What is a Business Plan?: Everything You Need to Know
What is a business plan? It is a written document describing your business idea and how you plan to turn it into reality. It talks about your new business goals, strategy, team, financial planning, and more.
Writing a business plan is the first step to starting a new business. Existing businesses also need to update their business plans with recent data, a new business strategy, and income statements.
It’s never too late to create a business plan document to get more clarity about your goals, processes, and strategies. Most importantly, it will help you convince people about the success potential that your business has.
Are you ready to discover exactly what you should include in a business plan?
Let’s get started.
Table of Contents
Why Is It Important to Write a Business Plan?
Before diving into the traditional and lean business plan outlines, I’ll help you understand why you need a business plan.
Writing a business plan can help you:
- Show your key employees, management team, potential investors, business partners that you’re serious and committed to developing the business into a successful venture.
- Understand your target market and consumers better, which will help you create the products and/or services they want.
- Analyze the advantages, products/services, and marketing and sales strategies of your competitors to find ways to outperform them.
- Assess the feasibility of your business model and get ideas to evolve it over time.
- Define the revenue model of your business. When you consult with experts, they will be able to help you identify revenue streams that your business plan might be lacking.
- Identify and analyze your financial needs. Find out how much capital you will need and how you’ll use it. It will help you plan ahead and know when you might need additional funding.
- Reduce risks by analyzing all of your ideas and opportunities wisely. You can also get your business plan reviewed by experts who can help you refine it further.
- Determine how to position your brand amidst the target market and competitors. You can set milestones of growth and also revise them as your business grows.
- Document your marketing plan and define the strategies you’ll use to attract prospects and retain customers. You should revisit your marketing plan section at least once a year to include new ideas.
[Also read: How to increase customer retention]
- Evaluate whether or not you are achieving the strategic, financing, and operational goals of your business from time to time (and why you have or have not). Provide supporting documents such as your balance sheet and cash flow statements.
Now that you understand the purpose of creating a business plan, it’s time to start documenting yours. Before you begin, you can also take this FREE course on writing a business plan for better insights.
Meanwhile, keep reading my post to get access to a point-to-point business plan outline.
What Are the Key Elements of a Business Plan?
Your business plan lays the foundation of your business. In this section, I’ll provide you with a standard business plan template to start writing your business plan.
When you follow the business plan outline, you’ll have enough information to attract investors, business partners, venture capitalists, and employees. You’ll also be able to plan your financial needs ahead of time and ensure that the company always has sufficient funds to keep running.
Let’s see the key elements of a traditional business plan.
All standard business plans begin with an executive summary that briefly talks about what your business is all about and why it will be successful.
In this section of your business plan, you’ll need to include basic information about your:
- Mission statement
- Product and/or service
- Management team
- Key employees
- Business location
- Financial plan
- Growth plans
The next section in a startup business plan is a company description or business description. You need to provide detailed information about your business.
Tell readers about:
- The problems your business solves
- Your ideal customers and target market
- Businesses that your company will serve
- Your competitive advantages that will make your business successful
Basically, this section is where you list your strengths as a business owner. Do you have years of experience in the field? Or, have you hired any industry experts to work on this project?
What’s the one thing that will distinguish your business from your competitors? Why do you think consumers will choose your product or service?
List all of this in the company description to attract investment and meaningful partnerships.
If you want your business to be successful, you’ll need a good understanding of your industry and target market.
When writing this section of your business plan, you should conduct thorough market research to understand:
- Who are your ideal customers?
- How will your product or service make their lives easier?
- Which similar products or services are they using already?
- Why should they choose your product or service over those of your competitors?
- How can you reach your ideal buyers? And through which channels?
- What factors will compel them to buy from you?
You should use this opportunity to identify market trends and themes and find ways to use them to your advantage.
The competitive analysis goes side by side with market research and analysis.
When you’re researching market trends, you should find out:
- What are other businesses doing?
- What makes their product/service popular among your ideal buyers?
- What are their strengths and weaknesses?
- Which marketing strategies do your successful competitors use?
- Can you do it better?
Jot down the answers to all of these questions and revisit this competitive analysis section regularly. It will help you stay updated about the latest strategies and trends in your target market and open new opportunities for your business.
Here’s how you can do competitor keyword research to rank higher in the SERPs. You can use tools like Semrush to get detailed reports on what your competitors are doing right.
Organizational and Management Structure
Finalizing the organizational structure of your business is a crucial step. You should document who will run your business and what the management hierarchy will look like.
First things first, you’ll need to choose a legal structure for your business and register it as a legal entity. Some of the most popular legal business structures include:
- Sole Proprietorship
- Limited Liability Company (LLC)
Sole Proprietorships and Partnerships are the easiest to form but they don’t provide liability protection to business owners. On the other hand, Corporations and S-Corporations have the most complex formation processes.
If you’re just starting your business, I recommend that you form an LLC to protect your personal assets from business liabilities and run your business with minimal compliance.
However, if you want to attract potential investors and seek funding, a Corporation will be the most suitable entity type for you. That’s because Corporations allow you to raise funds by giving company stock to shareholders.
Regardless of the legal structure you choose, you’ll need to register your business with the state and federal authorities. You can use the filing services of GovDocFiling to register your business in a quick, hassle-free, and cost-effective manner.
Provide supporting legal documents related to your business formation.
Along with defining the legal structure of your business, you should add an organizational chart in this section of your business plan.
It is a visual representation of your company’s structure that showcases who is in charge of which departments or processes of your company. Show the roles and responsibilities of the important people in your company and the hierarchy structure.
A standard organizational chart will look like the image below.
You can also add the headshots, jobs, departments, and responsibilities of your management team and other team members.
Your Product or Service
Describe the product you sell or the service you offer.
- Who will benefit from your product or service?
- How will your product/service make their life easier?
- What makes your product/service stand out from those of your competitors?
- What is the USP (unique selling proposition) of your product/service?
- What will your product lifecycle look like?
If you’re planning to develop and manufacture a product, explain your product research and development plans in detail. How much money and resources will you need? How much time will it take you to launch your product?
You should also talk about your plans for intellectual property, which will include acquiring trademark, copyright, and/or patent for your product or service.
Also, check out my detailed guide on how to launch your product successfully.
Marketing and Sales Plan
Define your marketing strategy and write a detailed plan for capturing your target market. It should include:
- Marketing channels
- Promotional strategies and tactics
- Your unique value proposition to prospective customers
- Estimated sales and ROI
Your marketing strategy will evolve over time and you’ll have to change it to meet your business goals from time to time.
Convince investors and other associates that your business is stable financially and will grow successfully.
If you’re just starting out, explain your revenue model and financial projections in detail.
If you’re already running a business, include your income statements, cash flow statements, and an up-to-date balance sheet. You should also list any properties or debts/loans in the name of the company in this section.
Also, provide a prospective financial plan for the next 3-5 years, including estimated income and expenditure value. You can also create quarterly projections.
A well-defined financial information section will help you secure funding for your business.
Want to reach out to a venture capitalist or secure funding from other sources?
Then, this is the section where you can list your funding requirements. Clearly explain:
- How much funding will you need?
- How long will you need that money?
- What will you use that money for?
- How will you return the investment value?
- Why should a person or company invest in your business?
Use the appendix section to add supporting documents such as:
- Product pictures
- Business formation documents
- Credit history
- Resumes of your employees
- Letter of reference
- Business licenses and permits
- Patents and copyrights
- Suppliers and vendors contracts
- Other important documents
This is the perfect outline to create a formal document of your business plan. To learn more, take this one-hour writing a business plan course for free.
Traditional Business Plan vs. Lean Business Plan
Traditional business plans are more common as they go into the details of every aspect of your business. The business plan outline discussed above is exactly what a traditional business plan looks like.
It is the preferred format by investors and lenders. So, if you’re seeking outside funding for your business or want to attract business partners, you should follow the same outline to write your business plan.
Some business owners choose to write a one-page lean business plan, which only outlines the most important parts of a business.
The lean business plan format includes summarizing the most important parts of:
- Key activities
- Key resources
- Value proposition
- Customer segments
- Customer relationships
- Cost structure
- Revenue streams
If you choose to create a one-page lean business plan, investors and lenders are likely to ask you for more information.
Whether or not you are seeking funding, I recommend that you follow the traditional business plan outline. It will help you ideate, analyze, vet, and evaluate your business concept, strategy, and growth plan thoroughly.
Start writing your business plan now!
1. What is a business plan simple definition?
A business plan is a document that details your business idea, competitive advantage, and strategy for growth.
2. What are the 3 main purposes of a business plan?
The three main purposes of a business plan are:
- To create an effective strategy for growth
- To determine your startup and future financial needs
- To attract investors and business partners
3. What is a business plan and what does it include?
A business plan acts as the roadmap to set up, build, and grow your business from the ground up. It includes key elements like:
- Executive summary
- Company description
- Market analysis
- Competitive analysis
- Organizational and management structure
- Your product or service
- Marketing and sales plan
- Financial projections
- Funding requirements
4. What are the 5 elements of a business plan?
The 5 key elements of a business plan are:
- Market and competitive analysis
- Organizational and management structure
- Info about your product or service
- Marketing and sales plan
- Financial projections and funding requirements
5. How do business plans help entrepreneurs?
Business plans help entrepreneurs document their ideas and vision and turn them into actionable plans for success.
Ready to Create Your Business Plan?
Planning is the most difficult part of starting a business. But it’s the most important step for success.
You also need to document your plans, especially when:
- You’re seeking a business loan or investment.
- You need to make big spending decisions.
- You want to minimize risks.
- You’re planning to turn your business profitable and then exit.
In all, businesses that plan and review their results are known to grow up to 30% faster than those that don’t plan.
So, are you ready for accelerated business growth?
Check out the super awesome business courses by Online Business Academy. They have many short, valuable courses for new business owners.
You’ll get free courses on everything from coming up with a business idea to writing a business plan and launching your business website.
Enroll in FREE Business Courses
Do you have questions about what a business plan is and how to write one? Leave them in the comments below.