In today's startup hustle, a business plan can seem like a stuffy, overly done relic of the past. Sure, plenty of businesses find success with no distinct plan, but why would you ever want to chance it? A business plan is quite often the difference between hoping you'll succeed and knowing you'll succeed.
A great business plan does a lot more than keep your company on track as it grows. It's one of the main ways you can convince venture capitalists to back your vision or to acquire a bank loan for a new business that doesn't have any actual track record of success.
Writing a business plan can be overwhelming, especially because a traditional business plan requires a lot of information and planning, but most follow the same step-by-step guide.
Pick the Type of Business Plan
There’s no one-size-fits-all formula for a business plan. It can include as much or as little information as you want, but most businesses choose one of two types:
- A traditional business plan: These are more common and encourage much greater detail including information like financial projections, target markets and marketing strategy. These run much longer than a lean-startup business plan.
- A lean-startup business plan: These still have a standard structure but only summarize the most important parts of your business model, business strategy and schedule. They’re usually only about a page long and can take just an hour to make, but some potential investors may still ask for more information if this is all you have.
A business plan is meant to make sure your company stays on track and succeeds in its goals, but the type of business plan should reflect its purpose. For example, a lean-startup business plan might help a new business launch a new product, but a traditional business plan works better when you’re trying to attract venture capitalists or get a business loan. Remember that business plans are only a guide and can change as a company grows.
Anatomy of a Traditional Business Plan
Business plans traditionally have a standard format that’s separated into a series of sections with a table of contents at the start. The sections in a typical business plan template include:
- Executive summary
- Company description
- Service or product line
- Market analysis
- Organization and management
- Marketing and sales strategy
- Funding request
- Financial analysis
These sections are meant to serve as a guide to your business’s operations, explain your company’s vision and purpose and give an overview of finances and projections that will help lenders and potential investors decide whether or not they should give you funding. A good business plan will attract partners, investors, lenders, high-quality employees and, if you’re looking for it, possible joint ventures.
The executive summary should be brief. It’s the section of your business plan where you get to tell your reader what your company is, why it’s going to succeed and who is leading you to success. The most important part is your mission statement, which should reflect what your company does, why you do it and what you hope to achieve in just a few short sentences.
In your executive summary, you’ll also want to touch on other important parts of your business plan that will be detailed in subsequent sections. This includes brief summaries and descriptions of:
- Key or founding members
- Products and services
- The market
- A justification of your viability (why is your company going to make it over every other similar company?)
- Growth plans
- Financial information (if you are using the plan to find funding)
An executive summary is the most important section of your business plan because it will sway potential investors to either read further or write off your business completely. You need to be able to prove that you’re solving a consumer problem within one or two pages.
This is where you should provide detailed information about your company and delve further into the specific problems your company solves, as the most successful businesses solve a problem within their market.
Outline your company’s target market (consumers, businesses or organizations you hope to serve) and explore your competitive advantage. What makes your business better than your competitors? For example, are you reaching an underserved market, or do you have a more qualified team?
Service or Product Line
In this section, dive deeper into the services you offer and what the life cycle of your product looks like. Do you plan to launch new products and services yearly or quarterly?
Explain what you plan to do with your intellectual property. Will you file for a patent, or do you already have one? You’ll also want to explain your research and development plans and manufacturing plans in detail.
You can get creative in this section and add photos and diagrams. You’ll want to include various things like supplier details, inventory, costs, lead times and projected net revenue. If you need a spark of inspiration, ask yourself: What products or services are we making and how?
One of the top reasons startup businesses fail is because there isn’t a market need, which is why the market analysis is a key proponent of even a lean-startup plan. You want to prove that you have a key understanding of the market, but this step requires some pretty serious market research and competitive analysis. Your market analysis section should answer the following questions:
- How big is the target market?
- Is the market stable, growing or declining?
- What segment are you targeting, and what are the demographics and behaviors?
- Is there a demand?
- How is your business similar and different from the competition?
- How much is your product, and where does that fit within the market?
A good market analysis delves deep into the specific sector of the specific market you’re targeting. Start with an estimate of total households. For example, if you’re running a local pool-maintenance service, it’s helpful to know how many pools there are in the surrounding area. Include additional information like median income, income by demographics (do you target busy, middle-class moms and young, upper-class urban professionals?) and why these specific consumers will be willing to purchase your products or services.
Organization and Management
This is where readers will learn about how your company is structured and operates, including the business partners and team members who are running crucial parts of the business. Create an organizational chart to show who’s in charge of what and outline each team member’s unique experience as it relates to your company’s initiatives. You may even want to include resumes from particularly important team members.
In this section, you can also give an overview of staffing, facility and equipment needs and how your operations will change as your company grows. You should also outline your company’s legal structure and any specific company policies and procedures. Are you a C corporation or an S corporation? Are you an LLC or a sole proprietor?
Marketing and Sales Strategy
No two marketing plans are the same, and they generally evolve as your company evolves. Some companies focus the majority of their marketing budgets on social media, and others rely on email lists, print advertisements or even foot traffic. To create a solid marketing strategy, you should:
- Evaluate your target market: How do they make decisions, and where are they looking? What is the best way to reach them? For example, you may have a better time reaching teens through YouTube influencer partnerships than you will by posting a print ad in the local newspaper.
- Evaluate your competition: It’s a safe bet that your competition already knows how to reach your market. If they didn’t, they wouldn’t be competition. Look at their marketing strategy — what works and what doesn’t? — to figure out how to make yours the most effective.
- Think about your brand image: You’ll only want to market in a way that supports your brand image. For example, a company that makes jewelry from recycled plastic may not want to market alongside fast-fashion brands that are known for creating consumer waste.
- Identify your benefits: You need to remain customer focused, so slant your marketing plan toward what customers are getting instead of what you’re providing. For example, Postmates consumers are getting the ease of delivery from companies that don’t typically deliver. It’s not necessarily about the product.
- Be different: Focus on what makes your brand unique vs. your competitors.
After you’ve created and outlined your marketing strategy, you’re going to have to dive a little deeper in this section. This section should also include a pricing strategy. Will you be a low-cost or high-end option? Are there loyalty programs? For example, some businesses may have a discount price for members but charge full price for nonmembers.
This is also the place to outline any specific sales strategy you might have as it relates to your employees. This is especially important for businesses that have a sales team who works on commission.
This section is for potential investors or lenders. If your business isn’t looking for funding, you don’t need this section, but if you are, outline how much funding you’ll need throughout the next five years and how you’re going to use that funding. Make it as detailed as possible. Are you using funding to pay salaries and buy new equipment, or are you using it to pay debt and bills before you can turn a profit?
This section also needs to explore how the funding is going to be structured. Will it be debt or equity? What are the exact terms for which you're looking, be it length of time or interest percentage?
The financial analysis is the bread and butter of your business plan. This is what can make investors see that your business is actually viable rather than a business that’s likely to bleed money. You need to include detailed information about your finances. Most business plans include five basic financial reports:
- Balance sheets: Shows the financial health of the company by looking at assets, liabilities, shareholders and earnings kept to fund the future of the company
- Income statement: Also known as a profit-or-loss statement
- Cash-flow statement: A projection of your cash receipts and expenses, detailing how cash will come into your business and leave your business
- Operating budget: A detailed step-by-step guide to your company’s income and expenses
- Break-even analysis: A financial projection that shows when and under what conditions your company will become profitable
At the end of the day, a new business is only making projections in its business plan. That doesn’t mean they’re going to come true, but this section should answer whether or not your company is likely to become profitable based on the best information you have.
The final section of your business plan should include supporting documents like charts, credit histories, resumes, reference letters, patents, permits, contracts and legal documents. Put all supporting documentation in this section.