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A business plan plays a valuable role in convincing potential investors or lenders to provide you with the capital needed to start, run, and grow your business. It's a road map for transforming your ideas into a successful business.
In this guide, we will discuss what to include in an effective business plan.
Your business plan’s cover sheet should contain appropriate identification information about the business. This includes email address, business address, telephone numbers, and contact information, etc. The cover sheet should state the date the plan was prepared, and the period it covers.
If you have spent any time and effort on a company logo, slogan, or other identifying graphics or text, include it on the cover page.
The table of contents should clearly and simply lead a reader to each section of the plan. When proofreading the final version of your plan, double check to make sure that the page numbers are accurately reflected.
If your table of contents is more than one page long, reconsider the length of the entries and the length of your plan.
The executive summary may be the most important section of the business plan. It should be concise, specific, and well-written. Many of the people who review your business plan will decide, based solely on the executive summary, whether to continue reading – or even invest in your company.
A good executive summary provides a brief snapshot of your plan, highlighting sales, spending, and profit summary figures – all the factors that indicate your business will be a success. As you begin working on your plan, consider your audience. What information could help them to decide in your favor? You may need to tailor your business plan for different audiences and purposes.
Some of the items to include are:
For startups or companies looking for investment, establishing credibility and generating enthusiasm are crucial aspects of the executive summary. Each month, venture capitalists are inundated with numerous business plans, but only a select few receive thorough attention. A quick 20-second scan of the executive summary is the basis for deciding which plans to read and which companies to interview for investment. If your plan is a vehicle to attract financing or investment, use your executive summary to make it clear to a potential investor why your business is a sound investment.
The company description for your business plan typically includes two to four sections that provide specific information about your business. Use this section to identify your business goals and objectives by explaining in general terms what business you are in or want to be in. How is it unique, and why will your goods or services appeal to customers? Consider potential competitors – why will customers prefer your business over competing businesses?
If you're starting a new business, writing the business background section of your business plan can be challenging. Since there is no past performance to reference, this section will focus on what your business will do instead of what it has done. This makes it even more important to have a clear picture of how your business will look and operate once it's up and running. When you have a track record, it's easier to point at the results you've achieved as an indication of your potential for success. Without any history, you'll have to work a little harder to make sure that you have developed and presented a realistic idea of what it will take to make your business work.
Tip: If your business uses specialized language or acronyms, use them sparingly and be sure to define any terms that someone outside your area of expertise wouldn't readily know.
The market analysis section of a business plan provides information about your industry, your target customers, and your competition.
Use this section to highlight your knowledge in these three areas and convince the reader how you will be a successful business.
For more information, see How to do a market analysis for your business plan.
Did you know? A business plan can serve as a reality check when you first examine the feasibility of your business idea, since it forces you to consider all relevant factors.
The organization and management portion of the plan covers your business structure and how your business will be managed. It should outline the daily activities and processes of the business, the management structure and organization, and identify key personnel. If the plan is being created for an existing business, historical information should also be included. Here are suggestions of what to include:
Try to go beyond a simple statement of facts. For example, if you are planning to form an LLC rather than operate as a sole proprietor, what factors influenced your decision? Explaining why a particular decision was made goes a long way in helping the reader understand your decision-making process.
Tip: When considering key employees for your new business, remember to include yourself. Highlight your educational background and business experience to demonstrate your potential for success. While you won’t include your resume, relevant details should be part of your plan. Present yourself positively, but ensure it’s honest and objective.
Planning for people. A business plan can also help organize the roles and responsibilities of the people involved in your business. Even if it's just for your own benefit, a checklist of the tasks performed by individuals (or groups of individuals, if you have many employees) may be useful.
When creating your plan, consider alternatives to hiring full-time employees. Startups or businesses launching new products, services, or markets often have short-term needs for additional assistance. Your approach to fulfilling this need will depend largely on your expectations for business growth and performance. If you opt for temporary help, gaining insights about different temp agencies and building relationships with them can be beneficial for any future staffing needs.
At one extreme, your business plan may specify that you won’t have any employees and instead choose to contract out when extra help is needed. Many service-based businesses tend to be near this end of the spectrum. At the other extreme, your plan may reveal a need for an exponentially expanding sales force until you have reps in every major city in the U.S. Your choice in filling short-term needs would be very different, and, in terms of building a sales force, very important.
Predicting staffing needs for a new business can be challenging. However, creating a business plan is very helpful. As you explore key areas, you'll gain a clearer understanding of the activities involved in running your business.
Also, consider the "key person" concept. Is there anyone whose presence in the business is vital (other than yours)? If so, consider what your business would do if a key player is lost.
When describing your product or service, take a moment to view it objectively. Avoid downplaying your idea, but don’t provide excessive detail either. Remember, your audience may not be familiar with the specifics of your offering so clarify aspects that may seem obvious to you.
One way to start is with a clear and simple statement of what the product is or what service your business will provide. Avoid the temptation to compare your offering to similar services or products offered by others. Reserve that analysis for the marketing plan, where you will discuss competitors and potential competitors.
Clearly explain what it does, how it works, how long it lasts, what options are available, etc. Specify whether your offering is a stand-alone product (e.g., children’s apparel, or food and beverage items at a cafe) or it requires other products to function (e.g., computer software or peripheral devices). Also outline any necessary requirements for using the product, such as the need to purchase associated products (especially vital for software). If there are special requirements for successful use or sale, these must be stated.
Consider whether you aim for one-time sales or repeat customers. For businesses like a bakery or restaurant, you’ll rely on regular customers. In contrast, a heating contractor or consultant may only work with a client once in a long time. Additionally, think about the longevity of your product or service and whether you plan to upgrade or replace it in the future.
A useful way to present product or service information is to create a features/benefits analysis. A feature is a specific product attribute or characteristic. A benefit is the advantage a customer or user derives from a product feature.
Timing is also an issue. Be realistic about the time it will take to develop the product or service. For example, if you're writing the plan while the first prototype is being built, provide a timetable for completion of development and estimate how long testing will take before production in commercial quantities can begin. Timing issues are also addressed in the financial projections that you prepare and in the market plan you create. Both of those analyses, rest on the product or service being available on schedule.
If you have very specific facility needs, you may want to include a section in your business plan addressing this topic. This is especially relevant for industries where a building facility is an integral part of operational and regulatory compliance, such as in manufacturing or commercial food production.
There are a number of issues you should cover in your business plan regarding the choice of a facility. Not surprisingly, the most important consideration is location. The first question to address is why you need a business facility. A manufacturing business, for example, may require access to rail transport, room for manufacturing operations and storage, parking facilities for a lot of employees, etc. There are also zoning and other laws to consider.
Once you have assessed your facility requirements, consider the cost. Various factors, including those outside your business, will influence your decision. You’ll need to choose between leasing or buying property. If local real estate prices are rising, buying may shield you from increasing rent and help minimize losses if your business struggles.
Your business plan should also describe the basic structure of your facility (age, size, general location) as well as any equipment that you may need for operation.
Use this section to identify your target audience and explain how you will position your product or service to reach that audience. Ideally, your advertising and promotional activities should be linked to sales targets.
A good marketing plan summarizes the who, what, where, when, and how much questions of company marketing and sales activities for the planning year:
For more information, see Marketing plan component of your business plan.
Tip: Include samples of ads, marketing material, and any other information that aids in the presentation of your plan.
This extremely important section provides your projections (and historical financial information, if available) and demonstrates how the business can be expected to do financially if the business plan's assumptions are sound.
Things to include in this section are startup costs, sales forecast, operating budget, break-even analysis, and cash-flow statement. Established businesses can include income statements, balance sheets, and other relevant financial information.
A good business plan should include a substantial amount of detail regarding cash flow projections. Cash flow includes inflows, such as revenue collected from sales and service fees, and outflows, such as rent, insurance, utilities, salaries, equipment purchases, advertising, and so on.
These projections help establish if your business will meet its obligations to vendors and others who provide the business with goods or services. Most of these projections are tied directly to planned operational results. For example, sales expected in one month should generate the income needed to pay expenses due the next month.
The overall rhythm of the business should also be realistically reflected. If some portion of the business is cyclical, as is often the case, the cycle will be identified and accounted for. For example, many retail outlets rely on the period from Thanksgiving to Christmas for a substantial part of their annual sales volume. This cycle might be reflected in their plan by increasing inventory as November approaches, planning for the addition of temporary workers to handle the expanded sales volume, and planning expense payments for directly following the busy season when cash is most available.
Did you know? A business plan can be a modeling tool that helps you evaluate the variable factors that affect your business, so you can better prepare to deal with situations that may arise as conditions change.
If your business plans to seek funding, this section should include the amount of money you will need over the next five years and describe how that money will be used.
State whether you are seeking debt financing (borrowing money) or equity financing (selling an ownership stake in return for capital), or a combination of both. Provide specific details on how the funds will be used.For example, will it be used for equipment purchases or purchase a building? Explain how these investments will increase the profitability of your business.
Also remember to discuss any future strategic financial plans, such as debt repayment or exit strategies (such as acquisition by another company or an IPO).
Tip: A plan functions as the resume for your business, which will be vital in dealing with lenders and outside investors. It is an important tool in negotiating with vendors and attracting employees.
What is the purpose of a business plan?
A well-written business plan provides several distinct benefits.
When should you create a business plan?
Creating a written business plan is essential when starting a new business, but there are several other reasons to have one. Even existing businesses can benefit from the direction and guidance that a business plan provides, especially as operations evolve and markets shift.
If you're just starting out in business, a written business plan can help you organize the elements that come together to make your business a success. A business hoping to expand its operations in some way can achieve the same benefits. A well-established business trying to grow out of a business-as-usual rut can use a plan as a modeling tool to examine various options before committing to one.
You should create a business plan if you're considering any of the following events:
A business plan plays a valuable role in convincing potential investors or lenders to provide you with the capital needed to start, run, and grow your business. It's a road map for transforming your ideas into a successful business.
In this guide, we will discuss what to include in an effective business plan.
Kickstart your new business in minutes
Find out what business type is right for you
Subscribe to Tax Talks Today
