be. The important thing to concentrate on is the research, and then the writing of a plan that covers every aspect of your business. The following categories are generally included in a business plan:
- Executive summary
- Identify your business opportunity
- Industry analysis
- Marketing, sales and competition analysis and strategy
- Your team
- Financial forecasts
- Implementation/target dates
Where can I find sample business plans?
Our Business plans - templates and samples page is a great place to start. You will find samples from major Canadian banks, industrial development organizations and private companies. You can also call, email or visit your local Canada Business office for access to free business plan samples.
Do I need protection of the information in my business plan when I submit it to others?
Ultimately, whether or not you choose to protect the original ideas in your business plan is up to you - many business plan submissions include a simple and straightforward confidentiality clause following the title page. If the information in your business plan is of an exceptionally sensitive nature, you may consider including a non-disclosure agreement; however, this is an avenue you will need to discuss with your attorney.