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8 Components of a Business Plan
Back to Business Plans
Written by: Carolyn Young
Carolyn Young is a business writer who focuses on entrepreneurial concepts and the business formation. She has over 25 years of experience in business roles, and has authored several entrepreneurship textbooks.
Edited by: David Lepeska
David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.
Published on February 19, 2023 Updated on February 27, 2024
A key part of the business startup process is putting together a business plan , particularly if youâd like to raise capital. Itâs not going to be easy, but itâs absolutely essential, and an invaluable learning tool.
Creating a business plan early helps you think through every aspect of your business, from operations and financing to growth and vision. In the end, the knowledge youâll gain could be the difference between success and failure.
But what exactly does a business plan consist of? There are eight essential components, all of which are detailed in this handy guide.
1. Executive Summary
The executive summary opens your business plan , but itâs the section youâll write last. It summarizes the key points and highlights the most important aspects of your plan. Often investors and lenders will only read the executive summary; if it doesnât capture their interest theyâll stop reading, so itâs important to make it as compelling as possible.
The components touched upon should include:
- The business opportunity â what problem are you solving in the market?
- Your idea, meaning the product or service youâre planning to offer, and why it solves the problem in the market better than other solutions.
- The history of the business so far â what have you done to this point? When youâre just getting started, this may be nothing more than coming up with the idea, choosing a business name , and forming a business entity.
- A summary of the industry, market size, your target customers, and the competition.
- A strong statement about how your company is going to stand out in the market â what will be your competitive advantage?
- A list of specific goals that you plan to achieve in the short term, such as developing your product, launching a marketing campaign, or hiring a key person.
- A summary of your financial plan including cost and sales projections and a break-even analysis.
- A summary of your management team, their roles, and the relevant experience that they have to serve in those roles.
- Your âaskâ, if applicable, meaning what youâre requesting from the investor or lender. Youâll include the amount youâd like and how it will be spent, such as âWe are seeking $50,000 in seed funding to develop our beta productâ.
Remember that if youâre seeking capital, the executive summary could make or break your venture. Take your time and make sure it illustrates how your business is unique in the market and why youâll succeed.
The executive summary should be no more than two pages long, so itâs important to capture the readerâs interest from the start.
- 2. Company Description/Overview
In this section, youâll detail your full company history, such as how you came up with the idea for your business and any milestones or achievements.
Youâll also include your mission and vision statements. A mission statement explains what youâd like your business to achieve, its driving force, while a vision statement lays out your long-term plan in terms of growth.
A mission statement might be âOur company aims to make life easier for business owners with intuitive payroll softwareâ, while a vision statement could be âOur objective is to become the go-to comprehensive HR software provider for companies around the globe.â
In this section, youâll want to list your objectives â specific short-term goals. Examples might include âcomplete initial product development by âdateââ or âhire two qualified sales peopleâ or âlaunch the first version of the productâ.
Itâs best to divide this section into subsections â company history, mission and vision, and objectives.
3. Products/Services Offered
Here youâll go into detail about what youâre offering, how it solves a problem in the market, and how itâs unique. Donât be afraid to share information that is proprietary â investors and lenders are not out to steal your ideas.
Also specify how your product is developed or sourced. Are you manufacturing it or does it require technical development? Are you purchasing a product from a manufacturer or wholesaler?
Youâll also want to specify how youâll sell your product or service. Will it be a subscription service or a one time purchase? What is your target pricing? On what channels do you plan to sell your product or service, such as online or by direct sales in a store?
Basically, youâre describing what youâre going to sell and how youâll make money.
- 4. Market Analysis
The market analysis is where youâre going to spend most of your time because it involves a lot of research. You should divide it into four sections.
Industry analysis
Youâll want to find out exactly whatâs happening in your industry, such as its growth rate, market size, and any specific trends that are occurring. Where is the industry predicted to be in 10 years? Cite your sources where you can by providing links.
Then describe your companyâs place in the market. Is your product going to fit a certain niche? Is there a sub-industry your company will fit within? How will you keep up with industry changes?
Competitor analysis
Now youâll dig into your competition. Detail your main competitors and how they differentiate themselves in the market. For example, one competitor may advertise convenience while another may tout superior quality. Also highlight your competitorsâ weaknesses.
Next, describe how youâll stand out. Detail your competitive advantages and how youâll sustain them. This section is extremely important and will be a focus for investors and lenders.
Target market analysis
Here youâll describe your target market and whether itâs different from your competitorsâ. For example, maybe you have a younger demographic in mind?
Youâll need to know more about your target market than demographics, though. Youâll want to explain the needs and wants of your ideal customers, how your offering solves their problem, and why they will choose your company.
You should also lay out where youâll find them, where to place your marketing and where to sell your products. Learning this kind of detail requires going to the source â your potential customers. You can do online surveys or even in-person focus groups.
Your goal will be to uncover as much about these people as possible. When you start selling, youâll want to keep learning about your customers. You may end up selling to a different target market than you originally thought, which could lead to a marketing shift.
SWOT analysis
SWOT stands for strengths, weaknesses, opportunities, and threats, and itâs one of the more common and helpful business planning tools.
First describe all the specific strengths of your company, such as the quality of your product or some unique feature, such as the experience of your management team. Talk about the elements that will make your company successful.
Next, acknowledge and explore possible weaknesses. You canât say ânoneâ, because no company is perfect, especially at the start. Maybe you lack funds or face a massive competitor. Whatever it is, detail how you will surmount this hurdle.
Next, talk about the opportunities your company has in the market. Perhaps youâre going to target an underserved segment, or have a technology plan that will help you surge past the competition.
Finally, examine potential threats. It could be a competitor that might try to replicate your product or rapidly advancing technology in your industry. Again, discuss your plans to handle such threats if they come to pass.
5. Marketing and Sales Strategies
Now itâs time to explain how youâre going to find potential customers and convert them into paying customers.
Marketing and advertising plan
When you did your target market analysis, you should have learned a lot about your potential customers, including where to find them. This should help you determine where to advertise.
Maybe you found that your target customers favor TikTok over Instagram and decided to spend more marketing dollars on TikTok. Detail all the marketing channels you plan to use and why.
Your target market analysis should also have given you information about what kind of message will resonate with your target customers. You should understand their needs and wants and how your product solves their problem, then convey that in your marketing.
Start by creating a value proposition, which should be no more than two sentences long and answer the following questions:
- What are you offering
- Whose problem does it solve
- What problem does it solve
- What benefits does it provide
- How is it better than competitor products
An example might be âPayroll software that will handle all the payroll needs of small business owners, making life easier for less.â
Whatever your value proposition, it should be at the heart of all of your marketing.
Sales strategy and tactics
Your sales strategy is a vision to persuade customers to buy, including where youâll sell and how. For example, you may plan to sell only on your own website, or you may sell from both a physical location and online. On the other hand, you may have a sales team that will make direct sales calls to potential customers, which is more common in business-to-business sales.
Sales tactics are more about how youâre going to get them to buy after they reach your sales channel. Even when selling online, you need something on your site thatâs going to get them to go from a site visitor to a paying customer.
By the same token, if youâre going to have a sales team making direct sales, what message are they going to deliver that will entice a sale? Itâs best for sales tactics to focus on the customerâs pain point and what value youâre bringing to the table, rather than being aggressively promotional about the greatness of your product and your business.
Pricing strategy
Pricing is not an exact science and should depend on several factors. First, consider how you want your product or service to be perceived in the market. If your differentiator is to be the lowest price, position your company as the âdiscountâ option. Think Walmart, and price your products lower than the competition.
If, on the other hand, you want to be the Mercedes of the market, then youâll position your product as the luxury option. Of course youâll have to back this up with superior quality, but being the luxury option allows you to command higher prices.
You can, of course, fall somewhere in the middle, but the point is that pricing is a matter of perception. How you position your product in the market compared to the competition is a big factor in determining your price.
Of course, youâll have to consider your costs, as well as competitor prices. Obviously, your prices must cover your costs and allow you to make a good profit margin.
Whatever pricing strategy you choose, youâll justify it in this section of your plan.
- 6. Operations and Management
This section is the real nuts and bolts of your business â how it operates on a day-to-day basis and who is operating it. Again, this section should be divided into subsections.
Operational plan
Your plan of operations should be specific , detailed and mainly logistical. Who will be doing what on a daily, weekly, and monthly basis? How will the business be managed and how will quality be assured? Be sure to detail your suppliers and how and when youâll order raw materials.
This should also include the roles that will be filled and the various processes that will be part of everyday business operations . Just consider all the critical functions that must be handled for your business to be able to operate on an ongoing basis.Â
Technology plan
If your product involves technical development, youâll describe your tech development plan with specific goals and milestones. The plan will also include how many people will be working on this development, and what needs to be done for goals to be met.
If your company is not a technology company, youâll describe what technologies you plan to use to run your business or make your business more efficient. It could be process automation software, payroll software, or just laptops and tablets for your staff.
Management and organizational structure
Now youâll describe whoâs running the show. It may be just you when youâre starting out, so youâll detail what your role will be and summarize your background. Youâll also go into detail about any managers that you plan to hire and when that will occur.
Essentially, youâre explaining your management structure and detailing why your strategy will enable smooth and efficient operations.
Ideally, at some point, youâll have an organizational structure that is a hierarchy of your staff. Describe what you envision your organizational structure to be.
Personnel plan
Detail who youâve hired or plan to hire and for which roles. For example, you might have a developer, two sales people, and one customer service representative.
Describe each role and what qualifications are needed to perform those roles.
- 7. Financial Plan
Now, youâll enter the dreaded world of finance. Many entrepreneurs struggle with this part, so you might want to engage a financial professional to help you. A financial plan has five key elements.
Startup Costs
Detail in a spreadsheet every cost youâll incur before you open your doors. This should determine how much capital youâll need to launch your business.
Financial projections
Creating financial projections, like many facets of business, is not an exact science. If your company has no history, financial projections can only be an educated guess.
First, come up with realistic sales projections. How much do you expect to sell each month? Lay out at least three years of sales projections, detailing monthly sales growth for the first year, then annually thereafter.
Calculate your monthly costs, keeping in mind that some costs will grow along with sales.
Once you have your numbers projected and calculated, use them to create these three key financial statements:
- Profit and Loss Statement , also known as an income statement. This shows projected revenue and lists all costs, which are then deducted to show net profit or loss.
- Cash Flow Statement. This shows how much cash you have on hand at any given time. It will have a starting balance, projections of cash coming in, and cash going out, which will be used to calculate cash on hand at the end of the reporting period.
- Balance Sheet. This shows the net worth of the business, which is the assets of the business minus debts. Assets include equipment, cash, accounts receivables, inventory, and more. Debts include outstanding loan balances and accounts payable.
Youâll need monthly projected versions of each statement for the first year, then annual projections for the following two years.
Break-even analysis
The break-even point for your business is when costs and revenue are equal. Most startups operate at a loss for a period of time before they break even and start to make a profit. Your break-even analysis will project when your break-even point will occur, and will be informed by your profit and loss statement.
Funding requirements and sources
Lay out the funding youâll need, when, and where youâll get it. Youâll also explain what those funds will be used for at various points. If youâre in a high growth industry that can attract investors, youâll likely need various rounds of funding to launch and grow.
Key performance indicators (KPIs)
KPIs measure your companyâs performance and can determine success. Many entrepreneurs only focus on the bottom line, but measuring specific KPIs helps find areas of improvement. Every business has certain crucial metrics.
If you sell only online, one of your key metrics might be your visitor conversion rate. You might do an analysis to learn why just one out of ten site visitors makes a purchase.
Perhaps the purchase process is too complicated or your product descriptions are vague. The point is, learning why your conversion rate is low gives you a chance to improve it and boost sales.
8. Appendices
In the appendices, you can attach documents such as manager resumes or any other documents that support your business plan.
As you can see, a business plan has many components, so itâs not an afternoon project. It will likely take you several weeks and a great deal of work to complete. Unless youâre a finance guru, you may also want some help from a financial professional.
Keep in mind that for a small business owner, there may be no better learning experience than writing a detailed and compelling business plan. It shouldnât be viewed as a hassle, but as an opportunity!
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Understanding the Main Parts of a Business Plan
Whether youâre planning to open a shop that makes the best coffee or you want to sell eco-friendly office supplies, youâll need to explain why your business is necessary and how itâll differ from its competitors. Thatâs where your business plan comes in. It provides investors, lenders and potential partners with an understanding of your companyâs structure and goals.
Letâs break down the 10 key components of a business plan.
1. Executive Summary
Your executive summary should appear first in your business plan. It should summarize what you expect your business to accomplish. Since itâs meant to highlight what you intend to discuss in the rest of the plan, the Small Business Administration suggests that you write this section last.
A good executive summary is compelling. It reveals the companyâs mission statement, along with a short description of its products and services. It might also be a good idea to briefly explain why youâre starting your company and include details about your experience in the industry that youâre entering.
2. Company Description
A company description includes key information about your business, goals and the target customers that you want to serve. This is where you explain why your company stands out from other competitors in the industry and break down its strengths, including how it offers solutions for customers, and the competitive advantages that will give your business an edge to succeed.
3. Market Analysis
This is where you show that you have a key understanding of the ins and outs of the industry and the specific market you plan to enter. Here you will substantiate the strengths that you highlighted in your company description with data and statistics that break down industry trends and themes. Show what other businesses are doing and how they are succeeding or failing. Your market analysis should also help visualize your target customers â how much money they make, what their buying habits are, which services do they want and need, etc. Above all, the numbers should help answer why your business can do it better.
4. Competitive Analysis
A good business plan will present a clear comparison of your business vs your direct and indirect competitors. This is where you prove your knowledge of the industry by breaking down their strengths and weaknesses. Your end goal is show how your business will stack up. And if there are any issues that could prevent you from jumping into the market, like high upfront costs, this is where you will need to be forthcoming. Your competitive analysis will go in your market analysis section.
5. Description of Management and Organization
Your business must also outline how your organization is set up. Introduce your company managers here and summarize their skills and primary job responsibilities. An effective way could be to create a diagram that maps out your chain of command.
Donât forget to indicate whether your business will operate as a partnership, a sole proprietorship or a business with a different ownership structure. If you have a board of directors, youâll need to identify the members.
6. Breakdown of Your Products and Services
While your company description is an overview, a detailed breakdown of your products and services is intended to give a complementary but fuller description about the products that you are creating and selling, how long they could last and how they will meet existing demand.
This is where you should mention your suppliers, as well as other key information about how much it will cost to make your products and how much money you are hoping to bring in. You should also list here all relevant information pertaining to patents and copyright concerns as well.
7. Marketing Plan
This is where you describe how you intend to get your products and services in front of your target customers. Break down here the steps that you will take to promote your products and the budget that you will need to implement your strategies.
8. Sales Strategy
This section should answer how you will sell the products that you are building or carry out the services that you intend to offer. Your sales strategy must be specific. Break down how many sales reps you will need to hire and how you will recruit them and bring them on board. Make sure to include your sales targets as well.
9. Request for Funding
If you need funding, this section focuses on the amount of money that you need to set up your business and how you plan to use the capital that you are raising . You might want to include a timeline here for additional funding that you may require to complete other important projects.
10. Financial Projections
This final section breaks down the financial goals and expectations that youâve set based on market research. Youâll report your anticipated revenue for the first 12 months and your annual projected earnings for the second, third, fourth and fifth years of business.
If youâre trying to apply for a personal loan or a small business loan, you can always add an appendix or another section that provides additional financial or background information.
Bottom Line
Every company is different so your business plan might look nothing like another entrepreneurâs. But there are key components that every good plan needs to have, and itâs always a good idea to provide a clear and accurate summary of your business goals in your business plan.
SOURCE: SmartAsset
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COMMENTS
Above all, the numbers should help answer why your business can do it better. 4. Competitive Analysis. A good business plan will present a clear comparison of your business vs your direct and indirect competitors. This is where you prove your knowledge of the industry by breaking down their strengths and weaknesses.
Effective business plans contain several key components that cover various aspects of a company's goals. The most important parts of a business plan include: 1. Executive summary. The executive summary is the first and one of the most critical parts of a business plan. This summary provides an overview of the business plan as a whole and ...
There are eight essential components, all of which are detailed in this handy guide. 1. Executive Summary. The executive summary opens your business plan, but it's the section you'll write last. It summarizes the key points and highlights the most important aspects of your plan.
Study with Quizlet and memorize flashcards containing terms like Business plan, 1. to serve as management's guide during the lifetime of the business; and 2. To fulfill the requirement for securing lenders and investors., Title page and Contents and more. ... this is the first part of a business plan. executive summary.
Main Parts of Business Plan are: Answer: An executive summary briefly outlines the goals and objectives of the business. It summarizes a description of the business, the products and/or services provided, growth potential, funding requirements, a proper plan on how you will repay loans, if any, etc.
five : legal plan. - that points out how you will organize your company- will it be a sole proprietorship, a partnership, or a corporation. Study with Quizlet and memorize flashcards containing terms like the essential parts of a business plan, second : company description, three : products and services and more.
Click the card to flip đ. Definition. 1 / 7
How do you write a business plan? It can seem overwhelming, but your plan is an important step in helping your company launch and grow. Parts of a Business Plan: 7 Essential Sections
Final answer: A business plan contains an Introduction, Market Analysis, Company Description, Organization and Management, Service or Product line, Marketing and Sales Strategy, Funding Request, Financial Projections, and an Appendix.. Explanation: A business plan typically consists of several essential components. These are: Introduction: This is an overview of the business concept, a brief ...
Let's break down the 10 key components of a business plan. 1. Executive Summary. Your executive summary should appear first in your business plan. It should summarize what you expect your business to accomplish. Since it's meant to highlight what you intend to discuss in the rest of the plan, the Small Business Administration suggests that ...
Study with Quizlet and memorize flashcards containing terms like executive summary, business details, marketing sales and strategy and more. Try Magic Notes and save time. Try it free
2. company description explains the type of company you start to plan. 3. products and services- expand the company description. 4. the marketing plan describes your likely customers and details your competition. 5. a legal plan that points out how you will organize your company.
Advertisement. Kaykay08. Market analysis. Financials. Company description. Management and organization. Marketing and Sales management. What are the parts of the business plan? (Entrepreneurship) - 685263.
Start studying Parts of a Business Plan. Learn vocabulary, terms, and more with flashcards, games, and other study tools. ... Parts of a Business Plan. Flashcards. Learn. Test. Match. Business Plan Format. Click the card to flip đ. a business plan must be well-organized, easy to read, and follow a logical format.
While it may be tempting to put off, creating a business plan is an essential part of starting your own business. Plans and proposals should be put in a clear format making it easy for potential investors to understand.... Formal planning is an articulated, written form of planning that states particular objectives and methods. Informal planning is closer to the reality of day-to-day execution.
Market anyalysis. Breakdown of Your Products and Services. Marketing Plan. Sales Strategy.
Final answer: The mission statement is a part of a business plan that explains the purpose and uniqueness of a company. Explanation: The part of a business plan that describes why a company exists and its unique qualities compared to its competitors is called the mission statement.It is a sentence or short paragraph that conveys the purpose and goals of the business.