What is A Business Plan

How your business plan helps others

A business plan describes your business in enough detail to give any potential hire, investor, or partner a clear picture of your company.

• New hires: You’ll want your employees to understand and believe in your company. A business plan outlines your vision so that potential hires can have the same confidence in your business as you do.
• Investors: Someone looking to invest in a business wants to see evidence their money is being used wisely. A business plan gives investors an in-depth look into exactly how you’ll spend their money.
• Partners: Collaborating with other companies can benefit everyone. Potential partners will want to see your strategies, ideas, and big-picture plan before agreeing to tie their fortunes to yours. A carefully crafted business plan can give them the information they need in one document.

What should you include in your business plan?

Two types of business plans are most common today: traditional and lean startups. A lean startup business plan is a shorter business summary—perhaps only one page. It describes the key points of your plans. It presents a quick snapshot of your business without giving the full details. If you choose to use a lean startup business plan, prepare further information and details for lenders or investors.

Most businesses choose to use a traditional business plan. These plans are longer and go into detail about different aspects of your business. This format gives a comprehensive picture of your business. They outline your vision for the future of your company and the strategies you'll use to execute it.

What to include in your business plan will vary depending on what type of company you own and your goals.

Executive summary

The executive summary is an overview of your business plan—just the key points. The goal of this section is to entice potential investors to continue reading for the details that come later. This summary statement should address several essential questions.

If you're sharing your business plan with potential investors or lenders, the last 3 questions are key. Give specific amounts and explain how you'll use that money. Briefly describe the benefits investors will reap by supporting your company. You'll provide further details in the financials section.

If you keep your executive summary to the recommended one or 2 pages, you'll have to distill your business plan down to the most relevant points. This can be a great exercise in restraint that results in a focused synopsis.You'll answer these questions in depth in the sections that follow.

Business description

The description of your business explains exactly what your business is and how it's different from other companies within its industry. First, offer an overview of the industry you're part of. Then describe how your company will succeed within that industry. This will guide your decisions and show potential investors or partners that your company is worth their time and money.

This detailed description will show why your business should be the source for whatever product or service you are selling. Why should customers buy your sneakers, purchase your homemade picture frames, or use your delivery service? Show why your vision will succeed and why customers will choose you over your competitors.

Product or service

Describe in detail what your product does or what your service provides. Explain its benefits and value to customers. Compare your offering with your competition. Emphasize the uniqueness of your product and how it will give you an advantage over other similar products.

If your company doesn't manufacture the product, describe who makes it, how it's made, and how you get it. Is it made in a factory, homemade, or are you dropshipping?

If you have any patents or intellectual property claims for your product or service, be sure to list them. Also provide any additional information to show your ownership of the product.

If you plan to expand your offerings in the future, explain how. Will you offer a greater variety of products or services? Will you continue to improve upon your current offerings?

Marketing strategy

How will your business fit into an existing market? How is your business different and better than the competition? You, your potential partners, investors, and employees need to know. A big part of getting a lay of the land is having a plan to get the word out about your product or service. To do so, conduct market research and plan a marketing strategy.

First, describe the market you're entering—its current size, trends, and demographics. Then explain how your business fits in. Next, look at the competition. Analyze businesses that offer the same or similar products or services. Note their strengths and weaknesses. Then show how your company measures up. Your unique selling proposition differentiates your company from your competitors'. That is the starting point for your marketing strategy. Some of the questions to address here include:

• How will you reach your prospects?
• How will you convert them to paying customers, and how will you retain their business?
• What channels will you use for your marketing campaigns? Think about email, social media, digital ads, and postcards, among others.

Researching your industry as you create your business plan can help you understand your customer profile. It also helps you learn about projected changes within the industry. Analyzing your market will give you a good basis for estimates regarding your company's future.

Operations and management

You will have mentioned the legal structure of your business in the executive summary section, but it belongs here too. Will you operate as a sole proprietor, a general or limited partnership, or a corporation? If the necessary paperwork isn't complete yet, explain where in the process you are and when you expect it to be done.

This section will also introduce your company's management team and explain who has what specific responsibilities. You can include an organizational chart that clearly shows each person's job title and their role in the overall operations of the business.

An org chart like this is particularly useful if you haven't hired all the key positions yet—you'll still be able to show the roles you've outlined and how they relate to each other. If you have hired your team, you might consider including their resumes or short bios in this section.

Financial plan

If you're looking for investors or partners, this section is essential. Investors want to know where their money is going and that you'll be able to recoup it.

Your approach to your business plan's financial section depends on whether you've been in business for some time or are starting out.

If you're launching your company, you'll need to research and make projections and estimates regarding the financial future of your business. An existing business will need to provide past statements showing proof of previous and current revenue and make projections based on those figures.

If you're presenting financial statements, graphs, or charts, include a summary of the information to explain key points at a glance. In addition to a narrative description, there are 3 statements you should include.

Income statement

This statement shows your expenses and revenues over time. It's also called a profit and loss statement. If your business is new, you'll estimate these amounts.

Take stock of your expected expenses, from rent or mortgage payments on a property (if you'll have a brick-and-mortar presence) to salaries. Be sure to consider the cost of your product itself.

Subtract these expenses from your projected sales or other revenue to show your total expected income by month, quarter, or year. An established business will use past performance to estimate future income.

Cash flow statement

Your cash flow differs from your income in that it shows how much cash you actually have on hand.

The cash flow statement shows whether the cash coming in is more or less than the amount going out at a given time. These figures help you see if you may need another source of funding or if you have a surplus of funds to invest or use to expand your business. If your business is new, you'll estimate your cash flow using your forecasted figures for revenue.

Balance sheet

This shows the amount of equity you have in your business at a given time. Equity is the amount you own (assets) minus the amount you owe (liabilities). The balance sheet differs from the income statement in that it includes more than just expenses and revenues. It differs from the cash flow statement by representing the bigger picture.

These 3 statements, taken together, provide a snapshot of the financial health of a business. Existing businesses should include these statements for the past 5 years in their business plan. Both new and existing companies should provide projected statements for the next 5 years. Doing so will show the potential success of their business and the profit it will bring in.

How to create a business plan

Understanding the basic components of a business plan is just the first step. Actually starting to write a business plan can still be a daunting task. Writing a truly stand-out, successful business plan, in particular, can take months of research and revision.

However, there’s no need to worry. Even if you have no prior experience, our detailed process on how to create a business plan documented below will make sure you get off to a good start.

Conduct an industry and a competitor analysis

No matter what you’re doing, you always want to be prepared. Why take a shot in the dark when you can be armed with all the knowledge you need? To avoid potential missteps and see how you stack up against the competition, conduct an in-depth analysis of the industry you’re in.

Where is your industry headed? Is it projected to grow in the next 5 to 10 years? How can you be a first mover? Research the trends and statistics in your industry to identify future threats and opportunities. Use data to predict your performance.

In addition, conduct a competitor analysis. Identify your direct and indirect competitors and figure out their strengths and weaknesses. How does your business compare? Apply what you learn to upgrade your business strategy and remember to include your competitive advantages in your own business plan.

Identify your target market

Do not skip market research when writing a business plan. Secure funding by showing your future investors that you have a precise understanding of who your customers are and what they want. Identifying your target market will help you refine your product and service offerings as well. This way, you can increase your profits and steer clear of losses.

Learn more about your target audience through surveys, personal interviews, focus groups, observation, and data you’ve already collected. How big is your target market? How old is your typical customer? How much disposable income do they have? Is there a lot of demand for what you are selling? How does your audience interact with your brand? Can you use behavioral targeting for more personalized marketing?

Develop a marketing strategy

If you want a business loan, be sure to showcase your unique selling proposition and a detailed advertising and sales strategy in your business plan.

What does your business do best? Why should investors help you instead of someone else? Do you offer irresistible low prices, high-quality materials, innovative products, or a sustainable vision? Highlight your strengths and tell a concise but touching story with your business plan.

Detail how you are going to market your offerings in your business plan as well. From your goals and budget to the metrics and KPIs you are going to measure, write everything down. What types of marketing do you plan to utilize? While content marketing may make you an authority in your industry, social media marketing may be better for audience engagement.

Outline your operations and management

Describe your business structure or business model in your business plan. Not only does your business structure communicate how your business is legally recognized, but it also influences your day-to-day operations. Do you own an unincorporated business by yourself and have a sole proprietorship? Or do you run a limited liability company?

Additionally, outline the different positions within your business. Who is on your management team? How many departments do you have? Who are the key personnel? What are the responsibilities of each employee?

Create a financial plan

A financial plan holds you accountable and keeps you focused on your goals. Investors also want to see that your business' finances are something you have put a lot of thought into before giving you a loan.

In general, you’ll want to develop a budget and project your sales and revenue. Include numbers on the sales operation, profit margins, cash flow, customer acquisition cost, and debt ratio of your business.

Write an executive summary

Having an executive summary for your business plan is more important than you think. Many investors don’t have the time to go through every business plan that lands on their desk. For the most part, it’s common practice to look at the executive summary of a business plan before deciding whether to continue reading.

This means your executive summary has to be immediately interesting and straight to the point. Make it as concise as possible, summarizing the key points of your business plan. Typically, it’s best to include a short company description, your purpose and goals, your target market, and your financial projections. Remember to include stats to back up your claims.

Review and revise your business plan

Don’t be hasty and submit the first draft of your business plan as soon as you finish writing it. A solid business plan takes time to perfect. Seek feedback from your advisors and mentors. Then, implement their recommendations in your business plan. Always remember to edit and revise.

Continuously update and improve your business plan

Creating a business plan is a great way to take stock of the big picture of your business. Thinking through your legal and operational structure, your financials, your marketing strategies, and more will help guide you to success and profit. It's also a concise way to pique the interest of and inspire confidence in outsiders you want to impress, like potential hires or investors.

If you're starting a new business, a well-thought-out business plan can help you see which areas need more attention so you can iron out any potential problems before diving in. For an existing business, creating an updated business plan can help you analyze your success, set new goals, and stay on track.

Need more help writing a business plan? Check out Mailchimp's Marketing Library for inspiration and examples. If you're looking to level up your marketing strategy as a part of your business planning, try Mailchimp's email marketing software.