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How To Write the Perfect Business Plan in 9 Steps (2023)
- by Desirae Odjick
- Dec 3, 2022
- 25 minute read
A great business plan can help you clarify your strategy, identify potential roadblocks, decide what you’ll need in the way of resources, and evaluate the viability of your idea or your growth plans before you start a business .
Not every successful business launches with a formal business plan, but many founders find value in taking time to step back, research their idea and the market they’re looking to enter, and understand the scope and the strategy behind their tactics. That’s where writing a business plan comes in.
Table of Contents
What is a business plan?
Why write a business plan, business plan formats, how to write a business plan in 9 steps, tips for creating a small business plan, common mistakes when writing a business plan, prepare your business plan today, business plan faq.
A business plan is a document describing a business, its products or services, how it earns (or will earn) money, its leadership and staffing, its financing, its operations model, and many other details essential to its success.
We had a marketing background but not much experience in the other functions needed to run a fashion ecommerce business, like operations, finance, production, and tech. Laying out a business plan helped us identify the “unknowns” and made it easier to spot the gaps where we’d need help or, at the very least, to skill up ourselves. Jordan Barnett, Kapow Meggings
Investors rely on business plans to evaluate the feasibility of a business before funding it, which is why business plans are commonly associated with getting a loan. But there are several compelling reasons to consider writing a business plan, even if you don’t need funding.
- Strategic planning: Writing out your plan is an invaluable exercise for clarifying your ideas and can help you understand the scope of your business, as well as the amount of time, money, and resources you’ll need to get started.
- Evaluating ideas: If you’ve got multiple ideas in mind, a rough business plan for each can help you focus your time and energy on the ones with the highest chance of success.
- Research: To write a business plan, you’ll need to research your ideal customer and your competitors—information that will help you make more strategic decisions.
- Recruiting: Your business plan is one of the easiest ways to communicate your vision to potential new hires and can help build their confidence in the venture, especially if you’re in the early stages of growth.
- Partnerships: If you plan to approach other companies to collaborate, having a clear overview of your vision, your audience, and your business strategy will make it much easier for them to identify whether your business is a good fit for theirs—especially if they’re further along than you in their growth trajectory.
- Competitions: There are many business plan competitions offering prizes such as mentorships, grants, or investment capital. To find relevant competitions in your industry and area, try Googling “business plan competition + [your location]” and “business plan competition + [your industry].”
If you’re looking for a structured way to lay out your thoughts and ideas, and to share those ideas with people who can have a big impact on your success, a business plan is an excellent starting point.
Free: Business Plan Template
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Business plans can span from one page to multiple pages with detailed graphs and reports. There’s no one way to create a business plan. The goal is to convey the most important information about your company for readers.
Common types of business plans we see include, but are not limited to, the following:
- Traditional. These are the most common business plans. Below, we’ll cover the standard elements of a business plan and go into detail for each section. Traditional business plans take longer to write and can be dozens of pages long. Venture capitalist firms and lenders ask for this plan.
- Lean. A lean business plan is a shorter version of a traditional business plan. It follows the same format, but only includes the most important information. Businesses use this plan to onboard new hires or modify existing plans for a specific target market.
- Nonprofit. A nonprofit business plan is for any entity that operates for public or social benefit. It covers everything you’ll find in a traditional business plan, plus a section describing the impact the company plans to make. For example, a speaker and headphone brand that aims to help people with hearing disabilities. Donors often request this plan.
Check out real-world examples of different business plans by reading The Road to Success: Business Plan Examples to Inspire Your Own .
- Draft an executive summary
- Describe your company
- Perform a market analysis
- Outline the management and organization
- List your products and services
- Perform customer segmentation
- Define a marketing plan
- Provide a logistics and operations plan
- Make a financial plan
Few things are more intimidating than a blank page. Starting your business plan with a structured outline and key elements for what you’ll include in each section is the best first step you can take.
Since an outline is such an important step in the process of writing a business plan, we’ve put together a high-level overview you can copy into your blank document to get you started (and avoid the terror of facing a blank page). You can also start with a free business plan template and use it to inform the structure of your plan.
Once you’ve got your business plan outline in place, it’s time to fill it in. We’ve broken it down by section to help you build your plan step by step.
1. Draft an executive summary
A good executive summary is one of the most crucial sections of your plan—it’s also the last section you should write.
The executive summary’s purpose is to distill everything that follows and give time-crunched reviewers (e.g., potential investors and lenders) a high-level overview of your business that persuades them to read further.
Again, it’s a summary, so highlight the key points you’ve uncovered while writing your plan. If you’re writing for your own planning purposes, you can skip the summary altogether—although you might want to give it a try anyway, just for practice.
An executive summary shouldn’t exceed one page. Admittedly, that space constraint can make squeezing in all of the salient information a bit stressful—but it’s not impossible. Here’s what your business plan’s executive summary should include:
- Business concept. What does your business do?
- Business goals and vision. What does your business want to do?
- Product description and differentiation. What do you sell, and why is it different?
- Target market. Who do you sell to?
- Marketing strategy. How do you plan on reaching your customers?
- Current financial state. What do you currently earn in revenue?
- Projected financial state. What do you foresee earning in revenue?
- The ask. How much money are you asking for?
- The team. strong> Who’s involved in the business?
2. Describe your company
This section of your business plan should answer two fundamental questions: who are you, and what do you plan to do? Answering these questions with a company description provides an introduction to why you’re in business, why you’re different, what you have going for you, and why you’re a good investment bet. For example, clean makeup brand Saie shares a letter from its founder on the company’s mission and why it exists.
Clarifying these details is still a useful exercise, even if you’re the only person who’s going to see them. It’s an opportunity to put to paper some of the more intangible facets of your business, like your principles, ideals, and cultural philosophies.
Here are some of the components you should include in your company description:
- Your business structure (Are you a sole proprietorship, general partnership, limited partnership, or incorporated company?)
- Your business model
- Your industry
- Your business’s vision, mission, and value proposition
- Background information on your business or its history
- Business objectives, both short and long term
- Your team, including key personnel and their salaries
Some of these points are statements of fact, but others will require a bit more thought to define, especially when it comes to your business’s vision, mission, and values. This is where you start getting to the core of why your business exists, what you hope to accomplish, and what you stand for.
This is where you start getting to the core of why your business exists, what you hope to accomplish, and what you stand for.
To define your values, think about all the people your company is accountable to, including owners, employees, suppliers, customers, and investors. Now consider how you’d like to conduct business with each of them. As you make a list, your core values should start to emerge.
Once you know your values, you can write a mission statement . Your statement should explain, in a convincing manner, why your business exists, and should be no longer than a single sentence.
As an example, Shopify’s mission statement is “Making commerce better for everyone.” It’s the “why” behind everything we do and clear enough that it needs no further explanation.
What impact do you envision your business having on the world once you’ve achieved your vision?
Next, craft your vision statement: what impact do you envision your business having on the world once you’ve achieved your vision? Phrase this impact as an assertion—begin the statement with “We will” and you’ll be off to a great start. Your vision statement, unlike your mission statement, can be longer than a single sentence, but try to keep it to three at most. The best vision statements are concise.
Finally, your company description should include both short- and long-term goals. Short-term goals, generally, should be achievable within the next year, while one to five years is a good window for long-term goals. Make sure all your goals are SMART: specific, measurable, attainable, realistic, and time-bound.
3. Perform a market analysis
No matter what type of business you start, it’s no exaggeration to say your market can make or break it. Choose the right market for your products—one with plenty of customers who understand and need your product—and you’ll have a head start on success. If you choose the wrong market, or the right market at the wrong time, you may find yourself struggling for each sale.
Market analysis is a key section of your business plan, whether or not you ever intend for anyone else to read it.
This is why market research and analysis is a key section of your business plan, whether or not you ever intend for anyone else to read it. It should include an overview of how big you estimate the market is for your products, an analysis of your business’s position in the market, and an overview of the competitive landscape. Thorough research supporting your conclusions is important both to persuade investors and to validate your own assumptions as you work through your plan.
How big is your potential market?
The potential market is an estimate of how many people need your product. While it’s exciting to imagine sky-high sales figures, you’ll want to use as much relevant independent data as possible to validate your estimated potential market.
Since this can be a daunting process, here are some general tips to help you begin your research:
- Understand your ideal customer profile . If you’re targeting millennial consumers in the US, you first can look for government data about the size of that group. You also could look at projected changes to the number of people in your target age range over the next few years.
- Research relevant industry trends and trajectory. If your product serves retirees, try to find data about how many people will be retiring in the next five years, as well as any information you can find about consumption patterns among that group. If you’re selling fitness equipment, you could look at trends in gym memberships and overall health and fitness among your target audience or the population at large. Finally, look for information on whether your general industry is projected to grow or decline over the next few years.
- Make informed guesses. You’ll never have perfect, complete information about the size of your total addressable market. Your goal is to base your estimates on as many verifiable data points as necessary for a confident guess.
Some sources to consult for market data include government statistics offices, industry associations, academic research, and respected news outlets covering your industry.
A SWOT analysis looks at your strengths, weaknesses, opportunities, and threats. What are the best things about your company? What are you not so good at? What market or industry shifts can you take advantage of and turn into opportunities? Are there external factors threatening your ability to succeed?
These breakdowns often are presented as a grid, with bullet points in each section breaking down the most relevant information—so you can probably skip writing full paragraphs here. Strengths and weaknesses—both internal company factors—are listed first, with opportunities and threats following in the next row. With this visual presentation, your reader can quickly see the factors that may impact your business and determine your competitive advantage in the market.
Here’s an example:
Free: SWOT Analysis Template
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There are three overarching factors you can use to differentiate your business in the face of competition:
- Cost leadership. You have the capacity to maximize profits by offering lower prices than the majority of your competitors. Examples include companies like Mejuri and Endy .
- Differentiation. Your product or service offers something distinct from the current cost leaders in your industry and banks on standing out based on your uniqueness. Think of companies like Knix and Qalo .
- Segmentation. You focus on a very specific, or niche, target market, and aim to build traction with a smaller audience before moving on to a broader market. Companies like TomboyX and Heyday Footwear are great examples of this strategy.
To understand which is the best fit, you’ll need to understand your business as well as the competitive landscape.
You’ll always have competition in the market, even with an innovative product, so it’s important to include a competitive overview in your business plan. If you’re entering an established market, include a list of a few companies you consider direct competitors and explain how you plan to differentiate your products and business from theirs.
You’ll always have competition in the market, even with an innovative product.
For example, if you’re selling jewelry, your competitive differentiation could be that, unlike many high-end competitors, you donate a percentage of your profits to a notable charity or pass savings on to your customers.
If you’re entering a market where you can’t easily identify direct competitors, consider your indirect competitors—companies offering products that are substitutes for yours. For example, if you’re selling an innovative new piece of kitchen equipment, it’s too easy to say that because your product is new, you have no competition. Consider what your potential customers are doing to solve the same problems your product solves.
4. Outline management and organization
The management and organization section of your business plan should tell readers about who’s running your company. Detail the legal structure of your business. Communicate whether you’ll incorporate your business as an S corporation or create a limited partnership or sole proprietorship.
If you have a management team, use an organizational chart to show your company’s internal structure, including the roles, responsibilities, and relationships between people in your chart. Communicate how each person will contribute to the success of your startup.
5. List your products and services
Your products or services will feature prominently in most areas of your business plan, but it’s important to provide a section that outlines key details about them for interested readers.
If you sell many items, you can include more general information on each of your product lines; if you only sell a few, provide additional information on each. For example, bag shop BAGGU sells a large selection of different types of bags, in addition to home goods and other accessories. Its business plan would list out those bags and key details about each.
Describe new products you’ll launch in the near future and any intellectual property you own. Express how they’ll improve profitability.
It’s also important to note where products are coming from—handmade crafts are sourced differently than trending products for a dropshipping business, for instance.
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6. perform customer segmentation.
Your ideal customer, also known as your target market, is the foundation of your marketing plan , if not your business plan as a whole. You’ll want to keep this person in mind as you make strategic decisions, which is why an overview of who they are is important to understand and include in your plan.
To give a holistic overview of your ideal customer, describe a number of general and specific demographic characteristics. Customer segmentation often includes:
- Where they live
- Their age range
- Their level of education
- Some common behavior patterns
- How they spend their free time
- Where they work
- What technology they use
- How much they earn
- Where they’re commonly employed
- Their values, beliefs, or opinions
This information will vary based on what you’re selling, but you should be specific enough that it’s unquestionably clear who you’re trying to reach—and more importantly, why you’ve made the choices you have based on who your customers are and what they value.
For example, a college student has different interests, shopping habits, and pricing sensitivity than a 50-year-old executive at a Fortune 500 company. Your business plan and decisions would look very different based on which one was your ideal customer.
7. Define a marketing plan
Your marketing efforts are directly informed by your ideal customer. Your marketing plan should outline your current decisions and your future strategy, with a focus on how your ideas are a fit for that ideal customer.
If you’re planning to invest heavily in > Instagram marketing , for example, it might make sense to include whether Instagram is a leading platform for your audience—if it’s not, that might be a sign to rethink your marketing plan.
Most marketing plans include information on four key subjects. How much detail you present on each will depend on both your business and your plan’s audience.
- Price. How much do your products cost, and why have you made that decision?
- Product. What are you selling and how do you differentiate it in the market?
- Promotion. How will you get your products in front of your ideal customer?
- Place. Where will you sell your products?
Promotion may be the bulk of your plan since you can more readily dive into tactical details, but the other three areas should be covered at least briefly—each is an important strategic lever in your marketing mix.
8. Provide a logistics and operations plan
Logistics and operations are the workflows you’ll implement to make your ideas a reality. If you’re writing a business plan for your own planning purposes, this is still an important section to consider, even though you might not need to include the same level of detail as if you were seeking investment.
Cover all parts of your planned operations, including:
- Suppliers. Where do you get the raw materials you need for production, or where are your products produced?
- Production. Will you make, manufacture, wholesale , or dropship your products? How long does it take to produce your products and get them shipped to you? How will you handle a busy season or an unexpected spike in demand?
- Facilities. Where will you and any team members work? Do you plan to have a physical retail space? If yes, where?
- Equipment. What tools and technology do you require to be up and running? This includes everything from computers to lightbulbs and everything in between.
- Shipping and fulfillment. Will you be handling all the fulfillment tasks in-house, or will you use a third-party fulfillment partner?
- Inventory. How much will you keep on hand, and where will it be stored? How will you ship it to partners if required, and how will you approach inventory management ?
This section should signal to your reader that you’ve got a solid understanding of your supply chain and strong contingency plans in place to cover potential uncertainty. If your reader is you, it should give you a basis to make other important decisions, like how to price your products to cover your estimated costs, and at what point you plan to break even on your initial spending.
9. Make a financial plan
No matter how great your idea is, and regardless of the effort, time, and money you invest, a business lives or dies based on its financial health. At the end of the day, people want to work with a business they expect to be viable for the foreseeable future.
The level of detail required in your financial plan will depend on your audience and goals, but typically you’ll want to include three major views of your financials: an income statement, a balance sheet, and a cash-flow statement. It also may be appropriate to include financial data and projections.
Here’s a spreadsheet template that includes everything you’ll need to create an income statement, balance sheet, and cash-flow statement, including some sample numbers. You can edit it to reflect projections if needed.
Your income statement is designed to give readers a look at your revenue sources and expenses over a given time period. With those two pieces of information, they can see the all-important bottom line or the profit or loss your business experienced during that time. If you haven’t launched your business yet, you can project future milestones of the same information.
Your balance sheet offers a look at how much equity you have in your business. On one side, you list all your business assets (what you own), and on the other side, all your liabilities (what you owe). This provides a snapshot of your business’s shareholder equity, which is calculated as:
Assets - Liabilities = Equity
Cash flow statement
Your cash flow statement is similar to your income statement, with one important difference: it takes into account when revenues are collected and when expenses are paid.
When the cash you have coming in is greater than the cash you have going out, your cash flow is positive. When the opposite scenario is true, your cash flow is negative. Ideally, your cash flow statement will help you see when cash is low, when you might have a surplus, and where you might need to have a contingency plan to access funding to keep your business solvent .
It can be especially helpful to forecast your cash-flow statement to identify gaps or negative cash flow and adjust operations as required. Here’s a full guide to working through cash-flow projections for your business.
Download your copy of these templates to build out these financial statements for your business plan.
Know your audience
When you know who will be reading your plan—even if you’re just writing it for yourself to clarify your ideas—you can tailor the language and level of detail to them. This can also help you make sure you’re including the most relevant information and figure out when to omit sections that aren’t as impactful.
Have a clear goal
You’ll need to put in more work and deliver a more thorough plan if your goal is to secure funding for your business versus working through a plan for yourself or even your team.
Invest time in research
Sections of your business plan will primarily be informed by your ideas and vision, but some of the most crucial information you’ll need requires research from independent sources. This is where you can invest time in understanding who you’re selling to, whether there’s demand for your products, and who else is selling similar products or services.
Keep it short and to the point
No matter who you’re writing for, your business plan should be short and readable—generally no longer than 15 to 20 pages. If you do have additional documents you think may be valuable to your audience and your goals, consider adding them as appendices.
Keep the tone, style, and voice consistent
This is best managed by having a single person write the plan or by allowing time for the plan to be properly edited before distributing it.
Use a business plan software
Writing a business plan isn’t the easiest task for business owners. But it’s important for anyone starting or expanding a business. Fortunately, there are tools to help with everything from planning, drafting, creating graphics, syncing financial data, and more. Business plan software also have templates and tutorials to help you finish a comprehensive plan in hours, rather than days.
A few curated picks include:
- LivePlan : the most affordable option with samples and templates
- Bizplan : tailored for startups seeking investment
- GoSmallBiz : budget-friendly option with industry-specific templates
For a more in-depth look at the available options, read Get Guidance: 6 Business Plan Software to Help Write Your Future .
Other articles on business plans would never tell you what we’re about to tell you: your business plan can fail. The last thing you want is for time and effort to go down the drain. Avoid these common mistakes:
- Bad business idea. Not every idea is going to win. Sometimes your idea may be too risky and you won’t be able to get funding for it. Other times it’s too expensive or there’s no market. Aim for small business ideas that require little money and bypass traditional startup costs.
- No exit strategy. Investors reading your business plan want to know one thing: will your venture make them money? If you don’t show an exit strategy, or a plan for them to leave the business with maximum profits, you’ll have little luck finding capital.
- Unbalanced teams. A great product is the cost of entry to starting a business. But an incredible team will take it to the top. Unfortunately, many business owners overlook a balanced team. They assume readers want to see potential profits, without worrying about how you’ll get it done. If you’re pitching a new software idea, it makes sense to have at least one developer or IT specialist on your team.
- Missing financial projections. Your numbers are the most interesting part for readers. Don’t leave out your balance sheet, cash flow statements, P&L statements, and income statements. Include your break-even analysis and return-on-investment calculations to create a successful business plan.
- Spelling and grammar errors. Some businesses think hiring a professional editor is overkill. The reality is, all the best organizations have an editor review their documents. If someone spots typos while reading your business plan, how can they believe you’ll run a successful company?
Read through the following business plan example. You can download a copy in Microsoft Word or Google Docs and use it to inspire your own business planning.
Download sample business plan example (.doc)
A business plan can help you identify clear, deliberate next steps for your business, even if you never plan to pitch investors—and it can help you see gaps in your plan before they become issues. Whether you’ve written a business plan for a new online business idea , a retail storefront, growing your established business, or purchasing an existing business , you now have a comprehensive guide and the information you need to help you start working on the next phase of your own business.
Illustrations by Rachel Tunstall
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How do i write a business plan.
- Executive summary
- Company description
- Market analysis
- Management and organization
- Products and services
- Customer segmentation
- Marketing plan
- Logistics and operations
- Financial plan
What is a good business plan?
What are the 3 main purposes of a business plan, what are the different types of business plans, about the author.
Desirae is a senior product marketing manager at Shopify, and has zero chill when it comes to helping entrepreneurs grow their businesses.
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What Is a Business Plan?
Understanding business plans, how to write a business plan, elements of a business plan, special considerations.
- Business Plan FAQs
Business Plan: What It Is, What's Included, and How To Write One
Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.
Investopedia / Ryan Oakley
A business plan is a document that defines in detail a company's objectives and how it plans to achieve its goals. A business plan lays out a written road map for the firm from marketing , financial, and operational standpoints. Both startups and established companies use business plans.
A business plan is an important document aimed at a company's external and internal audiences. For instance, a business plan is used to attract investment before a company has established a proven track record. It can also help to secure lending from financial institutions.
Furthermore, a business plan can serve to keep a company's executive team on the same page about strategic action items and on target for meeting established goals.
Although they're especially useful for new businesses, every company should have a business plan. Ideally, the plan is reviewed and updated periodically to reflect goals that have been met or have changed. Sometimes, a new business plan is created for an established business that has decided to move in a new direction.
- A business plan is a document describing a company's core business activities and how it plans to achieve its goals.
- Startup companies use business plans to get off the ground and attract outside investors.
- A business plan can also be used as an internal guide to keep an executive team focused on and working toward short- and long-term objectives.
- Businesses may create a lengthier traditional business plan or a shorter lean startup business plan.
- Good business plans should include an executive summary and sections on products and services, marketing strategy and analysis, financial planning, and a budget.
Want Funding? You Need a Business Plan
A business plan is a fundamental document that any new business should have in place prior to beginning operations. Indeed, banks and venture capital firms often require a viable business plan before considering whether they'll provide capital to new businesses.
Operating without a business plan usually is not a good idea. In fact, very few companies are able to last very long without one. There are benefits to creating (and sticking to) a good business plan. These include being able to think through ideas before investing too much money in them and working through potential obstacles to success.
A good business plan should outline all the projected costs and possible pitfalls of each decision a company makes. Business plans, even among competitors in the same industry, are rarely identical. However, they can have the same basic elements, such as an executive summary of the business and detailed descriptions of its operations, products and services, and financial projections. A plan also states how the business intends to achieve its goals.
While it's a good idea to give as much detail as possible, it's also important that a plan be concise to keep a reader's attention to the end.
A well-considered and well-written business plan can be of enormous value to a company. While there are templates that you can use to write a business plan, try to avoid producing a generic result. The plan should include an overview and, if possible, details of the industry of which the business will be a part. It should explain how the business will distinguish itself from its competitors.
Start with the essential structure: an executive summary, company description, market analysis, product or service description, marketing strategy, financial projections, and appendix (which include documents and data that support the main sections). These sections or elements of a business plan are outlined below.
When you write your business plan, you don’t have to strictly follow a particular business plan outline or template. Use only those sections that make the most sense for your particular business and its needs.
Traditional business plans use some combination of the sections below. Your plan might also include any funding requests you're making. Regardless, try to keep the main body of your plan to around 15-25 pages.
The length of a business plan varies greatly from business to business. Consider fitting the basic information into a 15- to 25-page document. Then, other crucial elements that take up a lot of space—such as applications for patents—can be referenced in the main document and included as appendices.
As mentioned above, no two business plans are the same. Nonetheless, they tend to have the same elements. Below are some of the common and key parts of a business plan.
- Executive summary: This section outlines the company and includes the mission statement along with any information about the company's leadership, employees, operations, and location.
- Products and services: Here, the company can outline the products and services it will offer, and may also include pricing, product lifespan, and benefits to the consumer. Other factors that may go into this section include production and manufacturing processes, any patents the company may have, as well as proprietary technology . Information about research and development (R&D) can also be included here.
- Market analysis: A firm needs a good handle on its industry as well as its target market. This section of the plan will detail a company's competition and how the company fits in the industry, along with its relative strengths and weaknesses. It will also describe the expected consumer demand for a company's products or services and how easy or difficult it may be to grab market share from incumbents.
- Marketing strategy: This section describes how the company will attract and keep its customer base and how it intends to reach the consumer. A clear distribution channel must be outlined. The section also spells out advertising and marketing campaign plans and the types of media those campaigns will use.
- Financial planning: This section should include a company's financial planning and projections. Financial statements, balance sheets, and other financial information may be included for established businesses. New businesses will include targets and estimates for the first few years plus a description of potential investors.
- Budget: Every company needs to have a budget in place. This section should include costs related to staffing, development, manufacturing, marketing, and any other expenses related to the business.
Unique Business Plans Help
The best business plans aren't generic ones created from easily accessed templates. A company should entice readers with a plan that demonstrates its singularity and potential for success.
Types of Business Plans
Business plans help companies identify their objectives and remain on track to meet goals. They can help companies start, manage themselves, and grow once up and running. They also act as a means to attract lenders and investors.
Although there is no right or wrong business plan, they can fall into two different categories—traditional or lean startup. According to the Small Business Administration (SBA) , the traditional business plan is the most common. It contains a lot of detail in each section. These tend to be longer than the lean startup plan and require more work.
Lean startup business plans, on the other hand, use an abbreviated structure that highlights key elements. These business plans aren't as common in the business world because they're short—as short as one page—and lack detail. If a company uses this kind of plan, it should be prepared to provide more detail if an investor or lender requests it.
A complete business plan must include a set of financial projections for the business. These forward-looking financial statements are often called pro-forma financial statements or simply the " pro-formas ." They include an overall budget, current and projected financing needs, a market analysis, and the company's marketing strategy.
Other Considerations for a Business Plan
A major reason for a business plan is to give owners a clear picture of objectives, goals, resources, potential costs, and drawbacks of certain business decisions. A business plan should help them modify their structures before implementing their ideas. It also allows owners to project the type of financing required to get their businesses up and running.
If there are any especially interesting aspects of the business, they should be highlighted and used to attract financing, if needed. For example, Tesla Motors' electric car business essentially began only as a business plan.
Importantly, a business plan shouldn't be a static document. As a business grows and changes, so too should the business plan. An annual review of the company and its plan allows an entrepreneur or group of owners to update the plan, based on successes, setbacks, and other new information. It provides an opportunity to size up the plan's ability to help the company grow.
Think of the business plan as a living document that evolves with your business.
A business plan is a document created by a company that describes the company's goals, operations, industry standing, marketing objectives, and financial projections. The information it contains can be a helpful guide in running the company. What's more, it can be a valuable tool to attract investors and obtain financing from financial institutions.
Why Do Business Plans Fail?
Even if you have a good business plan, your company can still fail, especially if you do not stick to the plan! Having strong leadership with focus on the plan is always a good strategy. Even when following the plan, if you had poor assumptions going into your projections, you can be caught with cash flow shortages and out of control budgets. Markets and the economy can also change. Without flexibility built in to your business plan, you may be unable to pivot to a new course as needed.
What Does a Lean Startup Business Plan Include?
The lean startup business plan is an option when a company prefers a quick explanation of its business. The company may feel that it doesn't have a lot of information to provide since it's just getting started.
Sections can include: a value proposition, a company's major activities and advantages, resources such as staff, intellectual property, and capital, a list of partnerships, customer segments, and revenue sources.
Small Business Administration. " Write Your Business Plan ."
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How to Write a Winning Business Plan
- Stanley R. Rich
- David E. Gumpert
The business plan admits the entrepreneur to the investment process. Without a plan furnished in advance, many investor groups won’t even grant an interview. And the plan must be outstanding if it is to win investment funds. Too many entrepreneurs, though, continue to believe that if they build a better mousetrap, the world will beat […]
The Idea in Brief
You’ve got a great idea for a new product or service—how can you persuade investors to support it? Flashy PowerPoint slides aren’t enough; you need a winning business plan. A compelling plan accurately reflects the viewpoints of your three key constituencies: the market , potential investors , and the producer (the entrepreneur or inventor of the new offering).
But too many plans are written solely from the perspective of the producer. The problem is that, unless you’ve got your own capital to finance your venture, the only way you’ll get the funding you need is to satisfy the market’s and investors’ needs.
Here’s how to grab their attention.
The Idea in Practice
Emphasize Market Needs
To make a convincing case that a substantial market exists, establish market interest and document your claims.
Establish market interest. Provide evidence that customers are intrigued by your claims about the benefits of the new product or service:
- Let some customers use a product prototype; then get written evaluations.
- Offer the product to a few potential customers at a deep discount if they pay part of the production cost. This lets you determine whether potential buyers even exist.
- Use “reference installations”—statements from initial users, sales reps, distributors, and would-be customers who have seen the product demonstrated.
Document your claims. You’ve established market interest. Now use data to support your assertions about potential growth rates of sales and profits.
- Specify the number of potential customers, the size of their businesses, and the size that is most appropriate to your offering. Remember: Bigger isn’t necessarily better; e.g., saving $10,000 per year in chemical use may mean a lot to a modest company but not to a Du Pont.
- Show the nature of the industry; e.g., franchised weight-loss clinics might grow fast, but they can decline rapidly when competition stiffens. State how you will continually innovate to survive.
- Project realistic growth rates at which customers will accept—and buy—your offering. From there, assemble a credible sales plan and project plant and staffing needs.
Address Investor Needs
Cashing out. Show when and how investors may liquidate their holdings. Venture capital firms usually want to cash out in three to seven years; professional investors look for a large capital appreciation.
Making sound projections. Give realistic, five-year forecasts of profitability. Don’t skimp on the numbers, get overly optimistic about them, or blanket your plan with a smog of figures covering every possible variation.
The price. To figure out how much to invest in your offering, investors calculate your company’s value on the basis of results expected five years after they invest. They’ll want a 35 to 40% return for mature companies—up to 60% for less mature ventures. To make a convincing case for a rich return, get a product in the hands of representative customers—and demonstrate substantial market interest.
The business plan admits the entrepreneur to the investment process. Without a plan furnished in advance, many investor groups won’t even grant an interview. And the plan must be outstanding if it is to win investment funds.
Too many entrepreneurs, though, continue to believe that if they build a better mousetrap, the world will beat a path to their door. A good mousetrap is important, but it’s only part of meeting the challenge. Also important is satisfying the needs of marketers and investors. Marketers want to see evidence of customer interest and a viable market. Investors want to know when they can cash out and how good the financial projections are. Drawing on their own experiences and those of the Massachusetts Institute of Technology Enterprise Forum, the authors show entrepreneurs how to write convincing and winning business plans.
A comprehensive, carefully thought-out business plan is essential to the success of entrepreneurs and corporate managers. Whether you are starting up a new business, seeking additional capital for existing product lines, or proposing a new activity in a corporate division, you will never face a more challenging writing assignment than the preparation of a business plan.
Only a well-conceived and well-packaged plan can win the necessary investment and support for your idea. It must describe the company or proposed project accurately and attractively. Even though its subject is a moving target, the plan must detail the company’s or the project’s present status, current needs, and expected future. You must present and justify ongoing and changing resource requirements, marketing decisions, financial projections, production demands, and personnel needs in logical and convincing fashion.
Because they struggle so hard to assemble, organize, describe, and document so much, it is not surprising that managers sometimes overlook the fundamentals. We have found that the most important one is the accurate reflection of the viewpoints of three constituencies.
1. The market, including both existing and prospective clients, customers, and users of the planned product or service.
2. The investors, whether of financial or other resources.
3. The producer, whether the entrepreneur or the inventor.
Too many business plans are written solely from the viewpoint of the third constituency—the producer. They describe the underlying technology or creativity of the proposed product or service in glowing terms and at great length. They neglect the constituencies that give the venture its financial viability—the market and the investor.
Take the case of five executives seeking financing to establish their own engineering consulting firm. In their business plan, they listed a dozen types of specialized engineering services and estimated their annual sales and profit growth at 20%. But the executives did not determine which of the proposed dozen services their potential clients really needed and which would be most profitable. By neglecting to examine these issues closely, they ignored the possibility that the marketplace might want some services not among the dozen listed.
Moreover, they failed to indicate the price of new shares or the percentage available to investors. Dealing with the investor’s perspective was important because—for a new venture, at least—backers seek a return of 40% to 60% on their capital, compounded annually. The expected sales and profit growth rates of 20% could not provide the necessary return unless the founders gave up a substantial share of the company.
In fact, the executives had only considered their own perspective—including the new company’s services, organization, and projected results. Because they had not convincingly demonstrated why potential customers would buy the services or how investors would make an adequate return (or when and how they could cash out), their business plan lacked the credibility necessary for raising the investment funds needed.
We have had experience in both evaluating business plans and organizing and observing presentations and investor responses at sessions of the MIT Enterprise Forum. We believe that business plans must deal convincingly with marketing and investor considerations. This reading identifies and evaluates those considerations and explains how business plans can be written to satisfy them.
The MIT Enterprise Forum
Organized under the auspices of the Massachusetts Institute of Technology Alumni Association in 1978, the MIT Enterprise Forum offers businesses at a critical stage of development an opportunity to obtain counsel from a panel of experts on steps to take to achieve their goals.
In monthly evening sessions the forum evaluates the business plans of companies accepted for presentation during 60- to 90-minute segments in which no holds are barred. The format allows each presenter 20 minutes to summarize a business plan orally. Each panelist reviews the written business plan in advance of the sessions. Then each of four panelists—who are venture capitalists, bankers, marketing specialists, successful entrepreneurs, MIT professors, or other experts—spends five to ten minutes assessing the strengths and weaknesses of the plan and the enterprise and suggesting improvements.
In some cases, the panelists suggest a completely new direction. In others, they advise more effective implementation of existing policies. Their comments range over the spectrum of business issues.
Sessions are open to the public and usually draw about 300 people, most of them financiers, business executives, accountants, lawyers, consultants, and others with special interest in emerging companies. Following the panelists’ evaluations, audience members can ask questions and offer comments.
Presenters have the opportunity to respond to the evaluations and suggestions offered. They also receive written evaluations of the oral presentation from audience members. (The entrepreneur doesn’t make the written plan available to the audience.) These monthly sessions are held primarily for companies that have advanced beyond the start-up stage. They tend to be from one to ten years old and in need of expansion capital.
The MIT Enterprise Forum’s success at its home base in Cambridge, Massachusetts has led MIT alumni to establish forums in New York, Washington, Houston, Chicago, and Amsterdam, among other cities.
Emphasize the Market
Investors want to put their money into market-driven rather than technology-driven or service-driven companies. The potential of the product’s markets, sales, and profit is far more important than its attractiveness or technical features.
You can make a convincing case for the existence of a good market by demonstrating user benefit, identifying marketplace interest, and documenting market claims.
Show the User’s Benefit
It’s easy even for experts to overlook this basic notion. At an MIT Enterprise Forum session an entrepreneur spent the bulk of his 20-minute presentation period extolling the virtues of his company’s product—an instrument to control certain aspects of the production process in the textile industry. He concluded with some financial projections looking five years down the road.
The first panelist to react to the business plan—a partner in a venture capital firm—was completely negative about the company’s prospects for obtaining investment funds because, he stated, its market was in a depressed industry.
Another panelist asked, “How long does it take your product to pay for itself in decreased production costs?” The presenter immediately responded, “Six months.” The second panelist replied, “That’s the most important thing you’ve said tonight.”
The venture capitalist quickly reversed his original opinion. He said he would back a company in almost any industry if it could prove such an important user benefit—and emphasize it in its sales approach. After all, if it paid back the customer’s cost in six months, the product would after that time essentially “print money.”
The venture capitalist knew that instruments, machinery, and services that pay for themselves in less than one year are mandatory purchases for many potential customers. If this payback period is less than two years, it is a probable purchase; beyond three years, they do not back the product.
The MIT panel advised the entrepreneur to recast his business plan so that it emphasized the short payback period and played down the self-serving discussion about product innovation. The executive took the advice and rewrote the plan in easily understandable terms. His company is doing very well and has made the transition from a technology-driven to a market-driven company.
Find out the Market’s Interest
Calculating the user’s benefit is only the first step. An entrepreneur must also give evidence that customers are intrigued with the user’s benefit claims and that they like the product or service. The business plan must reflect clear positive responses of customer prospects to the question “Having heard our pitch, will you buy?” Without them, an investment usually won’t be made.
How can start-up businesses—some of which may have only a prototype product or an idea for a service—appropriately gauge market reaction? One executive of a smaller company had put together a prototype of a device that enables personal computers to handle telephone messages. He needed to demonstrate that customers would buy the product, but the company had exhausted its cash resources and was thus unable to build and sell the item in quantity.
The executives wondered how to get around the problem. The MIT panel offered two possible responses. First, the founders might allow a few customers to use the prototype and obtain written evaluations of the product and the extent of their interest when it became available.
Second, the founders might offer the product to a few potential customers at a substantial price discount if they paid part of the cost—say one-third—up front so that the company could build it. The company could not only find out whether potential buyers existed but also demonstrate the product to potential investors in real-life installations.
In the same way, an entrepreneur might offer a proposed new service at a discount to initial customers as a prototype if the customers agreed to serve as references in marketing the service to others.
For a new product, nothing succeeds as well as letters of support and appreciation from some significant potential customers, along with “reference installations.” You can use such third-party statements—from would-be customers to whom you have demonstrated the product, initial users, sales representatives, or distributors—to show that you have indeed discovered a sound market that needs your product or service.
You can obtain letters from users even if the product is only in prototype form. You can install it experimentally with a potential user to whom you will sell it at or below cost in return for information on its benefits and an agreement to talk to sales prospects or investors. In an appendix to the business plan or in a separate volume, you can include letters attesting to the value of the product from experimental customers.
Document Your Claims
Having established a market interest, you must use carefully analyzed data to support your assertions about the market and the growth rate of sales and profits. Too often, executives think “If we’re smart, we’ll be able to get about 10% of the market” and “Even if we only get 1% of such a huge market, we’ll be in good shape.”
Investors know that there’s no guarantee a new company will get any business, regardless of market size. Even if the company makes such claims based on fact—as borne out, for example, by evidence of customer interest—they can quickly crumble if the company does not carefully gather and analyze supporting data.
One example of this danger surfaced in a business plan that came before the MIT Enterprise Forum. An entrepreneur wanted to sell a service to small businesses. He reasoned that he could have 170,000 customers if he penetrated even 1% of the market of 17 million small enterprises in the United States. The panel pointed out that anywhere from 11 million to 14 million of such so-called small businesses were really sole proprietorships or part-time businesses. The total number of full-time small businesses with employees was actually between 3 million and 6 million and represented a real potential market far beneath the company’s original projections—and prospects.
Similarly, in a business plan relating to the sale of certain equipment to apple growers, you must have U.S. Department of Agriculture statistics to discover the number of growers who could use the equipment. If your equipment is useful only to growers with 50 acres or more, then you need to determine how many growers have farms of that size, that is, how many are minor producers with only an acre or two of apple trees.
A realistic business plan needs to specify the number of potential customers, the size of their businesses, and which size is most appropriate to the offered products or services. Sometimes bigger is not better. For example, a saving of $10,000 per year in chemical use may be significant to a modest company but unimportant to a Du Pont or a Monsanto.
Such marketing research should also show the nature of the industry. Few industries are more conservative than banking and public utilities. The number of potential customers is relatively small, and industry acceptance of new products or services is painfully slow, no matter how good the products and services have proven to be. Even so, most of the customers are well known and while they may act slowly, they have the buying power that makes the wait worthwhile.
At the other end of the industrial spectrum are extremely fast-growing and fast-changing operations such as franchised weight-loss clinics and computer software companies. Here the problem is reversed. While some companies have achieved multi-million-dollar sales in just a few years, they are vulnerable to declines of similar proportions from competitors. These companies must innovate constantly so that potential competitors will be discouraged from entering the marketplace.
You must convincingly project the rate of acceptance for the product or service—and the rate at which it is likely to be sold. From this marketing research data, you can begin assembling a credible sales plan and projecting your plant and staff needs.
Address Investors’ Needs
The marketing issues are tied to the satisfaction of investors. Once executives make a convincing case for their market penetration, they can make the financial projections that help determine whether investors will be interested in evaluating the venture and how much they will commit and at what price.
Before considering investors’ concerns in evaluating business plans, you will find it worth your while to gauge who your potential investors might be. Most of us know that for new and growing private companies, investors may be professional venture capitalists and wealthy individuals. For corporate ventures, they are the corporation itself. When a company offers shares to the public, individuals of all means become investors along with various institutions.
But one part of the investor constituency is often overlooked in the planning process—the founders of new and growing enterprises. By deciding to start and manage a business, they are committed to years of hard work and personal sacrifice. They must try to stand back and evaluate their own businesses in order to decide whether the opportunity for reward some years down the road truly justifies the risk early on.
When an entrepreneur looks at an idea objectively rather than through rose-colored glasses, the decision whether to invest may change. One entrepreneur who believed in the promise of his scientific-instruments company faced difficult marketing problems because the product was highly specialized and had, at best, few customers. Because of the entrepreneur’s heavy debt, the venture’s chance of eventual success and financial return was quite slim.
The panelists concluded that the entrepreneur would earn only as much financial return as he would have had holding a job during the next three to seven years. On the downside, he might wind up with much less in exchange for larger headaches. When he viewed the project in such dispassionate terms, the entrepreneur finally agreed and gave it up.
Investors’ primary considerations are:
Entrepreneurs frequently do not understand why investors have a short attention span. Many who see their ventures in terms of a lifetime commitment expect that anyone else who gets involved will feel the same. When investors evaluate a business plan, they consider not only whether to get in but also how and when to get out.
Because small, fast-growing companies have little cash available for dividends, the main way investors can profit is from the sale of their holdings, either when the company goes public or is sold to another business. (Large corporations that invest in new enterprises may not sell their holdings if they’re committed to integrating the venture into their organizations and realizing long-term gains from income.)
Venture capital firms usually wish to liquidate their investments in small companies in three to seven years so as to pay gains while they generate funds for investment in new ventures. The professional investor wants to cash out with a large capital appreciation.
Investors want to know that entrepreneurs have thought about how to comply with this desire. Do they expect to go public, sell the company, or buy the investors out in three to seven years? Will the proceeds provide investors with a return on invested capital commensurate with the investment risk—in the range of 35% to 60%, compounded and adjusted for inflation?
Business plans often do not show when and how investors may liquidate their holdings. For example, one entrepreneur’s software company sought $1.5 million to expand. But a panelist calculated that, to satisfy their goals, the investors “would need to own the entire company and then some.”
Making Sound Projections
Five-year forecasts of profitability help lay the groundwork for negotiating the amount investors will receive in return for their money. Investors see such financial forecasts as yardsticks against which to judge future performance.
Too often, entrepreneurs go to extremes with their numbers. In some cases, they don’t do enough work on their financials and rely on figures that are so skimpy or overoptimistic that anyone who has read more than a dozen business plans quickly sees through them.
In one MIT Enterprise Forum presentation, a management team proposing to manufacture and market scientific instruments forecast a net income after taxes of 25% of sales during the fourth and fifth years following investment. While a few industries such as computer software average such high profits, the scientific instruments business is so competitive, panelists noted, that expecting such margins is unrealistic.
In fact, the managers had grossly—and carelessly—understated some important costs. The panelists advised them to take their financial estimates back to the drawing board and before approaching investors to consult financial professionals.
Some entrepreneurs think that the financials are the business plan. They may cover the plan with a smog of numbers. Such “spreadsheet merchants,” with their pages of computer printouts covering every business variation possible and analyzing product sensitivity, completely turn off many investors.
Investors are wary even when financial projections are solidly based on realistic marketing data because fledgling companies nearly always fail to achieve their rosy profit forecasts. Officials of five major venture capital firms we surveyed said they are satisfied when new ventures reach 50% of their financial goals. They agreed that the negotiations that determine the percentage of the company purchased by the investment dollars are affected by this “projection discount factor.”
The Development Stage
All investors wish to reduce their risk. In evaluating the risk of a new and growing venture, they assess the status of the product and the management team. The farther along an enterprise is in each area, the lower the risk.
At one extreme is a single entrepreneur with an unproven idea. Unless the founder has a magnificent track record, such a venture has little chance of obtaining investment funds.
At the more desirable extreme is a venture that has an accepted product in a proven market and a competent and fully staffed management team. This business is most likely to win investment funds at the lowest costs.
Entrepreneurs who become aware of their status with investors and think it inadequate can improve it. Take the case of a young MIT engineering graduate who appeared at an MIT Enterprise Forum session with written schematics for the improvement of semiconductor-equipment production. He had documented interest by several producers and was looking for money to complete development and begin production.
The panelists advised him to concentrate first on making a prototype and assembling a management team with marketing and financial know-how to complement his product-development expertise. They explained that because he had never before started a company, he needed to show a great deal of visible progress in building his venture to allay investors’ concern about his inexperience.
Once investors understand a company qualitatively, they can begin to do some quantitative analysis. One customary way is to calculate the company’s value on the basis of the results expected in the fifth year following investment. Because risk and reward are closely related, investors believe companies with fully developed products and proven management teams should yield between 35% and 40% on their investment, while those with incomplete products and management teams are expected to bring in 60% annual compounded returns.
Investors calculate the potential worth of a company after five years to determine what percentage they must own to realize their return. Take the hypothetical case of a well-developed company expected to yield 35% annually. Investors would want to earn 4.5 times their original investment, before inflation, over a five-year period.
After allowing for the projection discount factor, investors may postulate that a company will have $20 million annual revenues after five years and a net profit of $1.5 million. Based on a conventional multiple for acquisitions of ten times earnings, the company would be worth $15 million in five years.
If the company wants $1 million of financing, it should grow to $4.5 million after five years to satisfy investors. To realize that return from a company worth $15 million, the investors would need to own a bit less than one-third. If inflation is expected to average 7.5% a year during the five-year period, however, investors would look for a value of $6.46 million as a reasonable return over five years, or 43% of the company.
For a less mature venture—from which investors would be seeking 60% annually, net of inflation—a $1 million investment would have to bring in close to $15 million in five years, with inflation figured at 7.5% annually. But few businesses can make a convincing case for such a rich return if they do not already have a product in the hands of some representative customers.
The final percentage of the company acquired by the investors is, of course, subject to some negotiation, depending on projected earnings and expected inflation.
Make It Happen
The only way to tend to your needs is to satisfy those of the market and the investors—unless you are wealthy enough to furnish your own capital to finance the venture and test out the pet product or service.
Of course, you must confront other issues before you can convince investors that the enterprise will succeed. For example, what proprietary aspects are there to the product or service? How will you provide quality control? Have you focused the venture toward a particular market segment, or are you trying to do too much? If this is answered in the context of the market and investors, the result will be more effective than if you deal with them in terms of your own wishes.
An example helps illustrate the potential conflicts. An entrepreneur at an MIT Enterprise Forum session projected R&D spending of about half of gross sales revenues for his specialty chemical venture. A panelist who had analyzed comparable organic chemical suppliers asked why the company’s R&D spending was so much higher than the industry average of 5% of gross revenues.
The entrepreneur explained that he wanted to continually develop new products in his field. While admitting his purpose was admirable, the panel unanimously advised him to bring his spending into line with the industry’s. The presenter ignored the advice; he failed to obtain the needed financing and eventually went out of business.
Once you accept the idea that you should satisfy the market and the investors, you face the challenge of organizing your data into a convincing document so that you can sell your venture to investors and customers. We have provided some presentation guidelines in the insert called “Packaging Is Important.”
Packaging Is Important
A business plan gives financiers their first impressions of a company and its principals.
Potential investors expect the plan to look good, but not too good; to be the right length; to clearly and cisely explain early on all aspects of the company’s business; and not to contain bad grammar and typographical or spelling errors.
Investors are looking for evidence that the principals treat their own property with care—and will likewise treat the investment carefully. In other words, form as well as content is important, and investors know that good form reflects good content and vice versa.
Among the format issues we think most important are the following:
The binding and printing must not be sloppy; neither should the presentation be too lavish. A stapled compilation of photocopied pages usually looks amateurish, while bookbinding with typeset pages may arouse concern about excessive and inappropriate spending. A plastic spiral binding holding together a pair of cover sheets of a single color provides both a neat appearance and sufficient strength to withstand the handling of a number of people without damage.
A business plan should be no more than 40 pages long. The first draft will likely exceed that, but editing should produce a final version that fits within the 40-page ideal. Adherence to this length forces entrepreneurs to sharpen their ideas and results in a document likely to hold investors’ attention.
Background details can be included in an additional volume. Entrepreneurs can make this material available to investors during the investigative period after the initial expression of interest.
The Cover and Title Page
The cover should bear the name of the company, its address and phone number, and the month and year in which the plan is issued. Surprisingly, a large number of business plans are submitted to potential investors without return addresses or phone numbers. An interested investor wants to be able to contact a company easily and to request further information or express an interest, either in the company or in some aspect of the plan.
Inside the front cover should be a well-designed title page on which the cover information is repeated and, in an upper or a lower corner, the legend “Copy number______” provided. Besides helping entrepreneurs keep track of plans in circulation, holding down the number of copies outstanding—usually to no more than 20—has a psychological advantage. After all, no investor likes to think that the prospective investment is shopworn.
The Executive Summary
The two pages immediately following the title page should concisely explain the company’s current status, its products or services, the benefits to customers, the financial forecasts, the venture’s objectives in three to seven years, the amount of financing needed, and how investors will benefit.
This is a tall order for a two-page summary, but it will either sell investors on reading the rest of the plan or convince them to forget the whole thing.
The Table of Contents
After the executive summary include a well-designed table of contents. List each of the business plan’s sections and mark the pages for each section.
Even though we might wish it were not so, writing effective business plans is as much an art as it is a science. The idea of a master document whose blanks executives can merely fill in—much in the way lawyers use sample wills or real estate agreements—is appealing but unrealistic.
Businesses differ in key marketing, production, and financial issues. Their plans must reflect such differences and must emphasize appropriate areas and deemphasize minor issues. Remember that investors view a plan as a distillation of the objectives and character of the business and its executives. A cookie-cutter, fill-in-the-blanks plan or, worse yet, a computer-generated package, will turn them off.
Write your business plans by looking outward to your key constituencies rather than by looking inward at what suits you best. You will save valuable time and energy this way and improve your chances of winning investors and customers.
- SR Mr. Rich has helped found seven technologically based businesses, the most recent being Advanced Energy Dynamics Inc. of Natick, Massachusetts. He is also a cofounder and has been chairman of the MIT Enterprise forum, which assists emerging growth companies.
- DG Mr. Gumpert is an associate editor of HBR, where he specializes in small business and marketing. He has written several HBR articles, the most recent of which was “The Heart of Entrepreneurship,” coauthored by Howard. H. Stevenson (March–April 1985). This article is adapted from Business Plans That Win $$$ : Lessons from the MIT Enterprise Forum, by Messrs. Rich and Gumpert (Harper & Row, 1985). The authors are also founders of Venture Resource Associates of Grantham, New Hampshire, which provides planning and strategic services to growing enterprises.
Guide to Creating a Business Plan With Template
To make your business idea a reality, you need a business plan. These simple business plan templates will get you started.
- A business plan clearly defines a company’s goals and how it will achieve them.
- You can find templates for simple and traditional business plans online, including a free downloadable one created by Business News Daily.
- LivePlan, Bizplan, GoSmallBiz and Enloop all offer great business plan software that can take your business plan to the next level.
- This article is for entrepreneurs and small business owners who want to know how to write a business plan.
Having a road map helps you reach your journey’s end successfully. Business plans do the same for small businesses. They lay out the milestones you need to reach to build a profitable small business. They are also essential for identifying and overcoming obstacles along the way. Each part of a business plan helps you reach your goals, including the financial aspects, marketing, operations and sales.
Plenty of online business plan templates are available to take some of the pain out of the writing process. You may benefit from simple, easy-to-follow business plan tools so you spend less time writing and more time launching your venture.
What is a business plan?
With most great business ideas , the best way to execute them is to have a plan. A business plan is a written outline that you present to others, such as investors, whom you want to recruit into your venture. It’s your pitch to your investors, sharing with them what the goals of your startup are and how you expect to be profitable.
It also serves as your company’s roadmap, keeping your business on track and ensuring your operations grow and evolve to meet the goals outlined in your plan. As circumstances change, a business plan can serve as a living document – but it should always include the core goals of your business.
Why do I need a business plan?
Starting a new business comes with headaches. Being prepared for those headaches can greatly decrease their impact on your business. One important step in preparing for the challenges your startup may face is writing a solid business plan.
Writing a business plan helps you understand more clearly what you need to do to reach your goals. The finished business plan also serves as a reminder to you of these goals. It’s a valuable tool that you can refer back to, helping you stay focused and on track.
What are the three main purposes of a business plan?
Before you write your business plan, it’s important to understand the purpose of creating it in the first place. These are the three main reasons you should have a business plan:
- Establish a business focus. The primary purpose of a business plan is to establish your plans for the future. These plans should include goals or milestones alongside detailed steps of how your company will reach each step. The process of creating a roadmap to your goals will help you determine your business focus and pursue growth.
- Secure funding. One of the first things private investors , banks or other lenders look for before investing in your business is a well-researched business plan. Investors want to know how you operate your business, what your revenue and expense projections are and, most importantly, how they will receive a return on their investment. [Check out our recommendations for the best business loan options .]
- Attract executives. As your business grows, you’ll likely need to add executives to your team. A business plan helps you attract executive talent and determine whether or not they are a good fit for your company.
Your business plan can be written as a document or designed as a slideshow, such as a PowerPoint presentation. It may be beneficial to create both versions. For example, the PowerPoint can be used to pull people in, and the document version that contains more detail can be given to viewers as a follow-up.
Free downloadable business plan template
Business News Daily put together a simple but high-value business plan template to help you create a business plan. The template is completely customizable and can be used to attract investors, secure board members, and narrow the scope of your company.
Business plans can be overwhelming to new entrepreneurs, but our template makes it easy to provide all of the details required by financial institutions and private investors. The template has eight main sections, with subsections for each topic. For easy navigation, a table of contents is provided with the template. As you customize each section, you’ll receive tips on how to correctly write the required details.
Here is our free business plan template you can use to craft a professional business plan quickly and easily.
Types of business plans
There are two main types of business plans: simple and traditional. Traditional business plans are long, detailed plans that expound on both short-term and long-term objectives. In comparison, a simple business plan focuses on a few key metrics in concise detail so as to quickly share data with investors.
Simple business plan
Business model expert Ash Maurya has developed a simple type of business plan called a lean canvas . The model, which was developed in 2010, is still one of the most popular types of business plans emulated today.
A lean canvas comprises nine sections, with each part of the plan containing high-value information and metrics to attract investors. This lean business plan often consists of a single page of information with the following listed:
- Key metrics
- Unique proposition
- Unfair advantage
- Customer targets
- Cost structures
- Revenue streams
Traditional business plan
Traditional plans are lengthy documents, sometimes as long as 30 or 40 pages. A traditional business plan acts as a blueprint of a new business, detailing its progress from the time it launches to several years in the future when the startup is an established business. The following areas are covered in a traditional business plan:
- Executive summary
- Company description
- Products and services
- Market analysis
- Management team
- Financial plan
- Operational plan
We lay out each area of a traditional business plan in detail below.
1. Executive summary
The executive summary is the most important section of your business plan, because it needs to draw your readers into your plan and entice them to continue reading. If your executive summary doesn’t capture the reader’s attention, they won’t read further, and their interest in your business won’t be piqued.
Even though the executive summary is the first section in your business plan, you should write it last. When you are ready to write this section, we recommend that you summarize the problem (or market need) you aim to solve, your solution for consumers, an overview of the founders and/or owners, and key financial details. The key with this section is to be brief yet engaging.
2. Company description
This section is an overview of your entire business. Make sure you include basic information, such as when your company was founded, the type of business entity it is – limited liability company (LLC), sole proprietorship, partnership , C corporation or S corporation – and the state in which it is registered. Provide a summary of your company’s history to give the readers a solid understanding of its foundation. Learn more about articles of incorporation , and what you need to know to start a business.
3. Products and services
Next, describe the products and/or services your business provides. Focus on your customers’ perspective – and needs – by demonstrating the problem you are trying to solve. The goal with this section is to prove that your business fills a bona fide market need and will remain viable for the foreseeable future.
4. Market analysis
In this section, clearly define who your target audience is, where you will find customers, how you will reach them and, most importantly, how you will deliver your product or service to them. Provide a deep analysis of your ideal customer and how your business provides a solution for them.
You should also include your competitors in this section, and illustrate how your business is uniquely different from the established companies in the industry or market. What are their strengths and weaknesses, and how will you differentiate yourself from the pack?
Follow this step-by-step guide on how to conduct a competitor analysis and what details it should include.
You will also need to write a marketing plan based on the context of your business. For example, if you’re a small local business, you want to analyze your competitors who are located nearby. Franchises need to conduct a large-scale analysis, potentially on a national level. Competitor data helps you know the current trends in your target industry and the growth potential. These details also prove to investors that you’re very familiar with the industry.
For this section, the listed target market paints a picture of what your ideal customer looks like. Data to include may be the age range, gender, income levels, location, marital status and geographical regions of target consumers.
A SWOT analysis is a common tool entrepreneurs use to bring all collected data together in a market analysis. “SWOT” stands for “strengths, weaknesses, opportunities and threats.” Strengths and weaknesses analyze the advantages and disadvantages unique to your company, while opportunities and threats analyze the current market risks and rewards.
5. Management team
Before anyone invests in your business, they want a complete understanding of the potential investment. This section should illustrate how your business is organized. It should list key members of the management team, the founders/owners, board members, advisors, etc.
As you list each individual, provide a summary of their experience and their role within your company. Treat this section as a series of mini resumes, and consider appending full-length resumes to your business plan.
6. Financial plan
The financial plan should include a detailed overview of your finances. At the very least, you should include cash flow statements, and profit and loss projections, over the next three to five years. You can also include historical financial data from the past few years, your sales forecast and balance sheet. Consider these items to include:
- Income statement: Investors want detailed information to confirm the viability of your business idea. Expect to provide an income statement for the business plan that includes a complete snapshot of your business. The income statement will list revenue, expenses and profits. Income statements are generated monthly for startups and quarterly for established businesses.
- Cash flow projection: Another element of your financial plan is your projection for cash flow. In this section, you estimate the expected amount of money coming in and going out of your business. There are two benefits to including a cash flow projection. The first is that this forecast demonstrates whether your business is a high or low-risk venture. The second benefit of doing a cash flow projection is that it shows you whether you would benefit most from short-term or long-term financing.
- Analysis of break-even point: Your financial plan should include a break-even analysis. The break-even point is the point at which your company’s sales totals cover all of its expenses. Investors want to see your revenue requirements to assess whether your business is capable of reaching the financial milestones you’ve laid out in your business plan.
Make sure this section is precise and accurate. It’s often best to create this section with a professional accountant. If you’re seeking outside funding for your business , highlight why you’re seeking financing, how you will use that money, and when investors can expect a return on investment .
Struggling for cash flow? Here are eight cash flow strategies for survival.
If you really want to master your financial plan, Jennifer Spaziano, vice president of business development at Accion, offers these helpful tips:
- Follow generally accepted accounting principles . As a rule, the financial part of your plan should follow the accounting principles set by the Federal Accounting Standards Advisory Board, especially if you’re creating the plan to obtain a loan or a line of credit.
- Get fluent in spreadsheets. Spreadsheets are the best and most accepted way to present financial information.
- Seek outside assistance. Obtaining advice from your financial planner or accountant can help you put the numbers together and present them properly. If you use an accountant and your financial statements have been audited, state that in the plan.
- Look up templates. If you want to attempt writing the financial section on your own, there are resources.
7. Operational plan
The operational plan section details the physical needs of your business. This section discusses the location of the business , as well as required equipment or critical facilities needed to make your products. Some companies – depending on their business type – may also need to detail their inventory needs, including information about suppliers. For manufacturing companies, all processing details are spelled out in the operational plan section.
For startups, you want to divide the operational plan into two distinct phases: the developmental plan and the production plan.
- Developmental plan: The developmental plan details each step in the process of bringing your product or service to market. You want to outline the risks and the protocols you’re taking to demonstrate to investors that you’ve examined all potential liabilities and that your business is well positioned for success. For instance, if workers (or your products) are exposed to toxic materials during the production process, in your developmental plan, you want to list the safety measures you will follow to minimize the risk of illness and injury to workers and consumers and how you plan to minimize any potential culpability to your business.
- Production plan: The production plan includes the day-to-day operation information, such as your business hours, the work site(s), company assets, equipment pieces, raw materials and any special requirements.
Free vs. paid business plan templates
You have your option of choosing between free and paid business templates. Both come with their own benefits and limitations, so the best one for you will depend on your specific needs and budget. Evaluating the pros and cons of each can help you decide.
The biggest advantage of using a free template is the cost savings it offers to your business. Startups are often strapped for cash, making it a desirable choice for new business owners to access a free template. Although it’s nice to use templates at no cost, there are some drawbacks to free business plan templates – the biggest one being limited customizability.
“The process of writing a business plan lets you personally find the kinks in your business and work them out,” Attiyya Atkins, founder of A+ Editing, told Business News Daily. “Starting with an online template is a good start, but it needs to be reviewed and targeted to your market. Downloadable business plans may have dated market prices, making the budget inaccurate. If you’re looking to get money from investors, you need a customized business plan with zero errors.”
Janil Jean, head of overseas operations at LogoDesign.net, agreed that free templates offer limited customization – such as the company name and some text. She added that they are often used by a ton of people, so if you use one to secure funds, investors might be tired of seeing that business plan format.
The benefit of paying for business plan templates – or paying for an expert to review your business plan – is the accuracy of information and high customization.
“Your audience gets thousands of applications per day. What’s to make your business plan stand out from the crowd when you’re not there in the room when they make the decisions about your enterprise?” Jean said. “Visuals are the best way to impress and get attention. It makes sense to get paid templates that allow you maximum customization through design, images and branding.”
On the contrary, the limitation to using a paid template is the cost. If your startup doesn’t have the funds to pay for a business plan template, it may not be a feasible option.
The best business plan software
In case you take the route of investing money in your business plan, there are several great software programs available. Software takes the legwork out of writing a business plan by simplifying the process and eliminating the need to start from scratch. They often include features like step-by-step wizards, templates, financial projection tools, charts and graphs, third-party application integrations, collaboration tools and video tutorials.
After researching and evaluating dozens of business plan software providers, we narrowed down these four of the best options available:
LivePlan is a cloud-hosted software application that provides many tools to create your business plan, including more than 500 templates, a one-page pitch builder, automatic financial statements, full financial forecasting , industry benchmark data and KPIs . Annual plans start at $15 per month.
Bizplan is cloud-hosted software that features a step-by-step builder to walk you through each section of the business plan. Annual plans start at $20.75 per month.
GoSmallBiz is a cloud-based service that offers industry-specific templates, a step-by-step wizard that makes creating a detailed business plan an easy one, and video tutorials. Monthly plans start at $15 per month.
Enloop focuses on financial projections. It provides you with everything you need to demonstrate how financially viable your business can be, and walks you through the process of generating financial forecasts. Annual plans start at $11 per month.
Common challenges of writing a business plan
The challenges of writing a business plan vary. Do you have all the information about your business that you need? Does your industry have strict guidelines that you must adhere to? To help you prepare, we identified 10 of the most common issues you may face:
- Getting started
- Identifying cash flow and financial projections
- Knowing your target market
- Being concise
- Making it interesting
- Establishing workable goals
- Being realistic about business growth
- Proving that your idea is worth the risk
- Finding the right amount of flexibility
- Creating a strategy that you can implement
Crafting a business plan around these 10 challenges can prepare your business – and anyone who joins it – for a prosperous future.
How to overcome the challenges of writing a business plan
Although you won’t accurately predict everything for your business, you can take preemptive steps to reduce the number of complications that may arise. For example, familiarize yourself with the business plan process by researching business plans and identifying how others successfully executed their plans.
You can use these plans as a basis; however, Rick Cottrell, CEO and founder of BizResults.com, recommends taking it one step further: Talk to small business owners and others who have experience.
“The business owner should talk to an accountant, banker, and those who deal with these plans on a daily basis and learn how others have done it,” Cottrell said. “They can join startup and investment groups, and speak to peers and others who are getting ready to launch a business, and gain insights from them. They can seek out capital innovation clubs in their area and get additional expertise.”
If you research how to write a business plan and still don’t feel comfortable writing one, you can always hire a consultant to help you with the process.
“It is simply a time-consuming process that cannot be rushed,” Cottrell added. “Millions of dollars can be at stake and, in many cases, requires a high level of expertise that either needs to be learned or executed in conjunction with an experienced business consultant.”
Sean Peek, Jennifer Post, Chad Brooks, Howard Wen and Joshua Stowers contributed to the writing and reporting in this article. Source interviews were conducted for a previous version of this article and related articles.
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How to Write a Business Plan, Step by Step
Many or all of the products featured here are from our partners who compensate us. This influences which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money .
1. Write an executive summary
2. describe your company, 3. state your business goals, 4. describe your products and services, 5. do your market research, 6. outline your marketing and sales plan, 7. perform a business financial analysis, 8. make financial projections, 9. add additional information to an appendix, business plan tips and resources.
A business plan is a document that outlines your business’s financial goals and explains how you’ll achieve them. A strong, detailed plan will provide a road map for the business’s next three to five years, and you can share it with potential investors, lenders or other important partners.
Here’s a step-by-step guide to writing your business plan.
» Need help writing? Learn about the best business plan software .
This is the first page of your business plan. Think of it as your elevator pitch. It should include a mission statement, a brief description of the products or services offered, and a broad summary of your financial growth plans.
Though the executive summary is the first thing your investors will read, it can be easier to write it last. That way, you can highlight information you’ve identified while writing other sections that go into more detail.
» MORE: How to write an executive summary in 6 steps
Next up is your company description, which should contain information like:
Your business’s registered name.
Address of your business location .
Names of key people in the business. Make sure to highlight unique skills or technical expertise among members of your team.
Your company description should also define your business structure — such as a sole proprietorship, partnership or corporation — and include the percent ownership that each owner has and the extent of each owner’s involvement in the company.
Lastly, it should cover the history of your company and the nature of your business now. This prepares the reader to learn about your goals in the next section.
» MORE: How to write a company overview for a business plan
The third part of a business plan is an objective statement. This section spells out exactly what you’d like to accomplish, both in the near term and over the long term.
If you’re looking for a business loan or outside investment, you can use this section to explain why you have a clear need for the funds, how the financing will help your business grow, and how you plan to achieve your growth targets. The key is to provide a clear explanation of the opportunity presented and how the loan or investment will grow your company.
For example, if your business is launching a second product line, you might explain how the loan will help your company launch the new product and how much you think sales will increase over the next three years as a result.
In this section, go into detail about the products or services you offer or plan to offer.
You should include the following:
An explanation of how your product or service works.
The pricing model for your product or service.
The typical customers you serve.
Your supply chain and order fulfillment strategy.
Your sales strategy.
Your distribution strategy.
You can also discuss current or pending trademarks and patents associated with your product or service.
Lenders and investors will want to know what sets your product apart from your competition. In your market analysis section , explain who your competitors are. Discuss what they do well, and point out what you can do better. If you’re serving a different or underserved market, explain that.
Here, you can address how you plan to persuade customers to buy your products or services, or how you will develop customer loyalty that will lead to repeat business.
» MORE: R e a d our complete guide to small business marketing
If you’re a startup, you may not have much information on your business financials yet. However, if you’re an existing business, you’ll want to include income or profit-and-loss statements, a balance sheet that lists your assets and debts, and a cash flow statement that shows how cash comes into and goes out of the company.
You may also include metrics such as:
Net profit margin: the percentage of revenue you keep as net income.
Current ratio: the measurement of your liquidity and ability to repay debts.
Accounts receivable turnover ratio: a measurement of how frequently you collect on receivables per year.
This is a great place to include charts and graphs that make it easy for those reading your plan to understand the financial health of your business.
» NerdWallet’s picks for setting up your business finances:
The best business checking accounts .
The best business credit cards .
The best accounting software .
This is a critical part of your business plan if you’re seeking financing or investors. It outlines how your business will generate enough profit to repay the loan or how you will earn a decent return for investors.
Here, you’ll provide your business’s monthly or quarterly sales, expenses and profit estimates over at least a three-year period — with the future numbers assuming you’ve obtained a new loan.
Accuracy is key, so carefully analyze your past financial statements before giving projections. Your goals may be aggressive, but they should also be realistic.
List any supporting information or additional materials that you couldn’t fit in elsewhere, such as resumes of key employees, licenses, equipment leases, permits, patents, receipts, bank statements, contracts and personal and business credit history. If the appendix is long, you may want to consider adding a table of contents at the beginning of this section.
Here are some tips to help your business plan stand out:
Avoid over-optimism: If you’re applying for a business loan at a local bank, the loan officer likely knows your market pretty well. Providing unreasonable sales estimates can hurt your chances of loan approval.
Proofread: Spelling, punctuation and grammatical errors can jump off the page and turn off lenders and prospective investors, taking their mind off your business and putting it on the mistakes you made. If writing and editing aren't your strong suit, you may want to hire a professional business plan writer, copy editor or proofreader.
Use free resources: SCORE is a nonprofit association that offers a large network of volunteer business mentors and experts who can help you write or edit your business plan. You can search for a mentor or find a local SCORE chapter for more guidance.
The U.S. Small Business Administration’s Small Business Development Centers , which provide free business consulting and help with business plan development, can also be a resource.
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What is a Business Plan? Definition, Tips, and Templates
Updated: September 02, 2021
Published: September 01, 2021
In an era where more than 50% of small enterprises fail in their first year, having a clear, defined, and well-thought-out business plan is a crucial first step for setting up a business for long-term success.
The business plan is an undeniably critical component to getting any company off the ground. It's key to securing financing, documenting your business model, outlining your financial projections, and turning that nugget of a business idea into a reality.
Business plans are a required tool for all entrepreneurs, business owners, business acquirers, and even business school students. But … what exactly is a business plan?
In this post, we'll explain what a business plan is, the reasons why you'd need one, identify different types of business plans, and what you should include in yours.
What is a business plan?
A business plan is a documented strategy for a business that highlights its goals and its plans for achieving them. It outlines a company's go-to-market plan, financial projections, market research, business purpose, and mission statement. Key staff who are responsible for achieving the goals may also be included in the business plan along with a timeline.
What is a business plan used for?
The purpose of a business plan is three-fold: It summarizes the organization’s strategy in order to execute it long term, secures financing from investors, and helps forecast future business demands.
Business Plan Template [ Download Now ]
Working on your business plan? Try using our Business Plan Template . Pre-filled with the sections a great business plan needs, the template will give aspiring entrepreneurs a feel for what a business plan is, what should be in it, and how it can be used to establish and grow a business from the ground up.
Purposes of a Business Plan
Chances are, someone drafting a business plan will be doing so for one or more of the following reasons:
1. Securing financing from investors.
Since its contents revolve around how businesses succeed, break-even, and turn a profit, a business plan is used as a tool for sourcing capital. This document is an entrepreneur's way of showing potential investors or lenders how their capital will be put to work and how it will help the business thrive.
All banks, investors, and venture capital firms will want to see a business plan before handing over their money, and investors typically expect a 10% ROI or more from the capital they invest in a business.
Therefore, these investors need to know if – and when – they'll be making their money back (and then some). Additionally, they'll want to read about the process and strategy for how the business will reach those financial goals, which is where the context provided by sales, marketing, and operations plans come into play.
2. Documenting a company's strategy and goals.
A business plan should leave no stone unturned.
Business plans can span dozens or even hundreds of pages, affording their drafters the opportunity to explain what a business' goals are and how the business will achieve them.
To show potential investors that they've addressed every question and thought through every possible scenario, entrepreneurs should thoroughly explain their marketing, sales, and operations strategies – from acquiring a physical location for the business to explaining a tactical approach for marketing penetration.
These explanations should ultimately lead to a business' break-even point supported by a sales forecast and financial projections, with the business plan writer being able to speak to the why behind anything outlined in the plan.
3. Legitimizing a business idea.
Everyone's got a great idea for a company – until they put pen to paper and realize that it's not exactly feasible.
A business plan is an aspiring entrepreneur's way to prove that a business idea is actually worth pursuing.
As entrepreneurs document their go-to-market process, capital needs, and expected return on investment, entrepreneurs likely come across a few hiccups that will make them second guess their strategies and metrics – and that's exactly what the business plan is for.
It ensures an entrepreneur's ducks are in a row before bringing their business idea to the world and reassures the readers that whoever wrote the plan is serious about the idea, having put hours into thinking of the business idea, fleshing out growth tactics, and calculating financial projections.
4. Getting an A in your business class.
Speaking from personal experience, there's a chance you're here to get business plan ideas for your Business 101 class project.
If that's the case, might we suggest checking out this post on How to Write a Business Plan – providing a section-by-section guide on creating your plan?
What does a business plan need to include?
- Business Plan Subtitle
- Executive Summary
- Company Description
- The Business Opportunity
- Competitive Analysis
- Target Market
- Marketing Plan
- Financial Summary
- Funding Requirements
1. Business Plan Subtitle
Every great business plan starts with a captivating title and subtitle. You’ll want to make it clear that the document is, in fact, a business plan, but the subtitle can help tell the story of your business in just a short sentence.
2. Executive Summary
Although this is the last part of the business plan that you’ll write, it’s the first section (and maybe the only section) that stakeholders will read. The executive summary of a business plan sets the stage for the rest of the document. It includes your company’s mission or vision statement, value proposition, and long-term goals.
3. Company Description
This brief part of your business plan will detail your business name, years in operation, key offerings, and positioning statement. You might even add core values or a short history of the company. The company description’s role in a business plan is to introduce your business to the reader in a compelling and concise way.
4. The Business Opportunity
The business opportunity should convince investors that your organization meets the needs of the market in a way that no other company can. This section explains the specific problem your business solves within the marketplace and how it solves them. It will include your value proposition as well as some high level information about your target market.
5. Competitive Analysis
Just about every industry has more than one player in the market. Even if your business owns the majority of the market share in your industry or your business concept is the first of its kind, you still have competition. In the competitive analysis section, you’ll take an objective look at the industry landscape to determine where your business fits. A SWOT analysis is an organized way to format this section.
6. Target Market
Who are the core customers of your business and why? The target market portion of your business plan outlines this in detail. The target market should explain the demographics, psychographics, behavioristics, and geographics of the ideal customer.
7. Marketing Plan
Marketing is expansive, and it’ll be tempting to cover every type of marketing possible, but a brief overview of how you’ll market your unique value proposition to your target audience, followed by a tactical plan will suffice. Think broadly and narrow down from there: Will you focus on a slow-and-steady play where you make an upfront investment in organic customer acquisition? Or will you generate lots of quick customers using a pay-to-play advertising strategy? This kind of information should guide the marketing plan section of your business plan.
8. Financial Summary
Money doesn’t grow on trees and even the most digital, sustainable businesses have expenses. Outlining a financial summary of where your business is currently and where you’d like it to be in the future will substantiate this section. Consider including any monetary information that will give potential investors a glimpse into the financial health of your business. Assets, liabilities, expenses, debt, investments, revenue, and more are all fair game here.
So, you’ve outlined some great goals, the business opportunity is valid, and the industry is ready for what you have to offer. Who’s responsible for turning all this high-level talk into results? The “team” section of your business plan answers that question by providing an overview of the roles responsible for each goal. Don’t worry if you don’t have every team member on board yet, knowing what roles to hire for is helpful as you seek funding from investors.
10. Funding Requirements
Remember that one of the goals of a business plan is to secure funding from investors, so you’ll need to include funding requirements you’d like them to fulfill. The amount your business needs, for what reasons, and for how long will meet the requirement for this section.
Types of Business Plans
There’s no one size fits all business plan as there are several types of businesses in the market today. From startups with just one founder to historic household names that need to stay competitive, every type of business needs a business plan that’s tailored to its needs. Below are a few of the most common types of business plans. For even more examples, check out these 11 sample business plans to help you write your own .
1. Startup Business Plan
As one of the most common types of business plans, a startup business plan is used for brand new business ideas. This plan is used to lay the foundation for the eventual success of a business.
The biggest challenge with the startup business plan is that it’s written completely from scratch. Startup business plans typically reference existing industry data and explain unique business strategies and go-to-market plans.
2. Business Acquisition Plan
Believe it or not, investors use business plans to acquire existing businesses, too — not just new businesses.
A business plan for an existing company will explain how an acquisition will change its operating model, what will stay the same under new ownership, and why things will change or stay the same. Additionally, the business plan should speak to what the current state of the business is and why it's up for sale.
For example, if someone is purchasing a failing business, the business plan should explain why the business is being purchased and what the new owner will do to turn the business around, referencing previous business metrics, sales projections after the acquisition, and a justification for those projections.
3. Business Repositioning Plan
When a business wants to avoid acquisition, reposition its brand, or try something new, CEOs or owners will develop a business repositioning plan.
This plan will:
- Acknowledge the current state of the company.
- State a vision for the future of the company.
- Explain why the business should (or must) be repositioned.
- Outline a process for how the company will adjust.
Companies planning for a business reposition do so – proactively or retroactively – due to a shift in market trends and customer needs. For example, Pizza Hut announced a plan to drastically overhaul its brand, as it sees the need to shift from dine-in to delivery – a decision resulting from observing years of industry and company trends and acknowledging the need to reposition itself for the future of its sector.
4. Expansion Business Plan
Expanding a successful business venture into another location typically requires a business plan, as the project may focus on a new target market and demand more capital.
Fortunately, an expansion business plan isn’t like a startup business plan in that it starts from scratch. Instead, this type of plan references sales, revenue, and successes from existing locations. However, as great as a reference as these points can be, it's important to not be too reliant on them since it's still a new business that could succeed or fail for a myriad of reasons.
Getting Started With Your Business Plan
At the end of the day, a business plan is simply an explanation of a business idea and why it will be successful. The more detail and thought you put into it, the more successful your plan – and the business it outlines – will be.
When writing your business plan, you’ll benefit from extensive research, feedback from your team or board of directors, and a solid template to organize your thoughts. If you need one of these, download HubSpot's Free Business Plan Template below to get started.
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Whether you’re a seasoned business owner or just beginning to think about starting a business , demands come at you fast. Amidst the rush of to-do lists and meetings, determining how to write a business plan—much less following a business plan template—often feels time-consuming and intimidating.
But nearly 70% of business owners who have been there and done that recommend writing a business plan before you start a business, according to a recent QuickBooks survey . After all, when done right, business plans have enormous payoffs.
And yet, more than 10% of prospective business owners said they do not intend to write a business plan. Another 10% aren’t sure if they need a plan.
It’s more than the old cliche: A failure to plan is a plan to fail. In fact, a wealth of data now exists on the difference a written business plan makes, especially for small or growing companies.
In this post, we’ll cover everything you need to write a successful business plan, step-by-step, and turn your idea into a reality. Even better, if you’re pressed for time, we’ve compiled the 10 steps and examples into a downloadable (PDF) template . The 10 steps to write a business plan are:
- Create an executive summary
- Compose your company description
- Summarize market research and potential
- Conduct competitive analysis
- Describe your product or service
- Develop a marketing and sales strategy
- Compile your business financials
- Describe your organization and management
- Explain your funding request
- Compile an appendix for official documents
But, first things first.
What is a business plan?
A business plan is a comprehensive road map for your small business’s growth and development. It communicates who you are, what you plan to do, and how you plan to do it. It also helps you attract talent and investors.
But remember that a business idea or business concept is not a plan.
Investors want to know you have:
- Product-market fit: Have you done the research to determine the demand for your product or service?
- A solid team in place: Do you have the people you need to support your goals and objectives?
- Scalability: Can you grow sales volume without proportional growth in headcount and fixed costs?
A templated business plan gives investors a blueprint of what to expect from your company and tells them about you as an entrepreneur.
Why do you need a business plan?
You need a business plan because the majority of venture capitalists (VCs) and all banking institutions will not invest in a startup or small business without a solid, written plan. Not only does a business plan help you focus on concrete objectives, but it gives outside parties reassurance that you’ve thought ahead.
In 2018, entrepreneurial resource center Bplans worked with the University of Oregon to compile and analyze research around the benefits of business planning . Here’s what they found:
- Businesses with a business plan grow 30% faster than those without.
- Owners with business plans are twice as likely to grow, get investments, or secure loans than those without.
- Entrepreneurs with a business plan have a 129% increased likelihood of growing beyond the startup phase and a 260% increased likelihood of growing from “idea” to “new business.”
Perhaps the strongest evidence comes from the Journal of Business Venturing’s 2010 meta-analysis of 46 separate studies on 11,046 organizations: Its findings confirm that “business planning increases the performance of both new and established small firms.”
When do you need a business plan?
Before you leave a nine-to-five income, your business plan can tell you if you’re ready. Over the long term, it’ll keep you focused on what needs to be accomplished.
It’s also smart to write a business plan when you’re:
- Seeking funding, investments, or loans
- Searching for a new partner or co-founder
- Attracting, hiring, and retaining top talent
- Experiencing slow growth and need a change
Feel confident from day one
You're never too small, and it's never too soon to know you're on track for success.
How to write a business plan in 10 steps
Start with a clear picture of the audience your plan will address. Is it a room full of angel investors? Your local bank’s venture funding department? Or is it you, your leaders, and your employees?
Defining your audience helps you determine the language you’ll need to propose your ideas as well as the depth to which you need to go to help readers conduct due diligence.
Now, let’s dive into the 10 key elements of your business plan.
1. Create an executive summary
Even though it appears first in the plan, write your executive summary last so you can condense essential ideas from the other nine sections. For now, leave it as a placeholder.
What is an executive summary?
The executive summary lays out all the vital information about your business within a relatively short space. An executive summary is typically one page or less. It’s a high-level look at everything and summarizes the other sections of your plan. In short, it’s an overview of your business.
How do I write an executive summary?
Below, you’ll find an example from a fictional business, Laura’s Landscapers. (We’ll use that same company throughout this guide to make each step practical and easy to replicate.)
This executive summary focuses on what’s often called the value proposition or unique selling point: an extended motto aimed at customers, investors, and employees.
You can follow a straightforward “problem, solution” format, or a fill-in-the-blanks framework:
- For [target customers]
- Who are dissatisfied with [current solutions]
- Our [product or service] solves [key customer problems]
- Unlike [competing product], we have [differentiating key features]
This framework isn’t meant to be rigid, but instead to serve as a jumping-off point.
Example of an executive summary
Market research indicates that an increasing number of wealthy consumers in Richmond are interested in landscape architecture based on sustainable design. However, high-end firms in the area are scarce. Currently, only two exist—neither of which focus on eco-friendly planning nor are certified by green organizations.
Laura’s Landscapers provides a premium, sustainable service for customers with disposable incomes, large yards, and a love of nature.
2. Compose your company description
Within a business plan, your company description contains three elements:
- Mission statement
These elements give context to the bigger picture in your business plan, letting investors know the purpose behind your company so the goals make sense as well.
What is a mission statement?
A mission statement is your business’s reason for existing. It’s more than what you do or what you sell, it’s about why exactly you do what you do. Effective mission statements should be:
- Inspirational to make others believe in your vision
- Emotional to captivate readers and grab their interest
Throughout every part of your plan, less is more. Nowhere is that truer than your mission statement. Think about what motivates you, what causes and experiences led you to start the business, the problems you solve, the wider social issues you care about, and more.
Tip: Review your mission statement often to make sure it matches your company’s purpose as it evolves. A statement that doesn’t fit your core values or what you actually do can undermine your marketing efforts and credibility.
How do you describe a company’s history?
Don’t worry about making your company history a dense narrative. Instead, write it like you would a profile:
- Founding date
- Major milestones
- Number of employees
- Executive leadership roles
- Flagship products or services
Then, translate that list into a few short paragraphs (like the example below).
Why do business objectives matter?
Business objectives give you clear goals to focus on, like the North Star. These goals must be SMART, which stands for:
They must also be tied to key results. When your objectives aren’t clearly defined, it’s hard for employees and team members to work toward a common purpose. What’s worse, fuzzy goals won’t inspire confidence from investors, nor will they have a profitable impact on your business.
Example of a company description
Laura’s Landscapers’ mission is to change the face of our city through sustainable landscaping and help you create the outdoor living space of your dreams.
Founded in 2021 by sisters Laura and Raquel Smith, we have over 25 years of combined landscape architecture experience. Our four employees work in teams of two and have already completed 10 projects for some of Richmond’s most influential business and community leaders.
Our objectives over the next three years are to:
- Solidify a glowing reputation as a service-based business that always exceeds customers’ expectations and honors the environment
- Complete at least 18 projects during year one, 24 in year two, and 36 in year three generated through word of mouth, referrals, and home shows
- Increase revenue from $360,000 in FY2021 to $972,000 in FY2023 based upon 10 completed projects in the last nine months
3. Summarize market research and potential
The next step is to outline your ideal potential customer as well as the actual and potential size of your market. Target markets—also known as personas—identify demographic information like:
By getting specific, you’ll illustrate expertise and generate confidence. If your target market is too broad, it can be a red flag for investors.
- Example: If your product is perfect for people with money to hire landscape architects, listing “anyone with a garden” as your target market might not go over so well.
The same is true with your market analysis when you estimate its size and monetary value. In addition to big numbers that encompass the total market, drill down into your business’s addressable market—meaning, local numbers or numbers that apply the grand total to your specific segments. You may even map your customer’s journey to get a better understanding of their wants and needs.
Example of market research and potential
Laura’s Landscapers’ ideal customer is a wealthy baby boomer, a member of Gen X, or a millennial between the ages of 35 and 65 with a high disposable income. He or she—though primarily, she—is a homeowner. They’re a working professional or have recently retired. In love with the outdoors, they want to enjoy the beauty and serenity of nature in their own backyard, but don’t have the time or skill to do it for themselves.
Market research shows the opportunity for Laura’s Landscapers has never been better:
- In the U.S., total revenue for landscaping services increased from $69.8 billion in 2013 to $99 billion in 2019. ( 1 )
- Among landscaping contractors, designing and building is the second fastest growing service offering. ( 2 )
- What’s more, landscape design and construction is the number one “new service” existing companies plan to add over the next year. ( 3 )
In Richmond, leading indicators for interest in green, eco-friendly, and sustainable landscaping have all increased exponentially over the last five years:
- Online search volume for those terms is up 467%
- 10 new community organizations have been formed
- 73 high-profile projects have been covered by local media
- And currently 13% of Richmond’s residents have a household income of $125,000 or more (compared to the U.S. average of 5%)
4. Conduct competitive analysis
Competitive research begins with identifying other companies that currently sell in the market you’re looking to enter. The idea of carving out enough time to learn about every potential competitor you have may sound overwhelming, but it can be extremely useful.
Answer these additional questions after you’ve identified your most significant competitors:
- Where do they invest in advertising?
- What kind of press coverage do they get?
- How good is their customer service?
- What are their sales and pricing strategies?
- How do they rank on third-party rating platforms?
Spend some time thinking about what sets you apart. If your idea is truly novel, be prepared to explain the customer pain points you see your business solving. If your business doesn’t have any direct competition, research other companies that provide a similar product or service.
Next, create a table or spreadsheet listing your competitors to include in your plan, often referred to as a competitor analysis table.
Example of competitive analysis
Within Richmond’s residential landscaping market, there are only two high-end architectural competitors: (1) Yukie’s Yards and (2) Dante’s Landscape Design. All other businesses focus solely on either industrial projects or residential maintenance.
- Average cost per project: $12,000
- Ongoing maintenance fee: $200 per month
- Google My Business: 3.1 stars from 163 reviews
- Environmental certifications: None
- Primary marketing channels: Google Ads
Dante’s Landscape Design
- Average cost per project: $35,000
- Ongoing maintenance fee: $500 per month
- Google My Business: 3.7 stars from 57 reviews
- Primary marketing channels: Home shows
5. Describe your product or service
This section describes the benefits, production process, and life cycle of your products or services, and how what your business offers is better than your competitors.
When describing benefits, focus on:
- Unique features
- Translating features into benefits
- Emotional and practical payoffs to your customers
- Intellectual property rights or any patents that protect differentiation
For the production process, answer how you:
- Create existing and new products or services
- Source raw materials or components
- Assemble them through manufacturing
- Maintain quality control and quality assurance
- Receive and deliver them (supply chain logistics)
- Manage your daily operations, like bookkeeping and inventory
Within the product life cycle portion, map elements like:
- Time between purchases
- Up-sells, cross-sells, and down-sells
- Future plans for research and development
Example of product or service description
Laura’s Landscapers’ service—our competitive advantage—is differentiated by three core features.
First, throughout their careers, Laura and Raquel Smith have worked at and with Richmond’s three leading industrial landscaping firms. This gives us unique access to the residents who are most likely to use our service.
Second, we’re the only firm certified green by the Richmond Homeowners Association, the National Preservation Society, and Business Leaders for Greener Richmond.
Third, of our 10 completed projects, seven have rated us a 5 out of 5 on Google My Business and our price points for those projects place us in a healthy middle ground between our two other competitors.
- Average cost per project: $20,000
- Ongoing maintenance fee: $250 per month
- Google My Business: 5 stars from 7 reviews
- Environmental certifications: Three (see Appendix)
- Primary marketing channels: Word of mouth, referrals, and home shows
6. Develop a marketing and sales strategy
Your marketing strategy or marketing plan can be the difference between selling so much that growth explodes or getting no business at all. Growth strategies are a critical part of your business plan.
You should briefly reiterate topics such as your:
- Value proposition
- Ideal target markets
- Existing customer segments
Then, add your:
- Launch plan to attract new business
- Growth tactics for established businesses to expand
- Retention strategies like customer loyalty or referral programs
- Advertising and promotion channels such as search engines, social media, print, television, YouTube, and word of mouth
You can also use this section of your business plan to reinforce your strengths and what differentiates you from the competition. Be sure to show what you’ve already done, what you plan to do given your existing resources, and what results you expect from your efforts.
Example of marketing and sales strategy
Laura’s Landscapers’ marketing and sales strategy will leverage, in order of importance:
- Word of mouth
- Reviews and ratings
- Local Google Ads
- Social media
- Direct mail
Reputation is the number one purchase influencer in high-end landscape design. As such, channels 1-4 will continue to be our top priority.
Our social media strategy will involve YouTube videos of the design process as well as multiple Instagram accounts and Pinterest boards showcasing professional photography. Lastly, our direct mail campaigns will send carbon-neutral, glossy brochures to houses in wealthy neighborhoods.
7. Compile your business financials
If you’re just starting out, your business may not yet have financial data , financial statements, or comprehensive reporting. However, you’ll still need to prepare a budget and a financial plan.
If your company has been around for a while and you’re seeking investors, be sure to include:
- Income statements
- Profit and loss statements
- Cash flow statements
- Balance sheets
Other figures that can be included are:
- How much of your revenue you retain as your net income
- Your ratio of liquidity to debt repayment ability
- How often you collect on your invoices
Ideally, you should provide at least three years’ worth of reporting. Make sure your figures are accurate and don’t provide any profit or loss projections before carefully going over your past statements for justification.
Avoid underestimating business costs
Costs, profit margins, and sale prices are closely linked, and many business owners set sale prices without accounting for all costs. New business owners are particularly at risk for this mistake. The cost of your product or service must include all of your costs, including overhead. If it doesn’t, you can’t determine a sale price to generate the profit level you desire.
Underestimating costs can catch you off guard and eat away at your business over time.
- Example: Insurance premiums tend to go up annually for most forms of coverage, and that’s especially true with business insurance. If an employee gets injured, Laura’s Landscapers’ workmen’s compensation insurance to cover this risk will increase.
Example of business financials
Given the high degree of specificity required to accurately represent your business’s financials, rather than create a fictional line item example for Laura’s Landscapers, we suggest using one of our free Excel templates and entering your own data:
- For new businesses: Start up budget template
- For existing businesses: Income statement template
Once you’ve completed either one, then create a big picture representation to include here as well as in your objectives in step two.
In the case of Laura’s Landscapers, this big picture would involve steadily increasing the number of annual projects and cost per project to offset lower margins:
Current revenue for FY2022: $200,000
- 10 completed projects
- ~$20,000 per project
- 15% profit margins
- $30,000 net
FY2022 projections: $360,000
- 18 completed projects
- $54,000 net
FY2023 projections: $552,000
- 24 completed projects
- ~$23,000 per project
- 12% profit margins
- $66,240 net
FY2024 projections: $972,000
- 36 completed projects
- ~$27,000 per project
- 10% profit margins
- $97,200 net
8. Describe your organization and management
Your business is only as good as the team that runs it. Identify your team members and explain why they can either turn your business idea into a reality or continue to grow it. Highlight expertise and qualifications throughout —this section of your business plan should show off your management team superstars.
You should also note:
- Roles you still need to hire to grow your company
- The cost of hiring experts to assist operations
To make informed business decisions, you may need to budget for a bookkeeper , a CPA, and an attorney. CPAs can help you review your monthly accounting transactions and prepare your annual tax return. An attorney can help with client agreements, investor contracts (like shareholder agreements), and with any legal disputes that may arise.
Ask your business contacts for referrals (and their fees), and be sure to include those costs in your business plan.
Example of organization and management
Laura Smith, Co-founder and CEO
- Professional background
- Awards and honors
- Notable clients
Raquel Smith, Co-founder and Chief Design Officer
Laura’s Landscapers’ creative crews
- Cumulative years of experience
9. Explain your funding request
When outlining how much money your small business needs, try to be as realistic as possible. You can provide a range of numbers if you don’t want to pinpoint an exact number. However, include a best-case scenario and a worst-case scenario.
Since a new business doesn’t have a track record of generating profits, it’s likely that you’ll sell equity to raise capital in the early years of operation. Equity means ownership—when you sell equity to raise capital, you are selling a portion of your company.
- Remember: An equity owner may expect to have a voice in company decisions, even if they do not own a majority interest in the business.
Most small business equity sales are private transactions. The investor may also expect to be paid a dividend, which is a share of company profits, and they’ll want to know how they can sell their ownership interest. Additionally, you can raise capital by borrowing money, but you’ll have to repay creditors both the principal amount borrowed and the interest on the debt.
If you look at the capital structure of any large company, you’ll see that most firms issue both equity and debt. When drafting your business plan, decide if you’re willing to accept the trade-off of giving up total control and profits before you sell equity in your business.
- Tip: Put together a timeline so your potential investors have an idea of what to expect. Some customers may not pay for 30 days or longer, which means the business needs a cash balance to operate.
The founder can access cash by contributing their own money into the business by securing a line of credit (LOC) at a bank or applying for QuickBooks Capital . If you raise cash through a LOC or some other type of loan, it needs to be paid off ASAP to reduce the interest cost on debt.
Example of a funding request
Laura’s Landscapers has already purchased all necessary permits, software, and equipment to serve our existing customers. Once scaled to $972,000 in annual revenue—over the next three years and at a 10% profit margin—our primary ongoing annual expenses (not including taxes) will total $874,800.
While already profitable, we are requesting $100,000 in the form of either a business loan or in exchange for equity to purchase equipment necessary to outfit two additional creative crews.
10. Compile an appendix for official documents
Finally, assemble a well-organized appendix for anything and everything readers will need to supplement the information in your plan. Consider any info that:
- Helps investors conduct due diligence
- Gives context and easy access to you or your employees
Useful details to cover in an appendix include:
- Deeds, local permits, and legal documents
- Certifications that bolster your credibility
- Business registries and professional licenses pertaining to your legal structure or type of business
- Patents and intellectual properties
- Industry associations and memberships
- State and federal identification numbers or codes
- Key customer contracts and purchase orders
Your appendix should be a living section of the business plan, whether the plan is a document for internal reference only or an external call for investors.
- Tip: As you include documents in the appendix, create a miniature table of contents and footnotes throughout the rest of the plan linking to or calling attention to them.
How to make a business plan that stands out
Investors have little patience for poorly written documents. You want your business plan to be as attractive and readable as possible.
- Keep it brief. A typical business plan can range from 10 to 20 pages. As long as you cover the essentials, less is more.
- Make it easy to read. Divide your document into distinct sections, so that investors can quickly flip between key pieces of information.
- Know your margins. List every cost your business incurs, and make sure that you’re assigning those costs to each product or service that you sell.
- Proofread. Double-check for typos and grammatical errors. Then, triple-check. Otherwise, you might risk your credibility.
- Invest in quality design and printing. Proper layout, branding, and decent printing or bookbinding give your business plan a professional feel.
- Be prepared in advance. Have everything ready to go at least two weeks ahead so you have time to make revisions in case of a last-minute change.
3 tips to update your business plan
It’s a good idea to periodically revisit your business plan, especially if you are looking to expand. Conducting new research and updating your plan could also provide answers when you hit difficult questions.
Mid-year is a good time to refocus and revise your original plans because it gives you the opportunity to refocus any goals for the second half of the year. Below are three ways to update your plan.
1. Refocus your productivity
When you wrote your original business plan, you likely identified your specific business and personal goals. Take some time now to assess if you’ve hit your targets.
- Example: If you planned to launch a new tips and trends video series and it hasn’t happened yet, what’s stopping you? Put a timeline together and set a launch date.
If you only want to work a set number of hours per week, you must identify the products and services that deliver the returns you need to make that a reality. Doing so helps you refocus your productivity on the most lucrative profit streams.
Also, use what you’ve achieved and the hard lessons you’ve learned to help you re-evaluate what is and isn’t working.
2. Realign with your goals
Do a gut check to determine whether all of your hard work is still aligned with your original goals and your mission statement. Ask yourself these questions:
- Are my goals still relevant?
- Am I still focused on the big picture?
- Where do I want to be a year from now?
- Will my existing plan still take me where I want to go?
These questions may be tough to answer at first glance, but they reveal your ties to your goals and what most likely needs to change to achieve new wins.
3. Repurpose your offerings
If your time has become more focused on small projects rather than tangible growth and building a valuable client list, consider packaging your existing products or services differently. Can you bundle a few things together?
- Example: Laura’s Landscapers might be able to offer a special pool and patio package. Doing so might help them bring in fewer yet higher-paying projects. Perhaps they can offer a maintenance package as well to keep that customer long term.
You must deliberately manage your revenue streams, and that might require shuffling things around a little to focus on what is working for you.
Business plan template
Even if you don’t plan on seeking investments early on, there are other important reasons to use a business plan template to write a great business plan:
- Clarifies what you’re trying to accomplish
- Identifies opportunities to understand your market, like demographics and behaviors
- Establishes the role of each team member
- Gives team members a benchmark to reference and stay on track
- Helps catch errors to make sure financial projections are accurate
- You’ll see the holes and blind spots that could cause future issues
Download the following template to build your business plan from the ground up, considering all the important questions that will help your investors and employees.
The old cliche is still true today: A failure to plan is a plan to fail. Your business plan is crucial to the growth of your business, from giving direction, motivation, and context to employees, to providing thoughtful reassurance and risk mitigation to financers. Before you get your small business up and running , put down a plan that instills confidence and sets you up for success.
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Do You Really Need a Business Plan?
The art of storytelling, from net margin to sales.
Why is a business plan important?
- Who will the reader be?
- What do you want their response to be?
Four Reasons to Write a Business Plan
1. To raise money for your business
2. To make sound decisions
3. To help you identify any potential weaknesses
4. To communicate your ideas with stakeholders
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How to Write a Business Plan for Your Small Business
20 Reasons Why You Need a Business Plan in 2023
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What is the purpose of a business plan and why are business plans so important? Below are our top 20 reasons why you need a business plan.
2. To establish business milestones. The business plan should clearly lay out the long-term milestones that are most important to the success of your business. To paraphrase Guy Kawasaki, a milestone is something significant enough to come home and tell your spouse about (without boring him or her to death). Would you tell your spouse that you tweaked the company brochure? Probably not. But you’d certainly share the news that you launched your new website or reached $1M in annual revenues.
3. To better understand your competition. Creating the business plan forces you to analyze the competition. All companies have competition in the form of either direct or indirect competitors, and it is critical to understand your company’s competitive advantages. And if you don’t currently have competitive advantages, to figure out what you must do to gain them.
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4. To better understand your customer. Why do they buy when they buy? Why don’t they when they don’t? An in-depth customer analysis is essential to an effective business plan and to a successful business. Understanding your customers will not only allow you to create better products and services for them, but will allow you to more cost-effectively reach them via advertising and promotions.
5. To enunciate previously unstated assumptions. The process of actually writing the business plan helps to bring previously “hidden” assumptions to the foreground. By writing them down and assessing them, you can test them and analyze their validity. For example, you might have assumed that local retailers would carry your product; in your business plan, you could assess the results of the scenario in which this didn’t occur.
6. To assess the feasibility of your venture. How good is this opportunity? The business plan process involves researching your target market, as well as the competitive landscape, and serves as a feasibility study for the success of your venture. In some cases, the result of your planning will be to table the venture. And it might be to go forward with a different venture that may have a better chance of success.
7. To document your revenue model. How exactly will your business make money? This is a critical question to answer in writing, for yourself and your investors. Documenting the revenue model helps to address challenges and assumptions associated with the model. And upon reading your plan, others may suggest additional revenue streams to consider.
8. To determine your financial needs. Does your business need to raise capital? How much? One of the purposes of a business plan is to help you to determine exactly how much capital you need and what you will use it for. This process is essential for raising capital for business and for effectively employing the capital. It will also enable you to plan ahead, particularly if you need to raise additional funding in the future.
9. To attract investors. A formal business plan is the basis for financing proposals. The business plan answers investors’ questions such as: Is there a need for this product/service? What are the financial projections? What is the company’s exit strategy? While investors will generally want to meet you in person before writing you a check, in nearly all cases, they will also thoroughly review your business plan.
10. To reduce the risk of pursuing the wrong opportunity. The process of creating the business plan helps to minimize opportunity costs. Writing the business plan helps you assess the attractiveness of this particular opportunity, versus other opportunities. So you make the best decisions.
11. To force you to research and really know your market. What are the most important trends in your industry? What are the greatest threats to your industry? Is the market growing or shrinking? What is the size of the target market for your product/service? Creating the business plan will help you to gain a wider, deeper, and more nuanced understanding of your marketplace. And it will allow you to use this knowledge to make decisions to improve your company’s success.
12. To attract employees and a management team. To attract and retain top quality talent, a business plan is necessary. The business plan inspires employees and management that the idea is sound and that the business is poised to achieve its strategic goals. Importantly, as you grow your company, your employees and not you will do most of the work. So getting them aligned and motivated will be key to your success.
13. To plot your course and focus your efforts. The business plan provides a roadmap from which to operate, and to look to for direction in times of doubt. Without a business plan, you may shift your short-term strategies constantly without a view to your long-term milestones. You wouldn’t go on a long driving trip without a map; think of your business plan as your map.
14. To attract partners. Partners also want to see a business plan, in order to determine whether it is worth partnering with your business. Establishing partnerships often requires time and capital, and companies will be more likely to partner with your venture if they can read a detailed explanation of your company.
15. To position your brand. Creating the business plan helps to define your company’s role in the marketplace. This definition allows you to succinctly describe the business and position the brand to customers, investors, and partners. With the industry, customer and competitive insight you gain during the business planning process, you can best determine how to position your brand.
16. To judge the success of your business. A formal business plan allows you to compare actual operational results versus the business plan itself. In this way, it allows you to clearly see whether you have achieved your strategic, financing, and operational goals (and why you have or have not).
17. To reposition your business to deal with changing conditions. For example, during difficult economic conditions, if your current sales and operational models aren’t working, you can rewrite your business plan to define, try, and validate new ideas and strategies.
18. To document your marketing plan . How are you going to reach your customers? How will you retain them? What is your advertising budget? What price will you charge? A well-documented marketing plan is essential to the growth of a business. And the marketing strategies and tactics you use will evolve each year, so revisiting your marketing plan at least annually is critical.
19. To understand and forecast your company’s staffing needs. After completing your business plan, you will not be surprised when you are suddenly short-handed. Rather, your business plan provides a roadmap for your staffing needs, and thus helps to ensure smoother expansion. Importantly your plan can not only help you understand your staffing needs, but ensure your timing is right as it takes time to recruit and train great employees.
20. To uncover new opportunities. Through the process of brainstorming, white-boarding and creative interviewing, you will likely see your business in a different light. As a result, you will often come up with new ideas for marketing your product/service and running your business. It’s coming up with these ideas and executing on them which is often the difference between a business that fails or just survives and one that thrives.
What is a Business Plan?
A business plan is a document that details your business concept and strategy for growth.
What is the Purpose of a Business Plan?
A business plan helps guide your company's efforts and, if applicable, gives investors and lenders the information they need to decide whether or not to fund your company. A business plan template helps you to most easily complete your plan.
Why Do You Need a Business Plan?
A business plan provides details about your company, competition, customers and industry so that you make the best possible decisions to grow your company.
What is the Importance of a Business Plan?
The 3 most important purposes of a business plan are 1) to create an effective strategy for growth, 2) to determine your future financial needs, and 3) to attract investors (including angel investors and VC funding ) and lenders.
Why is a Business Plan Important to an Entrepreneur?
Business plans help entrepreneurs take their visions and turn them into tangible action plans for success.
Since 1999, Growthink’s business plan experts have assisted more than 4,000 clients in launching and growing their businesses, and raising more than $2.5 billion in growth financing.
Need help with your business plan?
Speak with a professional business plan consultant from our team.
Use our simple business plan template .
Check out our business plan examples .
Or, if you’re creating your own PPM, you can save time and money with Growthink’s private placement memorandum template .
Learn more about us via our Growthink Business Plan Review page
The World’s #1 Business Plan Template
Would you like to know the quickest and easiest way to create a winning business plan?
And how to use it to raise funding, improve your strategy, or both?
Well, we’ve developed the ultimate business plan template to help you do this. Simply click below to learn more.
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