How to create a modern business plan for a startup
This requires a mindset shift: instead of thinking about your startup business plan as a document, think of it as a multi-step process instead.
Rather than spending hours writing a traditional business plan, start with a quick high-level overview of your startup that includes:
- The problem you're solving
- Your solution
- Target market
- Competitors
- Sales & marketing activities
- What funding you might need
This simple one-page plan might be the only strategy document you need for now. If you're asking an investor for funding, a one-page pitch will also help you clarify your vision and build a broader pitch deck.
If you're applying for an SBA or bank loan:
Starting with a one-page plan is a great way to vet your thoughts before working on a traditional business plan, which is typically required by banks. Have a look at this article on how to write a business plan for a bank loan.
If you're testing an idea:
Write your one-page plan based on your assumptions.You don't need to have all the answers just yet.
A cash flow forecast is essential for any startup business plan. You're still figuring out who to hire, what to ship and maybe even what business model would work for your company — things change fast. So as you learn about your business, you need to constantly update your forecast to see how it impacts your cash flow.
On top of that, making financial projections and tracking your actuals against them will help you stay focused and accountable to your goals.
If you're applying for a bank loan or investor funding:
Include your revenue projections for the next three to five years and make sure you explain your assumptions. It's also important to have projections for your profit and loss, and cash flow statements.
This shows investors that you've thought about all aspects of your business and that you have a good plan in place to maintain a healthy cash flow until your startup becomes profitable.
If you're testing an idea:
You'll be ‘forecasting’ using research instead to predict the potential of your business idea. Start by asking your ideal customers what they think. Are you solving an actual problem they have? How interested are they in your idea?
You could also try a ‘soft’ product launch to gauge interest. This might involve running digital ads that drive to a coming soon landing page. Be sure to write down everything you learn.
Once your startup has been operating for at least a month, it's time to compare your actual results to your forecast. You're looking for any numbers that don't line up with what you expected. These variances signal opportunities to improve. For example:
- Did you spend more than anticipated on contractors? Maybe it's time to consider hiring a full-time employee.
- Sales for a certain product lower than expected? Look at how much you charge or how you're positioning that product.
The most important part of your review is uncovering why that variance occurred. For example, you might find that decreased sales for one type of product were picked up elsewhere.
Reviewing your financial performance every month also keeps everyone on your team focused and accountable. You'll always understand if your startup is heading in the right direction or if you need to make some changes.
If you're testing an idea:
Look at all the feedback you gathered about your idea. Does it mesh with what you assumed about your startup idea? Did anything surprise you? Jot down all your observations.
Update both your plan and your forecast based on what you learned. This helps you keep track of your future profit and cash projections using the most current information available. It can also help you brainstorm ways to improve your business strategy moving forward.
Here are some examples of when you might update your forecast:
Your assumptions were offYour original guesses about sales targets, expense budgets, personnel costs or other things weren't quite on target.
Your business model changesYou make fundamental changes to your business model, such as raising prices, switching from unit pricing to an hourly rate, or launching a new product or service.
You have new expensesMaybe you hired an employee or invested in a new marketing channel.
If you decide to make a major change to your business at this stage, you'll also want to update your one-page plan to reflect that.
If you're testing an idea:
Were you able to put some evidence behind your original assumptions? Do you need to tweak your idea based on the feedback you got? Go back to your plan and refine your problem, solution and target market sections based on what you've learned. Refining your plan and doing several iterations is key to figuring out whether or not you have a good idea.