Knowing how to write a business plan is foundational for creating a successful business. All companies need one — whether you’re an entrepreneur with a great business idea, a small business owner looking to attract investors, or a pre-existing business looking to hone your tactics and strategies.
A sound business plan can help you plan your business endeavor and guide your company to profitability. It looks at all the angles and describes what your company does, how it functions, and how you’ll make money for years to come.
In this step-by-step guide, we’ll discuss the key elements your business plan needs. We’ll also go over why you need a business plan and how you can write an effective plan.
Why Do You Need a Business Plan?
Business plans are like blueprints for your business. They’re a helpful way to organize your thoughts and develop strategies to help your business succeed.
Business plans are needed by entrepreneurs launching new businesses as well as pre-existing companies. If your business has multiple business partners, it also lays out the distribution of powers and responsibilities of your co-owners.
A sound plan will do several things for your business. First, it helps organize your long-term business goals and gives you a road map for strategic initiatives. You’ll have a thorough understanding of the market, your competitors, and how your company plans to make money.
It also helps you sell your ideas to others. This is useful for securing funding from potential investors and attracting top talent to work for your company. An investor is unlikely to put money behind your company if they don’t see the profitability of your business.
The same goes for attracting the best talent. If you don’t have a comprehensive view of your business, how will you convince the best executives, developers, managers, and other employees to join your company?
How to Write a Business Plan
Your business plan will require an incredible amount of research and thought, so take your time and dig into weeds.
This plan should be short and direct with some details. A business plan that’s hundreds of pages will have a slim chance of being fully read. However, if your business plan is under 50 pages, you’ll likely invite more readers to learn more about your company.
You should also use common language and avoid using overly complex terms and industry jargon. Investors can lose their focus if concepts are hard to understand. Investors are looking for opportunities to make money by trusting experts in a certain space.
Also, don’t overcomplicate the process. You can try to think of every minute detail, but in a way, this can be a waste of time. This is only a plan. Business is often fluid and changes on a regular basis. You can’t predict and account for everything. Things will change along the way and you can adapt.
Lastly, support each section with a great deal of market research. Wherever you can plug supporting data, do so.
Now, let’s jump into the nine sections you should include in your business plan.
1. Executive Summary
The executive summary should highlight what your business is and how it brings value to consumers. Within this section will be your company’s mission statement, what products or services you’re providing, and your plan to grow your business and profitability.
Your mission statement should quickly describe why your business exists. It also explains the products or services you provide and the value they bring to consumers. The executive summary also discusses general business information like who is leading the company, whether you’ve secured financing, and why you’ll succeed.
This section essentially tells the reader why they should continue reading the rest of the business plan. An eye-catching executive summary will attract people like investors and encourage them to read on.
Although your executive summary is the first section of your business plan, you should write this portion last. It will be much easier to layout your entire business plan and then summarize your findings in the executive summary.
2. Company Description
This is where we get into the nitty-gritty details. The company description talks about the nature of your business. This is similar to the executive summary but provides more details as you peel back more layers of your business.
You should start by explaining the problems your company solves and why you’re suited to solve them. You can also talk about who your customers are and how you plan to serve them.
You should highlight why your company has a competitive advantage. You can do this by providing a product or service that is far cheaper than competitors. Maybe you have a team of experts, or you have patented innovations your competitors can’t match.
The company description lays out your vision and shows where you want to take your company.
3. Market Analysis
Before embarking on this journey, you need to validate the feasibility of your business. You can do this in the market analysis section of the business plan. The market analysis will describe your target market, competitive landscape, and the overall state of the industry.
You first need to explain your target market, their problems, and why they’ll buy into your business. You should answer questions like how many target consumers there are and whether there is enough demand to justify your business.
Understanding what’s happening in the market and industry as a whole is also important. Do you have an opportunity to succeed because you’re entering the space in the early days of the market? Or are you at the tail-end of a trend that could fade out with a year or two?
You must understand your growth potential and if you can beat out your competitors. Knowing who your competitors are and what products and services they already provide will help shape your business. You should know what’s already currently on the market so you can find ways to make your product or service better.
It’s crucial to not paint a misleadingly rosy picture. You should highlight all your company’s advantages, but you shouldn’t brush aside your threats and vulnerabilities. You need to understand your weaknesses if you want to succeed.
4. Organization and Management
In this section, you explain how your company is legally organized and who will run it. This includes describing the legal classification of your business, distribution of powers, and an organizational chart of roles and responsibilities.
There are a few different types of legal structures of businesses — sole proprietorship, partnership, limited liability corporation, S-corporation, and C-corporation. You’ll need to research and determine which structure is best for your company.
You’ll need to assign roles and responsibilities to the members of your management team. This can be summarized with an organizational chart. For each position, give a background of higher-up employees and explain why they’re a good fit to be a certain role.
The organization and management structure will explain how decisions are made and who is responsible for which parts. Clear organizational structure with distributed powers and responsibilities builds trust for investors and stakeholders.
5. Service or Product
Now’s the time to explain exactly your product or service. You’ll go over what makes your solution different, the product life cycle, and where you’re at in research and development.
Highlight your product’s or service’s benefits, and show its competitive advantage. If you have any legal filings like patents, copyrights, or trademarks, this is the place to mention them.
You can also explain your plans for future products and services. If you’re in the midst of researching and developing a cutting edge product, discuss this here too.
6. Marketing and Sales
Your business will remain stagnant unless you develop a sound marketing and sales strategy. This is where you can get into the weeds and figure out how customers will hear about your company and be persuaded to make purchases.
There are countless marketing strategies to market and sell your business. There are plenty of marketing options in the digital space including building a website, driving sales through a blog, or running social media ads.
Whichever marketing plan you choose, you need a roadmap for how you’re going to find customers, nurture leads, and close business deals. You can check out our guide to growth hacking to learn several ways to market your business and drive sales.
7. Funding Request
Not everyone is looking for funding. If you’re in this camp, you can skip this section. But many entrepreneurs use a business plan to secure funding from investors.
An effective funding request will tell investors how much money your business needs for the next five years. It will explain why you need the requested amount of money and what you’ll do with the investment.
This could be taking investment money and putting it towards the development of your product, hiring more employees to support growth, or cover expenses until your projected revenue catches up.
You should also explain if you’re looking for a debt or equity deal. A debt-based deal entails you borrow money at a set interest rate over a certain period of time. An equity deal means you give up some ownership of your company in order to have an investor on board. This requires an accurate valuation of your company.
Your funding request should be supported by sounds financial projections, which leads us to the next section of your business plan.
8. Financial Projections
Your company can be outstanding, but if it doesn’t make solid money, you won’t be in business for long. Including financial projections in your business projections will outline the economics of your business and predict how much money your company is capable of making.
If your business has already been operating for a few years, include income statements, balance sheets, expenditures, cash flow statements, and other financial statements for a few years prior. If your business is brand new, create reasonable predictions of how much your business will progress financially year after year.
Be upfront and explain your projections and forecasts. You obviously want to shoot for the moon and make substantial money, but it’s important to remain realistic and make reasonable predictions with your financial plan.
The appendix section is where you can put any additional information, documents, or other materials that didn’t fit well in the sections above. This can include things like licenses, patents, employee resumes, permits, or useful pictures of your product.
Only a select few will dig this deep into your business plan. You can use this section as a destination for referenced material throughout your business plan. For example, if you briefly touch on the qualifications of your CEO in the organization and management section, you can direct readers to the appendix for the employee’s detailed resume.
Stick to the Plan
Now you know exactly what needs to be included in your business plan, it’s time to research and plan your company. Remember, this will take a substantial amount of time, so you might as well start now.
Once you have your business plan and investors are on board, the only thing left to do is execute. Stick to the plan, and you’ll be on your way to becoming a profitable business.
If you’d like more information on business plans, you can head to the Small Business Administration website.