comprehensive business plan vs micro business plan

How to Write a Comprehensive Business Plan

Planning plays a critical role in starting and building your business. It acts as a blueprint for where you want your business to be in the next three to five years and an idea of how to make it happen. It can also illuminate potential problems before they occur. While businesses have been launched with a plan that consisted of notes on scratch paper, a comprehensive business plan covers all aspects of your new venture.

Executive Summary

The executive summary tells people about your business, its goals, and how and when it will accomplish the goals. Even though it's the first section people see, it's generally written last. Even though it's just a few paragraphs or pages long, it serves as your first contact with potential investors and lenders. The U.S. Small Business Administration suggests if you have an established business, you should also include your mission statement, company information including products and services, company growth statistics and a financial overview.

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Business plan vs. feasibility study, how to create an annual report for sales & marketing, who reads business plans, business plan for a start-up clothing store, what do business documents include, company overview.

The company overview section offers a high-level description of your business's purpose, its products or services and who your target customers are. It also explains how your business differentiates itself from its competitors and how that helps you meet your goals. This information is also referred to as market analysis. It gives readers an idea of how much market share you plan to gain and how you plan to gain it, as well as a projection of your gross profit margins. This section can help you determine the strengths and weaknesses of your competition to give you an idea of the feasibility of your business.

Organization and Management

This section describes the way your business is organized based on its legal business structure and outlines who does what. An organizational chart along with explanations of the roles clarifies your business structure. You may want to include your management team's biographies, board of director information and the owners and percentage of ownership. The section should also include compensation schedules and rates.

Services and Products

Describe your business's products and services including how they benefit the consumer. Include your product's life cycle, what stage it's in and how this affects its future. Intellectual property such as patent fillings or copyrights can be listed in this section. If your product involved research and development, include those activities.

Marketing and Sales

Now that you know what you're selling, writing about how and to whom you sell comes next. This section describes your target audience, where it shops for your item and what media you will use to reach it. This marketing strategy helps you figure out the most efficient and effective way to reach customers, which is essential to the growth of your business. Sales come hand-in-hand with marketing. Describe who and how you plan to sell your products.

Funding Request

Write about your funding needs including start-up and operational over the next five years. Write about what you plan to spend the money on, indicating if it is on capital expenditures or working capital. Describe how your business would navigate a buyout or acquisition and include a repayment plan or description of what would happen in the event you sold your business.

Financial Projections

An established business can use historical data to outline its financial performance. Use information from the past three years minimum. These include income statements, balance sheets and cash flow statements. You should also include any collateral the business owns such as real estate, equipment, vehicles or inventory. According to the SBA's research, creditors want to see projections and how you plan to meet your goals. Include an overall analysis on the company's financial health.

The appendix includes supporting material that further illustrates your business's goals and purpose. These could include letters of reference, product photographs, financial charts and forecasts.

• SBA.gov: Marketing & Sales
• Entrepreneur.com: How to Write a Business Plan
• SBA.gov: How to Write a Business Plan

Tracey Lamphere has more than 15 years of experience as a reporter and editor. She has contributed to Sound Publishing newspapers in Washington state. Lamphere also specializes in marketing communications and copywriting. She has a Bachelor of Science in business journalism from the University of North Texas.

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How To Write A Business Plan: A Comprehensive Guide

The Startups Team

How To Write A Business Plan: A Comprehensive Guide

A comprehensive, step-by-step guide - complete with real examples - on writing business plans with just the right amount of panache to catch an investor's attention and serve as a guiding star for your business.

Introduction to Business Plans

So you've got a killer startup idea. Now you need to write a business plan that is equally killer.

You fire up your computer, open a Google doc, and stare at the blank page for several minutes before it suddenly dawns on you that,  Hm…maybe I have no idea how to write a business plan from scratch after all.

Don't let it get you down. After all, why would you know anything about business planning? For that very reason we have  4 amazing business plan samples  to share with you as inspiration.

For most founders,  writing a business plan  feels like the startup equivalent of homework. It's the thing you know you have to do, but nobody actually wants to do.

Here's the good news: writing a business plan doesn't have to be this daunting, cumbersome chore.

Once you understand the fundamental questions that your business plan should answer for your readers and how to position everything in a way that compels your them to take action, writing a business plan becomes way more approachable.

Before you set fingers to the keyboard to turn your business idea into written documentation of your organizational structure and business goals, we're going to walk you through the most important things to keep in mind (like company description, financials, and market analysis, etc.) and to help you tackle the writing process confidently — with plenty of real life business plan examples along the way to get you writing a business plan to be proud of!

Keep It Short and Simple.

There's this old-school idea that business plans need to be ultra-dense, complex documents the size of a doorstop because that's how you convey how serious you are about your company.

Not so much.

Complexity and length for complexity and length's sake is almost never a good idea, especially when it comes to writing a business plan. There are a couple of reasons for this.

1. Investors Are Short On Time

If your chief goal is using your business plan to secure funding, then it means you intend on getting it in front of an investor. And if there's one thing investors are, it's busy. So keep this in mind throughout writing a business plan.

Investors wade through hundreds of business plans a year. There's no version of you presenting an 80-page business plan to an investor and they enthusiastically dive in and take hours out of their day to pour over the thing front to back.

Instead, they're looking for you to get your point across as quickly and clearly as possible so they can skim your business plan and get to the most salient parts to determine whether or not they think your opportunity is worth pursuing (or at the very least initiating further discussions).

You should be able to refine all of the key value points that investors look for to 15-20 pages (not including appendices where you will detail your financials). If you find yourself writing beyond that, then it's probably a case of either over explaining, repeating information, or including irrelevant details in your business plan (you don't need to devote 10 pages to how you're going to set up your website, for example).

Bottom line: always be on the lookout for opportunities to “trim the fat" while writing a business plan (and pay special attention to the executive summary section below), and you'll be more likely to secure funding.

2. Know Your Audience

If you fill your business plan with buzzwords, industry-specific jargon or acronyms, and long complicated sentences, it might make sense to a handful of people familiar with your niche and those with superhuman attention spans (not many), but it alienates the vast majority of readers who aren't experts in your particular industry. And if no one can understand so much as your company overview, they won't make it through the rest of your business plan.

Your best bet here is to use simple, straightforward language that's easily understood by anyone — from the most savvy of investor to your Great Aunt Bertha who still uses a landline.

How To Format Your Business Plan

You might be a prodigy in quantum mechanics, but if you show up to your interview rocking cargo shorts and lime green Crocs, you can probably guess what the hiring manager is going to notice first.

In the same way,  how  you present your business plan to your readers equally as important as what you present to them. So don't go over the top with an extensive executive summary, or get lazy with endless bullet points on your marketing strategy.

If your business plan is laden with inconsistent margins, multiple font types and sizes, missing headings and page numbers, and lacks a table of contents, it's going to create a far less digestible reading experience (and totally take away from your amazing idea and hours of work writing a business plan!)

While there's no one  right  way to format your business plan, the idea here is to ensure that it presents professionally. Here's some easy formatting tips to help you do just that.

If your margins are too narrow, it makes the page look super cluttered and more difficult to read.

A good rule of thumb is sticking to standard one-inch margins all around.

Your business plan is made up of several key sections, like chapters in a book.

Whenever you begin a section (“Traction” for example) you'll want to signify it using a header so that your reader immediately knows what to expect from the content that follows.

This also helps break up your content and keep everything nice and organized in your business plan.

Subheadings

Subheadings are mini versions of headings meant to break up content within each individual section and capture the attention of your readers to keep them moving down the page.

In fact, we're using sub-headers right now in this section for that very purpose!

Limit your business plan to two typefaces (one for headings and one for body copy and subheadings, for example) that you can find in a standard text editor like Microsoft Word or Google Docs.

Only pick fonts that are easy to read and contain both capital and lowercase letters.

Avoid script-style or jarring fonts that distract from the actual content. Modern, sans-serif fonts like Helvetica, Arial, and Proxima Nova are a good way to go.

Keep your body copy between 11 and 12-point font size to ensure readability (some fonts are more squint-inducing than others).

You can offset your headings from your body copy by simply upping the font size and by bolding your subheadings.

Sometimes it's better to show instead of just tell.

Assume that your readers are going to skim your plan rather than read it word-for-word and treat it as an opportunity to grab their attention with color graphics, tables, and charts (especially with financial forecasts), as well as product images, if applicable.

This will also help your reader better visualize what your business model is all about.

Need some help with this?

Our  business planning wizard  comes pre-loaded with a modular business plan template that you can complete in any order and makes it ridiculously easy to generate everything you need from your value proposition, mission statement, financial projections, competitive advantage, sales strategy, market research, target market, financial statements, marketing strategy, in a way that clearly communicates your business idea.

Refine Your Business Plans. Then Refine Them Some More.

Your business isn't static, so why should your business plan be?

Your business strategy is always evolving, and so are good business plans. This means that the early versions of your business plans probably won't (and shouldn't be) your last. The details of even even the best business plans are only as good as their last update.

As your business progresses and your ideas about it shift, it's important revisit your business plan from time to time to make sure it reflects those changes, keeping everything as accurate and up-to-date as possible. What good is market analysis if the market has shifted and you have an entirely different set of potential customers? And what good would the business model be if you've recently pivoted? A revised business plan is a solid business plan. It doesn't ensure business success, but it certainly helps to support it.

This rule especially holds true when you go about your market research and learn something that goes against your initial assumptions, impacting everything from your sales strategy to your financial projections.

At the same time, before you begin shopping your business plan around to potential investors or bankers, it's imperative to get a second pair of eyes on it after you've put the final period on your first draft.

After you run your spell check, have someone with strong “English teacher skills” run a fine-tooth comb over your plan for any spelling, punctuation, and grammatical errors you may have glossed over. An updated, detailed business plan (without errors!) should be constantly in your business goals.

More than that, your trusty business plan critic can also give you valuable feedback on how it reads from a stylistic perspective. While different investors prefer different styles, the key here is to remain consistent with your audience and business.

Writing Your Business Plan: A Section-By-Section Breakdown

We devoted an entire article carefully breaking down the  key components of a business plan  which takes a comprehensive look of what each section entails and why.

If you haven't already, you should check that out, as it will act as the perfect companion piece to what we're about to dive into in a moment.

For our purposes here, we're going to look at a few real world business plan examples (as well as one of our own self-penned “dummy” plans) to give you an inside look at how to position key information on a section-by-section basis.

1. Executive Summary

Quick overview.

After your Title Page — which includes your company name, slogan (if applicable), and contact information — and your Table of Contents, the Executive Summary will be the first section of actual content about your business.

The primary goal of your Executive Summary is to provide your readers with a high level overview of your business plan as a whole by summarizing the most important aspects in a few short sentences. Think of your Executive Summary as a kind of “teaser” for your business concept and the information to follow — information which you will explain in greater detail throughout your plan. This isn't the place for your a deep dive on your competitive advantages, or cash flow statement. It is an appropriate place to share your mission statement and value proposition.

Executive Summary Example

Here's an example of an Executive Summary taken from a sample business plan written by the Startups.com team for a fictional company called Culina. Here, we'll see how the Executive Summary offers brief overviews of the  Product ,  Market Opportunity ,  Traction , and  Next Steps .

Culina Tech specializes in home automation and IoT technology products designed to create the ultimate smart kitchen for modern homeowners.

Our flagship product, the Culina Smart Plug, enables users to make any kitchen appliance or cooking device intelligent. Compatible with all existing brands that plug into standard two or three-prong wall outlets, Culina creates an entire network of Wi-Fi-connected kitchen devices that can be controlled and monitored remotely right from your smartphone.

The majority of US households now spend roughly 35% of their energy consumption on appliances, electronics, and lighting.  With the ability to set energy usage caps on a daily, weekly or monthly basis, Culina helps homeowners stay within their monthly utility budget through more efficient use of the dishwasher, refrigerator, freezer, stove, and other common kitchen appliances.

Additionally, 50.8% of house fires are caused in the kitchen — more than any other room in the home — translating to over $5 billion in property damage costs per year.  Culina provides the preventative intelligence necessary to dramatically reduce kitchen-related disasters and their associated costs and risk of personal harm.

Our team has already completed the product development and design phase, and we are now ready to begin mass manufacturing. We've also gained a major foothold among consumers and investors alike, with 10,000 pre-ordered units sold and $5 million in investment capital secured to date.

We're currently seeking a $15M Series B capital investment that will give us the financial flexibility to ramp up hardware manufacturing, improve software UX and UI, expand our sales and marketing efforts, and fulfill pre-orders in time for the 2018 holiday season.

2. Company Synopsis

Your Company Synopsis section answers two critically important questions for your readers: What painful  PROBLEM  are you solving for your customers? And what is your elegant  SOLUTION  to that problem? The combination of these two components form your value proposition.

Company Synopsis Example

Let's look at a real-life company description example from  HolliBlu * — a mobile app that connects healthcare facilities with local skilled nurses — to see how they successfully address both of these key aspects.  *Note: Full disclosure; Our team worked directly with this company on their business plan via Fundable.

Notice how we get a crystal clear understanding of why the company exists to begin with when they set up the  problem  — that traditional nurse recruitment methods are costly, inconvenient, and time-consuming, creating significant barriers to providing quality nursing to patients in need.

Once we understand the painful problem that HolliBlu's customers face, we're then directly told how their  solution  links back directly to that problem — by creating an entire community of qualified nurses and directly connecting them with local employers more cost-effectively and more efficiently than traditional methods.

3. Market Overview

Your Market Overview provides color around the industry that you will be competing in as it relates to your product/service.

This will include statistics about industry size, [growth](https://www.startups.com/library/expert-advice/the-case-for-growing-slowly) rate, trends, and overall outlook. If this part of your business plan can be summed up in one word, it's  research .

The idea is to gather as much raw data as you can to make the case for your readers that:

This is a market big enough to get excited about.

You can capture a big enough share of this market to get excited about.

Target Market Overview Example

Here's an example from HolliBlu's business plan:

HolliBlu's Market Overview hits all of the marks — clearly laying out the industry size ($74.8 billion), the Total Addressable Market or TAM (3 million registered nurses), industry growth rate (581,500 new RN jobs through 2018; $355 billion by 2020), and industry trends (movement toward federally-mandated compliance with nurse/patient ratios, companies offering sign-on bonuses to secure qualified nurses, increasing popularity of home-based healthcare).

4. Product (How it Works)

Where your Company Synopsis is meant to shed light on why the company exists by demonstrating the problem you're setting out to solve and then bolstering that with an impactful solution, your Product or How it Works section allows you to get into the nitty gritty of how it actually delivers that value, and any competitive advantage it provides you.

Product (How it Works) Example

In the below example from our team's Culina sample plan, we've divided the section up using subheadings to call attention to product's  key features  and how it actually works from a user perspective.

This approach is particularly effective if your product or service has several unique features that you want to highlight.

5. Revenue Model

Quite simply, your Revenue Model gives your readers a framework for how you plan on making money. It identifies which revenue channels you're leveraging, how you're pricing your product or service, and why.

Revenue Model Example

Let's take a look at another real world business plan example with brewpub startup  Magic Waters Brewpub .*

It can be easy to get hung up on the financial aspect here, especially if you haven't fully developed your product yet. And that's okay. *Note: Full disclosure; Our team worked directly with this company on their business plan via Fundable.

The thing to remember is that investors will want to see that you've at least made some basic assumptions about your monetization strategy.

6. Operating Model

Your Operating Model quite simply refers to how your company actually runs itself. It's the detailed breakdown of the processes, technologies, and physical requirements (assets) that allow you to deliver the value to your customers that your product or service promises.

Operating Model Example

Let's say you were opening up a local coffee shop, for example. Your Operating Model might detail the following:

Information about your facility (location, indoor and outdoor space features, lease amount, utility costs, etc.)

The equipment you need to purchase (coffee and espresso machines, appliances, shelving and storage, etc.) and their respective costs.

The inventory you plan to order regularly (product, supplies, etc.), how you plan to order it (an online supplier) and how often it gets delivered (Mon-Fri).

Your staffing requirements (including how many part or full time employees you'll need, at what wages, their job descriptions, etc.)

In addition, you can also use your Operating Model to lay out the ways you intend to manage the costs and efficiencies associated with your business, including:

The  Critical Costs  that make or break your business. In the case of our coffee shop example, you might say something like,

“We're estimating the marketing cost to acquire a customer is going to be $25.  Our average sale is $45.  So long as we can keep our customer acquisition costs below $25 we will have enough margin to grow with.”

Cost Maturation & Milestones  that show how your Critical Costs might fluctuate over time.

“If we sell 50 coffees a day, our average unit cost will be $8 on a sale of $10.  At that point we're barely breaking even. However as we scale up to 200 coffees a day, our unit costs drop significantly to $4, creating a 100% increase in net income.”

Investment Costs  that highlight strategic uses of capital that will have a big Return on Investment (ROI) later.

“We're investing $100,000 into a revolutionary new coffee brewing system that will allow us to brew twice the amount our current output with the same amount of space and staff.”

Operating Efficiencies  explaining your capability of delivering your product or service in the most cost effective manner possible while maintaining the highest standards of quality.

“By using energy efficient Ecoboilers, we're able to keep our water hot while minimizing the amount of energy required. Our machines also feature an energy saving mode. Both of these allow us to dramatically cut energy costs.”

7. Competitive Analysis

Like the Market Overview section, you want to show your readers that you've done your homework and have a crazy high level of awareness about your current competitors or any potential competitors that may crop up down the line for your given business model.

When writing your Competitive Analysis, your overview should cover  who  your closest competitors are, the chief  strengths  they bring to the table, and their biggest  weaknesses .

You'll want to identify at least 3 competitors — either direct, indirect, or a combination of the two. It's an extremely important aspect of the business planning process.

Competition Analysis Example

Here's an example of how HolliBlu lays out their Competitive Analysis section for just one of their competitors, implementing each of the criteria noted above:

8. Customer Definition

Your Customer Definition section allows you to note which customer segment(s) you're going after, what characteristics and habits each customer segment embodies, how each segment uniquely benefits from your product or service, and how all of this ties together to create the ideal portrait of an actual paying customer, and how you'll cultivate and manage customer relationships.

Customer Definition Example

HolliBlu's Customer Definition section is effective for several reasons. Let's deconstruct their first target market segment, hospitals.

What's particularly successful here is that we are explained why hospitals are optimal buyers.

They accomplish this by harkening back to the central problem at the core of the opportunity (when hospitals can't supply enough staff to meet patient demands, they have to resort on costly staffing agencies).

On top of that, we are also told how  big  of an opportunity going after this customer segment represents (5,534 hospitals in the US).

This template is followed for each of the company's 3 core customer segments. This provides consistency, but more than that, it emphasizes how diligent research reinforces their assumptions about who their customers are and why they'd open their wallets. Keep all of this in mind when you are write your own business plan.

9. Customer Acquisition

Now that you've defined who your customers are for your readers, your Customer Acquisition section will tell them what marketing and sales strategy and tactics you plan to leverage to actually reach the target market (or target markets) and ultimately convert them into paying customers.

marketing Strategy Example

Similar to the exercise you will go through with your Revenue Model, in addition to identifying  which  channels you're pursuing, you'll also want to detail all of relevant costs associated with your customer acquisition channels.

Let's say you spent $100 on your marketing plan to acquire 100 customers during 2018. To get your CAC, you simply divide the number of customers acquired by your spend, giving you a $1.00 CAC.

10. Traction

This one's huge. Traction tells investors one important thing: that you're business has momentum. It's evidence that you're making forward progress and hitting milestones. That things are happening. It's one of the most critical components of a successful business plan.

Why is this so important? Financial projections are great and all, but if you can prove to investors that your company's got legs before they've even put a dime into it, then it will get them thinking about all the great things you'll be able to accomplish when they do bankroll you.

Traction Example

In our Culina Traction section, we've called attention to several forms of traction, touching on some of the biggest ones that you'll want to consider when writing your own plan.

Have I built or launched my product or service yet?

Have I reached any customers yet?

Have I generated any revenue yet?

Have I forged any strategic industry relationships that will be instrumental in driving growth?

The key takeaway here: the more traction you can show, the more credibility you build with investors. After all, you can't leave it all on market analysis alone.

11. Management Team

Here's what your Management Team section isn't: it's not an exhaustive rundown of each and every position your team members have held over the course of their lives.

Instead, you should tell investors which aspects of your team's experience and expertise directly translates to the success of  this  company and  this  industry.

In other words, what applicable, relevant background do they bring to the table?

Management Team Example

Let's be real. The vast majority of startup teams probably aren't stacked with Harvard and Stanford grads. But the thing to home in on is how the prior experience listed speaks directly to how it qualifies that team member's current position.

The word of the day here is relevancy. If it's not relevant, you probably don't need to include it in your typical business plan.

12. Funding

Funding overview.

The ask! This is where you come out and, you guessed it,  ask  your investors point blank how much money you need to move your business forward, what specific milestones their investment will allow you to reach, how you'll allocate the capital you secure, and what the investor will get in exchange for their investment.

You can also include information about your  exit strategy  (IPO, acquisition, merger?).

Funding Example

While we've preached against redundancy in your business plan, an exception to the rule is using the Funding section to offer up a very brief recap that essentially says, “here are the biggest reasons you should invest in my company and why it will ultimately benefit you.”

13. Financials

Spreadsheets and numbers and charts, oh my! Yes, it's everybody's “favorite” business plan section: Financials.

Your Financials section will come last and contain all of the forecasted numbers that say to investors that this is a sound investment. This will include things like your sales forecast, expense budget, and break-even analysis. A lot of this will be assumptions, or estimates.

The key here is keeping those estimates as realistic as humanly possible by breaking your figures into components and looking at each one individually.

Financials Example

The balance sheet above illustrates the business' estimated net worth over a three-year period by summarizing its assets (tangible objects owned by the company), liabilities (debt owed to a creditor of the company), and shareholders' equity (source of financing used to fund the assets).

In plain words, the balance sheet is basically a snapshot of your business' financial status by laying out what you own and owe, helping investors determine the level of risk involved and giving them a good understanding of the financial health of the business.

If you're looking to up your game from those outdated Excel-style spreadsheets,  our business planning software  will help you create clean, sleek, modern financial reports the modern way. Plus, it's as easy to use as it is attractive to look at. You might even find yourself enjoying financial projections, building a cash flow statement, and business planning overall.

You've Got This!

You've committed to writing your business plan and now you've got some tricks of the trade to help you out along the way. Whether you're applying for a business loan or seeking investors, your well-crafted business plan will act as your Holy Grail in helping take your business goals to the next plateau.

This is a ton of work. It's not a few hours and a free business plan template. It's not just a business plan software. We've been there before. Writing your [business plan](https://www.startups.com/library/expert-advice/top-4-business-plan-examples) is just one small step in startup journey. There's a whole long road ahead of you filled with a marketing plan, investor outreach, chasing venture capitalists, actually getting funded, and growing your business into a successful company.

And guess what? We've got helpful information on all of it — and all at your disposal! We hope this guides you confidently on how to write a business plan worth bragging about.

Ronald Calderon

Great info for feedback my current business plan!

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Small Business Trends

How to create a business plan: examples & free template.

Table of Contents

How to Write a Business Plan

Executive summary, overview and business objectives, company description, define your target market, market analysis, swot analysis, competitive analysis, organization and management team, products and services offered, marketing and sales strategy, logistics and operations plan, financial projections plan, income statement, cash flow statement.

Tips on Writing a Business Plan

Free business plan template, what is a business plan, why you should write a business plan, what are the different types of business plans.

Using Business Plan Software

Business Plan FAQs

What is a good business plan, what are the 3 main purposes of a business plan, can i write a business plan by myself, is it possible to create a one-page business plan, how long should a business plan be, what is a business plan outline, what are the 5 most common business plan mistakes, what questions should be asked in a business plan, what’s the difference between a business plan and a strategic plan, how is business planning for a nonprofit different.

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A Comprehensive Business Plan Template for Small Business

Business Plans Differ, But Have Several Common Elements

Alyssa Gregory is an entrepreneur, writer, and marketer with 20 years of experience in the business world. She is the founder of the Small Business Bonfire, a community for entrepreneurs, and has authored more than 2,500 articles for The Balance and other popular small business websites.

Executive Summary

Company description, products or services, market analysis, marketing strategy, management summary, financial analysis, appendices and supporting info.

Business plans are a challenging startup step for many small business owners who are pitching their business ideas to investors or credit institutions for funding. Because of the vastness of information, business plans can be one of the most overwhelming parts of starting a business.

However, it's an important part of starting a business that you should not skip. One survey found that people who created a business plan were twice as likely to successfully grow their business and attract lenders or investors than those who don't.  

Business plans come in many shapes and sizes; your goal is to convince individuals to buy into your vision, and there's no one-size-fits-all approach to that. However, there are a few common elements no plan should lack. Follow this business plan outline that walks you through each section of a basic plan in the order they typically appear.

The executive summary is the first section of your small business plan that is typically written last. This section highlights at least one important statement from each of the other sections in your business plan, while also including basic information about your business such as your business name and location, description of your business and its products and/or services, your management team, and the company's mission statement.

The company description section of your business plan is typically the second section, coming after the executive summary. The company description outlines vital details about your company, such as where you are located, how large the company is, what you do, and what you hope to accomplish. This section also describes the vision and direction of the company so potential lenders and partners can develop an accurate impression of who you are.

The products or services section of your business plan should clearly describe what products and/or services you're selling with an emphasis on the value you're providing to your customers or clients. This section will also include pricing information, a comparison to similar products or services in the market, and an outline of future offerings.

The market analysis section of your business plan comes after the products and services section and should provide a detailed overview of the industry you intend to sell your product or service in, including statistics to support your claims. This section also includes information about the industry, target market, and competition.

The marketing strategy section of your business plan builds upon the market analysis section. This section outlines where your business fits into the market and how you will price, promote, and sell your product or service.

The management summary section describes how your business is structured, introduces who is involved, outlines external resources, and explains how the business is managed.

The financial analysis section should contain the details for financing your business now, what will be needed for future growth, and an estimation of your operating expenses and gross revenue.

The appendix includes information that supports your statements, assumptions, and reasoning used in the other sections of your business plan. This may include graphs, charts, statistics, photos, marketing materials, research, and other relevant data.

Bplans. " Why Plan Your Business? Look At This Data ." Accessed Jan. 26, 2020.

How To Write A Comprehensive Business Plan For Your Startup 

You have the perfect idea for a business you believe has real potential. Congratulations, but this is only the beginning. Now comes the hard part: writing a business plan. 

Your business plan is a roadmap for your business. It articulates your goals and strategies, including the actions and resources needed to achieve them. And it’s not just for you — a solid business plan can help you secure funding, attract the right investors, and guide your business once it grows. 

Here’s a step-by-step guide on how to write a comprehensive business plan for your startup.

Format and introduction to your business plan.

Every good business plan starts with a killer introduction or executive summary. This is crucial because it is the first thing that readers will see. Think of it as a book cover — it needs to be compelling enough to make people want to keep reading. The primary purpose of an executive summary is to outline your business concept and provide a broad overview of your strategy . A strong executive summary is the key to making a great first impression and paving the way for your startup’s success.

Your introduction should include your business name, location, product, and service offerings. You must also express your mission and vision, encompassing your big-picture goals. Ensure your introduction is clear and concise to avoid confusion by keeping it simple. 

Don’t pressure yourself to compile your business plan in just one document. If there are too many sections and it’s easier to tackle each one individually before collating them, you can easily convert the documents to PDF once they’re ready for publication and use a free PDF editor to compile them into your formal business plan. This is a great way to keep all your formatting intact across all the individual sections of your business plan as well.

Market Analysis

Knowing your market is essential to success. The market analysis section of your business plan should outline your knowledge of the industry and the market you’re in. 

Start by outlining the industry landscape, current size, trends, and growth potential. Ensure that data and statistics support this section. Afterward, outline your target market. Who are your ideal customers or clients?  What are their demographics, needs, and purchasing behaviors? Use surveys, focus groups, and market research reports to gain valuable insights. This will help you create products or services that meet clients’ needs better.

Lastly, analyze your competition. Figure out who you’re up against, what they offer, and their strengths and weaknesses. This helps you identify areas where you can excel and find your unique selling point. So, find those market gaps and ride the wave to success! 

Organizational Structure

A clear organizational structure is essential for efficient operations and enables potential investors to see how your business will work. Begin this section by outlining your business’s legal structure. Are you a sole trader, a partnership, or a proprietary limited company? You should also indicate why you have chosen this structure and how it benefits your business.

Then, introduce your team. Provide comprehensive profiles of the main members of the management team. You should include their roles, qualifications, and experience. This can inspire trust in potential investors as they will see that experienced professionals are running your organization. 

If your team has some gaps, remember to explain how you plan to fill them and what types of professionals you will need as your company develops. Organizational charts can be helpful here—they display your hierarchy and the relationships between the different positions in the company. This ensures that everyone understands their roles and responsibilities, which is vital for smooth operations.

Products or Services

Your product and/or service are the heart of your business, and this section deals with them. Explain exactly these products or services, how they meet market needs, and their unique characteristics. Keep everything easy to understand, and avoid using complicated jargon or overly technical terms.

Next, explain how you will get your products/services to your audience. If you sell physical products, outline your supply chain, manufacturing process, and quality control measures. If it’s a service you’re offering, describe how it will be delivered and what tools and equipment you need. Overall, this section should demonstrate how you plan to deliver your goods at a consistent level of quality. 

This section should also include information on your pricing strategy. What are the reasons behind your current prices? Will they allow you to hit your revenue goals? Are people willing to pay these prices?

This section demonstrates that you’ve done your market research. 

Marketing and Sales Strategy

Your marketing and sales strategy is how you attract and retain customers. Talk about the channels you plan to use. These can be digital, like social media and email, and traditional, like posters and brochures. Clearly state why your chosen marketing channels are the best ways to spend your limited budget. 

Next, describe your acquisition strategy. In other words, how do you plan to convert leads into paying customers? This might include discounts, Google ads, and a referral program. You should also talk about how you plan to use CRM strategies like email marketing and push notifications to retain existing customers. 

Don’t forget to outline your brand. Discuss why your brand is a certain way and how you intend to spread the word. Outline your brand values, voice, and other unique brand elements. A strong brand can help you stay ahead of the competition and build a loyal customer base, so don’t neglect this crucial aspect of marketing. 

Financial Plan

While this might not be the most exciting part of writing a business plan, a comprehensive financial plan is critical. In this section, you should provide detailed projections of your business’s financial future. 

First, include your revenue model. How exactly is your business going to make money? Mention primary and potential secondary revenue streams.

Then, outline your financial projections. You should cover a minimum of three to five years and, in the following order, provide your projected income statements, cash flow statements, and balance sheets. Remember to be realistic and support everything with data. 

Remember to prepare a break-even analysis, including how much money you need to make to cover all your expenses. Investors will analyse this section, in particular, when assessing whether or not your business might be profitable.

Lastly, outline your funding requirements. How much money do you need to start and expand your business, and how do you plan to use these funds? Clearly explain your funding strategy, including potential funding sources like loans, investments, and grants.

Appendices and Supporting Documents

The appendix section is for any other information that supports your business plan. This might include market research data, detailed financial projections, legal documents, resumes of key team members, product images, and any other relevant documentation. These all help make your business plan more credible and comprehensive.

A PDF editor is a good tool for organizing your appendix. Having all your documents in PDF format ensures that the business plan is easily readable and can be shared electronically. 

In A Nutshell 

Writing a business plan is a time-consuming and complex activity, but it is necessary if you plan to start a business. A high-quality business plan not only helps you formulate your business idea and strategy but also helps you attract investors.

Following the steps in this guide will allow you to prepare a helpful and engaging business plan. Understanding that a business plan is not a one-time activity is also essential. As your business develops, plans and strategies may change. Therefore, your business plan should be reviewed regularly and modified to meet new opportunities and challenges.

Starting a business in this day and age is no walk in the park, but with a solid business plan, you’ll be prepared to navigate the rocky road ahead. ‘

*This is a  Sponsored  Article

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How to Write a Business Plan for a Small Business

Noah Parsons

24 min. read

Updated September 2, 2024

Writing a business plan doesn’t have to be complicated. 

In this step-by-step guide, you’ll learn how to write a business plan that’s detailed enough to impress bankers and potential investors, while giving you the tools to start, run, and grow a successful business.

• The basics of writing a business plan

If you’re reading this guide, then you already know why you need a business plan . 

You understand that writing a business plan helps you: 

• Raise money
• Grow strategically
• Keep your business on the right track 

As you start to write your business plan, it’s useful to zoom out and remember what a business plan is .

At its core, a business plan is an overview of the products and services you sell, and the customers that you sell to. It explains your business strategy: how you’re going to build and grow your business, what your marketing strategy is, and who your competitors are.

Most business plans also include financial forecasts for the future. These set sales goals, budget for expenses, and predict profits and cash flow. 

A good business plan is much more than just a document that you write once and forget about. It’s also a guide that helps you outline and achieve your goals. 

After writing your business plan, you can use it as a management tool to track your progress toward your goals. Updating and adjusting your forecasts and budgets as you go is one of the most important steps you can take to run a healthier, smarter business. 

We’ll dive into how to use your plan later in this article.

There are many different types of plans , but we’ll go over the most common type here, which includes everything you need for an investor-ready plan. However, if you’re just starting out and are looking for something simpler—I recommend starting with a one-page business plan . It’s faster and easier to create. 

It’s also the perfect place to start if you’re just figuring out your idea, or need a simple strategic plan to use inside your business.

Dig deeper : How to write a one-page business plan

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• What to include in your business plan

Executive summary

The executive summary is an overview of your business and your plans. It comes first in your plan and is ideally just one to two pages. Most people write it last because it’s a summary of the complete business plan.

Ideally, the executive summary can act as a stand-alone document that covers the highlights of your detailed plan. 

In fact, it’s common for investors to ask only for the executive summary when evaluating your business. If they like what they see in the executive summary, they’ll often follow up with a request for a complete plan, a pitch presentation , or more in-depth financial forecasts .

Your executive summary should include:

• A summary of the problem you are solving
• A description of your product or service
• An overview of your target market
• A brief description of your team
• A summary of your financials
• Your funding requirements (if you are raising money)

Dig Deeper: How to write an effective executive summary

Products and services description

When writing a business plan, the produces and services section is where you describe exactly what you’re selling, and how it solves a problem for your target market. The best way to organize this part of your plan is to start by describing the problem that exists for your customers. After that, you can describe how you plan to solve that problem with your product or service. 

This is usually called a problem and solution statement .

To truly showcase the value of your products and services, you need to craft a compelling narrative around your offerings. How will your product or service transform your customers’ lives or jobs? A strong narrative will draw in your readers.

This is also the part of the business plan to discuss any competitive advantages you may have, like specific intellectual property or patents that protect your product. If you have any initial sales, contracts, or other evidence that your product or service is likely to sell, include that information as well. It will show that your idea has traction , which can help convince readers that your plan has a high chance of success.

Market analysis

Your target market is a description of the type of people that you plan to sell to. You might even have multiple target markets, depending on your business. 

A market analysis is the part of your plan where you bring together all of the information you know about your target market. Basically, it’s a thorough description of who your customers are and why they need what you’re selling. You’ll also include information about the growth of your market and your industry .

Try to be as specific as possible when you describe your market. 

Include information such as age, income level, and location—these are what’s called “demographics.” If you can, also describe your market’s interests and habits as they relate to your business—these are “psychographics.” 

Related: Target market examples

Essentially, you want to include any knowledge you have about your customers that is relevant to how your product or service is right for them. With a solid target market, it will be easier to create a sales and marketing plan that will reach your customers. That’s because you know who they are, what they like to do, and the best ways to reach them.

Next, provide any additional information you have about your market. 

What is the size of your market ? Is the market growing or shrinking? Ideally, you’ll want to demonstrate that your market is growing over time, and also explain how your business is positioned to take advantage of any expected changes in your industry.

Dig Deeper: Learn how to write a market analysis

Competitive analysis

Part of defining your business opportunity is determining what your competitive advantage is. To do this effectively, you need to know as much about your competitors as your target customers. 

Every business has some form of competition. If you don’t think you have competitors, then explore what alternatives there are in the market for your product or service. 

For example: In the early years of cars, their main competition was horses. For social media, the early competition was reading books, watching TV, and talking on the phone.

A good competitive analysis fully lays out the competitive landscape and then explains how your business is different. Maybe your products are better made, or cheaper, or your customer service is superior. Maybe your competitive advantage is your location – a wide variety of factors can ultimately give you an advantage.

Dig Deeper: How to write a competitive analysis for your business plan

Marketing and sales plan

The marketing and sales plan covers how you will position your product or service in the market, the marketing channels and messaging you will use, and your sales tactics. 

The best place to start with a marketing plan is with a positioning statement . 

This explains how your business fits into the overall market, and how you will explain the advantages of your product or service to customers. You’ll use the information from your competitive analysis to help you with your positioning. 

For example: You might position your company as the premium, most expensive but the highest quality option in the market. Or your positioning might focus on being locally owned and that shoppers support the local economy by buying your products.

Once you understand your positioning, you’ll bring this together with the information about your target market to create your marketing strategy . 

This is how you plan to communicate your message to potential customers. Depending on who your customers are and how they purchase products like yours, you might use many different strategies, from social media advertising to creating a podcast. Your marketing plan is all about how your customers discover who you are and why they should consider your products and services. 

While your marketing plan is about reaching your customers—your sales plan will describe the actual sales process once a customer has decided that they’re interested in what you have to offer. 

If your business requires salespeople and a long sales process, describe that in this section. If your customers can “self-serve” and just make purchases quickly on your website, describe that process. 

A good sales plan picks up where your marketing plan leaves off. The marketing plan brings customers in the door and the sales plan is how you close the deal.

Together, these specific plans paint a picture of how you will connect with your target audience, and how you will turn them into paying customers.

Dig deeper: What to include in your sales and marketing plan

Business operations

When writing a business plan, the operations section describes the necessary requirements for your business to run smoothly. It’s where you talk about how your business works and what day-to-day operations look like. 

Depending on how your business is structured, your operations plan may include elements of the business like:

• Supply chain management
• Manufacturing processes
• Equipment and technology
• Distribution

Some businesses distribute their products and reach their customers through large retailers like Amazon.com, Walmart, Target, and grocery store chains. 

These businesses should review how this part of their business works. The plan should discuss the logistics and costs of getting products onto store shelves and any potential hurdles the business may have to overcome.

If your business is much simpler than this, that’s OK. This section of your business plan can be either extremely short or more detailed, depending on the type of business you are building.

For businesses selling services, such as physical therapy or online software, you can use this section to describe the technology you’ll leverage, what goes into your service, and who you will partner with to deliver your services.

Dig Deeper: Learn how to write the operations chapter of your plan

Key milestones and metrics

Although it’s not required to complete your business plan, mapping out key business milestones and the metrics can be incredibly useful for measuring your success.

Good milestones clearly lay out the parameters of the task and set expectations for their execution. You’ll want to include:

• A description of each task
• The proposed due date
• Who is responsible for each task

If you have a budget, you can include projected costs to hit each milestone. You don’t need extensive project planning in this section—just list key milestones you want to hit and when you plan to hit them. This is your overall business roadmap. 

Possible milestones might be:

• Website launch date
• Store or office opening date
• First significant sales
• Break even date
• Business licenses and approvals

You should also discuss the key numbers you will track to determine your success. Some common metrics worth tracking include:

• Conversion rates
• Customer acquisition costs
• Profit per customer
• Repeat purchases

It’s perfectly fine to start with just a few metrics and grow the number you are tracking over time. You also may find that some metrics simply aren’t relevant to your business and can narrow down what you’re tracking.

Dig Deeper: How to use milestones in your business plan

Organization and management team

Investors don’t just look for great ideas—they want to find great teams. Use this chapter to describe your current team and who you need to hire . You should also provide a quick overview of your location and history if you’re already up and running.

Briefly highlight the relevant experiences of each key team member in the company. It’s important to make the case for why yours is the right team to turn an idea into a reality. 

Do they have the right industry experience and background? Have members of the team had entrepreneurial successes before? 

If you still need to hire key team members, that’s OK. Just note those gaps in this section.

Your company overview should also include a summary of your company’s current business structure . The most common business structures include:

• Sole proprietor
• Partnership

Be sure to provide an overview of how the business is owned as well. Does each business partner own an equal portion of the business? How is ownership divided? 

Potential lenders and investors will want to know the structure of the business before they will consider a loan or investment.

Dig Deeper: How to write about your company structure and team

Financial plan

The last section of your business plan is your financial plan and forecasts. 

Entrepreneurs often find this section the most daunting. But, business financials for most startups are less complicated than you think, and a business degree is certainly not required to build a solid financial forecast. 

A typical financial forecast in a business plan includes the following:

• Sales forecast : An estimate of the sales expected over a given period. You’ll break down your forecast into the key revenue streams that you expect to have.
• Expense budget : Your planned spending such as personnel costs , marketing expenses, and taxes.
• Profit & Loss : Brings together your sales and expenses and helps you calculate planned profits.
• Cash Flow : Shows how cash moves into and out of your business. It can predict how much cash you’ll have on hand at any given point in the future.
• Balance Sheet : A list of the assets, liabilities, and equity in your company. In short, it provides an overview of the financial health of your business. 

A strong business plan will include a description of assumptions about the future, and potential risks that could impact the financial plan. Including those will be especially important if you’re writing a business plan to pursue a loan or other investment.

Dig Deeper: How to create financial forecasts and budgets

This is the place for additional data, charts, or other information that supports your plan.

Including an appendix can significantly enhance the credibility of your plan by showing readers that you’ve thoroughly considered the details of your business idea, and are backing your ideas up with solid data.

Just remember that the information in the appendix is meant to be supplementary. Your business plan should stand on its own, even if the reader skips this section.

Dig Deeper : What to include in your business plan appendix

Optional: Business plan cover page

Adding a business plan cover page can make your plan, and by extension your business, seem more professional in the eyes of potential investors, lenders, and partners. It serves as the introduction to your document and provides necessary contact information for stakeholders to reference.

Your cover page should be simple and include:

• Company logo
• Business name
• Value proposition (optional)
• Business plan title
• Completion and/or update date
• Address and contact information
• Confidentiality statement

Just remember, the cover page is optional. If you decide to include it, keep it very simple and only spend a short amount of time putting it together.

Dig Deeper: How to create a business plan cover page

How to use AI to help write your business plan

Generative AI tools such as ChatGPT can speed up the business plan writing process and help you think through concepts like market segmentation and competition. These tools are especially useful for taking ideas that you provide and converting them into polished text for your business plan.

The best way to use AI to write a business plan is to leverage it as a collaborator , not a replacement for human creative thinking and ingenuity. 

AI can come up with lots of ideas and act as a brainstorming partner. It’s up to you to filter through those ideas and figure out which ones are realistic enough to resonate with your customers. 

There are pros and cons of using AI to help with your business plan . So, spend some time understanding how it can be most helpful before just outsourcing the job to AI.

Learn more: 10 AI prompts you need to write a business plan

• Writing tips and strategies

To help streamline the business plan writing process, here are a few tips and key questions to answer to make sure you get the most out of your plan and avoid common mistakes .  

Determine why you are writing a business plan

Knowing why you are writing a business plan will determine your approach to your planning project. 

For example: If you are writing a business plan for yourself, or just to use inside your own business , you can probably skip the section about your team and organizational structure. 

If you’re raising money, you’ll want to spend more time explaining why you’re looking to raise the funds and exactly how you will use them.

Regardless of how you intend to use your business plan , think about why you are writing and what you’re trying to get out of the process before you begin.

Keep things concise

Probably the most important tip is to keep your business plan short and simple. There are no prizes for long business plans . The longer your plan is, the less likely people are to read it. 

So focus on trimming things down to the essentials your readers need to know. Skip the extended, wordy descriptions and instead focus on creating a plan that is easy to read —using bullets and short sentences whenever possible.

Have someone review your business plan

Writing a business plan in a vacuum is never a good idea. Sometimes it’s helpful to zoom out and check if your plan makes sense to someone else. You also want to make sure that it’s easy to read and understand.

Don’t wait until your plan is “done” to get a second look. Start sharing your plan early, and find out from readers what questions your plan leaves unanswered. This early review cycle will help you spot shortcomings in your plan and address them quickly, rather than finding out about them right before you present your plan to a lender or investor.

If you need a more detailed review, you may want to explore hiring a professional plan writer to thoroughly examine it.

Use a free business plan template and business plan examples to get started

Knowing what information to include in a business plan is sometimes not quite enough. If you’re struggling to get started or need additional guidance, it may be worth using a business plan template. 

There are plenty of great options available (we’ve rounded up our 8 favorites to streamline your search).

But, if you’re looking for a free downloadable business plan template , you can get one right now; download the template used by more than 1 million businesses. 

Or, if you just want to see what a completed business plan looks like, check out our library of over 550 free business plan examples . 

We even have a growing list of industry business planning guides with tips for what to focus on depending on your business type.

Common pitfalls and how to avoid them

It’s easy to make mistakes when you’re writing your business plan. Some entrepreneurs get sucked into the writing and research process, and don’t focus enough on actually getting their business started. 

Here are a few common mistakes and how to avoid them:

Not talking to your customers : This is one of the most common mistakes. It’s easy to assume that your product or service is something that people want. Before you invest too much in your business and too much in the planning process, make sure you talk to your prospective customers and have a good understanding of their needs.

• Overly optimistic sales and profit forecasts: By nature, entrepreneurs are optimistic about the future. But it’s good to temper that optimism a little when you’re planning, and make sure your forecasts are grounded in reality. 
• Spending too much time planning: Yes, planning is crucial. But you also need to get out and talk to customers, build prototypes of your product and figure out if there’s a market for your idea. Make sure to balance planning with building.
• Not revising the plan: Planning is useful, but nothing ever goes exactly as planned. As you learn more about what’s working and what’s not—revise your plan, your budgets, and your revenue forecast. Doing so will provide a more realistic picture of where your business is going, and what your financial needs will be moving forward.
• Not using the plan to manage your business: A good business plan is a management tool. Don’t just write it and put it on the shelf to collect dust – use it to track your progress and help you reach your goals.
• Presenting your business plan

The planning process forces you to think through every aspect of your business and answer questions that you may not have thought of. That’s the real benefit of writing a business plan – the knowledge you gain about your business that you may not have been able to discover otherwise.

With all of this knowledge, you’re well prepared to convert your business plan into a pitch presentation to present your ideas. 

A pitch presentation is a summary of your plan, just hitting the highlights and key points. It’s the best way to present your business plan to investors and team members.

Dig Deeper: Learn what key slides should be included in your pitch deck

Use your business plan to manage your business

One of the biggest benefits of planning is that it gives you a tool to manage your business better. With a revenue forecast, expense budget, and projected cash flow, you know your targets and where you are headed.

And yet, nothing ever goes exactly as planned – it’s the nature of business.

That’s where using your plan as a management tool comes in. The key to leveraging it for your business is to review it periodically and compare your forecasts and projections to your actual results.

Start by setting up a regular time to review the plan – a monthly review is a good starting point. During this review, answer questions like:

• Did you meet your sales goals?
• Is spending following your budget?
• Has anything gone differently than what you expected?

Now that you see whether you’re meeting your goals or are off track, you can make adjustments and set new targets. 

Maybe you’re exceeding your sales goals and should set new, more aggressive goals. In that case, maybe you should also explore more spending or hiring more employees. 

Or maybe expenses are rising faster than you projected. If that’s the case, you would need to look at where you can cut costs.

A plan, and a method for comparing your plan to your actual results , is the tool you need to steer your business toward success.

Learn More: How to run a regular plan review

How to write a business plan FAQ

What is a business plan?

A document that describes your business , the products and services you sell, and the customers that you sell to. It explains your business strategy, how you’re going to build and grow your business, what your marketing strategy is, and who your competitors are.

What are the benefits of writing a business plan?

A business plan helps you understand where you want to go with your business and what it will take to get there. It reduces your overall risk, helps you uncover your business’s potential, attracts investors, and identifies areas for growth.

Writing a business plan ultimately makes you more confident as a business owner and more likely to succeed for a longer period of time.

What are the 7 steps of writing a business plan?

The seven steps to writing a business plan include:

• Write a brief executive summary
• Describe your products and services.
• Conduct market research and compile data into a cohesive market analysis.
• Describe your marketing and sales strategy.
• Outline your organizational structure and management team.
• Develop financial projections for sales, revenue, and cash flow.
• Add any additional documents to your appendix.

What are the 5 most common business plan mistakes?

There are plenty of mistakes that can be made when writing a business plan. However, these are the 5 most common that you should do your best to avoid:

• 1. Not taking the planning process seriously.
• Having unrealistic financial projections or incomplete financial information.
• Inconsistent information or simple mistakes.
• Failing to establish a sound business model.
• Not having a defined purpose for your business plan.

What questions should be answered in a business plan?

Writing a business plan is all about asking yourself questions about your business and being able to answer them through the planning process. You’ll likely be asking dozens and dozens of questions for each section of your plan.

However, these are the key questions you should ask and answer with your business plan:

• How will your business make money?
• Is there a need for your product or service?
• Who are your customers?
• How are you different from the competition?
• How will you reach your customers?
• How will you measure success?

How long should a business plan be?

The length of your business plan fully depends on what you intend to do with it. From the SBA and traditional lender point of view, a business plan needs to be whatever length necessary to fully explain your business. This means that you prove the viability of your business, show that you understand the market, and have a detailed strategy in place.

If you intend to use your business plan for internal management purposes, you don’t necessarily need a full 25-50 page business plan. Instead, you can start with a one-page plan to get all of the necessary information in place.

What are the different types of business plans?

While all business plans cover similar categories, the style and function fully depend on how you intend to use your plan. Here are a few common business plan types worth considering.

Traditional business plan: The tried-and-true traditional business plan is a formal document meant to be used when applying for funding or pitching to investors. This type of business plan follows the outline above and can be anywhere from 10-50 pages depending on the amount of detail included, the complexity of your business, and what you include in your appendix.

Business model canvas: The business model canvas is a one-page template designed to demystify the business planning process. It removes the need for a traditional, copy-heavy business plan, in favor of a single-page outline that can help you and outside parties better explore your business idea.

One-page business plan: This format is a simplified version of the traditional plan that focuses on the core aspects of your business. You’ll typically stick with bullet points and single sentences. It’s most useful for those exploring ideas, needing to validate their business model, or who need an internal plan to help them run and manage their business.

Lean Plan: The Lean Plan is less of a specific document type and more of a methodology. It takes the simplicity and styling of the one-page business plan and turns it into a process for you to continuously plan, test, review, refine, and take action based on performance. It’s faster, keeps your plan concise, and ensures that your plan is always up-to-date.

What’s the difference between a business plan and a strategic plan?

A business plan covers the “who” and “what” of your business. It explains what your business is doing right now and how it functions. The strategic plan explores long-term goals and explains “how” the business will get there. It encourages you to look more intently toward the future and how you will achieve your vision.

However, when approached correctly, your business plan can actually function as a strategic plan as well. If kept lean, you can define your business, outline strategic steps, and track ongoing operations all with a single plan.

Noah is the COO at Palo Alto Software, makers of the online business plan app LivePlan. He started his career at Yahoo! and then helped start the user review site Epinions.com. From there he started a software distribution business in the UK before coming to Palo Alto Software to run the marketing and product teams.

Table of Contents

• Use AI to help write your plan
• Common planning mistakes
• Manage with your business plan

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Table of Contents

How to make a business plan

How to make a good business plan: step-by-step guide.

A business plan is a strategic roadmap used to navigate the challenging journey of entrepreneurship. It's the foundation upon which you build a successful business.

A well-crafted business plan can help you define your vision, clarify your goals, and identify potential problems before they arise.

But where do you start? How do you create a business plan that sets you up for success?

This article will explore the step-by-step process of creating a comprehensive business plan.

What is a business plan?

A business plan is a formal document that outlines a business's objectives, strategies, and operational procedures. It typically includes the following information about a company:

Products or services

Target market

Competitors

Marketing and sales strategies

Financial plan

Management team

A business plan serves as a roadmap for a company's success and provides a blueprint for its growth and development. It helps entrepreneurs and business owners organize their ideas, evaluate the feasibility, and identify potential challenges and opportunities.

As well as serving as a guide for business owners, a business plan can attract investors and secure funding. It demonstrates the company's understanding of the market, its ability to generate revenue and profits, and its strategy for managing risks and achieving success.

Business plan vs. business model canvas

A business plan may seem similar to a business model canvas, but each document serves a different purpose.

A business model canvas is a high-level overview that helps entrepreneurs and business owners quickly test and iterate their ideas. It is often a one-page document that briefly outlines the following:

Key partnerships

Key activities

Key propositions

Customer relationships

Customer segments

Key resources

Cost structure

Revenue streams

On the other hand, a Business Plan Template provides a more in-depth analysis of a company's strategy and operations. It is typically a lengthy document and requires significant time and effort to develop.

A business model shouldn’t replace a business plan, and vice versa. Business owners should lay the foundations and visually capture the most important information with a Business Model Canvas Template . Because this is a fast and efficient way to communicate a business idea, a business model canvas is a good starting point before developing a more comprehensive business plan.

A business plan can aim to secure funding from investors or lenders, while a business model canvas communicates a business idea to potential customers or partners.

Why is a business plan important?

A business plan is crucial for any entrepreneur or business owner wanting to increase their chances of success.

Here are some of the many benefits of having a thorough business plan.

Helps to define the business goals and objectives

A business plan encourages you to think critically about your goals and objectives. Doing so lets you clearly understand what you want to achieve and how you plan to get there.

A well-defined set of goals, objectives, and key results also provides a sense of direction and purpose, which helps keep business owners focused and motivated.

Guides decision-making

A business plan requires you to consider different scenarios and potential problems that may arise in your business. This awareness allows you to devise strategies to deal with these issues and avoid pitfalls.

With a clear plan, entrepreneurs can make informed decisions aligning with their overall business goals and objectives. This helps reduce the risk of making costly mistakes and ensures they make decisions with long-term success in mind.

Attracts investors and secures funding

Investors and lenders often require a business plan before considering investing in your business. A document that outlines the company's goals, objectives, and financial forecasts can help instill confidence in potential investors and lenders.

A well-written business plan demonstrates that you have thoroughly thought through your business idea and have a solid plan for success.

Identifies potential challenges and risks

A business plan requires entrepreneurs to consider potential challenges and risks that could impact their business. For example:

Is there enough demand for my product or service?

Will I have enough capital to start my business?

Is the market oversaturated with too many competitors?

What will happen if my marketing strategy is ineffective?

By identifying these potential challenges, entrepreneurs can develop strategies to mitigate risks and overcome challenges. This can reduce the likelihood of costly mistakes and ensure the business is well-positioned to take on any challenges.

Provides a basis for measuring success

A business plan serves as a framework for measuring success by providing clear goals and financial projections . Entrepreneurs can regularly refer to the original business plan as a benchmark to measure progress. By comparing the current business position to initial forecasts, business owners can answer questions such as:

Are we where we want to be at this point?

Did we achieve our goals?

If not, why not, and what do we need to do?

After assessing whether the business is meeting its objectives or falling short, business owners can adjust their strategies as needed.

How to make a business plan step by step

The steps below will guide you through the process of creating a business plan and what key components you need to include.

1. Create an executive summary

Start with a brief overview of your entire plan. The executive summary should cover your business plan's main points and key takeaways.

Keep your executive summary concise and clear with the Executive Summary Template . The simple design helps readers understand the crux of your business plan without reading the entire document.

2. Write your company description

Provide a detailed explanation of your company. Include information on what your company does, the mission statement, and your vision for the future.

Provide additional background information on the history of your company, the founders, and any notable achievements or milestones.

3. Conduct a market analysis

Conduct an in-depth analysis of your industry, competitors, and target market. This is best done with a SWOT analysis to identify your strengths, weaknesses, opportunities, and threats. Next, identify your target market's needs, demographics, and behaviors.

Use the Competitive Analysis Template to brainstorm answers to simple questions like:

What does the current market look like?

Who are your competitors?

What are they offering?

What will give you a competitive advantage?

Who is your target market?

What are they looking for and why?

How will your product or service satisfy a need?

These questions should give you valuable insights into the current market and where your business stands.

4. Describe your products and services

Provide detailed information about your products and services. This includes pricing information, product features, and any unique selling points.

Use the Product/Market Fit Template to explain how your products meet the needs of your target market. Describe what sets them apart from the competition.

5. Design a marketing and sales strategy

Outline how you plan to promote and sell your products. Your marketing strategy and sales strategy should include information about your:

Pricing strategy

Advertising and promotional tactics

Sales channels

The Go to Market Strategy Template is a great way to visually map how you plan to launch your product or service in a new or existing market.

6. Determine budget and financial projections

Document detailed information on your business’ finances. Describe the current financial position of the company and how you expect the finances to play out.

Some details to include in this section are:

Startup costs

Revenue projections

Profit and loss statement

Funding you have received or plan to receive

Strategy for raising funds

7. Set the organization and management structure

Define how your company is structured and who will be responsible for each aspect of the business. Use the Business Organizational Chart Template to visually map the company’s teams, roles, and hierarchy.

As well as the organization and management structure, discuss the legal structure of your business. Clarify whether your business is a corporation, partnership, sole proprietorship, or LLC.

8. Make an action plan

At this point in your business plan, you’ve described what you’re aiming for. But how are you going to get there? The Action Plan Template describes the following steps to move your business plan forward. Outline the next steps you plan to take to bring your business plan to fruition.

Types of business plans

Several types of business plans cater to different purposes and stages of a company's lifecycle. Here are some of the most common types of business plans.

Startup business plan

A startup business plan is typically an entrepreneur's first business plan. This document helps entrepreneurs articulate their business idea when starting a new business.

Not sure how to make a business plan for a startup? It’s pretty similar to a regular business plan, except the primary purpose of a startup business plan is to convince investors to provide funding for the business. A startup business plan also outlines the potential target market, product/service offering, marketing plan, and financial projections.

Strategic business plan

A strategic business plan is a long-term plan that outlines a company's overall strategy, objectives, and tactics. This type of strategic plan focuses on the big picture and helps business owners set goals and priorities and measure progress.

The primary purpose of a strategic business plan is to provide direction and guidance to the company's management team and stakeholders. The plan typically covers a period of three to five years.

Operational business plan

An operational business plan is a detailed document that outlines the day-to-day operations of a business. It focuses on the specific activities and processes required to run the business, such as:

Organizational structure

Staffing plan

Production plan

Quality control

Inventory management

Supply chain

The primary purpose of an operational business plan is to ensure that the business runs efficiently and effectively. It helps business owners manage their resources, track their performance, and identify areas for improvement.

Growth-business plan

A growth-business plan is a strategic plan that outlines how a company plans to expand its business. It helps business owners identify new market opportunities and increase revenue and profitability. The primary purpose of a growth-business plan is to provide a roadmap for the company's expansion and growth.

The 3 Horizons of Growth Template is a great tool to identify new areas of growth. This framework categorizes growth opportunities into three categories: Horizon 1 (core business), Horizon 2 (emerging business), and Horizon 3 (potential business).

One-page business plan

A one-page business plan is a condensed version of a full business plan that focuses on the most critical aspects of a business. It’s a great tool for entrepreneurs who want to quickly communicate their business idea to potential investors, partners, or employees.

A one-page business plan typically includes sections such as business concept, value proposition, revenue streams, and cost structure.

Best practices for how to make a good business plan

Here are some additional tips for creating a business plan:

Use a template

A template can help you organize your thoughts and effectively communicate your business ideas and strategies. Starting with a template can also save you time and effort when formatting your plan.

Miro’s extensive library of customizable templates includes all the necessary sections for a comprehensive business plan. With our templates, you can confidently present your business plans to stakeholders and investors.

Be practical

Avoid overestimating revenue projections or underestimating expenses. Your business plan should be grounded in practical realities like your budget, resources, and capabilities.

Be specific

Provide as much detail as possible in your business plan. A specific plan is easier to execute because it provides clear guidance on what needs to be done and how. Without specific details, your plan may be too broad or vague, making it difficult to know where to start or how to measure success.

Be thorough with your research

Conduct thorough research to fully understand the market, your competitors, and your target audience . By conducting thorough research, you can identify potential risks and challenges your business may face and develop strategies to mitigate them.

Get input from others

It can be easy to become overly focused on your vision and ideas, leading to tunnel vision and a lack of objectivity. By seeking input from others, you can identify potential opportunities you may have overlooked.

Review and revise regularly

A business plan is a living document. You should update it regularly to reflect market, industry, and business changes. Set aside time for regular reviews and revisions to ensure your plan remains relevant and effective.

Create a winning business plan to chart your path to success

Starting or growing a business can be challenging, but it doesn't have to be. Whether you're a seasoned entrepreneur or just starting, a well-written business plan can make or break your business’ success.

The purpose of a business plan is more than just to secure funding and attract investors. It also serves as a roadmap for achieving your business goals and realizing your vision. With the right mindset, tools, and strategies, you can develop a visually appealing, persuasive business plan.

Ready to make an effective business plan that works for you? Check out our library of ready-made strategy and planning templates and chart your path to success.

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How To Write a Business Plan

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Starting a business is a wild ride, and a solid business plan can be the key to keeping you on track. A business plan is essentially a roadmap for your business — outlining your goals, strategies, market analysis and financial projections. Not only will it guide your decision-making, a business plan can help you secure funding with a loan or from investors .

Writing a business plan can seem like a huge task, but taking it one step at a time can break the plan down into manageable milestones. Here is our step-by-step guide on how to write a business plan.

Table of contents

• Write your executive summary
• Do your market research homework
• Set your business goals and objectives
• Plan your business strategy
• Describe your product or service
• Crunch the numbers
• Finalize your business plan

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Step 1: Write your executive summary

Though this will be the first page of your business plan , we recommend you actually write the executive summary last. That’s because an executive summary highlights what’s to come in the business plan but in a more condensed fashion.

An executive summary gives stakeholders who are reading your business plan the key points quickly without having to comb through pages and pages. Be sure to cover each successive point in a concise manner, and include as much data as necessary to support your claims.

You’ll cover other things too, but answer these basic questions in your executive summary:

• Idea: What’s your business concept? What problem does your business solve? What are your business goals?
• Product: What’s your product/service and how is it different?
• Market: Who’s your audience? How will you reach customers?
• Finance: How much will your idea cost? And if you’re seeking funding, how much money do you need? How much do you expect to earn? If you’ve already started, where is your revenue at now?

Step 2: Do your market research homework

The next step in writing a business plan is to conduct market research . This involves gathering information about your target market (or customer persona), your competition, and the industry as a whole. You can use a variety of research methods such as surveys, focus groups, and online research to gather this information. Your method may be formal or more casual, just make sure that you’re getting good data back.

This research will help you to understand the needs of your target market and the potential demand for your product or service—essential aspects of starting and growing a successful business.

Step 3: Set your business goals and objectives

Once you’ve completed your market research, you can begin to define your business goals and objectives. What is the problem you want to solve? What’s your vision for the future? Where do you want to be in a year from now?

Use this step to decide what you want to achieve with your business, both in the short and long term. Try to set SMART goals—specific, measurable, achievable, relevant, and time-bound benchmarks—that will help you to stay focused and motivated as you build your business.

Step 4: Plan your business strategy

Your business strategy is how you plan to reach your goals and objectives. This includes details on positioning your product or service, marketing and sales strategies, operational plans, and the organizational structure of your small business.

Make sure to include key roles and responsibilities for each team member if you’re in a business entity with multiple people.

Step 5: Describe your product or service

In this section, get into the nitty-gritty of your product or service. Go into depth regarding the features, benefits, target market, and any patents or proprietary tech you have. Make sure to paint a clear picture of what sets your product apart from the competition—and don’t forget to highlight any customer benefits.

Step 6: Crunch the numbers

Financial analysis is an essential part of your business plan. If you’re already in business that includes your profit and loss statement , cash flow statement and balance sheet .

These financial projections will give investors and lenders an understanding of the financial health of your business and the potential return on investment.

You may want to work with a financial professional to ensure your financial projections are realistic and accurate.

Step 7: Finalize your business plan

Once you’ve completed everything, it's time to finalize your business plan. This involves reviewing and editing your plan to ensure that it is clear, concise, and easy to understand.

You should also have someone else review your plan to get a fresh perspective and identify any areas that may need improvement. You could even work with a free SCORE mentor on your business plan or use a SCORE business plan template for more detailed guidance.

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The takeaway

Writing a business plan is an essential process for any forward-thinking entrepreneur or business owner. A business plan requires a lot of up-front research, planning, and attention to detail, but it’s worthwhile. Creating a comprehensive business plan can help you achieve your business goals and secure the funding you need.

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Everything You Need to Know About Writing a Comprehensive Business Plan

Startup Financial Model

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Crafting a comprehensive business plan is not just a formality; it’s a roadmap to your venture’s success. From securing funding to navigating market challenges, a well-structured business plan encompasses essential elements like financial projections , market analysis , and organizational structure , ensuring you’re prepared for every twist and turn on your entrepreneurial journey.

What is a business plan and why is it important?

Definition of a business plan and its key components.

A business plan is a formal document that outlines a company's goals, the strategy for achieving them, and the resources required for success. It serves as a roadmap for the business and includes several critical components:

• Executive Summary
• Market Analysis
• Organizational Structure
• Financial Projections
• Funding Requirements

Each of these business plan components plays a vital role in guiding the company's direction and ensuring that all stakeholders are aligned with the business's vision.

Overview of the role a business plan plays in securing funding

One of the primary purposes of writing a business plan is to secure funding. Investors and financial institutions typically require a comprehensive business plan to evaluate the viability of a business before committing their resources. A well-prepared business plan demonstrates:

• Clear understanding of the market and competitive landscape.
• Realistic financial projections, including anticipated revenue and expenses.
• Strategic planning that showcases how the business intends to achieve its goals.

By presenting a solid business plan, entrepreneurs can effectively communicate their vision and convince potential investors of the importance of business plans in mitigating risks and maximizing returns.

Explanation of how a business plan helps in strategic planning and operational guidance

A comprehensive business plan is not just a tool for securing funding; it also serves as a crucial guide for strategic planning and operational management. Here’s how:

• Strategic Planning: A business plan helps identify long-term goals and the strategies needed to achieve them. It acts as a reference point for assessing progress and making informed decisions.
• Operational Guidance: Detailed sections on organizational structure and operational procedures provide clarity on roles and responsibilities, helping to streamline business operations.
• Performance Metrics: By establishing performance benchmarks, a business plan allows businesses to track their success and make necessary adjustments in response to market changes.

Ultimately, a well-crafted business plan is an essential document that not only facilitates funding but also lays the groundwork for a business's long-term success.

• Regularly update your business plan to reflect changes in market conditions or business objectives.
• Ensure that your financial projections are based on realistic assumptions to avoid common mistakes in business plans.

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What are the essential elements of a comprehensive business plan?

Description of the executive summary and its significance.

The executive summary serves as the gateway to your comprehensive business plan. It provides a concise overview of your business, including your objectives, strategy, and the unique selling proposition that sets you apart from competitors. This section is crucial because it is often the first part that potential investors or stakeholders read; therefore, it must be compelling and informative. A well-crafted executive summary can determine whether readers will delve deeper into your entire business plan or move on.

Breakdown of the market analysis and competitive landscape

Conducting a thorough market analysis for your business plan is essential for demonstrating an understanding of your industry and identifying opportunities for growth. This section should include:

• An overview of the target market, including demographics and customer needs.
• Analysis of industry trends that could impact your business.
• A detailed examination of competitors, utilizing competitor analysis techniques to highlight their strengths and weaknesses.

By showcasing your awareness of the market landscape, you can better position your business strategy and convince potential investors of your viability.

Importance of financial projections and funding requirements

In any comprehensive business plan , financial projections are pivotal. This section should include:

• Revenue projections based on realistic assumptions.
• Estimated expenses, including both fixed and variable costs.
• A break-even analysis to illustrate when your business will become profitable.
• Details about investment requirements and how funds will be allocated.

Providing detailed financial projections not only demonstrates the potential for return on investment but also shows that you have a solid grasp of your business's financial landscape.

Discussion on the organizational structure and management team

The organizational structure of your business is a vital component of your business plan. This section should outline the hierarchy, roles, and responsibilities within the company. A strong management team is often a key factor for investors; therefore, it is essential to highlight:

• The backgrounds and experiences of key team members.
• Their relevant skills that contribute to the business's success.
• The overall structure, whether it is flat or hierarchical, and how it supports operational efficiency.

By clearly defining the organizational structure and showcasing the expertise of your management team, you establish credibility and confidence in your business’s ability to execute its strategy.

• Ensure your executive summary encapsulates all critical aspects of your business plan clearly and succinctly.
• Utilize charts and graphs in your market analysis to visually represent data and trends.
• Be conservative in your financial projections to avoid the pitfalls of unrealistic expectations.
• Highlight diverse skill sets within your management team to showcase a well-rounded approach to leadership.

How do you conduct market research for your business plan?

Types of market research techniques to consider.

Conducting market research for your business plan is critical to understanding the landscape in which you will operate. There are two primary types of market research techniques:

• Primary Research: This involves gathering firsthand data through methods such as surveys, interviews, and focus groups. This approach allows you to obtain specific insights directly from potential customers or industry experts.
• Secondary Research: This includes analyzing existing data from reports, studies, and articles. Sources can range from government publications to market research firms, providing valuable context and background information about the industry.

Identifying target audience and customer demographics

Understanding your target audience is a cornerstone of your market analysis for the business plan. To identify your target audience, consider the following:

• Demographics: Gather data on age, gender, income level, education, and occupation to define who your customers are.
• Psychographics: Explore the interests, lifestyles, values, and purchasing behavior of your potential customers to understand their motivations.
• Geographics: Determine the locations where your target audience resides, as geographic trends can significantly affect purchasing decisions.

Utilizing target audience research will not only aid in tailoring your business offerings but also in creating effective marketing strategies that resonate with your potential customers.

Analyzing industry trends and competitors’ strengths and weaknesses

Incorporating an analysis of industry trends and competitors into your business plan is essential for developing a robust business strategy. Here’s how to approach this:

• Industry Trends: Research current trends that may impact your business. Look for data regarding technological advancements, regulatory changes, and shifts in consumer preferences.
• Competitor Analysis: Identify your main competitors and evaluate their strengths and weaknesses. Consider factors such as product offerings, pricing strategies, market share, and customer loyalty. This will help you identify gaps in the market and areas where you can differentiate your business.

Utilizing competitor analysis techniques will enhance your understanding of the competitive landscape and inform your operational guidance business plan, ensuring you are well-prepared to address market challenges.

• Use online tools like Google Trends and social media analytics to gather data on industry trends and customer preferences.
• Consider conducting surveys or focus groups to get direct feedback from your target audience about their needs and expectations.
• Regularly revisit your market research as conditions change; staying informed can give your business a crucial edge.

4 What financial data should be included in a business plan?

Overview of revenue projections and expense estimates.

When writing a comprehensive business plan, it's critical to provide a detailed overview of your revenue projections and expense estimates. These financial projections in your business plan serve as a roadmap for your anticipated financial performance over the next several years. It is essential to base these projections on realistic assumptions and thorough market analysis for business plan accuracy.

Revenue projections should include:

• Projected sales volume and pricing strategy.
• Expected revenue streams from different products or services.
• Seasonal fluctuations that may impact sales.

Expense estimates should cover:

• Fixed costs, such as rent and salaries.
• Variable costs, including inventory and materials.
• Marketing and operational expenses necessary for running the business.

Explanation of break-even analysis and cash flow statements

Another essential component of your financial data is the break-even analysis, which helps identify the point at which your business will be able to cover its costs. This analysis is vital for understanding the viability of your business strategy plan. A well-structured break-even analysis will break down fixed and variable costs and provide insights into how many units need to be sold to cover those costs.

Additionally, a cash flow statement is crucial as it details the inflows and outflows of cash within your business over a specific period. This statement allows you to:

• Monitor liquidity and ensure that your business can meet its obligations.
• Identify periods of cash surplus and deficit.
• Make informed decisions regarding investments and expenses.

Importance of including funding sources and investment requirements

In any business plan, especially one aimed at attracting investors, it is vital to clearly outline your funding sources and investment requirements. This section should detail:

• The total amount of funding needed to launch and sustain the business.
• Potential sources of funding, such as loans, investors, or personal savings.
• How the funds will be allocated across various aspects of the business.

Providing this information not only demonstrates your understanding of the financial landscape but also builds credibility with potential investors. It shows that you have a clear plan for utilizing their investment effectively to ensure business growth.

• Be conservative in your revenue projections to avoid unrealistic expectations.
• Regularly update your financial data as your business evolves and market conditions change.
• Engage with a financial advisor for expert insights on cash flow management and funding strategies.

How can you effectively present your business plan?

Key elements of a professional presentation format.

When presenting a business plan, the format and structure are vital for clarity and professionalism. The presentation should be well-organized, typically following the layout of the business plan itself. Essential elements include:

• Executive Summary: Begin with a concise overview that highlights the business's mission, vision, and key objectives.
• Market Analysis: Present findings from your market analysis for the business plan , showcasing the target market, customer demographics, and industry trends.
• Financial Projections: Clearly outline your financial projections in the business plan , including revenue forecasts, break-even analysis, and funding requirements.
• Conclusion: Summarize the key points and emphasize the potential for success and growth.

Tips for creating engaging visual aids and supporting documents

Visual aids can significantly enhance your business plan presentation. Here are some tips for creating engaging materials:

• Use Graphs and Charts: Incorporate graphs to visualize financial projections, market analysis, and growth trends. This makes complex data more digestible.
• Consistent Branding: Ensure that all slides and materials reflect your business's branding, including logos, colors, and fonts.
• Bullet Points: Use concise bullet points to summarize key information, avoiding dense paragraphs that may overwhelm the audience.
• Infographics: Create infographics to illustrate processes or comparisons, making information visually appealing and easier to understand.
• Practice your presentation multiple times to ensure clarity and confidence.
• Seek feedback on your visual aids from peers to ensure they effectively communicate your message.

Strategies for tailoring the presentation to different audiences

Different stakeholders may have varying interests and priorities. Tailoring your presentation accordingly can enhance its impact:

• Investors: Focus on financial projections, funding requirements, and return on investment. Highlight how their investment will contribute to growth.
• Partners: Emphasize collaboration opportunities, operational synergies, and shared goals to foster mutual interest.
• Employees: Discuss the company's vision and mission, outlining how their roles contribute to the overall success.
• Advisors: Seek their insights on market trends and business strategies, framing the presentation as a collaborative discussion.
• Research your audience beforehand to understand their priorities and concerns.
• Adjust your language and terminology to match the level of expertise of your audience, ensuring accessibility.

What common mistakes should be avoided when writing a business plan?

Pitfalls of unrealistic financial projections.

One of the most critical aspects of a comprehensive business plan is the financial projections. However, many entrepreneurs make the mistake of presenting overly optimistic revenue projections that do not reflect realistic market conditions. This not only undermines the credibility of the business plan but can also lead to significant issues down the line.

When writing a business plan, it is essential to base financial projections on sound research and realistic assumptions. Consider the following:

• Use historical data where available to inform your revenue projections.
• Factor in economic conditions and market trends that could affect your business.
• Be cautious about assuming rapid growth; a more gradual increase may be more realistic.

By avoiding unrealistic financial projections, you can enhance the overall integrity of your business plan, making it more appealing to potential investors.

Importance of avoiding vague language and unclear objectives

Another common mistake in writing a business plan is the use of vague language, which can lead to confusion about the business's goals and objectives. Clear and precise language is crucial in communicating your vision and strategy effectively.

To ensure clarity, consider these tips:

• Define specific, measurable goals rather than broad statements.
• Use concrete examples to illustrate your points, especially in the executive summary business plan.
• Avoid jargon and technical terms that may not be familiar to all readers.
• Regularly review and refine your objectives to ensure they remain clear and actionable.

Clear objectives not only help you stay on track but also make it easier for investors and stakeholders to understand your business strategy plan.

Consequences of neglecting market research and competitor analysis

Conducting thorough market research is a pivotal component of writing a business plan. Neglecting this vital step can lead to misguided strategies and missed opportunities. A comprehensive market analysis for a business plan should include an understanding of your target audience and the competitive landscape.

Some consequences of inadequate market research include:

• Inability to identify key market trends that could impact your business.
• Failure to recognize competitors’ strengths and weaknesses, leaving you unprepared to differentiate your offerings.
• Missing out on potential customer demographics and insights that could inform product development.

Utilizing effective competitor analysis techniques and ensuring you have a deep understanding of your target market will bolster the quality of your business plan, aligning it more closely with actual market conditions.

7 How can you revise and update your business plan over time?

Importance of regularly reviewing goals and performance metrics.

Regularly reviewing your goals and performance metrics is essential for ensuring that your comprehensive business plan remains relevant and effective. As your business evolves, so too should your strategic approach. This can involve:

• Assessing whether your initial objectives are being met.
• Identifying any shifts in the market that may affect your goals.
• Evaluating the effectiveness of your strategies against actual performance data.

By implementing a system for continuous evaluation, you can better align your operations with your long-term vision while adapting to any unforeseen challenges.

Strategies for incorporating feedback from stakeholders

Feedback from stakeholders—be it team members, investors, or customers—provides invaluable insight into the effectiveness of your business plan components . Here are some strategies to effectively incorporate such feedback:

• Conduct regular meetings with team members to discuss progress and gather input.
• Utilize surveys or feedback forms to understand customer perspectives on your offerings.
• Engage with investors to understand their expectations and concerns, allowing you to adjust your financial projections in the business plan accordingly.

By actively seeking and valuing stakeholder feedback, you can create a more resilient business strategy that resonates with the needs of your audience.

Discussion on adapting to changes in the market or business environment

The business landscape is dynamic, influenced by factors such as technological advancements, economic shifts, and emerging competitors. To ensure your business plan remains effective, consider the following:

• Stay informed about industry trends through continuous market analysis for business plans.
• Be prepared to pivot your strategy based on competitor analysis techniques that highlight market gaps.
• Regularly update your financial projections to reflect current economic circumstances and business performance.

By maintaining flexibility in your approach, you can not only respond to changes but also leverage them to your advantage, ensuring the longevity and success of your business.

• Set a specific schedule for reviewing your business plan, such as quarterly or bi-annually.
• Document all feedback and changes to track the evolution of your business strategy.
• Encourage an open culture where team members feel comfortable sharing their insights.

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How to Write a Business Plan in 9 Steps (+ Template and Examples)

Every successful business has one thing in common, a good and well-executed business plan. A business plan is more than a document, it is a complete guide that outlines the goals your business wants to achieve, including its financial goals . It helps you analyze results, make strategic decisions, show your business operations and growth.

If you want to start a business or already have one and need to pitch it to investors for funding, writing a good business plan improves your chances of attracting financiers. As a startup, if you want to secure loans from financial institutions, part of the requirements involve submitting your business plan.

Writing a business plan does not have to be a complicated or time-consuming process. In this article, you will learn the step-by-step process for writing a successful business plan.

You will also learn what you need a business plan for, tips and strategies for writing a convincing business plan, business plan examples and templates that will save you tons of time, and the alternatives to the traditional business plan.

Let’s get started.

What Do You Need A Business Plan For?

Businesses create business plans for different purposes such as to secure funds, monitor business growth, measure your marketing strategies, and measure your business success.

1. Secure Funds

One of the primary reasons for writing a business plan is to secure funds, either from financial institutions/agencies or investors.

For you to effectively acquire funds, your business plan must contain the key elements of your business plan . For example, your business plan should include your growth plans, goals you want to achieve, and milestones you have recorded.

A business plan can also attract new business partners that are willing to contribute financially and intellectually. If you are writing a business plan to a bank, your project must show your traction , that is, the proof that you can pay back any loan borrowed.

Also, if you are writing to an investor, your plan must contain evidence that you can effectively utilize the funds you want them to invest in your business. Here, you are using your business plan to persuade a group or an individual that your business is a source of a good investment.

2. Monitor Business Growth

A business plan can help you track cash flows in your business. It steers your business to greater heights. A business plan capable of tracking business growth should contain:

• The business goals
• Methods to achieve the goals
• Time-frame for attaining those goals

A good business plan should guide you through every step in achieving your goals. It can also track the allocation of assets to every aspect of the business. You can tell when you are spending more than you should on a project.

You can compare a business plan to a written GPS. It helps you manage your business and hints at the right time to expand your business.

3. Measure Business Success

A business plan can help you measure your business success rate. Some small-scale businesses are thriving better than more prominent companies because of their track record of success.

Right from the onset of your business operation, set goals and work towards them. Write a plan to guide you through your procedures. Use your plan to measure how much you have achieved and how much is left to attain.

You can also weigh your success by monitoring the position of your brand relative to competitors. On the other hand, a business plan can also show you why you have not achieved a goal. It can tell if you have elapsed the time frame you set to attain a goal.

4. Document Your Marketing Strategies

You can use a business plan to document your marketing plans. Every business should have an effective marketing plan.

Competition mandates every business owner to go the extraordinary mile to remain relevant in the market. Your business plan should contain your marketing strategies that work. You can measure the success rate of your marketing plans.

In your business plan, your marketing strategy must answer the questions:

• How do you want to reach your target audience?
• How do you plan to retain your customers?
• What is/are your pricing plans?
• What is your budget for marketing?

How to Write a Business Plan Step-by-Step

1. create your executive summary.

The executive summary is a snapshot of your business or a high-level overview of your business purposes and plans . Although the executive summary is the first section in your business plan, most people write it last. The length of the executive summary is not more than two pages.

Generally, there are nine sections in a business plan, the executive summary should condense essential ideas from the other eight sections.

A good executive summary should do the following:

• A Snapshot of Growth Potential. Briefly inform the reader about your company and why it will be successful)
• Contain your Mission Statement which explains what the main objective or focus of your business is.
• Product Description and Differentiation. Brief description of your products or services and why it is different from other solutions in the market.
• The Team. Basic information about your company’s leadership team and employees
• Business Concept. A solid description of what your business does.
• Target Market. The customers you plan to sell to.
• Marketing Strategy. Your plans on reaching and selling to your customers
• Current Financial State. Brief information about what revenue your business currently generates.
• Projected Financial State. Brief information about what you foresee your business revenue to be in the future.

The executive summary is the make-or-break section of your business plan. If your summary cannot in less than two pages cannot clearly describe how your business will solve a particular problem of your target audience and make a profit, your business plan is set on a faulty foundation.

Avoid using the executive summary to hype your business, instead, focus on helping the reader understand the what and how of your plan.

View the executive summary as an opportunity to introduce your vision for your company. You know your executive summary is powerful when it can answer these key questions:

• Who is your target audience?
• What sector or industry are you in?
• What are your products and services?
• What is the future of your industry?
• Is your company scaleable?
• Who are the owners and leaders of your company? What are their backgrounds and experience levels?
• What is the motivation for starting your company?
• What are the next steps?

Writing the executive summary last although it is the most important section of your business plan is an excellent idea. The reason why is because it is a high-level overview of your business plan. It is the section that determines whether potential investors and lenders will read further or not.

The executive summary can be a stand-alone document that covers everything in your business plan. It is not uncommon for investors to request only the executive summary when evaluating your business. If the information in the executive summary impresses them, they will ask for the complete business plan.

If you are writing your business plan for your planning purposes, you do not need to write the executive summary.

2. Add Your Company Overview

The company overview or description is the next section in your business plan after the executive summary. It describes what your business does.

Adding your company overview can be tricky especially when your business is still in the planning stages. Existing businesses can easily summarize their current operations but may encounter difficulties trying to explain what they plan to become.

Your company overview should contain the following:

• What products and services you will provide
• Geographical markets and locations your company have a presence
• What you need to run your business
• Who your target audience or customers are
• Who will service your customers
• Your company’s purpose, mission, and vision
• Information about your company’s founders
• Who the founders are
• Notable achievements of your company so far

When creating a company overview, you have to focus on three basics: identifying your industry, identifying your customer, and explaining the problem you solve.

If you are stuck when creating your company overview, try to answer some of these questions that pertain to you.

• Who are you targeting? (The answer is not everyone)
• What pain point does your product or service solve for your customers that they will be willing to spend money on resolving?
• How does your product or service overcome that pain point?
• Where is the location of your business?
• What products, equipment, and services do you need to run your business?
• How is your company’s product or service different from your competition in the eyes of your customers?
• How many employees do you need and what skills do you require them to have?

After answering some or all of these questions, you will get more than enough information you need to write your company overview or description section. When writing this section, describe what your company does for your customers.

The company description or overview section contains three elements: mission statement, history, and objectives.

• Mission Statement

The mission statement refers to the reason why your business or company is existing. It goes beyond what you do or sell, it is about the ‘why’. A good mission statement should be emotional and inspirational.

Your mission statement should follow the KISS rule (Keep It Simple, Stupid). For example, Shopify’s mission statement is “Make commerce better for everyone.”

When describing your company’s history, make it simple and avoid the temptation of tying it to a defensive narrative. Write it in the manner you would a profile. Your company’s history should include the following information:

• Founding Date
• Major Milestones
• Location(s)
• Flagship Products or Services
• Number of Employees
• Executive Leadership Roles

When you fill in this information, you use it to write one or two paragraphs about your company’s history.

Business Objectives

Your business objective must be SMART (specific, measurable, achievable, realistic, and time-bound.) Failure to clearly identify your business objectives does not inspire confidence and makes it hard for your team members to work towards a common purpose.

3. Perform Market and Competitive Analyses to Proof a Big Enough Business Opportunity

The third step in writing a business plan is the market and competitive analysis section. Every business, no matter the size, needs to perform comprehensive market and competitive analyses before it enters into a market.

Performing market and competitive analyses are critical for the success of your business. It helps you avoid entering the right market with the wrong product, or vice versa. Anyone reading your business plans, especially financiers and financial institutions will want to see proof that there is a big enough business opportunity you are targeting.

This section is where you describe the market and industry you want to operate in and show the big opportunities in the market that your business can leverage to make a profit. If you noticed any unique trends when doing your research, show them in this section.

Market analysis alone is not enough, you have to add competitive analysis to strengthen this section. There are already businesses in the industry or market, how do you plan to take a share of the market from them?

You have to clearly illustrate the competitive landscape in your business plan. Are there areas your competitors are doing well? Are there areas where they are not doing so well? Show it.

Make it clear in this section why you are moving into the industry and what weaknesses are present there that you plan to explain. How are your competitors going to react to your market entry? How do you plan to get customers? Do you plan on taking your competitors' competitors, tap into other sources for customers, or both?

Illustrate the competitive landscape as well. What are your competitors doing well and not so well?

Answering these questions and thoughts will aid your market and competitive analysis of the opportunities in your space. Depending on how sophisticated your industry is, or the expectations of your financiers, you may need to carry out a more comprehensive market and competitive analysis to prove that big business opportunity.

Instead of looking at the market and competitive analyses as one entity, separating them will make the research even more comprehensive.

Market Analysis

Market analysis, boarding speaking, refers to research a business carried out on its industry, market, and competitors. It helps businesses gain a good understanding of their target market and the outlook of their industry. Before starting a company, it is vital to carry out market research to find out if the market is viable.

The market analysis section is a key part of the business plan. It is the section where you identify who your best clients or customers are. You cannot omit this section, without it your business plan is incomplete.

A good market analysis will tell your readers how you fit into the existing market and what makes you stand out. This section requires in-depth research, it will probably be the most time-consuming part of the business plan to write.

• Market Research

To create a compelling market analysis that will win over investors and financial institutions, you have to carry out thorough market research . Your market research should be targeted at your primary target market for your products or services. Here is what you want to find out about your target market.

• Your target market’s needs or pain points
• The existing solutions for their pain points
• Geographic Location
• Demographics

The purpose of carrying out a marketing analysis is to get all the information you need to show that you have a solid and thorough understanding of your target audience.

Only after you have fully understood the people you plan to sell your products or services to, can you evaluate correctly if your target market will be interested in your products or services.

You can easily convince interested parties to invest in your business if you can show them you thoroughly understand the market and show them that there is a market for your products or services.

How to Quantify Your Target Market

One of the goals of your marketing research is to understand who your ideal customers are and their purchasing power. To quantify your target market, you have to determine the following:

• Your Potential Customers: They are the people you plan to target. For example, if you sell accounting software for small businesses , then anyone who runs an enterprise or large business is unlikely to be your customers. Also, individuals who do not have a business will most likely not be interested in your product.
• Total Households: If you are selling household products such as heating and air conditioning systems, determining the number of total households is more important than finding out the total population in the area you want to sell to. The logic is simple, people buy the product but it is the household that uses it.
• Median Income: You need to know the median income of your target market. If you target a market that cannot afford to buy your products and services, your business will not last long.
• Income by Demographics: If your potential customers belong to a certain age group or gender, determining income levels by demographics is necessary. For example, if you sell men's clothes, your target audience is men.

What Does a Good Market Analysis Entail?

Your business does not exist on its own, it can only flourish within an industry and alongside competitors. Market analysis takes into consideration your industry, target market, and competitors. Understanding these three entities will drastically improve your company’s chances of success.

You can view your market analysis as an examination of the market you want to break into and an education on the emerging trends and themes in that market. Good market analyses include the following:

• Industry Description. You find out about the history of your industry, the current and future market size, and who the largest players/companies are in your industry.
• Overview of Target Market. You research your target market and its characteristics. Who are you targeting? Note, it cannot be everyone, it has to be a specific group. You also have to find out all information possible about your customers that can help you understand how and why they make buying decisions.
• Size of Target Market: You need to know the size of your target market, how frequently they buy, and the expected quantity they buy so you do not risk overproducing and having lots of bad inventory. Researching the size of your target market will help you determine if it is big enough for sustained business or not.
• Growth Potential: Before picking a target market, you want to be sure there are lots of potential for future growth. You want to avoid going for an industry that is declining slowly or rapidly with almost zero growth potential.
• Market Share Potential: Does your business stand a good chance of taking a good share of the market?
• Market Pricing and Promotional Strategies: Your market analysis should give you an idea of the price point you can expect to charge for your products and services. Researching your target market will also give you ideas of pricing strategies you can implement to break into the market or to enjoy maximum profits.
• Potential Barriers to Entry: One of the biggest benefits of conducting market analysis is that it shows you every potential barrier to entry your business will likely encounter. It is a good idea to discuss potential barriers to entry such as changing technology. It informs readers of your business plan that you understand the market.
• Research on Competitors: You need to know the strengths and weaknesses of your competitors and how you can exploit them for the benefit of your business. Find patterns and trends among your competitors that make them successful, discover what works and what doesn’t, and see what you can do better.

The market analysis section is not just for talking about your target market, industry, and competitors. You also have to explain how your company can fill the hole you have identified in the market.

Here are some questions you can answer that can help you position your product or service in a positive light to your readers.

• Is your product or service of superior quality?
• What additional features do you offer that your competitors do not offer?
• Are you targeting a ‘new’ market?

Basically, your market analysis should include an analysis of what already exists in the market and an explanation of how your company fits into the market.

Competitive Analysis

In the competitive analysis section, y ou have to understand who your direct and indirect competitions are, and how successful they are in the marketplace. It is the section where you assess the strengths and weaknesses of your competitors, the advantage(s) they possess in the market and show the unique features or qualities that make you different from your competitors.

Many businesses do market analysis and competitive analysis together. However, to fully understand what the competitive analysis entails, it is essential to separate it from the market analysis.

Competitive analysis for your business can also include analysis on how to overcome barriers to entry in your target market.

The primary goal of conducting a competitive analysis is to distinguish your business from your competitors. A strong competitive analysis is essential if you want to convince potential funding sources to invest in your business. You have to show potential investors and lenders that your business has what it takes to compete in the marketplace successfully.

Competitive analysis will s how you what the strengths of your competition are and what they are doing to maintain that advantage.

When doing your competitive research, you first have to identify your competitor and then get all the information you can about them. The idea of spending time to identify your competitor and learn everything about them may seem daunting but it is well worth it.

Find answers to the following questions after you have identified who your competitors are.

• What are your successful competitors doing?
• Why is what they are doing working?
• Can your business do it better?
• What are the weaknesses of your successful competitors?
• What are they not doing well?
• Can your business turn its weaknesses into strengths?
• How good is your competitors’ customer service?
• Where do your competitors invest in advertising?
• What sales and pricing strategies are they using?
• What marketing strategies are they using?
• What kind of press coverage do they get?
• What are their customers saying about your competitors (both the positive and negative)?

If your competitors have a website, it is a good idea to visit their websites for more competitors’ research. Check their “About Us” page for more information.

If you are presenting your business plan to investors, you need to clearly distinguish yourself from your competitors. Investors can easily tell when you have not properly researched your competitors.

Take time to think about what unique qualities or features set you apart from your competitors. If you do not have any direct competition offering your product to the market, it does not mean you leave out the competitor analysis section blank. Instead research on other companies that are providing a similar product, or whose product is solving the problem your product solves.

The next step is to create a table listing the top competitors you want to include in your business plan. Ensure you list your business as the last and on the right. What you just created is known as the competitor analysis table.

Direct vs Indirect Competition

You cannot know if your product or service will be a fit for your target market if you have not understood your business and the competitive landscape.

There is no market you want to target where you will not encounter competition, even if your product is innovative. Including competitive analysis in your business plan is essential.

If you are entering an established market, you need to explain how you plan to differentiate your products from the available options in the market. Also, include a list of few companies that you view as your direct competitors The competition you face in an established market is your direct competition.

In situations where you are entering a market with no direct competition, it does not mean there is no competition there. Consider your indirect competition that offers substitutes for the products or services you offer.

For example, if you sell an innovative SaaS product, let us say a project management software , a company offering time management software is your indirect competition.

There is an easy way to find out who your indirect competitors are in the absence of no direct competitors. You simply have to research how your potential customers are solving the problems that your product or service seeks to solve. That is your direct competition.

Factors that Differentiate Your Business from the Competition

There are three main factors that any business can use to differentiate itself from its competition. They are cost leadership, product differentiation, and market segmentation.

1. Cost Leadership

A strategy you can impose to maximize your profits and gain an edge over your competitors. It involves offering lower prices than what the majority of your competitors are offering.

A common practice among businesses looking to enter into a market where there are dominant players is to use free trials or pricing to attract as many customers as possible to their offer.

2. Product Differentiation

Your product or service should have a unique selling proposition (USP) that your competitors do not have or do not stress in their marketing.

Part of the marketing strategy should involve making your products unique and different from your competitors. It does not have to be different from your competitors, it can be the addition to a feature or benefit that your competitors do not currently have.

3. Market Segmentation

As a new business seeking to break into an industry, you will gain more success from focusing on a specific niche or target market, and not the whole industry.

If your competitors are focused on a general need or target market, you can differentiate yourself from them by having a small and hyper-targeted audience. For example, if your competitors are selling men’s clothes in their online stores , you can sell hoodies for men.

4. Define Your Business and Management Structure

The next step in your business plan is your business and management structure. It is the section where you describe the legal structure of your business and the team running it.

Your business is only as good as the management team that runs it, while the management team can only strive when there is a proper business and management structure in place.

If your company is a sole proprietor or a limited liability company (LLC), a general or limited partnership, or a C or an S corporation, state it clearly in this section.

Use an organizational chart to show the management structure in your business. Clearly show who is in charge of what area in your company. It is where you show how each key manager or team leader’s unique experience can contribute immensely to the success of your company. You can also opt to add the resumes and CVs of the key players in your company.

The business and management structure section should show who the owner is, and other owners of the businesses (if the business has other owners). For businesses or companies with multiple owners, include the percent ownership of the various owners and clearly show the extent of each others’ involvement in the company.

Investors want to know who is behind the company and the team running it to determine if it has the right management to achieve its set goals.

Management Team

The management team section is where you show that you have the right team in place to successfully execute the business operations and ideas. Take time to create the management structure for your business. Think about all the important roles and responsibilities that you need managers for to grow your business.

Include brief bios of each key team member and ensure you highlight only the relevant information that is needed. If your team members have background industry experience or have held top positions for other companies and achieved success while filling that role, highlight it in this section.

A common mistake that many startups make is assigning C-level titles such as (CMO and CEO) to everyone on their team. It is unrealistic for a small business to have those titles. While it may look good on paper for the ego of your team members, it can prevent investors from investing in your business.

Instead of building an unrealistic management structure that does not fit your business reality, it is best to allow business titles to grow as the business grows. Starting everyone at the top leaves no room for future change or growth, which is bad for productivity.

Your management team does not have to be complete before you start writing your business plan. You can have a complete business plan even when there are managerial positions that are empty and need filling.

If you have management gaps in your team, simply show the gaps and indicate you are searching for the right candidates for the role(s). Investors do not expect you to have a full management team when you are just starting your business.

Key Questions to Answer When Structuring Your Management Team

• Who are the key leaders?
• What experiences, skills, and educational backgrounds do you expect your key leaders to have?
• Do your key leaders have industry experience?
• What positions will they fill and what duties will they perform in those positions?
• What level of authority do the key leaders have and what are their responsibilities?
• What is the salary for the various management positions that will attract the ideal candidates?

Additional Tips for Writing the Management Structure Section

1. Avoid Adding ‘Ghost’ Names to Your Management Team

There is always that temptation to include a ‘ghost’ name to your management team to attract and influence investors to invest in your business. Although the presence of these celebrity management team members may attract the attention of investors, it can cause your business to lose any credibility if you get found out.

Seasoned investors will investigate further the members of your management team before committing fully to your business If they find out that the celebrity name used does not play any actual role in your business, they will not invest and may write you off as dishonest.

2. Focus on Credentials But Pay Extra Attention to the Roles

Investors want to know the experience that your key team members have to determine if they can successfully reach the company’s growth and financial goals.

While it is an excellent boost for your key management team to have the right credentials, you also want to pay extra attention to the roles they will play in your company.

Organizational Chart

Adding an organizational chart in this section of your business plan is not necessary, you can do it in your business plan’s appendix.

If you are exploring funding options, it is not uncommon to get asked for your organizational chart. The function of an organizational chart goes beyond raising money, you can also use it as a useful planning tool for your business.

An organizational chart can help you identify how best to structure your management team for maximum productivity and point you towards key roles you need to fill in the future.

You can use the organizational chart to show your company’s internal management structure such as the roles and responsibilities of your management team, and relationships that exist between them.

5. Describe Your Product and Service Offering

In your business plan, you have to describe what you sell or the service you plan to offer. It is the next step after defining your business and management structure. The products and services section is where you sell the benefits of your business.

Here you have to explain how your product or service will benefit your customers and describe your product lifecycle. It is also the section where you write down your plans for intellectual property like patent filings and copyrighting.

The research and development that you are undertaking for your product or service need to be explained in detail in this section. However, do not get too technical, sell the general idea and its benefits.

If you have any diagrams or intricate designs of your product or service, do not include them in the products and services section. Instead, leave them for the addendum page. Also, if you are leaving out diagrams or designs for the addendum, ensure you add this phrase “For more detail, visit the addendum Page #.”

Your product and service section in your business plan should include the following:

• A detailed explanation that clearly shows how your product or service works.
• The pricing model for your product or service.
• Your business’ sales and distribution strategy.
• The ideal customers that want your product or service.
• The benefits of your products and services.
• Reason(s) why your product or service is a better alternative to what your competitors are currently offering in the market.
• Plans for filling the orders you receive
• If you have current or pending patents, copyrights, and trademarks for your product or service, you can also discuss them in this section.

What to Focus On When Describing the Benefits, Lifecycle, and Production Process of Your Products or Services

In the products and services section, you have to distill the benefits, lifecycle, and production process of your products and services.

When describing the benefits of your products or services, here are some key factors to focus on.

• Unique features
• Translating the unique features into benefits
• The emotional, psychological, and practical payoffs to attract customers
• Intellectual property rights or any patents

When describing the product life cycle of your products or services, here are some key factors to focus on.

• Upsells, cross-sells, and down-sells
• Time between purchases
• Plans for research and development.

When describing the production process for your products or services, you need to think about the following:

• The creation of new or existing products and services.
• The sources for the raw materials or components you need for production.
• Assembling the products
• Maintaining quality control
• Supply-chain logistics (receiving the raw materials and delivering the finished products)
• The day-to-day management of the production processes, bookkeeping, and inventory.

Tips for Writing the Products or Services Section of Your Business Plan

1. Avoid Technical Descriptions and Industry Buzzwords

The products and services section of your business plan should clearly describe the products and services that your company provides. However, it is not a section to include technical jargons that anyone outside your industry will not understand.

A good practice is to remove highly detailed or technical descriptions in favor of simple terms. Industry buzzwords are not necessary, if there are simpler terms you can use, then use them. If you plan to use your business plan to source funds, making the product or service section so technical will do you no favors.

2. Describe How Your Products or Services Differ from Your Competitors

When potential investors look at your business plan, they want to know how the products and services you are offering differ from that of your competition. Differentiating your products or services from your competition in a way that makes your solution more attractive is critical.

If you are going the innovative path and there is no market currently for your product or service, you need to describe in this section why the market needs your product or service.

For example, overnight delivery was a niche business that only a few companies were participating in. Federal Express (FedEx) had to show in its business plan that there was a large opportunity for that service and they justified why the market needed that service.

3. Long or Short Products or Services Section

Should your products or services section be short? Does the long products or services section attract more investors?

There are no straightforward answers to these questions. Whether your products or services section should be long or relatively short depends on the nature of your business.

If your business is product-focused, then automatically you need to use more space to describe the details of your products. However, if the product your business sells is a commodity item that relies on competitive pricing or other pricing strategies, you do not have to use up so much space to provide significant details about the product.

Likewise, if you are selling a commodity that is available in numerous outlets, then you do not have to spend time on writing a long products or services section.

The key to the success of your business is most likely the effectiveness of your marketing strategies compared to your competitors. Use more space to address that section.

If you are creating a new product or service that the market does not know about, your products or services section can be lengthy. The reason why is because you need to explain everything about the product or service such as the nature of the product, its use case, and values.

A short products or services section for an innovative product or service will not give the readers enough information to properly evaluate your business.

4. Describe Your Relationships with Vendors or Suppliers

Your business will rely on vendors or suppliers to supply raw materials or the components needed to make your products. In your products and services section, describe your relationships with your vendors and suppliers fully.

Avoid the mistake of relying on only one supplier or vendor. If that supplier or vendor fails to supply or goes out of business, you can easily face supply problems and struggle to meet your demands. Plan to set up multiple vendor or supplier relationships for better business stability.

5. Your Primary Goal Is to Convince Your Readers

The primary goal of your business plan is to convince your readers that your business is viable and to create a guide for your business to follow. It applies to the products and services section.

When drafting this section, think like the reader. See your reader as someone who has no idea about your products and services. You are using the products and services section to provide the needed information to help your reader understand your products and services. As a result, you have to be clear and to the point.

While you want to educate your readers about your products or services, you also do not want to bore them with lots of technical details. Show your products and services and not your fancy choice of words.

Your products and services section should provide the answer to the “what” question for your business. You and your management team may run the business, but it is your products and services that are the lifeblood of the business.

Key Questions to Answer When Writing your Products and Services Section

Answering these questions can help you write your products and services section quickly and in a way that will appeal to your readers.

• Are your products existing on the market or are they still in the development stage?
• What is your timeline for adding new products and services to the market?
• What are the positives that make your products and services different from your competitors?
• Do your products and services have any competitive advantage that your competitors’ products and services do not currently have?
• Do your products or services have any competitive disadvantages that you need to overcome to compete with your competitors? If your answer is yes, state how you plan to overcome them,
• How much does it cost to produce your products or services? How much do you plan to sell it for?
• What is the price for your products and services compared to your competitors? Is pricing an issue?
• What are your operating costs and will it be low enough for you to compete with your competitors and still take home a reasonable profit margin?
• What is your plan for acquiring your products? Are you involved in the production of your products or services?
• Are you the manufacturer and produce all the components you need to create your products? Do you assemble your products by using components supplied by other manufacturers? Do you purchase your products directly from suppliers or wholesalers?
• Do you have a steady supply of products that you need to start your business? (If your business is yet to kick-off)
• How do you plan to distribute your products or services to the market?

You can also hint at the marketing or promotion plans you have for your products or services such as how you plan to build awareness or retain customers. The next section is where you can go fully into details about your business’s marketing and sales plan.

6. Show and Explain Your Marketing and Sales Plan

Providing great products and services is wonderful, but it means nothing if you do not have a marketing and sales plan to inform your customers about them. Your marketing and sales plan is critical to the success of your business.

The sales and marketing section is where you show and offer a detailed explanation of your marketing and sales plan and how you plan to execute it. It covers your pricing plan, proposed advertising and promotion activities, activities and partnerships you need to make your business a success, and the benefits of your products and services.

There are several ways you can approach your marketing and sales strategy. Ideally, your marketing and sales strategy has to fit the unique needs of your business.

In this section, you describe how the plans your business has for attracting and retaining customers, and the exact process for making a sale happen. It is essential to thoroughly describe your complete marketing and sales plans because you are still going to reference this section when you are making financial projections for your business.

Outline Your Business’ Unique Selling Proposition (USP)

The sales and marketing section is where you outline your business’s unique selling proposition (USP). When you are developing your unique selling proposition, think about the strongest reasons why people should buy from you over your competition. That reason(s) is most likely a good fit to serve as your unique selling proposition (USP).

Target Market and Target Audience

Plans on how to get your products or services to your target market and how to get your target audience to buy them go into this section. You also highlight the strengths of your business here, particularly what sets them apart from your competition.

Before you start writing your marketing and sales plan, you need to have properly defined your target audience and fleshed out your buyer persona. If you do not first understand the individual you are marketing to, your marketing and sales plan will lack any substance and easily fall.

Creating a Smart Marketing and Sales Plan

Marketing your products and services is an investment that requires you to spend money. Like any other investment, you have to generate a good return on investment (ROI) to justify using that marketing and sales plan. Good marketing and sales plans bring in high sales and profits to your company.

Avoid spending money on unproductive marketing channels. Do your research and find out the best marketing and sales plan that works best for your company.

Your marketing and sales plan can be broken into different parts: your positioning statement, pricing, promotion, packaging, advertising, public relations, content marketing, social media, and strategic alliances.

Your Positioning Statement

Your positioning statement is the first part of your marketing and sales plan. It refers to the way you present your company to your customers.

Are you the premium solution, the low-price solution, or are you the intermediary between the two extremes in the market? What do you offer that your competitors do not that can give you leverage in the market?

Before you start writing your positioning statement, you need to spend some time evaluating the current market conditions. Here are some questions that can help you to evaluate the market

• What are the unique features or benefits that you offer that your competitors lack?
• What are your customers’ primary needs and wants?
• Why should a customer choose you over your competition? How do you plan to differentiate yourself from the competition?
• How does your company’s solution compare with other solutions in the market?

After answering these questions, then you can start writing your positioning statement. Your positioning statement does not have to be in-depth or too long.

All you need to explain with your positioning statement are two focus areas. The first is the position of your company within the competitive landscape. The other focus area is the core value proposition that sets your company apart from other alternatives that your ideal customer might consider.

Here is a simple template you can use to develop a positioning statement.

For [description of target market] who [need of target market], [product or service] [how it meets the need]. Unlike [top competition], it [most essential distinguishing feature].

For example, let’s create the positioning statement for fictional accounting software and QuickBooks alternative , TBooks.

“For small business owners who need accounting services, TBooks is an accounting software that helps small businesses handle their small business bookkeeping basics quickly and easily. Unlike Wave, TBooks gives small businesses access to live sessions with top accountants.”

You can edit this positioning statement sample and fill it with your business details.

After writing your positioning statement, the next step is the pricing of your offerings. The overall positioning strategy you set in your positioning statement will often determine how you price your products or services.

Pricing is a powerful tool that sends a strong message to your customers. Failure to get your pricing strategy right can make or mar your business. If you are targeting a low-income audience, setting a premium price can result in low sales.

You can use pricing to communicate your positioning to your customers. For example, if you are offering a product at a premium price, you are sending a message to your customers that the product belongs to the premium category.

Basic Rules to Follow When Pricing Your Offering

Setting a price for your offering involves more than just putting a price tag on it. Deciding on the right pricing for your offering requires following some basic rules. They include covering your costs, primary and secondary profit center pricing, and matching the market rate.

• Covering Your Costs: The price you set for your products or service should be more than it costs you to produce and deliver them. Every business has the same goal, to make a profit. Depending on the strategy you want to use, there are exceptions to this rule. However, the vast majority of businesses follow this rule.
• Primary and Secondary Profit Center Pricing: When a company sets its price above the cost of production, it is making that product its primary profit center. A company can also decide not to make its initial price its primary profit center by selling below or at even with its production cost. It rather depends on the support product or even maintenance that is associated with the initial purchase to make its profit. The initial price thus became its secondary profit center.
• Matching the Market Rate: A good rule to follow when pricing your products or services is to match your pricing with consumer demand and expectations. If you price your products or services beyond the price your customer perceives as the ideal price range, you may end up with no customers. Pricing your products too low below what your customer perceives as the ideal price range may lead to them undervaluing your offering.

Pricing Strategy

Your pricing strategy influences the price of your offering. There are several pricing strategies available for you to choose from when examining the right pricing strategy for your business. They include cost-plus pricing, market-based pricing, value pricing, and more.

• Cost-plus Pricing: This strategy is one of the simplest and oldest pricing strategies. Here you consider the cost of producing a unit of your product and then add a profit to it to arrive at your market price. It is an effective pricing strategy for manufacturers because it helps them cover their initial costs. Another name for the cost-plus pricing strategy is the markup pricing strategy.
• Market-based Pricing: This pricing strategy analyses the market including competitors’ pricing and then sets a price based on what the market is expecting. With this pricing strategy, you can either set your price at the low-end or high-end of the market.
• Value Pricing: This pricing strategy involves setting a price based on the value you are providing to your customer. When adopting a value-based pricing strategy, you have to set a price that your customers are willing to pay. Service-based businesses such as small business insurance providers , luxury goods sellers, and the fashion industry use this pricing strategy.

After carefully sorting out your positioning statement and pricing, the next item to look at is your promotional strategy. Your promotional strategy explains how you plan on communicating with your customers and prospects.

As a business, you must measure all your costs, including the cost of your promotions. You also want to measure how much sales your promotions bring for your business to determine its usefulness. Promotional strategies or programs that do not lead to profit need to be removed.

There are different types of promotional strategies you can adopt for your business, they include advertising, public relations, and content marketing.

Advertising

Your business plan should include your advertising plan which can be found in the marketing and sales plan section. You need to include an overview of your advertising plans such as the areas you plan to spend money on to advertise your business and offers.

Ensure that you make it clear in this section if your business will be advertising online or using the more traditional offline media, or the combination of both online and offline media. You can also include the advertising medium you want to use to raise awareness about your business and offers.

Some common online advertising mediums you can use include social media ads, landing pages, sales pages, SEO, Pay-Per-Click, emails, Google Ads, and others. Some common traditional and offline advertising mediums include word of mouth, radios, direct mail, televisions, flyers, billboards, posters, and others.

A key component of your advertising strategy is how you plan to measure the effectiveness and success of your advertising campaign. There is no point in sticking with an advertising plan or medium that does not produce results for your business in the long run.

Public Relations

A great way to reach your customers is to get the media to cover your business or product. Publicity, especially good ones, should be a part of your marketing and sales plan. In this section, show your plans for getting prominent reviews of your product from reputable publications and sources.

Your business needs that exposure to grow. If public relations is a crucial part of your promotional strategy, provide details about your public relations plan here.

Content Marketing

Content marketing is a popular promotional strategy used by businesses to inform and attract their customers. It is about teaching and educating your prospects on various topics of interest in your niche, it does not just involve informing them about the benefits and features of the products and services you have,

Businesses publish content usually for free where they provide useful information, tips, and advice so that their target market can be made aware of the importance of their products and services. Content marketing strategies seek to nurture prospects into buyers over time by simply providing value.

Your company can create a blog where it will be publishing content for its target market. You will need to use the best website builder such as Wix and Squarespace and the best web hosting services such as Bluehost, Hostinger, and other Bluehost alternatives to create a functional blog or website.

If content marketing is a crucial part of your promotional strategy (as it should be), detail your plans under promotions.

Including high-quality images of the packaging of your product in your business plan is a lovely idea. You can add the images of the packaging of that product in the marketing and sales plan section. If you are not selling a product, then you do not need to include any worry about the physical packaging of your product.

When organizing the packaging section of your business plan, you can answer the following questions to make maximum use of this section.

• Is your choice of packaging consistent with your positioning strategy?
• What key value proposition does your packaging communicate? (It should reflect the key value proposition of your business)
• How does your packaging compare to that of your competitors?

Social Media

Your 21st-century business needs to have a good social media presence. Not having one is leaving out opportunities for growth and reaching out to your prospect.

You do not have to join the thousands of social media platforms out there. What you need to do is join the ones that your customers are active on and be active there.

Businesses use social media to provide information about their products such as promotions, discounts, the benefits of their products, and content on their blogs.

Social media is also a platform for engaging with your customers and getting feedback about your products or services. Make no mistake, more and more of your prospects are using social media channels to find more information about companies.

You need to consider the social media channels you want to prioritize your business (prioritize the ones your customers are active in) and your branding plans in this section.

Strategic Alliances

If your company plans to work closely with other companies as part of your sales and marketing plan, include it in this section. Prove details about those partnerships in your business plan if you have already established them.

Strategic alliances can be beneficial for all parties involved including your company. Working closely with another company in the form of a partnership can provide access to a different target market segment for your company.

The company you are partnering with may also gain access to your target market or simply offer a new product or service (that of your company) to its customers.

Mutually beneficial partnerships can cover the weaknesses of one company with the strength of another. You should consider strategic alliances with companies that sell complimentary products to yours. For example, if you provide printers, you can partner with a company that produces ink since the customers that buy printers from you will also need inks for printing.

Steps Involved in Creating a Marketing and Sales Plan

1. Focus on Your Target Market

Identify who your customers are, the market you want to target. Then determine the best ways to get your products or services to your potential customers.

2. Evaluate Your Competition

One of the goals of having a marketing plan is to distinguish yourself from your competition. You cannot stand out from them without first knowing them in and out.

You can know your competitors by gathering information about their products, pricing, service, and advertising campaigns.

These questions can help you know your competition.

• What makes your competition successful?
• What are their weaknesses?
• What are customers saying about your competition?

3. Consider Your Brand

Customers' perception of your brand has a strong impact on your sales. Your marketing and sales plan should seek to bolster the image of your brand. Before you start marketing your business, think about the message you want to pass across about your business and your products and services.

4. Focus on Benefits

The majority of your customers do not view your product in terms of features, what they want to know is the benefits and solutions your product offers. Think about the problems your product solves and the benefits it delivers, and use it to create the right sales and marketing message.

Your marketing plan should focus on what you want your customer to get instead of what you provide. Identify those benefits in your marketing and sales plan.

5. Focus on Differentiation

Your marketing and sales plan should look for a unique angle they can take that differentiates your business from the competition, even if the products offered are similar. Some good areas of differentiation you can use are your benefits, pricing, and features.

Key Questions to Answer When Writing Your Marketing and Sales Plan

• What is your company’s budget for sales and marketing campaigns?
• What key metrics will you use to determine if your marketing plans are successful?
• What are your alternatives if your initial marketing efforts do not succeed?
• Who are the sales representatives you need to promote your products or services?
• What are the marketing and sales channels you plan to use? How do you plan to get your products in front of your ideal customers?
• Where will you sell your products?

You may want to include samples of marketing materials you plan to use such as print ads, website descriptions, and social media ads. While it is not compulsory to include these samples, it can help you better communicate your marketing and sales plan and objectives.

The purpose of the marketing and sales section is to answer this question “How will you reach your customers?” If you cannot convincingly provide an answer to this question, you need to rework your marketing and sales section.

7. Clearly Show Your Funding Request

If you are writing your business plan to ask for funding from investors or financial institutions, the funding request section is where you will outline your funding requirements. The funding request section should answer the question ‘How much money will your business need in the near future (3 to 5 years)?’

A good funding request section will clearly outline and explain the amount of funding your business needs over the next five years. You need to know the amount of money your business needs to make an accurate funding request.

Also, when writing your funding request, provide details of how the funds will be used over the period. Specify if you want to use the funds to buy raw materials or machinery, pay salaries, pay for advertisements, and cover specific bills such as rent and electricity.

In addition to explaining what you want to use the funds requested for, you need to clearly state the projected return on investment (ROI) . Investors and creditors want to know if your business can generate profit for them if they put funds into it.

Ensure you do not inflate the figures and stay as realistic as possible. Investors and financial institutions you are seeking funds from will do their research before investing money in your business.

If you are not sure of an exact number to request from, you can use some range of numbers as rough estimates. Add a best-case scenario and a work-case scenario to your funding request. Also, include a description of your strategic future financial plans such as selling your business or paying off debts.

Funding Request: Debt or Equity?

When making your funding request, specify the type of funding you want. Do you want debt or equity? Draw out the terms that will be applicable for the funding, and the length of time the funding request will cover.

Case for Equity

If your new business has not yet started generating profits, you are most likely preparing to sell equity in your business to raise capital at the early stage. Equity here refers to ownership. In this case, you are selling a portion of your company to raise capital.

Although this method of raising capital for your business does not put your business in debt, keep in mind that an equity owner may expect to play a key role in company decisions even if he does not hold a major stake in the company.

Most equity sales for startups are usually private transactions . If you are making a funding request by offering equity in exchange for funding, let the investor know that they will be paid a dividend (a share of the company’s profit). Also, let the investor know the process for selling their equity in your business.

Case for Debt

You may decide not to offer equity in exchange for funds, instead, you make a funding request with the promise to pay back the money borrowed at the agreed time frame.

When making a funding request with an agreement to pay back, note that you will have to repay your creditors both the principal amount borrowed and the interest on it. Financial institutions offer this type of funding for businesses.

Large companies combine both equity and debt in their capital structure. When drafting your business plan, decide if you want to offer both or one over the other.

Before you sell equity in exchange for funding in your business, consider if you are willing to accept not being in total control of your business. Also, before you seek loans in your funding request section, ensure that the terms of repayment are favorable.

You should set a clear timeline in your funding request so that potential investors and creditors can know what you are expecting. Some investors and creditors may agree to your funding request and then delay payment for longer than 30 days, meanwhile, your business needs an immediate cash injection to operate efficiently.

Additional Tips for Writing the Funding Request Section of your Business Plan

The funding request section is not necessary for every business, it is only needed by businesses who plan to use their business plan to secure funding.

If you are adding the funding request section to your business plan, provide an itemized summary of how you plan to use the funds requested. Hiring a lawyer, accountant, or other professionals may be necessary for the proper development of this section.

You should also gather and use financial statements that add credibility and support to your funding requests. Ensure that the financial statements you use should include your projected financial data such as projected cash flows, forecast statements, and expenditure budgets.

If you are an existing business, include all historical financial statements such as cash flow statements, balance sheets and income statements .

Provide monthly and quarterly financial statements for a year. If your business has records that date back beyond the one-year mark, add the yearly statements of those years. These documents are for the appendix section of your business plan.

8. Detail Your Financial Plan, Metrics, and Projections

If you used the funding request section in your business plan, supplement it with a financial plan, metrics, and projections. This section paints a picture of the past performance of your business and then goes ahead to make an informed projection about its future.

The goal of this section is to convince readers that your business is going to be a financial success. It outlines your business plan to generate enough profit to repay the loan (with interest if applicable) and to generate a decent return on investment for investors.

If you have an existing business already in operation, use this section to demonstrate stability through finance. This section should include your cash flow statements, balance sheets, and income statements covering the last three to five years. If your business has some acceptable collateral that you can use to acquire loans, list it in the financial plan, metrics, and projection section.

Apart from current financial statements, this section should also contain a prospective financial outlook that spans the next five years. Include forecasted income statements, cash flow statements, balance sheets, and capital expenditure budget.

If your business is new and is not yet generating profit, use clear and realistic projections to show the potentials of your business.

When drafting this section, research industry norms and the performance of comparable businesses. Your financial projections should cover at least five years. State the logic behind your financial projections. Remember you can always make adjustments to this section as the variables change.

The financial plan, metrics, and projection section create a baseline which your business can either exceed or fail to reach. If your business fails to reach your projections in this section, you need to understand why it failed.

Investors and loan managers spend a lot of time going through the financial plan, metrics, and projection section compared to other parts of the business plan. Ensure you spend time creating credible financial analyses for your business in this section.

Many entrepreneurs find this section daunting to write. You do not need a business degree to create a solid financial forecast for your business. Business finances, especially for startups, are not as complicated as they seem. There are several online tools and templates that make writing this section so much easier.

Use Graphs and Charts

The financial plan, metrics, and projection section is a great place to use graphs and charts to tell the financial story of your business. Charts and images make it easier to communicate your finances.

Accuracy in this section is key, ensure you carefully analyze your past financial statements properly before making financial projects.

Address the Risk Factors and Show Realistic Financial Projections

Keep your financial plan, metrics, and projection realistic. It is okay to be optimistic in your financial projection, however, you have to justify it.

You should also address the various risk factors associated with your business in this section. Investors want to know the potential risks involved, show them. You should also show your plans for mitigating those risks.

What You Should In The Financial Plan, Metrics, and Projection Section of Your Business Plan

The financial plan, metrics, and projection section of your business plan should have monthly sales and revenue forecasts for the first year. It should also include annual projections that cover 3 to 5 years.

A three-year projection is a basic requirement to have in your business plan. However, some investors may request a five-year forecast.

Your business plan should include the following financial statements: sales forecast, personnel plan, income statement, income statement, cash flow statement, balance sheet, and an exit strategy.

1. Sales Forecast

Sales forecast refers to your projections about the number of sales your business is going to record over the next few years. It is typically broken into several rows, with each row assigned to a core product or service that your business is offering.

One common mistake people make in their business plan is to break down the sales forecast section into long details. A sales forecast should forecast the high-level details.

For example, if you are forecasting sales for a payroll software provider, you could break down your forecast into target market segments or subscription categories.

Your sales forecast section should also have a corresponding row for each sales row to cover the direct cost or Cost of Goods Sold (COGS). The objective of these rows is to show the expenses that your business incurs in making and delivering your product or service.

Note that your Cost of Goods Sold (COGS) should only cover those direct costs incurred when making your products. Other indirect expenses such as insurance, salaries, payroll tax, and rent should not be included.

For example, the Cost of Goods Sold (COGS) for a restaurant is the cost of ingredients while for a consulting company it will be the cost of paper and other presentation materials.

2. Personnel Plan

The personnel plan section is where you provide details about the payment plan for your employees. For a small business, you can easily list every position in your company and how much you plan to pay in the personnel plan.

However, for larger businesses, you have to break the personnel plan into functional groups such as sales and marketing.

The personnel plan will also include the cost of an employee beyond salary, commonly referred to as the employee burden. These costs include insurance, payroll taxes , and other essential costs incurred monthly as a result of having employees on your payroll.

3. Income Statement

The income statement section shows if your business is making a profit or taking a loss. Another name for the income statement is the profit and loss (P&L). It takes data from your sales forecast and personnel plan and adds other ongoing expenses you incur while running your business.

Every business plan should have an income statement. It subtracts your business expenses from its earnings to show if your business is generating profit or incurring losses.

The income statement has the following items: sales, Cost of Goods Sold (COGS), gross margin, operating expenses, total operating expenses, operating income , total expenses, and net profit.

• Sales refer to the revenue your business generates from selling its products or services. Other names for sales are income or revenue.
• Cost of Goods Sold (COGS) refers to the total cost of selling your products. Other names for COGS are direct costs or cost of sales. Manufacturing businesses use the Costs of Goods Manufactured (COGM) .
• Gross Margin is the figure you get when you subtract your COGS from your sales. In your income statement, you can express it as a percentage of total sales (Gross margin / Sales = Gross Margin Percent).
• Operating Expenses refer to all the expenses you incur from running your business. It exempts the COGS because it stands alone as a core part of your income statement. You also have to exclude taxes, depreciation, and amortization. Your operating expenses include salaries, marketing expenses, research and development (R&D) expenses, and other expenses.
• Total Operating Expenses refers to the sum of all your operating expenses including those exemptions named above under operating expenses.
• Operating Income refers to earnings before interest, taxes, depreciation, and amortization. It is simply known as the acronym EBITDA (earnings before interest, taxes, depreciation, and amortization). Calculating your operating income is simple, all you need to do is to subtract your COGS and total operating expenses from your sales.
• Total Expenses refer to the sum of your operating expenses and your business’ interest, taxes, depreciation, and amortization.
• Net profit shows whether your business has made a profit or taken a loss during a given timeframe.

4. Cash Flow Statement

The cash flow statement tracks the money you have in the bank at any given point. It is often confused with the income statement or the profit and loss statement. They are both different types of financial statements. The income statement calculates your profits and losses while the cash flow statement shows you how much you have in the bank.

5. Balance Sheet

The balance sheet is a financial statement that provides an overview of the financial health of your business. It contains information about the assets and liabilities of your company, and owner’s or shareholders’ equity.

You can get the net worth of your company by subtracting your company’s liabilities from its assets.

6. Exit Strategy

The exit strategy refers to a probable plan for selling your business either to the public in an IPO or to another company. It is the last thing you include in the financial plan, metrics, and projection section.

You can choose to omit the exit strategy from your business plan if you plan to maintain full ownership of your business and do not plan on seeking angel investment or virtual capitalist (VC) funding.

Investors may want to know what your exit plan is. They invest in your business to get a good return on investment.

Your exit strategy does not have to include long and boring details. Ensure you identify some interested parties who may be interested in buying the company if it becomes a success.

Key Questions to Answer with Your Financial Plan, Metrics, and Projection

Your financial plan, metrics, and projection section helps investors, creditors, or your internal managers to understand what your expenses are, the amount of cash you need, and what it takes to make your company profitable. It also shows what you will be doing with any funding.

You do not need to show actual financial data if you do not have one. Adding forecasts and projections to your financial statements is added proof that your strategy is feasible and shows investors you have planned properly.

Here are some key questions to answer to help you develop this section.

• What is your sales forecast for the next year?
• When will your company achieve a positive cash flow?
• What are the core expenses you need to operate?
• How much money do you need upfront to operate or grow your company?
• How will you use the loans or investments?

9. Add an Appendix to Your Business Plan

Adding an appendix to your business plan is optional. It is a useful place to put any charts, tables, legal notes, definitions, permits, résumés, and other critical information that do not fit into other sections of your business plan.

The appendix section is where you would want to include details of a patent or patent-pending if you have one. You can always add illustrations or images of your products here. It is the last section of your business plan.

When writing your business plan, there are details you cut short or remove to prevent the entire section from becoming too lengthy. There are also details you want to include in the business plan but are not a good fit for any of the previous sections. You can add that additional information to the appendix section.

Businesses also use the appendix section to include supporting documents or other materials specially requested by investors or lenders.

You can include just about any information that supports the assumptions and statements you made in the business plan under the appendix. It is the one place in the business plan where unrelated data and information can coexist amicably.

If your appendix section is lengthy, try organizing it by adding a table of contents at the beginning of the appendix section. It is also advisable to group similar information to make it easier for the reader to access them.

A well-organized appendix section makes it easier to share your information clearly and concisely. Add footnotes throughout the rest of the business plan or make references in the plan to the documents in the appendix.

The appendix section is usually only necessary if you are seeking funding from investors or lenders, or hoping to attract partners.

People reading business plans do not want to spend time going through a heap of backup information, numbers, and charts. Keep these documents or information in the Appendix section in case the reader wants to dig deeper.

Common Items to Include in the Appendix Section of Your Business Plan

The appendix section includes documents that supplement or support the information or claims given in other sections of the business plans. Common items you can include in the appendix section include:

• Additional data about the process of manufacturing or creation
• Additional description of products or services such as product schematics
• Additional financial documents or projections
• Articles of incorporation and status
• Backup for market research or competitive analysis
• Bank statements
• Business registries
• Client testimonials (if your business is already running)
• Copies of insurances
• Credit histories (personal or/and business)
• Deeds and permits
• Equipment leases
• Examples of marketing and advertising collateral
• Industry associations and memberships
• Images of product
• Intellectual property
• Key customer contracts
• Legal documents and other contracts
• Letters of reference
• Links to references
• Market research data
• Organizational charts
• Photographs of potential facilities
• Professional licenses pertaining to your legal structure or type of business
• Purchase orders
• Resumes of the founder(s) and key managers
• State and federal identification numbers or codes
• Trademarks or patents’ registrations

Avoid using the appendix section as a place to dump any document or information you feel like adding. Only add documents or information that you support or increase the credibility of your business plan.

Tips and Strategies for Writing a Convincing Business Plan

To achieve a perfect business plan, you need to consider some key tips and strategies. These tips will raise the efficiency of your business plan above average.

1. Know Your Audience

When writing a business plan, you need to know your audience . Business owners write business plans for different reasons. Your business plan has to be specific. For example, you can write business plans to potential investors, banks, and even fellow board members of the company.

The audience you are writing to determines the structure of the business plan. As a business owner, you have to know your audience. Not everyone will be your audience. Knowing your audience will help you to narrow the scope of your business plan.

Consider what your audience wants to see in your projects, the likely questions they might ask, and what interests them.

• A business plan used to address a company's board members will center on its employment schemes, internal affairs, projects, stakeholders, etc.
• A business plan for financial institutions will talk about the size of your market and the chances for you to pay back any loans you demand.
• A business plan for investors will show proof that you can return the investment capital within a specific time. In addition, it discusses your financial projections, tractions, and market size.

2. Get Inspiration from People

Writing a business plan from scratch as an entrepreneur can be daunting. That is why you need the right inspiration to push you to write one. You can gain inspiration from the successful business plans of other businesses. Look at their business plans, the style they use, the structure of the project, etc.

To make your business plan easier to create, search companies related to your business to get an exact copy of what you need to create an effective business plan. You can also make references while citing examples in your business plans.

When drafting your business plan, get as much help from others as you possibly can. By getting inspiration from people, you can create something better than what they have.

3. Avoid Being Over Optimistic

Many business owners make use of strong adjectives to qualify their content. One of the big mistakes entrepreneurs make when preparing a business plan is promising too much.

The use of superlatives and over-optimistic claims can prepare the audience for more than you can offer. In the end, you disappoint the confidence they have in you.

In most cases, the best option is to be realistic with your claims and statistics. Most of the investors can sense a bit of incompetency from the overuse of superlatives. As a new entrepreneur, do not be tempted to over-promise to get the interests of investors.

The concept of entrepreneurship centers on risks, nothing is certain when you make future analyses. What separates the best is the ability to do careful research and work towards achieving that, not promising more than you can achieve.

To make an excellent first impression as an entrepreneur, replace superlatives with compelling data-driven content. In this way, you are more specific than someone promising a huge ROI from an investment.

4. Keep it Simple and Short

When writing business plans, ensure you keep them simple throughout. Irrespective of the purpose of the business plan, your goal is to convince the audience.

One way to achieve this goal is to make them understand your proposal. Therefore, it would be best if you avoid the use of complex grammar to express yourself. It would be a huge turn-off if the people you want to convince are not familiar with your use of words.

Another thing to note is the length of your business plan. It would be best if you made it as brief as possible.

You hardly see investors or agencies that read through an extremely long document. In that case, if your first few pages can’t convince them, then you have lost it. The more pages you write, the higher the chances of you derailing from the essential contents.

To ensure your business plan has a high conversion rate, you need to dispose of every unnecessary information. For example, if you have a strategy that you are not sure of, it would be best to leave it out of the plan.

5. Make an Outline and Follow Through

A perfect business plan must have touched every part needed to convince the audience. Business owners get easily tempted to concentrate more on their products than on other sections. Doing this can be detrimental to the efficiency of the business plan.

For example, imagine you talking about a product but omitting or providing very little information about the target audience. You will leave your clients confused.

To ensure that your business plan communicates your full business model to readers, you have to input all the necessary information in it. One of the best ways to achieve this is to design a structure and stick to it.

This structure is what guides you throughout the writing. To make your work easier, you can assign an estimated word count or page limit to every section to avoid making it too bulky for easy reading. As a guide, the necessary things your business plan must contain are:

• Table of contents
• Introduction
• Product or service description
• Target audience
• Market size
• Competition analysis
• Financial projections

Some specific businesses can include some other essential sections, but these are the key sections that must be in every business plan.

6. Ask a Professional to Proofread

When writing a business plan, you must tie all loose ends to get a perfect result. When you are done with writing, call a professional to go through the document for you. You are bound to make mistakes, and the way to correct them is to get external help.

You should get a professional in your field who can relate to every section of your business plan. It would be easier for the professional to notice the inner flaws in the document than an editor with no knowledge of your business.

In addition to getting a professional to proofread, get an editor to proofread and edit your document. The editor will help you identify grammatical errors, spelling mistakes, and inappropriate writing styles.

Writing a business plan can be daunting, but you can surmount that obstacle and get the best out of it with these tips.

Business Plan Examples and Templates That’ll Save You Tons of Time

1. hubspot's one-page business plan.

The one-page business plan template by HubSpot is the perfect guide for businesses of any size, irrespective of their business strategy. Although the template is condensed into a page, your final business plan should not be a page long! The template is designed to ask helpful questions that can help you develop your business plan.

Hubspot’s one-page business plan template is divided into nine fields:

• Business opportunity
• Company description
• Industry analysis
• Target market
• Implementation timeline
• Marketing plan
• Financial summary
• Funding required

2. Bplan’s Free Business Plan Template

Bplans' free business plan template is investor-approved. It is a rich template used by prestigious educational institutions such as Babson College and Princeton University to teach entrepreneurs how to create a business plan.

The template has six sections: the executive summary, opportunity, execution, company, financial plan, and appendix. There is a step-by-step guide for writing every little detail in the business plan. Follow the instructions each step of the way and you will create a business plan that impresses investors or lenders easily.

3. HubSpot's Downloadable Business Plan Template

HubSpot’s downloadable business plan template is a more comprehensive option compared to the one-page business template by HubSpot. This free and downloadable business plan template is designed for entrepreneurs.

The template is a comprehensive guide and checklist for business owners just starting their businesses. It tells you everything you need to fill in each section of the business plan and how to do it.

There are nine sections in this business plan template: an executive summary, company and business description, product and services line, market analysis, marketing plan, sales plan, legal notes, financial considerations, and appendix.

4. Business Plan by My Own Business Institute

My Own Business Institute (MOBI) which is a part of Santa Clara University's Center for Innovation and Entrepreneurship offers a free business plan template. You can either copy the free business template from the link provided above or download it as a Word document.

The comprehensive template consists of a whopping 15 sections.

• The Business Profile
• The Vision and the People
• Home-Based Business and Freelance Business Opportunities
• Organization
• Licenses and Permits
• Business Insurance
• Communication Tools
• Acquisitions
• Location and Leasing
• Accounting and Cash Flow
• Opening and Marketing
• Managing Employees
• Expanding and Handling Problems

There are lots of helpful tips on how to fill each section in the free business plan template by MOBI.

5. Score's Business Plan Template for Startups

Score is an American nonprofit organization that helps entrepreneurs build successful companies. This business plan template for startups by Score is available for free download. The business plan template asks a whooping 150 generic questions that help entrepreneurs from different fields to set up the perfect business plan.

The business plan template for startups contains clear instructions and worksheets, all you have to do is answer the questions and fill the worksheets.

There are nine sections in the business plan template: executive summary, company description, products and services, marketing plan, operational plan, management and organization, startup expenses and capitalization, financial plan, and appendices.

The ‘refining the plan’ resource contains instructions that help you modify your business plan to suit your specific needs, industry, and target audience. After you have completed Score’s business plan template, you can work with a SCORE mentor for expert advice in business planning.

6. Minimalist Architecture Business Plan Template by Venngage

The minimalist architecture business plan template is a simple template by Venngage that you can customize to suit your business needs .

There are five sections in the template: an executive summary, statement of problem, approach and methodology, qualifications, and schedule and benchmark. The business plan template has instructions that guide users on what to fill in each section.

7. Small Business Administration Free Business Plan Template

The Small Business Administration (SBA) offers two free business plan templates, filled with practical real-life examples that you can model to create your business plan. Both free business plan templates are written by fictional business owners: Rebecca who owns a consulting firm, and Andrew who owns a toy company.

There are five sections in the two SBA’s free business plan templates.

• Executive Summary
• Company Description
• Service Line
• Marketing and Sales

8. The $100 Startup's One-Page Business Plan

The one-page business plan by the $100 startup is a simple business plan template for entrepreneurs who do not want to create a long and complicated plan . You can include more details in the appendices for funders who want more information beyond what you can put in the one-page business plan.

There are five sections in the one-page business plan such as overview, ka-ching, hustling, success, and obstacles or challenges or open questions. You can answer all the questions using one or two sentences.

9. PandaDoc’s Free Business Plan Template

The free business plan template by PandaDoc is a comprehensive 15-page document that describes the information you should include in every section.

There are 11 sections in PandaDoc’s free business plan template.

• Executive summary
• Business description
• Products and services
• Operations plan
• Management organization
• Financial plan
• Conclusion / Call to action
• Confidentiality statement

You have to sign up for its 14-day free trial to access the template. You will find different business plan templates on PandaDoc once you sign up (including templates for general businesses and specific businesses such as bakeries, startups, restaurants, salons, hotels, and coffee shops)

PandaDoc allows you to customize its business plan templates to fit the needs of your business. After editing the template, you can send it to interested parties and track opens and views through PandaDoc.

10. Invoiceberry Templates for Word, Open Office, Excel, or PPT

InvoiceBerry is a U.K based online invoicing and tracking platform that offers free business plan templates in .docx, .odt, .xlsx, and .pptx formats for freelancers and small businesses.

Before you can download the free business plan template, it will ask you to give it your email address. After you complete the little task, it will send the download link to your inbox for you to download. It also provides a business plan checklist in .xlsx file format that ensures you add the right information to the business plan.

Alternatives to the Traditional Business Plan

A business plan is very important in mapping out how one expects their business to grow over a set number of years, particularly when they need external investment in their business. However, many investors do not have the time to watch you present your business plan. It is a long and boring read.

Luckily, there are three alternatives to the traditional business plan (the Business Model Canvas, Lean Canvas, and Startup Pitch Deck). These alternatives are less laborious and easier and quicker to present to investors.

Business Model Canvas (BMC)

The business model canvas is a business tool used to present all the important components of setting up a business, such as customers, route to market, value proposition, and finance in a single sheet. It provides a very focused blueprint that defines your business initially which you can later expand on if needed.

The sheet is divided mainly into company, industry, and consumer models that are interconnected in how they find problems and proffer solutions.

Segments of the Business Model Canvas

The business model canvas was developed by founder Alexander Osterwalder to answer important business questions. It contains nine segments.

• Key Partners: Who will be occupying important executive positions in your business? What do they bring to the table? Will there be a third party involved with the company?
• Key Activities: What important activities will production entail? What activities will be carried out to ensure the smooth running of the company?
• The Product’s Value Propositions: What does your product do? How will it be different from other products?
• Customer Segments: What demography of consumers are you targeting? What are the habits of these consumers? Who are the MVPs of your target consumers?
• Customer Relationships: How will the team support and work with its customer base? How do you intend to build and maintain trust with the customer?
• Key Resources: What type of personnel and tools will be needed? What size of the budget will they need access to?
• Channels: How do you plan to create awareness of your products? How do you intend to transport your product to the customer?
• Cost Structure: What is the estimated cost of production? How much will distribution cost?
• Revenue Streams: For what value are customers willing to pay? How do they prefer to pay for the product? Are there any external revenues attached apart from the main source? How do the revenue streams contribute to the overall revenue?

Lean Canvas

The lean canvas is a problem-oriented alternative to the standard business model canvas. It was proposed by Ash Maurya, creator of Lean Stack as a development of the business model generation. It uses a more problem-focused approach and it majorly targets entrepreneurs and startup businesses.

Lean Canvas uses the same 9 blocks concept as the business model canvas, however, they have been modified slightly to suit the needs and purpose of a small startup. The key partners, key activities, customer relationships, and key resources are replaced by new segments which are:

• Problem: Simple and straightforward number of problems you have identified, ideally three.
• Solution: The solutions to each problem.
• Unfair Advantage: Something you possess that can't be easily bought or replicated.
• Key Metrics: Important numbers that will tell how your business is doing.

Startup Pitch Deck

While the business model canvas compresses into a factual sheet, startup pitch decks expand flamboyantly.

Pitch decks, through slides, convey your business plan, often through graphs and images used to emphasize estimations and observations in your presentation. Entrepreneurs often use pitch decks to fully convince their target audience of their plans before discussing funding arrangements.

Considering the likelihood of it being used in a small time frame, a good startup pitch deck should ideally contain 20 slides or less to have enough time to answer questions from the audience.

Unlike the standard and lean business model canvases, a pitch deck doesn't have a set template on how to present your business plan but there are still important components to it. These components often mirror those of the business model canvas except that they are in slide form and contain more details.

Using Airbnb (one of the most successful start-ups in recent history) for reference, the important components of a good slide are listed below.

• Cover/Introduction Slide: Here, you should include your company's name and mission statement. Your mission statement should be a very catchy tagline. Also, include personal information and contact details to provide an easy link for potential investors.
• Problem Slide: This slide requires you to create a connection with the audience or the investor that you are pitching. For example in their pitch, Airbnb summarized the most important problems it would solve in three brief points – pricing of hotels, disconnection from city culture, and connection problems for local bookings.
• Solution Slide: This slide includes your core value proposition. List simple and direct solutions to the problems you have mentioned
• Customer Analysis: Here you will provide information on the customers you will be offering your service to. The identity of your customers plays an important part in fundraising as well as the long-run viability of the business.
• Market Validation: Use competitive analysis to show numbers that prove the presence of a market for your product, industry behavior in the present and the long run, as well as the percentage of the market you aim to attract. It shows that you understand your competitors and customers and convinces investors of the opportunities presented in the market.
• Business Model: Your business model is the hook of your presentation. It may vary in complexity but it should generally include a pricing system informed by your market analysis. The goal of the slide is to confirm your business model is easy to implement.
• Marketing Strategy: This slide should summarize a few customer acquisition methods that you plan to use to grow the business.
• Competitive Advantage: What this slide will do is provide information on what will set you apart and make you a more attractive option to customers. It could be the possession of technology that is not widely known in the market.
• Team Slide: Here you will give a brief description of your team. Include your key management personnel here and their specific roles in the company. Include their educational background, job history, and skillsets. Also, talk about their accomplishments in their careers so far to build investors' confidence in members of your team.
• Traction Slide: This validates the company’s business model by showing growth through early sales and support. The slide aims to reduce any lingering fears in potential investors by showing realistic periodic milestones and profit margins. It can include current sales, growth, valuable customers, pre-orders, or data from surveys outlining current consumer interest.
• Funding Slide: This slide is popularly referred to as ‘the ask'. Here you will include important details like how much is needed to get your business off the ground and how the funding will be spent to help the company reach its goals.
• Appendix Slides: Your pitch deck appendix should always be included alongside a standard pitch presentation. It consists of additional slides you could not show in the pitch deck but you need to complement your presentation.

It is important to support your calculations with pictorial renditions. Infographics, such as pie charts or bar graphs, will be more effective in presenting the information than just listing numbers. For example, a six-month graph that shows rising profit margins will easily look more impressive than merely writing it.

Lastly, since a pitch deck is primarily used to secure meetings and you may be sharing your pitch with several investors, it is advisable to keep a separate public version that doesn't include financials. Only disclose the one with projections once you have secured a link with an investor.

Advantages of the Business Model Canvas, Lean Canvas, and Startup Pitch Deck over the Traditional Business Plan

• Time-Saving: Writing a detailed traditional business plan could take weeks or months. On the other hand, all three alternatives can be done in a few days or even one night of brainstorming if you have a comprehensive understanding of your business.
• Easier to Understand: Since the information presented is almost entirely factual, it puts focus on what is most important in running the business. They cut away the excess pages of fillers in a traditional business plan and allow investors to see what is driving the business and what is getting in the way.
• Easy to Update: Businesses typically present their business plans to many potential investors before they secure funding. What this means is that you may regularly have to amend your presentation to update statistics or adjust to audience-specific needs. For a traditional business plan, this could mean rewriting a whole section of your plan. For the three alternatives, updating is much easier because they are not voluminous.
• Guide for a More In-depth Business Plan: All three alternatives have the added benefit of being able to double as a sketch of your business plan if the need to create one arises in the future.

Business Plan FAQ

Business plans are important for any entrepreneur who is looking for a framework to run their company over some time or seeking external support. Although they are essential for new businesses, every company should ideally have a business plan to track their growth from time to time.  They can be used by startups seeking investments or loans to convey their business ideas or an employee to convince his boss of the feasibility of starting a new project. They can also be used by companies seeking to recruit high-profile employee targets into key positions or trying to secure partnerships with other firms.

Business plans often vary depending on your target audience, the scope, and the goals for the plan. Startup plans are the most common among the different types of business plans.  A start-up plan is used by a new business to present all the necessary information to help get the business up and running. They are usually used by entrepreneurs who are seeking funding from investors or bank loans. The established company alternative to a start-up plan is a feasibility plan. A feasibility plan is often used by an established company looking for new business opportunities. They are used to show the upsides of creating a new product for a consumer base. Because the audience is usually company people, it requires less company analysis. The third type of business plan is the lean business plan. A lean business plan is a brief, straight-to-the-point breakdown of your ideas and analysis for your business. It does not contain details of your proposal and can be written on one page. Finally, you have the what-if plan. As it implies, a what-if plan is a preparation for the worst-case scenario. You must always be prepared for the possibility of your original plan being rejected. A good what-if plan will serve as a good plan B to the original.

A good business plan has 10 key components. They include an executive plan, product analysis, desired customer base, company analysis, industry analysis, marketing strategy, sales strategy, financial projection, funding, and appendix. Executive Plan Your business should begin with your executive plan. An executive plan will provide early insight into what you are planning to achieve with your business. It should include your mission statement and highlight some of the important points which you will explain later. Product Analysis The next component of your business plan is your product analysis. A key part of this section is explaining the type of item or service you are going to offer as well as the market problems your product will solve. Desired Consumer Base Your product analysis should be supplemented with a detailed breakdown of your desired consumer base. Investors are always interested in knowing the economic power of your market as well as potential MVP customers. Company Analysis The next component of your business plan is your company analysis. Here, you explain how you want to run your business. It will include your operational strategy, an insight into the workforce needed to keep the company running, and important executive positions. It will also provide a calculation of expected operational costs.  Industry Analysis A good business plan should also contain well laid out industry analysis. It is important to convince potential investors you know the companies you will be competing with, as well as your plans to gain an edge on the competition. Marketing Strategy Your business plan should also include your marketing strategy. This is how you intend to spread awareness of your product. It should include a detailed explanation of the company brand as well as your advertising methods. Sales Strategy Your sales strategy comes after the market strategy. Here you give an overview of your company's pricing strategy and how you aim to maximize profits. You can also explain how your prices will adapt to market behaviors. Financial Projection The financial projection is the next component of your business plan. It explains your company's expected running cost and revenue earned during the tenure of the business plan. Financial projection gives a clear idea of how your company will develop in the future. Funding The next component of your business plan is funding. You have to detail how much external investment you need to get your business idea off the ground here. Appendix The last component of your plan is the appendix. This is where you put licenses, graphs, or key information that does not fit in any of the other components.

The business model canvas is a business management tool used to quickly define your business idea and model. It is often used when investors need you to pitch your business idea during a brief window.

A pitch deck is similar to a business model canvas except that it makes use of slides in its presentation. A pitch is not primarily used to secure funding, rather its main purpose is to entice potential investors by selling a very optimistic outlook on the business.

Business plan competitions help you evaluate the strength of your business plan. By participating in business plan competitions, you are improving your experience. The experience provides you with a degree of validation while practicing important skills. The main motivation for entering into the competitions is often to secure funding by finishing in podium positions. There is also the chance that you may catch the eye of a casual observer outside of the competition. These competitions also provide good networking opportunities. You could meet mentors who will take a keen interest in guiding you in your business journey. You also have the opportunity to meet other entrepreneurs whose ideas can complement yours.

Exlore Further

• 12 Key Elements of a Business Plan (Top Components Explained)
• 13 Sources of Business Finance For Companies & Sole Traders
• 5 Common Types of Business Structures (+ Pros & Cons)
• How to Buy a Business in 8 Steps (+ Due Diligence Checklist)

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What Is a Business Plan?

Understanding business plans, how to write a business plan, common elements of a business plan, the bottom line, 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.

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A business plan is a document that outlines a company's goals and the strategies to achieve them. It's valuable for both startups and established companies. For startups, a well-crafted business plan is crucial for attracting potential lenders and investors. Established businesses use business plans to stay on track and aligned with their growth objectives. This article will explain the key components of an effective business plan and guidance on how to write one.

Key Takeaways

• A business plan is a document detailing a company's business activities and strategies for achieving its goals.
• Startup companies use business plans to launch their venture and to attract outside investors.
• For established companies, a business plan helps keep the executive team focused on short- and long-term objectives.
• There's no single required format for a business plan, but certain key elements are essential for most companies.

Investopedia / Ryan Oakley

Any new business should have a business plan in place before beginning operations. Banks and venture capital firms often want to see a business plan before considering making a loan or providing capital to new businesses.

Even if a company doesn't need additional funding, having a business plan helps it stay focused on its goals. Research from the University of Oregon shows that businesses with a plan are significantly more likely to secure funding than those without one. Moreover, companies with a business plan grow 30% faster than those that don't plan. According to a Harvard Business Review article, entrepreneurs who write formal plans are 16% more likely to achieve viability than those who don't.

A business plan should ideally be reviewed and updated periodically to reflect achieved goals or changes in direction. An established business moving in a new direction might even create an entirely new plan.

There are numerous benefits to creating (and sticking to) a well-conceived business plan. It allows for careful consideration of ideas before significant investment, highlights potential obstacles to success, and provides a tool for seeking objective feedback from trusted outsiders. A business plan may also help ensure that a company’s executive team remains aligned on strategic action items and priorities.

While business plans vary widely, even among competitors in the same industry, they often share basic elements detailed below.

A well-crafted business plan is essential for attracting investors and guiding a company's strategic growth. It should address market needs and investor requirements and provide clear financial projections.

While there are any number of templates that you can use to write a business plan, it's best to try to avoid producing a generic-looking one. Let your plan reflect the unique personality of your business.

Many business plans use some combination of the sections below, with varying levels of detail, depending on the company.

The length of a business plan can vary greatly from business to business. Regardless, gathering the basic information into a 15- to 25-page document is best. Any additional crucial elements, such as patent applications, can be referenced in the main document and included as appendices.

Common elements in many business plans include:

• Executive summary : This section introduces the company and includes its mission statement along with relevant information about the company's leadership, employees, operations, and locations.
• Products and services : Describe the products and services the company offers or plans to introduce. Include details on pricing, product lifespan, and unique consumer benefits. Mention production and manufacturing processes, relevant patents , proprietary technology , and research and development (R&D) information.
• Market analysis : Explain the current state of the industry and the competition. Detail where the company fits in, the types of customers it plans to target, and how it plans to capture market share from competitors.
• Marketing strategy : Outline the company's plans to attract and retain customers, including anticipated advertising and marketing campaigns. Describe the distribution channels that will be used to deliver products or services to consumers.
• Financial plans and projections : Established businesses should include financial statements, balance sheets, and other relevant financial information. New businesses should provide financial targets and estimates for the first few years. This section may also include any funding requests.

Investors want to see a clear exit strategy, expected returns, and a timeline for cashing out. It's likely a good idea to provide five-year profitability forecasts and realistic financial estimates.

2 Types of Business Plans

Business plans can vary in format, often categorized into traditional and lean startup plans. According to the U.S. Small Business Administration (SBA) , the traditional business plan is the more common of the two.

• Traditional business plans : These are detailed and lengthy, requiring more effort to create but offering comprehensive information that can be persuasive to potential investors.
• Lean startup business plans : These are concise, sometimes just one page, and focus on key elements. While they save time, companies should be ready to provide additional details if requested by investors or lenders.

Why Do Business Plans Fail?

A business plan isn't a surefire recipe for success. The plan may have been unrealistic in its assumptions and projections. Markets and the economy might change in ways that couldn't have been foreseen. A competitor might introduce a revolutionary new product or service. All this calls for building flexibility into your plan, so you can pivot to a new course if needed.

How Often Should a Business Plan Be Updated?

How frequently a business plan needs to be revised will depend on its nature. Updating your business plan is crucial due to changes in external factors (market trends, competition, and regulations) and internal developments (like employee growth and new products). While a well-established business might want to review its plan once a year and make changes if necessary, a new or fast-growing business in a fiercely competitive market might want to revise it more often, such as quarterly.

What Does a Lean Startup Business Plan Include?

The lean startup business plan is ideal for quickly explaining a business, especially for new companies that don't have much information yet. Key sections may include a value proposition , major activities and advantages, resources (staff, intellectual property, and capital), partnerships, customer segments, and revenue sources.

A well-crafted business plan is crucial for any company, whether it's a startup looking for investment or an established business wanting to stay on course. It outlines goals and strategies, boosting a company's chances of securing funding and achieving growth.

As your business and the market change, update your business plan regularly. This keeps it relevant and aligned with your current goals and conditions. Think of your business plan as a living document that evolves with your company, not something carved in stone.

University of Oregon Department of Economics. " Evaluation of the Effectiveness of Business Planning Using Palo Alto's Business Plan Pro ." Eason Ding & Tim Hursey.

Bplans. " Do You Need a Business Plan? Scientific Research Says Yes ."

Harvard Business Review. " Research: Writing a Business Plan Makes Your Startup More Likely to Succeed ."

Harvard Business Review. " How to Write a Winning Business Plan ."

U.S. Small Business Administration. " Write Your Business Plan ."

SCORE. " When and Why Should You Review Your Business Plan? "

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Short Business Plan vs. Comprehensive Business Plan

Oct 21, 2020 | Articles , Sean Answers | 0 comments

How do you define, compare, and contrast a short business plan vs. a comprehensive plan?

A comprehensive business plan may be needed if you are pitching to investors or applying for a loan. A business plan that is not requiring investment/ loan needs to accomplish a few things no matter the size:

• Does it confirm why your idea will be received by the marketplace?
• How will you acquire customers?
• Is your pricing realistic and profitable?
• Who and What do you need with costs to get this business off the ground?

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5 Chapter 5 – The Business Plan

Developing your strategy.

As mentioned in Chapter 2 , it is critically important for any business organization to be able to accurately understand and identify what constitutes customer value. To do this, one must have a clear idea of who your customers are or will be. However, simply identifying customer value is insufficient. An organization must be able to provide customer value within several important constraints. One of these constraints deals with the competition—what offerings are available and at what price. Also, what additional services might a company provide? A second critically important constraint is the availability of resources to the business organization. Resources consist of factors such as money, facilities, equipment, operational capability, and personnel.

Here is an example: a restaurant identified its prime customer base as being upscale clientele in the business section of a major city. The restaurant recognized that it has numerous competitors that are interested in providing the same clientele with an upscale dining experience. Our example restaurant might provide a five-course, five-star gourmet meal to its customers. It also provides superlative service. If a comparable restaurant failed to provide a comparable meal than the example restaurant, the example restaurant would have a competitive advantage. If the example restaurant offered these sumptuous meals for a relatively low price in comparison to its competitors, it would initially seem to have even more of an advantage. However, if the price charged is significantly less than the cost of providing the meal, the service in this situation could not be maintained. In fact, the restaurant inevitably would have to go out of business. Providing excellent customer service may be a necessary condition for business survival but, in and of itself, it is not a sufficient condition.

So how does one go about balancing the need to provide customer value within the resources available while always maintaining a watchful eye on competitors’ actions? We are going to argue that what is required for that firm is to have a strategy .

The word strategy is derived from the Greek word strategos , which roughly translates into the art of the general, namely a military leader. Generals are responsible for marshaling required resources and organizing the troops and the basic plan of attack. Much in the same way, executives as owners of businesses are expected to have a general idea of the desired outcomes, acquire resources, hire and train personnel, and generate plans to achieve those outcomes. In this sense, all businesses, large and small, have strategies, whether they are clearly written out in formal business plans or reside in the mind of the owner of the business.

There are many different formal definitions of strategy with respect to business. The following is a partial listing of some of the definitions given by key experts in the field:

“A strategy is a pattern of objectives, purposes or goals and the major policies and plans for achieving these goals, stated in such a way as to define what business the company is in or is to be in and the kind of company it is or to be .” [1] “The determination of the long-run goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals .” [2] “What business strategy is all about, in a word, is competitive advantage .” [3]

We define the strategy of a business as follows: A firm’s strategy is the path by which it seeks to provide its customers with value, given the competitive environment and within the constraints of the resources available to the firm.

Whatever definition of strategy is used, it is often difficult to separate it from two other terms: strategic planning and strategic management. Both terms are often perceived as being in the domain of large corporations, not necessarily small to midsize businesses. This is somewhat understandable. The origin of strategic planning as a separate discipline occurred over fifty years ago. It was mainly concerned with assisting huge multidivisional or global businesses in coordinating their activities. In the intervening half-century, strategic planning has produced a vast quantity of literature. Mintzberg, Lampel, Ahlstrand, in a highly critical review of the field, identified ten separate schools associated with strategic planning. [4] With that number of different schools, it is clear that the discipline has not arrived at a common consensus. Strategic planning has been seen as a series of techniques and tools that would enable organizations to achieve their specified goals and objectives. Strategic management was seen as the organizational mechanisms by which you would implement the strategic plan. Some of the models and approaches associated with strategic planning and strategic management became quite complex and would prove to be fairly cumbersome to implement in all but the largest businesses. Further, strategic planning often became a bureaucratic exercise where people filled out forms, attended meetings, and went through the motions to produce a document known as the strategic plan. Sometimes what is missed in this discussion was a key element—strategic thinking. Strategic thinking is the creative analysis of the competitive landscape and a deep understanding of customer value. It should be the driver (see “Strategy Troika”) of the entire process. This concept is often forgotten in large bureaucratic organizations.

Strategy Troika

Strategic thinkers often break commonly understood principles to reach their goals. This is most clearly seen among military leaders, such as Alexander the Great or Hannibal. Robert E. Lee often violated basic military principles, such as dividing his forces. General Douglas MacArthur shocked the North Koreans with his bold landings behind enemy lines at Inchon. This mental flexibility also exists in great business leaders.

Solomon and Friedman recounted a prime example of true strategic thinking. [5] Wilson Harrell took a small, closely held, cleaning spray company known as Formula 409 to the point of having national distribution. In 1967, the position that Formula 409 held was threatened by the possible entry of Procter & Gamble into the same spray cleaning market. Procter & Gamble was a huge consumer products producer, noted for its marketing savvy. Procter & Gamble began a program of extensive market research to promote its comparable product they called Cinch. Clearly, the larger firm had a much greater advantage. Harrell knew that Procter & Gamble would perform test market research. He decided to do the unexpected. Rather than directly confront this much larger competitor, he began a program where he reduced advertising expenditures in Denver and stopped promoting his Formula 409. The outcome was that Procter & Gamble had spectacular results, and the company was extremely excited with the potential for Cinch. Procter & Gamble immediately begin a national sales campaign. However, before the company could begin, Harrell introduced a promotion of his own. He took the Formula 409 sixteen-ounce bottle and attached it to a half-gallon size bottle. He then sold both at a significant discount. This quantity of spray cleaner would last the average consumer six to nine months. The market for Procter & Gamble’s Cinch was significantly reduced. Procter & Gamble was confused and confounded by its poor showing after the phenomenal showing in Denver. Confused and uncertain, the company chose to withdraw Cinch from the market. Wilson Harrell’s display of brilliant strategic thinking had bested them. He leveraged his small company’s creative thinking and flexibility against the tremendous resources of an international giant. Through superior strategic thinking, Harrell was able to best Procter & Gamble.

Do You Have a Strategy and What Is It?

We have argued that all businesses have strategies, whether they are explicitly articulated or not. Perry stated that “small business leaders seem to recognize that the ability to formulate and implement an effective strategy has a major influence on the survival and success of small business.” [6]

The extent to which a strategy should be articulated in a formal manner, such as part of a business plan, is highly dependent on the type of business. One might not expect a formally drafted strategy statement for a nonemployee business funded singularly by the owner. One researcher found that formal plans are rare in businesses with fewer than five employees. [7] However, you should clearly have that expectation for any other type of small or midsize business.

Any business with employees should have an articulated strategy that can be conveyed to them so that they might better assist in implementing it. Curtis pointed out that in the absence of such communication, “employees make pragmatic short-term decisions that cumulatively form an ad-hoc strategy.” [8] These ad hoc (realized) strategies may be at odds with the planned (intended) strategies to guide a firm. [9] However, any business that seeks external funding from bankers, venture capitalists, or “angels” must be able to specify its strategy in a formal business plan.

Clearly specifying your strategy should be seen as an end in itself. Requiring a company to specify its strategy forces that company to think about its core issues, such as the following:

• Who are your customers?
• How are you going to provide value to those customers?
• Who are your current and future competitors?
• What are your resources?
• How are you going to use these resources?

One commentator in a blog put it fairly well, “It never ceases to amaze me how many people will use GPS or Google maps for a trip somewhere but when it comes to starting a business they think that they can do it without any strategy, or without any guiding road-map.” Harry Tucci, comment posted to the following blog: [10]

Types of Strategies

In 1980, Michael Porter a professor at Harvard Business School published a major work in the field of strategic analysis— Competitive Strategy . [11] To simplify Porter’s thesis, while competition is beneficial to customers, it is not always beneficial to those who are competing. Competition may involve lowering prices, increasing research and development (R&D), and increasing advertising and other expenses and activities—all of which can lower profit margins. Porter suggested that firms should carefully examine the industry in which they are operating and apply what he calls the five forces model. These five forces are as follows: the power of suppliers, the power of buyers, the threat of substitution, the threat of new entrants, and rivalry within the industry. We do not need to cover these five forces in any great detail, other than to say that once the analysis has been conducted, a firm should look for ways to minimize the dysfunctional consequences of competition. Porter identified four generic strategies that firms may choose to implement to achieve that end. Actually, he initially identified three generic strategies, but one of them can be bifurcated. These four strategies are as follows (see “Generic Strategies”): cost leadership, differentiation, cost focus, and differentiation focus. These four generic strategies can be applied to small businesses. We will examine each strategy and then discuss what is required to successfully implement them.

Generic Strategies

Low-Cost Advantage

A  cost leadership strategy requires that a firm be in the position of being the lowest cost producer in its competitive environment. By being the lowest-cost producer, a firm has several strategic options open to it. It can sell its product or service at a lower price than its competitors. If price is a major driver of customer value, then the firm with the lowest price should sell more. The low-cost producer also has the option of selling its products or services at prices that are comparable to its competitors. However, this would mean that the firm would have a much higher margin than its competitors.

Obviously, following a cost leadership strategy dictates that the business be good at curtailing costs. Perhaps the clearest example of a firm that employs a cost leadership strategy is Walmart. Walmart’s investment in customer relations and inventory control systems plus its huge size enables it to secure the “best” deals from suppliers and drastically reduce costs. It might appear that cost leadership strategies are most suitable for large firms that can exploit economies of scale. This is not necessarily true. Smaller firms can compete on the basis of cost leadership. They can position themselves in low-cost areas, and they can exploit their lower overhead costs. Family businesses can use family members as employees, or they can use a web presence to market and sell their goods and services. A small family-run luncheonette that purchases used equipment and offers a limited menu of standard breakfast and lunch items while not offering dinner might be good example of a small business that has opted for a cost leadership strategy.

Differentiation

A  differentiation strategy involves providing products or services that meet customer value in some unique way. This uniqueness may be derived in several ways. A firm may try to build a particular brand image that differentiates itself from its competitors. Many clothing lines, such as Tommy Hilfiger, opt for this approach. Other firms will try to differentiate themselves on the basis of the services that they provide. Dominoes began to distinguish itself from other pizza firms by emphasizing the speed of its delivery. Differentiation also can be achieved by offering a unique design or features in the product or the service. Apple products are known for their user-friendly design features. A firm may wish to differentiate itself on the basis of the quality of its product or service. Kogi barbecue trucks operating in Los Angeles represent such an approach. They offer high-quality food from mobile food trucks.” [12] They further facilitate their differentiation by having their truck routes available on their website and on their Twitter account.

Adopting a differentiation strategy requires significantly different capabilities than those that were outlined for cost leadership. Firms that employ a differentiation strategy must have a complete understanding of what constitutes customer value. Further, they must be able to rapidly respond to changing customer needs. Often, a differentiation strategy involves offering these products and services at a premium price. A differentiation strategy may accept lower sales volumes because a firm is charging higher prices and obtaining higher profit margins. A danger in this approach is that customers may no longer place a premium value on the unique features or quality of the product or the service. This leaves the firm that offers a differentiation strategy open to competition from those that adopt a cost leadership strategy.

Focus—Low Cost or Differentiation

Porter identifies the third strategy—focus. He said that focus strategies can be segmented into a  cost focus and a differentiation focus .

In a focus strategy, a firm concentrates on one or more segments of the overall market. Focus can also be described as a niche strategy. Focus strategy entails deciding to some extent that we do not want to have everyone as a customer. There are several ways that a firm can adopt a focus perspective:

• Product line. A firm limits its product line to specific items of only one or more product types. California Cart Builder produces only catering trucks and mobile kitchens.
• Customer. A firm concentrates on serving the needs of a particular type of customer. Weight Watchers concentrates on customers who wish to control their weight or lose weight.
• Geographic area. Many small firms, out of necessity, will limit themselves to a particular geographic region. Microbrewers generally serve a limited geographic region.
• Particular distribution channel. Firms may wish to limit themselves with respect to the means by which they sell their products and services. Amazon began and remains a firm that sells only through the Internet.

Firms adopting focus strategies look for distinct groups that may have been overlooked by their competitors. This group needs to be of sufficiently sustainable size to make it an economically defensible option. One might open a specialty restaurant in a particular geographic location—a small town. However, if the demand is not sufficiently large for this particular type of food, then the restaurant will probably fail. Companies that lack the resources to compete on either a national level or an industry-wide level may adopt focus strategies. Focus strategies enable firms to marshal their limited resources to best serve their customers.

As previously stated, focus strategies can be bifurcated into two directions—cost focus or differentiation focus. IKEA sells low-priced furniture to those customers who are willing to assemble the furniture. It cuts its costs by using a warehouse rather than showroom format and not providing home delivery. Michael Dell began his business out of his college dormitory. He took orders from fellow students and custom-built computers to their specifications. This was a cost focus strategy. By building to order, it almost totally eliminated the need for any incoming, work-in-process, or finished goods inventories.

A focus differentiation strategy concentrates on providing a unique product or service to a segment of the market. This strategy may be best represented by many specialty retail outlets. The Body Shop focuses on customers who want natural ingredients in their makeup. Max and Mina is a kosher specialty ice cream store in New York City. It provides a constantly rotating menu of more than 300 exotic flavors, such as Cajun, beer, lox, corn, and pizza. The store has been written up in the New York Times and People magazine. Given its odd flavors, Max and Mina’s was voted the number one ice cream parlor in America in 2004. [13]

Evaluating Strategies

The selection of a generic strategy by a firm should not be seen as something to be done on a whim. Once a strategy is selected, all aspects of the business must be tied to implementing that strategy. As Porter stated, “Effectively implementing any of these generic strategies usually requires total commitment and supporting organizational arrangements.” [14] The successful implementation of any generic strategy requires that a firm possess particular skills and resources. Further, it must impose particular requirements on its organization (see “Summary of Generic Strategies”).

Even successful generic strategies must recognize that market and economic conditions change along with the needs of consumers. Henry Ford used a cost leadership strategy and was wildly successful until General Motors began to provide different types of automobiles to different customer segments. Likewise, those who follow a differentiation strategy must be cautious that customers may forgo “extras” in a downturn economy in favor of lower costs. This requires businesses to be vigilant, particularly with respect to customer value.

Summary of Generic Strategies

Key Takeaways

• Any firm, regardless of size, needs to know how it will compete; this is the firm’s strategy.
• Strategy identifies how a firm will provide value to its customers within its operational constraints.
• Strategy can be reduced to four major approaches—cost leadership, differentiation, cost focus, and differentiation focus.
• Once a given strategy is selected, all of a firm’s operations should be geared to implementing that strategy.
• No strategy will be successful forever and therefore needs to be constantly evaluated.

The Necessity for a Business Plan

An intelligent plan is the first step to success. The man who plans knows where he is going, knows what progress he is making and has a pretty good idea of when he will arrive. Planning is the open road to your destination. If you don’t know where you’re going, how can you expect to get there? – Basil Walsh

In Chapter 1, we discussed the issue of failure and small businesses. Although research on small business failure has identified many factors, one reason that always appears at the top of any list is the failure to plan. Interestingly, some people argue that planning is not essential for a start-up business, but they are in a distinct minority. [15] The overwhelming consensus is that a well-developed plan is essential for the survival of any small (or large) business. [16] Perry found that firms with more than five people benefit from having a well-developed business plan. [17]

A recent study found that there was a near doubling of successful growth for those businesses that completed business plans compared to those that did not create one. It must be pointed out that this study might be viewed as being biased because the founder of the software company whose main product is a program that builds business plans conducted the study. However, the results were examined by academics from the University of Oregon who validated the overall results. They found that “except in a small number of cases, business planning appeared to be positively correlated with business success as measured by our variables. While our analysis cannot say the completing of a business plan will lead to success, it does indicate that the type of entrepreneur who completes a business plan is also more likely to produce a successful business.” [18]

Basically, there are two main reasons for developing a comprehensive business plan: (1) a plan will be extraordinarily useful in ensuring the successful operation of your business; and (2) if one is seeking to secure external funds from banks, venture capitalists, or other investors, it is essential that you be able to demonstrate to them that they will be recovering their money and making a profit. Let us examine each reason in detail.

Many small business owners operate under a mistaken belief that the only time that they need to create a business plan is at the birth of the company or when they are attempting to raise additional capital from external sources. They fail to realize that a business plan can be an important element in ensuring day-to-day success.

The initial planning process aids the operational success of a small business by allowing the owner a chance to review, in detail, the viability of the business idea. It forces one to rigorously consider some key questions:

• Is the business strategy feasible?
• What are the chances it will make money?
• Do I have the operational requirements for starting and running a successful business?
• Have I considered a well-thought-out marketing plan that clearly identifies who my customers will be?
• Do I clearly understand what value I will provide to these customers?
• What will be the means of distribution to provide the product or the service to my customers?
• Have I clarified to myself the financial issues associated with starting and operating the business?
• Do I have to reexamine these notions to ensure success?

Possessing an actual written plan enables you to have people outside the organization evaluate your business plan. Using friends, colleagues, partners, or even consultants may provide you with an unbiased evaluation of the assumptions.

It is not enough to create an initial business plan; you should anticipate making the planning process an annual activity. The Prussian military theorist von Moltke once argued that no military plan survives the first engagement with the enemy. Likewise, no company evolves in the same way as outlined in its initial business plan.

Overcoming the Reluctance to Formally Plan

By failing to prepare, you will prepare them to fail . -Benjamin Franklin

Unfortunately, it appears that many small businesses do not make any effort to build even an initial business plan, let alone maintain a planning process as an ongoing operation, even though there is clear evidence that the failure to plan may have serious consequences for the future success of such firms. This unwillingness to plan may be understandable in nonemployee businesses, but it is inexcusable as a business grows in size. Why, therefore, do some businesses fail to begin the planning process?

• We do not need to plan. One of the prime reasons individuals fail to produce a business plan is that they believe that they do not have to plan. This may be attributable to the size of the firm; nonemployee firms that have no intention of seeking outside financing might sincerely believe that they have no need for a formal business plan. Others may believe that they so well understand the business and/or industry that they can survive and prosper without the burdensome process of a business plan. The author of Business Plan for Dummies , Paul Tiffany, once argued that if one feels lucky enough to operate a business successfully without resorting to a business plan, then he or she should forget about starting a business and head straight to Las Vegas.
• I am too busy to plan. Anyone who has ever run a business on his or her own can understand this argument. The day-to-day demands of operating a business may make it seem that there is insufficient time to engage in any ancillary activity or prepare a business plan. Individuals who accept this argument often fail to recognize that the seemingly endless buzz of activities, such as constantly putting out fires, may be the direct result of not having thought about the future and planned for it in the first place.
• Plans do not produce results. Small-business owners (entrepreneurs) are action- and results-oriented individuals. They want to see a tangible outcome for their efforts, and preferably they would like to see the results as soon as possible. The idea of sitting down and producing a large document based on assumptions that may not play out exactly as predicted is viewed as a futile exercise. However, those with broader experience understand that there will be no external funding for growth or the initial creation of the business without the existence of a well-thought-out plan. Although plans may not yield the specified results contained within them, the process of thinking about the plan and building it often yield results that the owner might not initially appreciate.
• We are not familiar with the process of formal planning. This argument might initially appear to have more validity than the others. Developing a comprehensive business plan is a daunting task. It might seem difficult if not impossible for someone with no experience with the concept. Several studies have indicated that small business owners are more likely to engage in the planning process if they have had prior experience with planning models in their prior work experience. [19] Fortunately, this situation has changed rather significantly in the last decade. As we will illustrate, there are numerous tools that provide significant support for the development of business plans. We will see that software packages greatly facilitate the building of any business plan, including marketing plans and financial plans for small businesses. We also show that the Internet can provide an unbelievably rich source of data and information to assist in the building of these plans.

Although one could understand the reticence of someone new to small business (or in some cases even seasoned entrepreneurs), their arguments fall short with respect to the benefits that will be derived from conducting a structured and comprehensive business planning process.

Plans for Raising Capital

Every business plan should be written with a particular audience in mind. The annual business plan should be written with a management team and for the employees who have to implement the plan. However, one of the prime reasons for writing a business plan is to secure investment funds for the firm. Of course, funding the business could be done by an individual using his or her own personal wealth, personal loans, or extending credit cards. Individuals also can seek investments from family and friends. The focus here will be on three other possible sources of capital—banks, venture capitalists, and angel investors. It is important to understand what they look for in a business plan. Remember that these three groups are investors, so they will be anticipating, at the very least, the ability to recover their initial investment if not earn a significant return.

Bankers, like all businesspeople, are interested in earning a profit; they want to see a return on their investment. However, unlike other investors, bankers are under a legal obligation to ensure that the borrower pledge some form of collateral to secure the loan. [20] This often means that banks are unwilling to fund a start-up business unless the owner is willing to pledge some form of collateral, such as a second mortgage on his or her home. Many first-time business owners are not in a position to do that; securing money from a bank occurs most frequently for an existing business that is looking to expand or for covering a short-term cash-flow need. Banks may lend to small business owners who are opening a second business provided that they can prove a record of success and profitability.

Banks will require a business plan. It should be understood that bank loan officers will initially focus on the financial components of that client, namely, the income statement, balance sheet, and the cash-flow statement. The bank will examine your projections with respect to known industry standards. Therefore, the business plan should not project a 75 percent profit margin when the industry standard is 15 percent, unless the author of the plan can clearly document why he or she will be earning such a high return.

Some businesses may raise funds with the assistance of a Small Business Administration (SBA) loan. These loans are always arranged through a commercial bank. With these loans, the SBA will pledge up to 70 percent of the total value of the loan. This means that the owner still must provide, at the very least, 30 percent of the total collateral. The ability to secure one of these loans is clearly tied to the adequacy of the business plan.

Venture Capitalists

Another possible source of funding is venture capitalists . The first thing that one should realize about venture capitalists is that they are not in it just to make a profit; they want to make returns that are substantially above those to be found in the market. For some, this translates into the ability to secure five to ten times their initial investment and recapture their investment in a relatively short period of time—often less than five years. It has been reported that some venture capitalists are looking for returns in the order of twenty-five times their original investment. [21]

The financial statement, particularly the profit margin, is obviously important to venture capitalists, but they will also be looking at other factors. The quality of the management team identified in the business plan will be examined. They will be looking at the team’s experience and track record. Other factors needed by venture capitalists may include the projected growth rate of the market, the extent to which the product or the service being offered is unique, the overall size of the market, and the probability of producing a highly successful product or service.

Businesses that are seeking financing from banks know that they must go to loan officers who will review the plan, even though a computerized loan assessment program may make the final decision. With venture capitalists, on the other hand, you often need to have a personal introduction to have your plan considered. You should also anticipate that you will have to make a presentation to venture capitalists. This means that you have to understand your plan and be able to present it in a dynamic fashion.

Angel Investors

The third type of investor is referred to as angel investors , a term that originally came from those individuals who invested in Broadway shows and films. Many angel investors are themselves successful entrepreneurs. As with venture capitalists, they are looking for returns higher than they can normally find in the market; however, they often expect returns lower than those anticipated by venture capitalist. They may be attracted to business plans because of an innovative concept or the excitement of entering a new type of business. Being successful small business owners, many angel investors will not only provide capital to fund the business but also bring their own expertise and experience to help the business grow. It has been estimated that these angel investors provide between three and ten times as much money as venture capitalists for the development of small businesses. [22]

Angel investors will pay careful attention to all aspects of the proposed business plan. They expect a comprehensive business plan—one that clearly specifies the future direction of the firm. They also will look at the management team not only for its track record and experience but also their (the angel investor’s) ability to work with this team. Angel investors may take a much more active role in the management of the business, asking for positions on the board of directors, taking an equity position in the firm, demanding quarterly reports, or demanding that the business not take certain actions unless it has the approval of these angel investors. These investors will take a much more hands-on approach to the operations of a firm.

• Planning is a critical and important component of ensuring the success of a small business.
• Some form of formal planning should not only accompany the start-up of a business but also be a regular (annual) activity that guides the future direction of the business.
• Many small business owners are reluctant to formally plan. They can produce many excuses for not planning.
• Businesses may have to raise capital from external sources—bankers, venture capitalists, or angel investors. Each type of investor will expect a business plan. Each type of investor will be more or less interested in different parts of the plan. Business owners should be aware of what parts of the plan each type of investor will focus on.

Building a Plan

Before talking about writing a formal business plan, someone interested in starting a business might want to think about doing some personal planning before drafting the business plan. Some of the questions that he or she might want to answer before drafting a full business plan are as follows:

• Why am I going into this business?
• What skills and resources do I possess that will help make the business a success?
• What passion do I bring to this business?
• What is my risk tolerance?
• Exactly how hard do I intend to work? How many hours per week?
• What impact will the business have on my family life?

What do I really wish from this business?

• Am I interested in financial independence?
• What level of profits will be required to maintain my personal and/or family’s lifestyle?
• Am I interested in independence of action (no boss but myself)?
• Am I interested in personal satisfaction?
• Will my family be working in this business?
• What other employees might I need? [23]

Having addressed these questions, one will be in a much better position to craft a formal business plan.

Gathering Information

Building a solid business plan requires knowing the economic, market, and competitive environments. Such knowledge transcends “gut feelings” and is based on data and evidence. Fortunately, much of the required information is available through library resources, Internet sources, and government agencies and, for a fee, from commercial sources. Comprehensive business plans may draw from all these sources.

Public libraries and those at educational institutions provide a rich resource base that can be used at no cost. Some basic research sources that can be found at libraries are given in this section— be aware that the reference numbers provided may differ from library to library .

Library Sources

Background sources.

• Berinstein, Paula. Business Statistics on the Web: Find Them Fast—At Little or No Cost (Ref HF1016 .B47 2003).
• The Core Business Web: A Guide to Information Resources (Ref HD30.37 .C67 2003).
• Frumkin, Norman. Guide to Economic Indicators , 4th ed. (Ref HC103 .F9 2006). This book explains the meanings and uses of the economic indicators.
• Solie-Johnson, Kris. How to Set Up Your Own Small Business , 2 volumes (Ref HD62.7 .S85 2005). Published by the American Institute of Small Business.

Company and Industry Sources

• North American Industry Classification System, United States (NAICS), 2007 (Ref HF1042 .N6 2007). The NAICS is a numeric industry classification system that replaced the Standard Industrial Classification (SIC) system. An electronic version is available from the US Census Bureau .
• Standard Industrial Classification Manual (Ref HA40 .I6U63 1987). The industry classification system that preceded the NAICS.
• Value Line Investment Survey (Ref HG4751 .V18). Concise company and industry profiles are updated every thirteen weeks.

Statistical Sources

• Almanac of Business and Industrial Financial Ratios (Ref HF5681 .R25A45 2010).
• Business Statistics of the United States (Ref HC101 .A13123 2009). This publication provides recent and historical information about the US economy.
• Economic Indicators (1971–present). The Council of Economic Advisers for the Joint Economic Committee of Congress publishes this monthly periodical; recent years are in electronic format only. Ten years of data are presented. Electronic versions are available in ABI/INFORM and ProQuest from September 1994 to present and Academic OneFile from October 1, 1991.
• Industry Norms and Key Business Ratios (Dun & Bradstreet; Ref HF5681 .R25I532 through Ref HF5681 .I572 [2000–2001 through 2008–2009]).
• Rma Annual Statement Studies (Ref HF5681 .B2R6 2009–2010). This publication provides annual financial data and ratios by industry.
• Statistical Abstract of the United States (Ref HA202 .S72 2010). This is the basic annual source for statistics collected by the government. Electronic version is available at www.census.gov/compendia/statstatab .
• Survey of Current Business (1956–present). The Bureau of Economic Analysis publishes this monthly periodical; recent years are in electronic format only.

At some libraries, you may find access to the following resources online:

• Mergent Webreports. Mergent (formerly Moody’s) corporate manuals are in digitized format. Beginning with the early 1900s, the reports include corporate history, business descriptions, and in-depth financial statements. The collection is searchable by company name, year, or manual type.
• ProQuest Direct is a database of general, trade, and scholarly periodicals, with many articles in full text. Many business journals and other resources are available.
• Standard and Poor’s Netadvantage is a database that includes company and industry information.

Internet Resources

In addition to government databases and other free sources, the Internet provides an unbelievably rich storehouse of information that can be incorporated into any business plan. It is not feasible to provide a truly comprehensive list of useful websites; this section provides a highly selective list of government sites and other sites that provide free information.

Government Sites

• US Small Business Administration (SBA) . This is an excellent site to begin researching a business plan. It covers writing a plan, financing a start-up, selecting a location, managing employees, and insurance and legal issues. A follow-up page at http://www.sba.gov provides access to publications, statistics, video tutorials, podcasts, business forms, and chat rooms. Another page— http://www.sba.gov/about-offices-list/2 —provides access to localized resources.
• SCORE Program . The SCORE program is a partner of the SBA. It provides a variety of services to small business owners, ranging from online (and in-person) mentoring, workshops, free computer templates, and advice on a wide range of small business issues.

In developing a business plan, it is necessary to anticipate the future economic environment. The government provides extensive statistics online.

• Consumer Price Index . This index provides information on the direction of prices for industries and geographic areas.
• Producer Price Index . Businesses that provide services or are focused on business-to-business (B2B) operations may find these data more appropriate for estimating future prices.
• National Wage Data . This site provides information on prevailing wages and can be broken down by occupation and location down to the metropolitan area.
• Consumer Expenditures Survey . This database provides information on expenditures and income. It allows for a remarkable level of refinement by occupation, age, or race.
• State and Local Personal Income and Employment . These databases provide a breakdown of personal income by state and metropolitan area.
• GDP by State and Metropolitan Region . This will provide an accurate guide to the overall economic health of a region or a city.
• US Census . This is a huge site with databases on population, income, foreign trade, economic indicators, and business ownership.

There are nongovernment websites, either free or charging a fee, that can provide assistance in building a business plan. A simple Google search for the phrase small business plan yields more than 67 million results. Various sites will either help with writing the plan, offer to write the plan for a fee, produce reports on industries, or assist small businesses by providing a variety of support services. The Internet offers a veritable cornucopia of information and support for those working on their business plans.

Forecasting for the Plan

Prediction is very difficult, especially about the future. Nils Bohr, Nobel Prize winner

Any business plan is a future-oriented document. Business plans are required to look between three and five years into the future. To produce them and accurately forecast sales, you will need estimates of expenses and other items, such as the required number of employees, interest rates, and general economic conditions. There are many different techniques and tools that can be used to forecast these items. The type of techniques used will be influenced by many factors, such as the following:

• The size of the business. Smaller businesses may have fewer resources to apply a wide variety of forecasting techniques.
• The analytical sophistication of people who will be conducting the forecast. The owner of a home business may have no prior experience with forecasting techniques.
• The type of the organization. A manufacturing concern that sells to a stable and relatively predictable environment that has been in existence for years might be able to employ a variety of standard statistical forecasting techniques; however, a small firm operating in a new or a chaotic environment might have to rely on significantly different techniques.
• Historical records. Does the firm have historical records for sales that can be used to project into the future?

There is no universal set of forecasting techniques that can be used for all types of small and midsize businesses. Forecasting can fall into a fairly comprehensive range of techniques with respect to level of sophistication. Some forecasting can be done on an intuitive basis (e.g., back-of-the-envelope calculations); others can be done with standard computer programs (e.g., Excel) or programs that are specifically dedicated to forecasting in a variety of environments.

A brief review of basic forecasting techniques shows that they can be divided into two broad classes:  qualitative forecasting methods and quantitative forecasting methods . Actually, these terms can be somewhat misleading because qualitative forecasting methods do not imply that no numbers will be involved. The two techniques are separated by the following concept: qualitative forecasting methods assume that one either does not have historical data or that one cannot rely on past historical data. A start-up business has no past sales that can be used to project future sales. Likewise, if there is a significant change in the environment, one may feel uncomfortable using past data to project into the future. A restaurant operates in a small town that contains a large automobile factory. After the factory closes, the restaurant owner should anticipate that past sales will no longer be a useful guideline for projecting what sales might be in the next year or two because the owner has lost a number of customers who worked at the factory. Quantitative forecasting, on the other hand, consists of techniques and methods that assume you can use past data to make projections into the future.

“Overview of Forecasting Methods” provides examples of both qualitative forecasting methods and quantitative forecasting methods for sales forecasting. Each method is described, and their strengths and weaknesses are given.

Overview of Forecasting Methods

Forecasting key items such as sales is crucial in developing a good business plan. However, forecasting is a very challenging activity. The further out the forecast, the less likely it will be accurate. Everyone recognizes this fact. Therefore, it is useful to draw on a variety of forecasting techniques to develop your final forecast for the business plan. To do that, you should have a fairly solid understanding of the strengths and weaknesses of the various approaches. There are many books, websites, and articles that could assist you in understanding these techniques and when they should or should not be used. In addition, one should be open to gathering additional information to assist in building a forecast. Some possible sources of such information would be associations, trade publications, and business groups. Regardless of what technique is used or the data source employed in building a forecast for business plan, one should be prepared to justify why you are employing these forecasting models.

Web Resources for Forecasting

• Three methods of sales forecasting ( sbinfocanada.about.com/od/cashflowmgt/a/salesforecast.htm ). This site provides three simplified approaches to sales forecasting.
• Time-critical decision making for business administration ( home.ubalt.edu/ntsbarsh/stat-data/forecast.htm ). This site has an e-book format with several chapters devoted to analytical forecasting techniques.

Building your first business plan may seem extremely formidable. This may explain why there are so many software packages available to assist in this task. After building your first business plan, that steep learning curve should make subsequent plans for the business or other businesses significantly easier.

In preparing to build a business plan, there are some problem areas or mistakes that you should be on guard to avoid. Some may be technical in nature, while others relate to content issues. For the technical side, first and foremost, one should make sure that there are no misspellings or punctuation errors. The business plan should follow a logical structure. No ideal business plan clearly specifies the exact sections that need to be included nor is there an ideal length. Literature concerning business plans indicates that the appropriate length of the body of a business plan line should be between twenty and forty pages. This does not include appendixes that might provide critical data for the reader.

In developing a lengthy report, sometimes it is easy to fall into clichés or overused expressions. These should be avoided. Consider the visuals in the report. Data should be placed in either clearly mapped-out tables or well-designed graphs. The report should be as professional-looking as possible. Anticipate the audience that will be reading the report and write in a way that easily reaches them; avoid using too much jargon or technical terms.

The content in any business plan centers on two areas: realism and accuracy.

Components of the Plan

There is no idealized structure for a business plan or a definitive number of sections that it must contain. The following subsections discuss the outline of a plan for a business start-up and identify some of the major sections that should be part of the plan.

The cover page provides the reader with information about either the author of the plan or the person to contact concerning the business plan. It should contain all the pertinent information to enable the reader to contact the author, such as the name of the business, the business logo, and the contact person’s address, telephone number, and e-mail address.

The table of contents enables the reader to find the major sections and components of the plan. It should identify the key sections and subsections and on which pages those sections begin. This enables the reader to turn to sections that might be of particular importance.

Executive Summary

The  executive summary is a section of critical importance and is perhaps the single most important section of the entire business plan. Quite often, it is the first section that a reader will turn to, and sometimes it may be the only section of the business plan that he or she will read. Chronologically, it should probably be the last section written. [24] The executive summary should provide an accurate overview of the entire document, which cannot be done until the whole document is prepared.

If the executive summary fails to adequately describe the idea behind the business or if it fails to do so in a captivating way, some readers may discard the entire business plan. As one author put it, the purpose of the executive summary is to convince the reader to “read on.” [25] The executive summary should contain the following pieces of information:

• What is the company’s business?
• Who are its intended customers?
• What will be its legal structure?
• What has been its history (where one exists)?
• What type of funding will be requested?
• What is the amount of that funding?
• What are the capabilities of the key executives?

All this must be done in an interesting and captivating way. The great challenge is that executive summaries should be relatively short—between one and three pages. For many businesspeople, this is the great challenge—being able to compress the required information in an engaging format that has significant size limitations.

Business Section

Goals. These are broad statements about what you would like to achieve some point in the near future. Your goals might focus on your human resource policies (“We wish to have productive, happy employees”), on what you see as the source of your competitive advantage (“We will be best in service”), or on financial outcomes (“We will produce above average return to our investors.”) Goals are useful, but they can mean anything to anyone. It is therefore necessary to translate the goals into objectives to bring about real meaning so that they can guide the organization. Ideally, objectives should be SMART —specific, measurable, achievable, realistic, and have a specific timeline for completion. Here is an example: one organizational goal may be a significant rise in sales and profits. When translating that goal into an objective, you might word the objectives as follows: a 15 percent increase in sales for the next three years followed by a 10 percent increase in sales for the following two years and a 12.5 percent increase in profits in each of the next five years. These objectives are quite specific and measurable. It is up to the decision-maker to determine if they are achievable and realistic. These objectives—sales and profits—clearly specify the time horizon. In developing the plan, owners are often very happy to develop goals because they are open to interpretation, but they will avoid objectives. Goals are sufficiently ambiguous, whereas objectives tie you to particular values that you will have to hit in the future. People may be concerned that they will be weighed on a scale and found wanting for failing to achieved their objectives. However, it is critical that your plan contains both goals and objectives. Objectives allow investors and your employees to clearly see where the firm intends to go. They produce targeted values to aim for and, therefore, are critical for the control of the firm’s operations.

Vision and Mission Statements. To many, there is some degree of confusion concerning the difference between a vision statement and a mission statement.  Vision statements articulate the long-term purpose and idealized notion of what a business wishes to become. In the earliest days of Microsoft, when it was a small business, its version of a vision statement was as follows: “A computer on every desk and in every home.” In the early 1980s, this was truly a revolutionary concept. Yet it gave Microsoft’s employees a clear idea (vision) that to bring that vision into being, the software being developed would have to be very “user-friendly” in comparison to the software of that day. Mission statements , which are much more common in small business plans, articulate the fundamental nature of the business. This means identifying the type of business, how it will leverage its competencies, and possibly the values that drive the business. Put simply, a mission statement should address the following questions:

• Who are we? What business are we in?
• Who do we see as our customers?
• How do we provide value for those customers?

Sometimes vision and mission statements are singularly written for external audiences, such as investors or shareholders. They are not written for the audience for whom it would have the greatest meaning—the management team and the employees of the business. Unfortunately, many recognize that both statements can become exercises of stringing together a series of essentially meaningless phrases into something that appears to sound right or professional . You can find software on the web to automatically generate such vacuous and meaningless statements.

Sometimes a firm will write a mission statement that provides customers, investors, and employees with a clear sense of purpose of that company. Zappos has the following as its mission statement: “Our goal is to position Zappos as an online service leader. If we can get customers to associate Zappos as the absolute best in service, then we can expand beyond shoes.” [26] The mission statement of Ben & Jerry’s Ice Cream focuses both on defining their product and their values: “To make, distribute and sell the finest quality all-natural ice cream and euphoric concoctions with a continued commitment to incorporating wholesome, natural ingredients and promoting business practices that respect the Earth and the Environment.” [27]

Keys to Success . This section identifies those specific elements of your firm that you believe will ensure success. It is important for you to be able to define the competencies that you intend to leverage to ensure success. What makes your product or service unique? What specific set of capabilities do you bring to the competitive scene? These might include the makeup of and the experience of your management team; your operational capabilities (e.g., unique skills in design, manufacturing, or delivery); your marketing skill sets: your financial capabilities (e.g., the ability to control costs); or the personnel that make up the company.

Industry Review

In this section, you want to provide a fairly comprehensive overview of the industry. A thorough understanding of the industry that you will be operating in is essential to understand the possible returns that your company will earn within that industry. Investors want to know if they will recover their initial investment. When will they see a profit? Remember, investors often carefully track industries and are well aware of the strengths and limitations within a particular industry. Investors are looking for industries that can demonstrate growth. They also want to see if the industry is structurally attractive. This might entail conducting Porter’s five forces analysis; however, this is not required in all cases. If there appear to be some issues or problems with industry-level growth, then you might want to be able to identify some segments of the industry where growth is viable.

Products or Services

This section should be an in-depth discussion of what you are offering to customers. It should provide a complete and clear statement of the products or the services that you are offering. It should also discuss the core competencies of your business. You should highlight what is unique, such as a novel product or service concept or the possession of patents. You need to show how your product or service specifically meets particular market needs. You must identify how the product or the service will satisfy specific customers’ needs. If you are dealing with a new product or service, you need to demonstrate what previously unidentified needs it will meet and how it will do so. At its birth, Amazon had to demonstrate that an online bookstore would be preferable to the standard bookstore by offering the customer a much wider selection of books than would be available at an on-site location.

This section could include a discussion of technical issues. If the business is based on a technological innovation—such as a new type of software or an invention—then it is necessary to provide an adequate discussion of the specific nature of the technology. One should take care to always remember the audience for whom you are writing the plan. Do not make this portion too technical in nature. This section also might discuss the future direction of the product or service—namely, where will you be taking (changing) the product or the service after the end of the current planning horizon? This may require a discussion of future investment requirements or the required time to develop new products and services. This section may also include a discussion of pricing the product or the service, although a more detailed discussion of the issue of pricing might be found in the marketing plan section. If you plan to include the issue of pricing here, you should discuss how the pricing of the product or the service was determined. The more detailed you are in this description, the more realistic it will appear to the readers of the business plan. You may wish to discuss relationships that you have with vendors that might have an impact on reducing cost and therefore an impact on price. It is important to discuss how your pricing scheme will compare with competitors. Will it be higher than average or below the average price? How does the pricing fit in with the overall strategy of the firm?

This section must have a high degree of honesty. Investors will know much about the industry and its limitations. You need to identify any areas that might be possible sources of problems, such as government regulations, issues with new product development, securing distribution channels, and informing the market of your existence. Further, it is important to identify the current competitors in the industry and possible future competitors.

Marketing Plan

An introductory marketing course always introduces the four Ps: product, price, place, and promotion. The marketing section of the business plan might provide more in-depth coverage of how the product or the service better meets customer value than that of competitors. It should identify your target customers and include coverage of who your competitors are and what they provide. The comparison between your firm and its competitors should highlight differences and point to why you are providing superior value. Pricing issues, if not covered in the previous section, could be discussed or discussed in more detail.

The issue of location, particularly in retail, should be covered in detail. Perhaps one of the most important elements of the marketing plan section is to specify how you intend to attract customers, inform them of the benefits of using your product or service, and retain customers. Initially, customers are attracted through advertising. This section should delineate the advertising plan. What media will be used—flyers, newspapers, magazines, radio, television, web presence, direct marketing, and/or social media campaigns? This section should cover any promotional campaigns that might be used.

The Management Team

Physical resources are not the only determinant of business success. The human resources available to a firm will play a critical role in determining its success. Readers of your business plan and potential investors should have a clear sense of the management team that will be running a business. They should know the team with respect to the team’s knowledge of the business, their experience and capabilities, and their drive to succeed. Arthur Rock, a venture capitalist, was once quoted as saying, “I invest in people, not the idea.” [28]

This section of the business plan has several elements. It should contain an organizational chart that will delineate the responsibilities and the chain of command for the business. It should specify who will occupy each major position of the business. You might want to explain who is doing what job and why. For every member of the management team, you should have a complete résumé. This should include educational background (both formal and informal) and past work experience, including the jobs they have held, responsibilities, and accomplishments. You might want to include some other biographical data such as age, although that is not required.

If you plan to use specific advisers or consultants, you should mention the names and backgrounds of these people in this section of the plan. You should also specify why these people are being used.

An additional element of your discussion of the management team will be the intended compensation schemes. You should specify the intended salaries for the management team while also including issues of their benefits and bonuses or any stock position that they may take in the company. This section should also identify any gaps in the management team and how you intend to fill these positions.

Depending on the nature of the business, you might wish to include in this section the personnel (employees) that will be required. You should identify the number of people that are currently working for the firm or that will have to be hired; you should also identify the skills that they need to possess. Further discussion should include the pay that will be provided: whether they will be paid a flat salary or paid hourly, if and when you intend to use overtime, and what benefits you intend to provide. In addition, you should discuss any training requirements or training programs that you will have to implement.

Financial Statements

The financial statements section of the business plan should be broken down into three key subsections: the income statement, the balance sheet, and the cash-flow statement. Before proceeding with these sections, we discuss the assumptions used to build these sections. The opening section of the financial statements section should also include, in summary format, projections of sales, the sales growth rate, key expenses and their growth rates, net income across the forecasting horizon, and assets and liabilities. [29]

As previously discussed, bankers—and to lesser extent venture capitalists—will be primarily concerned with this section of the business plan. It is vital that this section—whether you are an existing business seeking more funding or a start-up—have realistic financial projections. The business plan should contain clear statements of the underlying assumptions that were used to make these financial projections. The clearer the statements and the more realistic the assumptions behind these statements, then the greater the confidence the reader will have in these projections. Few businesspeople have a thorough understanding of these financial statements; therefore, it is advisable that someone with an accounting or a financial background review these statements before they are included in the report. We will have a much more in-depth discussion of these statements in Chapter 9 .

The future planning horizon for financial projections is normally between three and five years. The duration that you will use will depend on the amount of capital that the business is seeking to raise, the type of industry the business is in, and the forecasting issues associated with making projections. Also, the detail required in these financial statements will be directly tied to the type and size of the business.

Income Statement

The  income statement examines the overall profitability of a firm over a particular period of time. As such, it is also known as a profit-and-loss statement. It identifies all sources of revenues generated and expenses incurred by the business. For the business plan, one should generate annual plans for the first three to five years. Some suggest that the planner develop more “granulated” income statements for the first two years. By granulated, we mean that the first year income statement should be broken down on a monthly basis, while the second year should be broken down on a quarterly basis.

Some of the key terms (they will be reviewed in much greater detail in Chapter 10 ) found in the income statement are as follows:

• Income. All revenues and additional incomes produced by the business during the designated period.
• Cost of goods sold. Costs associated with producing products, such as raw materials and costs associated directly with production.
• Gross profit margin. Income minus the cost of goods sold.
• Operating expenses. Costs in doing business, such as expenses associated with selling the product or the service, plus general administration expenses.
• Depreciation. This is a special form of expense that may be included in operating expenses. Long-term assets—those whose useful life is longer than one year—decline in value over time. Depreciation takes this fact into consideration. There are several ways in which this declining value can be determined. It is a noncash expenditure expense.
• Total expenses. The cost of goods sold plus operating expenses and depreciation.
• Net profit before interest and taxes. This is the gross profit minus operating expenses; another way of stating net profit is income minus total expenses.
• Interest. The required payment on all debt for the period.
• Taxes. Federal, state, and local tax payments for the firm.
• Net profit. This is the net profit after interest and taxes. This is the term that many will look at to determine the potential success of business operations.

Balance Sheet

The  balance sheet examines the assets and liabilities and owner’s equity of the business at some particular point in time. It is divided into two sections—the credit component (the assets of the business) and the debit component (liabilities and equity). These two components must equal each other. The business plan should have annual balance sheet for the three- or five-year planning horizon. The elements of the credit component are as follows:

• Current assets. These are the assets that will be held for less than one year, including cash, marketable securities, accounts receivable, notes receivable, inventory, and prepaid expenses.
• Fixed assets. These assets are not going to be turned into cash within the next year; these include plants, equipment, and land. It may also include intangible assets, such as patents, franchises, copyrights, and goodwill.
• Total assets. This is the sum of current assets and fixed assets.

Liabilities consist of the following:

• Current liabilities. These are debts that are to be paid within the year, such as lines of credit, accounts payable, other items payable (including taxes, wages, and rents), short-term loans, dividends payable, and current portion of long-term debt.
• Long-term liabilities. These are debts payable over a period greater than one year, such as notes payable, long-term debt, pension fund liability, and long-term lease obligations.
• Total liabilities. This is the sum of current liabilities and long-term liabilities.
• Owner’s equity. This represents the value of the shareholders’ ownership in the business. It is sometimes referred to as net worth. It may be composed of items such as preferred stock, common stock, and retained earnings.

Cash-Flow Statement

From a practical and survival standpoint, the  cash-flow statement may be the most important component of the financial statements. The cash-flow statement maps out where cash is flowing into the firm and where it flows out. It recognizes that there may be a significant difference between profits and cash flow. It will indicate if a business can generate enough cash to continue operations, whether it has sufficient cash for new investments, and whether it can pay its obligations. Businesspeople soon realize that profits are nice, but cash is king.

Cash flows can be divided into three areas of analysis: cash flow from operations, cash flow from investing, and cash flow from financing. Cash flow from operations examines the cash inflows from revenues and interest and dividends from investments held by the business. It then identifies the cash outflows for paying suppliers, employees, taxes, and other expenses. Cash flow from investing examines the impact of selling or acquiring current and fixed assets. Cash flow from financing examines the impact on the cash position from the changes in the number of shares and changes in the short- and long-term debt position of the firm. Given the critical importance of cash flow to the survival of the small business, it will be covered in much more detail in Chapter 10 .

Additional Information

Depending on the nature of the business and the amount of funding that is being sought, the plan might include more materials. For an existing business, you may wish to include past tax statements and/or personal financial statements. If the business is a franchise, you should include all legal contracts and documents. The same should be done for any leasing, licensing, or rent agreements. This section should be seen as a catchall incorporating any materials that would support the plan. One does not want to be in the position of being asked by readers of the plan—“Where are these documents?”

The financial section of the business plan should include summaries of the three key financial elements. The details behind the financial statements should be included as an appendix along with clear statements concerning the assumptions that were used to build them. The appendixes may also include different scenarios that were considered in building the plan, such as alternative market growth assumptions or alternative competitive environments. Demonstrating that the author(s) considered “what-if” situations tells potential investors that the business is prepared to handle changing conditions. It should include items such as logos, diagrams, ads, and organizational charts.

Developing Scenarios

Business plans are analyses of the future; they can err on the side of either optimistic projections or conservative projections. From the standpoint of the potential investor, it is always better to err on the side of conservatism. Regardless of either bias, business plans are generally built on the basis of expected futures and past experience. Unfortunately, the future does not always emerge in a clearly predicated manner. One can have a dramatic change that can have significant impact on the business. Often such changes occur in the external environment and are beyond the control of the business management team. These external changes can occur within the technical environment; it can be based on changes in customer needs, changes with respect to the suppliers, changes in the economic environment—at the local, national, or global level. Dramatic change can also occur within the organization itself—the death of the owner or members of the management team. [30]

One way for an organization to deal with significant changes is a process known as scenario planning . The real origins of scenario planning can be traced back to the early nineteenth century activity known as Kreigsspiel—war gaming—a system for training officers developed by the Prussian command. This process of looking at future wars was adopted by many militaries in the later nineteenth century. In the 1950s, a more formal format was used at the RAND Institute for examining possible future changes in the military and geopolitical environments. The early 1980s saw it applied to industrial settings. Royal Dutch Shell examined the question of what would happen if there were a significant drop in the price of oil. This was after two oil crises that pushed the price of oil up significantly. The notion that oil prices would drop was considered to be an extremely unlikely event, but it did occur. Royal Dutch Shell was one of the few oil companies that did not suffer because its scenario analyses enabled them to be ready to deal with that situation. [31]

What could be the possible use of scenario planning for small businesses? There are several areas in which small businesses should apply scenario planning to be better prepared for future disruptions.

Identify Significant Changes That Might Impact the Business

Consider major shifts in the customer’s notion of value. As mentioned in Chapter 2 , the firm should always be examining what constitutes value in the eyes of the consumer and how that might shift. Henry Ford’s model T car was a global success because customers initially valued a reliable vehicle at a low price. Ford Motor Company continued to meet the customer’s notion of value by constantly driving down the unit cost. However, by the mid-1920s, customers’ notion of value included not only price but also issues such as styling and improved technologies. General Motors was able to recognize that there were changes in the customer’s value notion and provided them with a range of vehicles. Ford failed to recognize that change and suffered a significant drop in sales.

Shifts in the economic environment. The recent recession clearly indicates that economies can suffer significant shifts in a short period of time. These shifts can have dramatic impact on all business operations. Small-business owners have seen significant tightening of bank credit and changes with respect to the requirements for using credit cards. One could easily imagine the critical importance for small businesses to consider the impacts that would follow significant changes in interest rates. Southwest Airlines, in anticipation of possible fluctuations in oil prices, used futures contracts to deal with dramatic shifts in the price of oil. When oil prices rose significantly, they were in a much better position than their competitors.

The entrance of new competitors. Small businesses should always be ready to consider the impact of facing new competitors and new types of competition. Consider the case of small local retail outlets when a Walmart superstore opens in the area.

Consideration of Disasters

The best way to deal with any potential disaster is not while it is occurring or after it has happened but before it occurs. Small businesses should anticipate what they will do in the case of physical disasters, such as fire, earthquakes, or floods. Other disasters might involve the bankruptcy or loss of a major supplier or a major customer. A restaurant or a food market should have a contingency plan in the case of a power failure that might lead to food spoilage. Such a business might also want to conduct a scenario planning exercise to see what its responses would be in the case of a customer complaining of food poisoning. Other disaster scenarios that should be considered by small businesses include the impact and ramifications of having the computer system crash; having the service for the website crash; or having the website hacked, with the possible loss of customer information.

New Opportunities

Almost all businesses, large and small, must be prepared to seize new opportunities. This may mean that they have to consider the impact of technological change on the business or how technology can offer them new business opportunities. The technology of stereo lithography, a process by which three-dimensional objects are built layer by layer, has been available for more than a decade. Bespoke Innovations saw the potential for using this technology. Bespoke Innovations can develop, in a short period of time, custom artificial legs for a price of $5,000–$6,000 and with features that are not found in $60,000 prostheses. [32]

Scenario planning should be a periodic exercise, but it should be conducted no more than once a year. The actual frequency might be dependent on the perceived rate of change for the industry or the presence of storm clouds on the horizon. Scenario planning has several distinct activities, which may be as follows:

• Pick one area that might occur in the future that would have significant impact on the business. What if the national joblessness rate remains at over 9 percent for the next three to five years? What if a major customer decides to buy from a competitor or that customer is in financial trouble? What if there are changes in the national defense budget? A luncheonette in New London, Connecticut, where Electric Boat builds nuclear submarines, wants to consider the impact of changes in the defense budget. A decrease in the budget for building nuclear submarines would reduce the number of subs made in New London, which might lead to layoffs at Electric Boat and fewer customers for the luncheonette.
• Identify factors that might impact that issue. This sometimes is referred to as a PEST analysis, where the P stands for political issues, E stands for economic issues, S stands for sociocultural issues, and T stands for technology issues. Each factor would be analyzed to see how it might impact the scenario. In our previous luncheonette example, the restaurant might want to consider an upcoming election to see how each party would support defense appropriations, and it might look at the overall economy to determine whether a downturn in the economy might lead to a cut in defense appropriations. It is unlikely that sociocultural issues would impact defense appropriations. Technology issues, whether a breakthrough in some design by the United States or by some other country, might determine the number and location of submarines built in the United States.
• Rank the relative importance of the previous factors. Not all factors under consideration can be considered equally important. It is critical in a scenario planning exercise to see which factors are most important so that decision-makers can focus on the ramifications of those factors in the analysis.
• Develop scenarios. Having identified the relative importance of the factors, the next stage would be to develop a limited number of possible scenarios (no more than two or three). Each scenario would map out possible outcomes for each key factor. Based on these values, the group conducting the scenario planning exercise would develop insights into this possible future world.
• How do the scenarios impact your business? For each future scenario, the team should examine how that possible future state would impact the operation of the business. Continuing with the luncheonette example, the owner might see that a particular political party would be elected in the next election and the economy will still be in the doldrums. Together, this might indicate a cut in the naval building budget. This will translate into a reduced number of submarines built in New London and a reduction in employment at Electric Boat. The luncheonette’s sales will obviously drop off. Now the owner must consider what it might do in that situation.

Scenario planning offers the opportunity for small business owners to examine the future on a long-term basis. It should force them to look at external environments and conditions that can have a dramatic impact on the survival of their firm. It broadens their thinking and creates an environment of increased flexibility. It enables a business to respond to those sudden shocks that might destroy other firms.

Computer Aids

Business plans can be built using a combination of word-processing and spreadsheet programs by those who are adept at using them. However, the entire process of constructing a comprehensive business plan can be greatly simplified by using a dedicated business plan software package. These packages are designed to produce reports that have all the required sections for a business plan, they greatly facilitate the creation of the financial statements with charts, and they often allow for the inclusion of materials from other programs. Most of them are fairly reasonably priced from $50 to $150.

There are many such packages on the market, and they range from those designed for novices to those that can generate annual plans by easily incorporating data from external sources, such as the accounting programs of a business. When evaluating competing programs, there are some primary and secondary factors that should be considered. [33] The primary factors are as follows:

• Ease of building the report. The various sections of the report should be clearly identified, and the authors should be able to work on each section independent of their sequence within the report. Text and data entry should be simple and allow for easy corrections or revisions.
• Financial statements. The software should facilitate building the income statement, the balance sheet, and the cash-flow statement. For multiyear projections, the software should support the forecasting process.
• Import from other programs. The software should be able to incorporate data from a variety of programs, such as Word and Excel. Ideally, it should be able to import data from a variety of accounting programs.
• Support services. The software company should bundle a variety of support services, including clear instructions, tutorials, and access to Internet or call-number support. Many packages provide sample business plans for different industries.

The secondary factors are as follows:

• Access to research support. Some software packages include access to business publications and databases to aid with market research.
• Export options. These packages allow for the report or parts of the report to be exported to different formats—Word, Excel, PowerPoint, HTML, or PDF.
• Ancillary analysis tools. Some packages either directly include or offer additional programs for market planning, budgeting, or valuation.

The following is a partial listing of companies that have business planning software:

• Business Plan Pro . This company provides business planning software with sample plans for a wide number of industries plus options for acquiring industry data at national, state, or local levels. The company also has programs for marketing planning and legal issues advice.
• Business Plan Software . This company offers a number of products, including business planning software, a strategic planning program, financial projection and cash-flow forecasting programs, and marketing planning software.
• Plan Magic . This company offers a suite of planning products ranging from particular industries to financial and marketing planning software.
• The business planning for a start-up business should consider if the owner(s) is/are ready to accept the challenges of operating a business.
• Comprehensive business plans will require information about the industry, competitors, and customers. Owners or the writers of the business plan should be aware of where they can obtain this information.
• Forecasting is critical to the success of any business. There are many different approaches to forecasting: some are simple extrapolations of trends, while others can be computationally complex. The business should use a forecasting system that is not only accurate but also makes the users feel comfortable.
• Although business plans come in different “sizes and shapes,” they should have some key sections: executive summary, mission statement, industry analysis, marketing plan, description of the management team, and financial projections.
• Some businesses should make it a practice of conducting scenario analyses. This is a process of examining possible future events and what should be the response of the business.
• The complexity and difficulty of building a comprehensive business plan can be significantly reduced by using one of the available business-planning software packages.
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• Rieva Lesonsky, “A Small Business Plan Doubles Your Chances for Success, Says a New Survey,” Small Business Trends, June 20, 2010, accessed October 10, 2011, smallbiztrends.com/2010/06/business-plan-success-twice-as-likely.html. ↵
• H. Hodges and T. Kent, “Impact of Planning and Control Sophistication in Small Business,” Journal of Small Business Strategy 17, no. 2 (2006–7): 75. ↵
• Tim Berry, “What Bankers Look for in a Business Plan…and What You Should Expect When Taking Your Business Plan to a Bank,” AllBusiness.com, November 7, 2006, accessed October 10, 2011, www.allbusiness.com/business-planning-structures/business-plans/3878953-1.html. ↵
• Marc Mays, “Small Business Venture Capital Strategies,” eZine Articles, 2010, accessed October 10, 2011, ezinearticles.com/?Small-Business-Venture-Capital-Strategies &id=4714691. ↵
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• Melinda Emerson, “Life Plan before Business Plan,” Small Business Trends, March 22, 2010, accessed October 10, 2011, smallbiztrends.com/2010/03/life-plan -before-business-plan.html. ↵
• Jeffry Timmons, Andrew Zachary, and Stephen Spinelli, Business Plans That Work—A Guide for Small Business (New York: McGraw-Hill, 2004), 113. ↵
• Carolyn Brown, “The Dos and Don’ts of Writing a Winning Business Plan,” Black Enterprise, April 1996, 114–122. ↵
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The path by which a firm seeks to provide its customers with value, given the competitive environment and within the constraints of the resources available to the firm.

A firm is in the position of being the lowest cost producer in its competitive environment.

A firm provides products or services that meet customer value in some unique way.

A firm seeks to provide value through low cost for a subset of the market given the competitive environment and within the constraints of the resources available to the firm.

A firm concentrates on providing a unique product or service to a segment of the market.

Individuals who provide money for start-up businesses or additional capital for a business to grow. They invest to make not only a profit but also returns that are substantially above those found in the market.

Individuals who initially invested in Broadway shows and films. As with venture capitalists, they are looking for returns higher than they can normally find in the market; however, they often are expecting returns lower than those anticipated by the venture capitalist.

Methods that assume that one does not have historical data or cannot rely on past historical data.

Methods that consist of techniques that assume you can use past data to make projections of the future.

The introduction to the business plan that describes the company’s business, the intended customers, the legal structure, the type and amount of funding that will requested, and the capabilities of the key executives.

A document that articulates the long-term purpose and idealized notion of what the business wishes to become.

A document that articulates the fundamental nature of the business. It should address what business the company is in, the company’s potential customers, and how customer value will be provided.

A report that provides an examination of the overall profitability of a firm over a particular period of time.

A report that examines the assets, liabilities, and owner’s equity of the business at some particular point in time.

A document that maps out where cash is flowing into a firm and where it flows out. It recognizes that there may be a significant difference between profits and cash flow.

A process that examines the impact and possible responses to events that may be unlikely but that would have significant impact on a business.

Small Business Management Copyright © by Jason Anderson is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

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Understanding The Distinction Between a Business Plan & Business Planning

In the dynamic world of entrepreneurship, our choice of words matters. Our vocabulary can often become a veritable alphabet soup of jargon, acronyms, and those buzzwords (I'm looking at you, "disrupt").

And let's not get started on business cliches – "circle back," "synergy," “deep-dive,” etc.

Yet sometimes, it's worth pausing to consider the words we casually sprinkle around in our business conversations. In a previous article, we explored the differences between strategic and tactical business planning , two related but distinct approaches to guiding a business. Now, we're going to delve into another pair of terms that often get used interchangeably but have unique implications: "business plan" (the noun) and "business planning" (the verb).

The business plan, a noun, is a tactical document. It's typically created for a specific purpose, such as securing a Small Business Administration (SBA) loan . Think of it as a road map – it outlines the route and the destination (in this case, the coveted bank loan). But once you've reached your tactical goal (in this case, getting the loan), it often gets shoved in the glove compartment, forgotten as part of the organization's action plan until the next road trip (i.e., additional funding ).

Business planning is not a static concept, but rather a dynamic verb. It's an ongoing process that necessitates continual adjustments. It's about creating a holistic, interconnected value-creating strategic plan that benefits all stakeholders. This includes attracting top-tier employees, ensuring a return on lending or investment, and making a positive impact on the community, whether online or in real life.

That being said, the customer remains at the heart of this process. Without customers, there are no sales, no revenue, and no value. Everything else is contingent on this key element.

If we were to compare the business plan to a map, then business planning would be the journey. It's a continuous process of making strategic decisions, adapting to new paths, and steering the business towards its goals. Sometimes, it even involves redefining objectives midway.

So, let's do a "deep-dive" (I couldn't resist) into these two terms, examining their application in the real world. Along the way, we'll uncover some tools that can aid us in the ever-evolving process of strategic business planning and the more finite task of crafting a winning business plan.

The Business Plan is a Document

Alright, let's take a closer look at a phrase we've all tossed around: the business plan. Imagine it as the detailed blueprint of your organization's goals, strategies, and tactics. It's like the North Star for your entrepreneurial ship, shedding light on the key questions: what, why, how, and when (speaking of questions, here are some FAQs about the business plan ).

Writing a solid business plan isn't easy , especially if you're just dipping your toes into the world of business planning. But don’t worry; we'll get to that (eventually).

So, let's break it down. What does a business plan document consist of, exactly?

• Executive Summary: Just as it sounds, this is a quick overview of the nitty-gritty that's in the rest of your business plan. It's the introduction to your organization, highlighting your mission statement and serving up the essential details like ownership, location, and structure.
• Company Overview: This is where you will detail your products and/or services, their pricing, and the operational plan. If you're opening a restaurant, this section is where you present your menu, and it's also where you talk about your ingredient sourcing, the type of service you'll provide, and the ambiance you're aiming for. 
• Market Analysis Summary: This section demands a comprehensive analysis of your industry, target market, competitors, and your unique selling proposition. Without access to top-notch (and often not free) research tools, it can be challenging to find current industry data. Check out our  guide on the best market research tools to get started.
• Strategy and Implementation Summary: Here, you'll lay out your short-term and long-term objectives along with the strategies you'll implement to attract and retain customers. This is where you’ll talk about all the different marketing and sales strategies you'll use to charm your future customers.
• Management Summary: This is your chance to spotlight your company's key personnel. Detail the profiles of your key leaders, their roles, and why they're perfect for it. Don't shy away from acknowledging talent gaps that need to be filled, and do share how you plan to fill them!
• Pro Forma Financials: This is where you get down to the dollars and cents with a detailed five-year revenue forecast along with crucial financial statements like the balance sheet and the profit & loss statement.

A business plan is an essential instrument, not just for securing funding, but also for communicating long-term goals and objectives to key stakeholders. But, while a business plan is essential for many circumstances, it's important to understand its scope and limitations. It's a tactical tool, an important one, but it's not the be-all and end-all of business strategy. Which brings us to our next point of discussion: business planning.

Business Planning is a Process

If we view the business plan as a blueprint, then business planning is the architect. But let's be clear: we're not building just any old house here. We're building the  Winchester Mystery House of business. Just as the infamous Winchester House was  constantly under construction , with new rooms being added and old ones revamped, so too is your business in a state of perpetual evolution. It's a dynamic, ongoing process, not a one-and-done event.

In the realm of business planning, we're always adding 'rooms' and 'corridors' – new products, services, and market strategies – to our 'house'. And just as  Sarah Winchester reputedly consulted spirits in her Séance Room to guide her construction decisions, we consult our customers, market data, and strategic insights to guide our strategy. We're in a constant state of assessing, evolving, executing, and improving.

Business planning touches all corners of your venture. It includes areas such as product development, market research, and strategic management. It's not about predicting the future with absolute certainty – we’re planners, not fortune tellers. It's about setting a course and making calculated decisions, preparing to pivot when circumstances demand it (think global pandemics).

Business planning is not a 'set it and forget it' endeavor. It's akin to being your company's personal fitness coach, nudging it to continually strive for better. Much like physical fitness, if you stop the maintenance, you risk losing your hard-earned progress.

Business Planning Case Study: Solo Stove

Now that summer is here, my Solo Stove stands as a tangible testament to effective business planning.

For those unfamiliar, Solo Stove started with a simple yet innovative product – a smoke-limiting outdoor fire pit that garnered over $1.1 million on Kickstarter in 2016, far exceeding its original objective. Since then, it has expanded its portfolio with products tailored to outdoor enthusiasts. From flame screens and fire tools to color-changing flame additives, each product is designed to fit seamlessly into modern outdoor spaces, exuding a rugged elegance that resonates with their target audience.

This strategic product development, a cornerstone of business planning, has allowed Solo Stove to evolve from a product to a lifestyle brand. By continually listening to their customers, probing their desires and needs, and innovating to meet those needs, they've built a brand that extends beyond the products they sell.

Their strategy also includes a primary "Direct To Consumer" (DTC) revenue model, executed via their e-commerce website. This model, while challenging due to increased customer acquisition costs, offers significant benefits, including higher margins since revenue isn’t split with a retailer or distributor, and direct interaction with the customer.

Through its primary business model,  Solo Stove has amassed an email database of over 3.4 million customers . This competitive advantage allows for ongoing evaluation of customer needs, driving product innovation and improvement, and enabling effective marketing that strengthens their mission. The success of this approach is evident in the company's growth: from 2018 to 2020,  Solo Stove’s revenue grew from $16 million to $130 million , a 185% CAGR.

While  85% of their revenue comes from online DTC channels, Solo Stove has also enhanced their strategic objectives by partnering with select retailers that align with their reputation, demographic, and commitment to showcasing Solo Brands’ product portfolio and providing superior customer service.

Solo Stove's success underscores how comprehensive business planning fosters regular assessment, constant evolution, and continual improvement. It's more than setting goals – it's about ceaselessly uncovering ways to deliver value to your customers and grow your business.

However, even successful businesses like Solo Stove can explore additional strategic initiatives for growth and diversification, aligning with their strategic direction and operational planning. For instance, a subscription model could provide regular deliveries of products or a service warranty, creating a consistent revenue stream and increasing customer loyalty. Alternatively, a B2B model could involve partnerships with adventure tourism operators, who could purchase Solo Stove products in bulk.

These complementary business models, when integrated into the operational plan, could support the primary DTC model by driving customer acquisition, providing ongoing revenue streams and expanding the customer base. This strategic direction ensures that Solo Stove continues to thrive in a competitive market.

The Interplay between the Business Plan (Noun) and Business Planning (Verb)

In the realm of business strategy, there's an intriguing chicken-and-egg conundrum: which comes first, the business plan or business planning? The answer is both straightforward and complex: they're two sides of the same coin, each indispensable in its own right and yet inextricably linked.

The process of business planning informs and modifies the business plan, just as the business plan provides a strategic foundation for the planning process. This interplay embodies the concept of Model-Based Planning™, where the business model serves as a guide, yet remains flexible to the insights and adaptations borne out of proactive business planning.

Let's revisit the Solo Stove story to elucidate this concept. Their business model, primarily direct-to-consumer, laid the groundwork for their strategy. Yet, it was through continuous business planning  –  the assessment of customer feedback, market trends, and sales performance –  that they were able to refine their model, expand their product portfolio, and enhance their growth objectives. Their business plan wasn't a static document but a living entity, evolving through the insights gleaned from ongoing business planning.

So, how can you harness the power of both the tactical business plan and strategic business planning in your organization? Here are a few guiding principles:

• Embrace Model-Based Planning™: Start with a robust business model that outlines your strategic plan. But remember, this isn't set in stone—it's a guiding framework that will evolve over time as you gain insights from your strategic planning process.
• Make business planning a routine: Regularly review and update your business plan based on your findings from market research, customer feedback, and internal assessments. Use it as a living document that grows and adapts with your business.
• Foster open communication: Keep all stakeholders informed about updates to your business plan and the insights that informed these changes. This promotes alignment and ensures everyone is working towards the same goals.
• Be agile and adaptable: A key part of business planning is being ready to pivot when necessary . Whether it's a global pandemic or a shift in consumer preferences, your ability to respond swiftly and strategically to changing circumstances is crucial for long-term success.

Fanning the Flames: From Planning to Plan

The sparks truly ignite when you understand the symbiotic relationship between tactical business plans, strategic business planning, and the achievement of strategic goals. Crafting a tactical business plan (the noun) requires initial planning (the verb), but then you need to embark on continuous strategic planning (the verb) to review, refine, and realign your strategic business plan (the noun). It's a rhythm of planning, execution, review, and adjustment, all guided by key performance indicators.

Business planning, therefore, isn't a one-off event, but rather an active, ongoing process. A business plan needs constant nurturing and adjustment to stay relevant and guide your organization's path to success. This understanding frames your business plan not as a static document, but as a living, breathing entity, evolving with each step your business takes and each shift in the business landscape. It's a strategic roadmap, continually updated to reflect your organization's objectives and the ever-changing business environment.

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• Understanding Micro Business: Definition, Characteristics, and Benefits

What is a Micro Business?

Characteristics of a micro business, 1. size and structure, 2. operating capacity, 3. financial management, 4. regulatory compliance, how to start a micro business, 1. identify a business idea, 2. creating a business plan, 3. funding your micro business, 4. establishing legal structure, 5. registering the business, the benefits and challenges of running a micro business, 1. flexibility and independence, 2. closer customer relationships, 3. lower overhead costs, case studies of successful micro businesses, introduction: what is a micro business, size and structure, operating capacity, financial management, regulatory compliance, identify a business idea, creating a business plan, funding your micro business, establishing legal structure, registering the business, benefits of owning a micro business, potential challenges and how to overcome them, case study 1: “sunny bakes” - a home-based bakery, case study 2: “green thumb landscaping” - a local landscaping service, case study 3: “tech solutions” - it consultancy for small businesses.

In today’s ever-changing business landscape, the concept of a micro business is gaining significant attention. As the name suggests, a micro business is a small-scale enterprise that operates with a limited number of employees and has a relatively low revenue turnover. In this blog post, we will delve deeper into the world of micro businesses by exploring their definition, characteristics, and the benefits they offer to entrepreneurs.

A micro business is often defined as a small-scale enterprise that typically operates with fewer than ten employees. These businesses are typically run by a single individual or a small team, and they serve a specific niche market or cater to a local customer base. While the size of a micro business may be small, its impact can be significant, as it contributes to the economy by providing employment opportunities and fulfilling the needs of the local community.

To better understand the nature of micro businesses, it is essential to examine their key characteristics. These characteristics include:

Micro businesses are characterized by their small size and typically have limited physical infrastructure. They often operate from home offices, small storefronts, or shared workspaces. The organizational structure is usually flat, with decision-making authority resting with the business owner.

Due to their small size, micro businesses have limited operating capacity. The production or service delivery processes are streamlined and efficient, allowing for flexibility and quick adaptation to market demands.

Micro businesses often operate on a tight budget and rely on efficient financial management to sustain their operations. The owner is responsible for managing cash flow, budgeting, and maintaining financial records.

While micro businesses may enjoy some regulatory exemptions, they still need to comply with legal requirements such as obtaining necessary licenses, permits, and adhering to tax obligations.

Starting a micro business requires careful planning and execution. Here are essential steps to consider:

Choose a business idea that aligns with your skills, interests, and market needs. Conduct market research to assess the viability and demand for your product or service.

Develop a comprehensive business plan that outlines your goals, target market, marketing strategies, financial projections, and operational procedures.

Explore various funding options such as personal savings, loans, crowdfunding, or seeking investment from family and friends. Consider starting small and gradually expanding as your business grows.

Determine the most suitable legal structure for your micro business, such as a sole proprietorship, partnership, or limited liability company. Consult legal and financial professionals for guidance.

Register your micro business with the appropriate government authorities and obtain any required licenses or permits to ensure compliance with regulatory obligations.

Running a micro business offers several benefits, including:

Micro business owners have the freedom to set their own schedules, make independent decisions, and pursue their passion. They have the flexibility to adapt quickly to market changes and customer demands.

Micro businesses often serve a local customer base, allowing for more personalized interactions and building strong relationships with customers. This can lead to increased customer loyalty and repeat business.

With fewer employees, smaller premises, and streamlined operations, micro businesses can significantly reduce overhead costs compared to larger enterprises. This can contribute to higher profit margins.

However, running a micro business also comes with its share of challenges, such as limited resources, intense competition, and the need for multitasking. In the following sections of this blog post, we will explore these challenges in more detail and provide strategies for overcoming them.

To illustrate the potential of micro businesses, we will showcase case studies of successful entrepreneurs who have built thriving micro businesses. By examining their journeys, strategies, and lessons learned, we can gain valuable insights into what it takes to succeed in this sector.

In the upcoming sections of this blog post, we will explore the world of micro businesses in detail, providing you with a comprehensive understanding of their definition, characteristics, and the benefits they offer. Whether you are considering starting your own micro business or simply interested in learning more about this sector, this blog post will serve as a valuable resource to help you navigate the world of micro businesses successfully.

A micro business is a small-scale enterprise that operates with a limited number of employees and has a relatively low revenue turnover. These businesses are often run by a single individual or a small team, and they serve a specific niche market or cater to a local customer base. Despite their small size, micro businesses can have a significant impact on the economy by providing employment opportunities and meeting the needs of the local community.

Micro businesses are characterized by their small size and typically have limited physical infrastructure. They may operate from home offices, small storefronts, or shared workspaces. The organizational structure is usually flat, with decision-making authority resting with the business owner.

Operating capacity is another key characteristic of micro businesses. Due to their small size, these businesses have limited operating capacity. However, they are often agile and adaptable, allowing for quick responses to market demands and changes.

Financial management is crucial for the success of a micro business. These businesses often operate on a tight budget and rely on efficient financial management to sustain their operations. The owner is responsible for managing cash flow, budgeting, and maintaining financial records.

While micro businesses may enjoy some regulatory exemptions, they still need to comply with legal requirements. This includes obtaining necessary licenses, permits, and adhering to tax obligations.

In summary, a micro business is a small-scale enterprise that operates with a limited number of employees and serves a specific niche market or local customer base. These businesses are characterized by their small size, limited operating capacity, efficient financial management, and regulatory compliance. In the next sections of this blog post, we will explore how to start a micro business, the benefits and challenges of running one, and showcase case studies of successful micro businesses.

Micro businesses possess distinct characteristics that set them apart from larger enterprises. Understanding these characteristics is crucial for aspiring entrepreneurs and individuals interested in the micro business sector. Let’s explore the key characteristics of micro businesses in more detail:

Micro businesses are characterized by their small size and typically operate with fewer than ten employees. These businesses are often run by a single individual or a small team, enabling a close-knit working environment. The organizational structure of micro businesses tends to be flat, with decision-making authority resting with the business owner. This streamlined structure allows for quick decision-making and flexibility in adapting to market changes.

Due to their small size, micro businesses have limited operating capacity compared to larger enterprises. However, they compensate for this by being agile and adaptable. Micro businesses can quickly adjust their production or service delivery processes to meet the demands of their customers. This agility enables them to respond swiftly to market trends and changes, giving them a competitive edge.

Efficient financial management is a critical aspect of running a successful micro business. These enterprises often operate on a tight budget, and effective financial management is essential for their sustainability. Micro business owners must carefully manage their cash flow, budgeting, and expenses. Monitoring and maintaining accurate financial records is crucial for tracking business performance and making informed decisions.

While micro businesses may benefit from certain regulatory exemptions, they are still subject to legal requirements. These requirements include obtaining necessary licenses, permits, and complying with tax obligations. Staying compliant with regulations ensures the smooth operation of the business and avoids potential legal issues in the future. Micro business owners must familiarize themselves with the specific regulations in their industry and location to ensure compliance.

Understanding the characteristics of a micro business provides valuable insights into the nature of these enterprises. Their small size, streamlined structure, adaptable operating capacity, efficient financial management, and regulatory compliance are key factors that contribute to their success. In the following sections, we will explore how to start a micro business, the benefits and challenges associated with running one, and examine real-life case studies of successful micro businesses.

Starting a micro business requires careful planning and execution. While the process may seem overwhelming, breaking it down into manageable steps can help aspiring entrepreneurs navigate the journey successfully. Here are the essential steps to consider when starting a micro business:

The first step in starting a micro business is to identify a viable business idea. Consider your skills, interests, and experience to determine the type of business that aligns with your strengths. Additionally, research the market to identify gaps or opportunities that your business can fulfill. Conduct market research, analyze competitors, and assess the demand for your product or service.

Once you have a business idea, creating a comprehensive business plan is crucial. A business plan outlines your goals, target market, marketing strategies, financial projections, and operational procedures. It serves as a roadmap for your business and helps you stay focused on your objectives. Include details on your products or services, pricing, marketing and sales strategies, and financial projections.

Next, explore various funding options to determine how you will finance your micro business. Consider your personal savings, loans from financial institutions or online lenders, seeking investment from family and friends, or exploring crowdfunding platforms. Carefully evaluate the costs involved in starting and operating your business, and create a realistic financial plan.

Decide on the most suitable legal structure for your micro business. Common options include sole proprietorship, partnership, or limited liability company (LLC). Each structure has its own advantages and implications in terms of liability, taxes, and management. Consult legal and financial professionals to determine the best legal structure for your specific circumstances.

Once you have determined your legal structure, you must register your micro business with the appropriate government authorities. This involves obtaining the necessary licenses and permits required to operate legally. Research the specific requirements in your industry and location, and ensure you comply with all regulations. Registering your business not only establishes its legality but also enables you to access potential benefits and protections.

By following these steps, you can lay a strong foundation for your micro business. Identifying a viable business idea, creating a comprehensive business plan, securing funding, establishing a legal structure, and registering your business are essential elements in starting a micro business. In the subsequent sections, we will explore the benefits and challenges of running a micro business and provide insights into real-life case studies of successful micro businesses.

Running a micro business offers numerous benefits, but it also comes with its fair share of challenges. Understanding these advantages and obstacles is crucial for entrepreneurs considering venturing into the micro business sector. Let’s explore the benefits and challenges of running a micro business in more detail:

• Flexibility and Independence: One of the significant benefits of running a micro business is the flexibility and independence it offers. As a micro business owner, you have the freedom to set your own schedules, make independent decisions, and pursue your passion. This autonomy allows for a better work-life balance and the ability to shape your business according to your vision.
• Closer Customer Relationships: Micro businesses often serve a local customer base, enabling closer interactions with customers. This proximity fosters stronger relationships and a deeper understanding of their needs and preferences. Building these personal connections can lead to increased customer loyalty, positive word-of-mouth referrals, and repeat business.
• Lower Overhead Costs: Compared to larger enterprises, micro businesses typically have lower overhead costs. With fewer employees, smaller premises, and streamlined operations, micro businesses can significantly reduce expenses. This can contribute to higher profit margins and financial sustainability.
• Quick Decision-Making and Adaptability: Due to their small size and flat organizational structure, micro businesses can make quick decisions and adapt rapidly to market changes. This agility allows for more efficient responses to customer demands, emerging trends, and competitive forces.
• Opportunity for Innovation and Creativity: Micro businesses often have the freedom to experiment, innovate, and bring unique ideas to the market. With fewer bureaucratic processes and layers of management, owners can explore creative solutions, refine their offerings, and differentiate themselves from competitors.
• Limited Resources: Micro businesses often face resource limitations, including financial constraints, limited manpower, and restricted access to specialized expertise. To overcome these challenges, entrepreneurs can seek cost-effective solutions, leverage technology, outsource certain tasks, collaborate with partners, and continuously seek opportunities for growth and expansion.
• Intense Competition: In many industries, micro businesses face competition from larger, more established companies. To stand out, micro business owners can focus on their unique value proposition, niche markets, personalized customer service, and building strong relationships with their target audience. Developing a strong brand and marketing strategy is essential to differentiate the business in a competitive landscape.
• Multitasking and Time Management: As a micro business owner, you are responsible for various aspects of the business, including operations, marketing, finance, and customer service. Effective time management, prioritization, and delegation are crucial to ensure productivity and prevent burnout. Identifying tasks that can be outsourced or automated can help free up time for core business activities.
• Financial Stability and Cash Flow Management: Micro businesses often face financial challenges, including cash flow fluctuations and limited access to funding. It is vital to maintain accurate financial records, implement effective cash flow management strategies, and explore alternative funding options such as microloans, grants, or crowdfunding platforms. Seeking the guidance of financial professionals can also provide valuable insights and support in maintaining financial stability.

Understanding the benefits and challenges of running a micro business is essential for aspiring entrepreneurs. While micro businesses offer flexibility, closer customer relationships, lower overhead costs, quick decision-making, and room for innovation, they also come with challenges such as limited resources, intense competition, multitasking, and financial stability. By recognizing these factors and implementing strategies to overcome obstacles, entrepreneurs can maximize the potential for success in their micro business ventures.

In the following sections, we will delve into real-life case studies of successful micro businesses, providing practical examples and insights into their journeys, strategies, and lessons learned.

To gain a deeper understanding of the potential and possibilities of running a micro business, it is valuable to explore real-life case studies of successful entrepreneurs who have built thriving ventures. These case studies provide insights into the strategies, challenges, and lessons learned by these entrepreneurs. Let’s examine a few examples of successful micro businesses:

“Sunny Bakes” is a micro business owned and operated by Sarah Thompson, a passionate baker from a small town called Oakville. Sarah started her bakery business from her home kitchen, specializing in custom-made cakes and pastries for special occasions. Through her creative designs, attention to detail, and personalized customer service, Sarah quickly gained a reputation for delivering exceptional baked goods.

Sarah’s success can be attributed to her strong marketing efforts through social media platforms, where she showcased her beautiful creations and engaged with potential customers. Additionally, she implemented a unique pricing strategy, offering competitive rates while maintaining quality. As her business grew, Sarah expanded her operations by renting a small commercial kitchen space and hiring a part-time assistant to meet the increasing demand.

“Green Thumb Landscaping” is a micro business owned by Mark Johnson in the town of Lakeside. Mark, an experienced landscaper, recognized the need for quality landscaping services in his community. He started his business by offering lawn mowing and maintenance services to residential properties.

Mark’s attention to detail, professionalism, and dedication to customer satisfaction helped him build a strong reputation within the community. As his business grew, Mark expanded his services to include landscape design, hardscaping, and gardening services. He also formed partnerships with local nurseries to source high-quality plants and materials.

To promote his business, Mark utilized a combination of traditional marketing techniques, such as distributing flyers and business cards in the neighborhood, along with a strong online presence. He created a visually appealing website with a portfolio of his work and encouraged satisfied customers to leave reviews.

“Tech Solutions” is a micro business owned by David Martinez, providing IT consultancy services to small businesses in the city of Techville. David recognized the growing demand for affordable and reliable technology solutions among small businesses that lacked their own in-house IT departments.

David positioned “Tech Solutions” as a trusted and cost-effective alternative to larger IT firms. He offered services such as network setup, hardware and software installations, cybersecurity solutions, and ongoing technical support. David emphasized personalized customer service, ensuring that he understood each client’s unique needs and provided tailored solutions.

To establish credibility and attract clients, David obtained relevant certifications and participated in local business networking events. He also leveraged digital marketing strategies, such as search engine optimization (SEO) and targeted online advertising, to reach his target audience.

These case studies highlight the diverse opportunities and strategies employed by successful micro businesses. Whether it is a home-based bakery, a local landscaping service, or an IT consultancy, each entrepreneur showcased a deep understanding of their niche market, a commitment to excellence, effective marketing strategies, and the ability to adapt and grow their businesses.

By studying these real-life examples, aspiring micro business owners can gain valuable insights and inspiration for their own ventures. It is important to note that while these case studies demonstrate successes, they also faced challenges along the way. Learning from their experiences can help entrepreneurs navigate potential obstacles and increase their chances of building a successful micro business.

In the next section, we will summarize the key points covered in this blog post and provide a conclusion that ties together the concepts of micro businesses, their characteristics, benefits, challenges, and real-life examples.

More From Forbes

The Key Benefits To A Comprehensive Business Plan

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Starting a new business is an exhilarating adventure filled with many possibilities with the thrill of turning a vision into reality. The excitement stems from the opportunity to innovate, create something unique, and make a meaningful impact in the world.

However, with this excitement comes the challenge of juggling numerous tasks. From developing a solid business plan and securing funding to building a brand and assembling a team, the initial phase of launching a business demands attention to detail and effective time management. Navigating these multifaceted responsibilities requires resilience and strategic planning, but the reward of seeing your entrepreneurial dream come to life makes every effort worthwhile.

One of the key elements to ensure your venture's success is a well-constructed business plan. Whether you're a seasoned entrepreneur or a budding startup, having a solid business plan is crucial for several reasons.

Let's explore why a good business plan is indispensable for your business.

1. provides a roadmap for success.

A business plan serves as a roadmap, guiding you through each phase of your business journey. It helps you outline your business goals, identify your target market, and define your unique selling proposition (USP). With a clear plan in place, you can make informed decisions and stay on track, ensuring your business moves in the right direction.

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Best 5% interest savings accounts of 2024, 2. helps secure funding.

Your business plan can help to secure funding . Investors and lenders need to see a detailed plan that demonstrates your business's potential for success. A comprehensive business plan shows them that you've done your homework, understand your market, and have a clear strategy for growth. It gives them confidence that their investment will yield returns.

3. Clarifies Your Business Idea

Writing a business plan forces you to thoroughly analyze your business idea. It helps you identify potential challenges and opportunities, refine your business model, and ensure your idea is viable. This process of critical thinking and reflection is invaluable, as it can save you time and money in the long run by addressing issues before they become major problems.

4. Facilitates Strategic Planning

A business plan is not just about the present; it's also about the future. It allows you to set long-term goals and develop strategies to achieve them. By regularly reviewing and updating your business plan, you can adapt to changing market conditions, stay ahead of competitors, and seize new opportunities as they arise.

5. Improves Communication

Whether you're pitching to investors, recruiting new team members, or collaborating with partners, a business plan helps you clearly communicate your vision and goals. It ensures everyone involved understands the direction of the business and their role in achieving success. This alignment is crucial for building a cohesive and motivated team.

6. Aids in Risk Management

Every business must manage risk but a good business plan helps you anticipate and mitigate those risks. When potential risks are identified you can create contingency plans to minimize their impact on your business. This proactive approach to risk management can make the difference between thriving and merely surviving in a competitive market.

7. Tracks Progress and Measures Success

A business plan offers benchmarks so that you can measure your progress against your goals. By setting specific, measurable goals, you can track your performance, identify areas for improvement, and celebrate your achievements. This ongoing assessment is essential for maintaining momentum and driving continuous growth.

The bottom line is that in the dynamic world of business, a good business plan is your best ally. It not only lays the foundation for your venture but also guides you through the complexities of entrepreneurship. By following these tips you have a laid out plan to navigate the challenges and opportunities that come your way.

Melissa Houston, CPA is the author of Cash Confident: An Entrepreneur’s Guide to Creating a Profitable Business and the founder of She Means Profit . As a Business Strategist for small business owners, Melissa helps women making mid-career shifts, to launch their dream businesses, and I also guide established business owners to grow their businesses to more profitably.

The opinions expressed in this article are not intended to replace any professional or expert accounting and/or tax advice whatsoever.

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