5 things to know and do before writing your business plan

The opinions expressed by entrepreneurs contributors are their own.

There are many articles on what to include in your business plan. But what about before you even start writing it? Are there things you need to know? Information you need to compile? Things to consider? 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 your business plan is that your plan is a marketing document. It's not a 50-page folder explaining everything there is to know about your business. The purpose of the document is rather to convince others, such as investors, lenders, partners, employees, etc. to invest their time, money and/or resources in your business.

As such, your plan is a marketing document. It should compel readers to take the action you want them to take. So, for example, rather than presenting a data dump where you list all the possible facts about your industry, focus on specifying the most relevant facts and, more importantly, how those facts make your business even 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 should also do some market research. This involves collecting information on potential customers, competitors, industry size and trends.

The purpose of this research is twofold: First, it helps you understand the competitive landscape you will be entering. Second, it helps you craft a strong, compelling strategy and correctly position your business to readers as being on the verge of success.

Most of the market research you need will be readily available. Check out industry associations or vertical websites that analyze your industry. For example, if you're looking for a business plan to start a vending machine business, use sites like Vending Mavericks.

3. Determine your precise use of funding

Most business plans are presented to funding sources such as banks, angel investors, or venture capitalists in hopes 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 developing your plan, you must understand this answer. For this, you need to conduct market research. For example, if you're considering hiring a new vice president of sales with funding, research the annual salaries for those positions in your geography and/or market. Likewise, if your financing is for building a restaurant, you should discuss and obtain quotes from interior designers, contractors, and equipment suppliers, among others, in order to have a solid estimate. costs you will encounter.

Related: The Essential Guide to Writing a Business Plan

4. Compile historical financial data and develop financial forecasts

If you are writing a business plan for an existing business, you should compile all of your historical financial data. This includes past tax returns and your current balance sheet.

For existing and new businesses, your plan should also include financial projections. These projections include five-year income statements, balance sheets and cash flow statements. It is important to note that these projections should provide assurance to investors and lenders that if they provide the financing you request, your business will be able to repay the funds (if it is a loan) from operating profits or to gain considerable value over time (if it is an equity investment). the investor can sell his share with a large profit later.

5. Determine what your business is uniquely qualified to succeed

Finally, you need to determine how your business...