What Is a Business Plan?

Explore the components of a business plan and how building this road map can help your business succeed.

What Is a Business Plan Hero Illustration

A business plan is a document created to provide a clear road map to your business. It outlines the fundamentals of the business: the services or products offered, the financial plans, marketing strategies, and the company’s structure.

By laying out these elements in a written document, you gain a clear understanding of your vision. It also gives investors an understanding of how your vision will lead to success. Understanding why you should have a business plan will help you decide how to write a business plan for your company.

Why have a business plan?

Writing a business plan forces you to think about how your business will operate and succeed. It also allows you to present that information to potential investors. You’ll see each aspect of the business more clearly and you’ll show investors the value of funding your company.

How your business plan helps you

Creating a business plan is useful for new companies or existing businesses.

  • Clarify: A detailed business helps you clarify what you expect from the business. You’ll see what you need in money and resources, and you can establish a timeline for each of your goals. It’s not day-to-day planning; it’s your long-term strategy.
  • Adjust: Writing out your business plan makes finer details become clear. This helps you anticipate needed changes or adjustments for your business to succeed. In that way, writing your plan focuses your attention to make strategic decisions for your business.
  • Strategize: A business plan guides the progress toward your company’s long-term goals. This helps you make informed day-to-day decisions based on the big picture you’ve outlined.

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. Generally, a business plan will include some or all of the following sections:

Together, these sections provide a clear picture of your business and its potential for continued success.

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.

  • What is the overall concept of your business?
  • What is your mission or vision statement?
  • What products or services does your business offer?
  • What differentiates your products or services from others in the same industry?
  • Who will be managing and working for your business?
  • What is your current and/or projected financial state?
  • How much money do you need?
  • What will you use that money for?

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. A few things to include in the description are:

  • The history or background of your business
  • A description of your industry and how your company fills a unique gap
  • Your business structure (sole proprietor, incorporated, limited, or general partnership)
  • Your vision or mission statement,explaining why your company exists and what influences your decisions
  • The business model you plan to follow to ensure that your company will be profitable
  • Who your target customers are and how you’ll provide them with value

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 that you can 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.

A road map for your business

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.

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