Creating an effective business plan can provide clarity on your approach, uncover potential obstacles, determine resource requirements, and assess the feasibility of your business idea or expansion plan prior to launch.
While not all prosperous businesses begin with a formal business plan, numerous entrepreneurs see the worth in researching their concept and industry, comprehending the scope and strategy behind their actions, and taking a step back. This is where developing a business plan becomes crucial.
What is Business Plan?
A business plan is a comprehensive document that outlines a company’s goals, strategies, and resources needed to achieve success. It serves as a roadmap for the business, providing direction and clarity for the founders, investors, and employees.
By defining the company’s mission, target market, competition, and financial projections, a well-crafted business plan can help secure funding, attract top talent, and guide decision-making for years to come. Whether you’re starting a new venture or looking to grow an existing one, a solid business plan is an essential tool for success.
“We had a marketing background but not much experience in the other functions needed to run a fashion ecommerce business, like operations, finance, production, and tech. Laying out a business plan helped us identify the “unknowns” and made it easier to spot the gaps where we’d need help or, at the very least, to skill up ourselves.”
Jordan Barnett, Kapow Meggings
Why write a Business Plan?
Are you thinking about starting a business or growing an existing one? Writing a business plan can be a critical step in achieving success. Here are some reasons why you should consider creating a business plan:
- Clarify your strategy: A business plan can help you clearly define your goals and objectives. It forces you to think through the details of your business idea, including your target market, competition, pricing strategy, and more.
- Identify potential roadblocks: By thinking through the details of your business plan, you can identify potential challenges and obstacles that you may encounter along the way. This allows you to prepare and plan for these challenges before they happen.
- Secure funding: If you plan to seek funding from investors or lenders, a business plan is essential. It provides potential investors with a detailed understanding of your business and can help you secure the funding you need.
- Evaluate the viability of your idea: Writing a business plan requires you to research your market and industry. This research can help you evaluate the viability of your business idea and identify potential opportunities and challenges.
- Develop a clear roadmap: A business plan provides a roadmap for your business. It outlines your goals, objectives, and strategies for achieving success. This roadmap can help you stay focused and on track as you build and grow your business.
In summary, a business plan is a valuable tool for any entrepreneur. It can help you clarify your strategy, identify potential roadblocks, secure funding, evaluate the viability of your idea, and develop a clear roadmap for success.
Formats for Business Plans
Business plans can vary in length and complexity, ranging from a single page to multiple pages filled with detailed graphs and reports. The creation of a business plan can take many forms, as the aim is to effectively communicate the most vital information about the company to readers.
Several common types of business plans are available, including the following:
Traditional: The most common business plan type, traditional plans cover all of the standard elements of a business plan in detail and can be as long as dozens of pages. Venture capitalist firms and lenders often request this type of plan.
Lean: A lean business plan is a shorter version of the traditional business plan that covers only the most important information. Businesses use this type of plan to onboard new hires or modify existing plans for a specific target market.
Nonprofit: A nonprofit business plan is designed for entities that operate for public or social benefit. It covers everything found in a traditional business plan, plus a section outlining the impact the company plans to make. This type of plan is often requested by donors.
9 Steps to Writing a Business Plan
- Create a preliminary overview of your business plan
- Explain the nature and mission of your company
- Conduct research and analysis of the market
- Establish the structure and management of the organization
- Enumerate the products and services offered
- Identify and analyze the customer base
- Develop a marketing strategy
- Detail the logistics and operational plan
- Devise a financial plan
The idea of beginning to write a business plan from scratch can be daunting. Therefore, starting with a structured outline and identifying key components for each section is the best way to begin.
As the outline is a crucial part of the process of creating a business plan, we have provided a high-level summary that can be copied into your document to help you get started.
You can also begin by using a free business plan template to guide the structure of your plan. After creating the business plan outline, it is time to fill in the sections step-by-step, which we have broken down for you.
1. Create a preliminary overview of your business plan
The executive summary is a critical section of your business plan and should be written last. Its purpose is to provide a high-level overview of your business to potential investors and lenders who may be short on time. When writing the summary, focus on the key points of your plan, including your business concept, goals, product description, target market, marketing strategy, current and projected financial state, the amount of money you’re asking for, and the team involved in the business.
Keep in mind that the summary should not exceed one page, so be concise and to the point. Even if you’re writing the plan for yourself, it’s a good idea to practice writing an executive summary.
The following points should be included in the executive summary of your business plan:
- Your business concept: What does your business do?
- Business goals and vision: What does your business aim to achieve?
- Product Description and Differentiation: What are you selling, and what makes it unique?
- Target market: Who are your customers?
- Marketing strategy: How will you reach your customers?
- Current financial state: What is your current revenue?
- Projected financial state: What do you anticipate your revenue will be in the future?
- Funding requirements: How much money do you need to start or grow your business?
- Business team: Who are the key members involved in the business?
2. Explain the nature and mission of your company
In this part of your business plan, you need to address two essential questions: who you are and what your business is about. Providing a company description can help introduce your business, highlight what makes it different, and why it’s a good investment opportunity.
For instance, Saie, a brand that offers clean makeup, shares a letter from its founder that explains the company’s mission and the reason behind its existence. Even if you’re the only person reading it, clarifying such details can be beneficial as it allows you to articulate some of the intangible aspects of your business, such as cultural philosophies, principles, and ideals.
Below are some of the key elements that you must cover in your company description:
- Your business type (e.g., sole proprietorship, partnership, or corporation)
- Your business model
- The industry in which you operate
- Your business’s vision, mission, and value proposition
- Background information about your business or its history
- Short-term and long-term business goals
- Information about your team, including key personnel and their compensation.
Some points in your business plan may be straightforward, but others may require further contemplation, particularly when it comes to your business’s vision, mission, and values. This is where you begin to delve into the core of your business and determine why it exists, what you intend to achieve, and what it stands for.
To identify your values, think about the people that your business is accountable to, including owners, employees, suppliers, customers, and investors. Then consider how you would like to conduct business with each of these stakeholders. As you create a list, your fundamental values should start to emerge.
Once you’ve established your values, you can write your mission statement. Your statement should persuasively articulate why your business exists and should not exceed a single sentence in length. For instance, Pophub’s mission statement is “Find the pop-up stores for venues, and showrooms to activate in Australia.” This statement serves as the foundation for everything we do and requires no further explanation.
3. Conduct research and analysis of the market
It’s crucial to recognize that the market for your products or services can significantly impact the success of your business. Picking a market with plenty of potential customers who understand and need your product can give you a head start toward achieving your goals. Conversely, if you select the wrong market or time, you may find yourself struggling to make sales.
Thus, market analysis is a critical component of your business plan, regardless of whether or not you intend to share it with anyone else. A thorough analysis should include estimates of the market size, your business’s position within the market, and an overview of the competitive landscape.
Research and Analysis
It’s essential to support your conclusions with thorough research to persuade investors and validate your assumptions as you work through your plan.
To estimate the size of your potential market, you should gather relevant independent data. To begin your research, you should first understand your ideal customer profile.
For instance, if you’re targeting millennials in the US, you could look for government data on the size of that group and projected changes to the number of people in your target age range over the next few years. You could also research industry trends and trajectories.
SWOT Analysis:
To assess your business comprehensively, consider conducting a SWOT analysis, which examines the strengths, weaknesses, opportunities, and threats.
This analysis allows you to identify what your company excels at, areas that require improvement, market or industry trends that may benefit you, and external factors that may jeopardize your success.
Typically, a SWOT analysis is presented in a grid format, with bullet points in each category outlining the most relevant information. It’s unnecessary to provide detailed paragraphs for each point.
Start by listing internal factors, such as strengths and weaknesses, followed by external factors, including opportunities and threats. This visual presentation allows readers to quickly understand the factors that could impact your business and helps you identify your competitive edge in the market.
Here’s an example.
To stand out in a crowded market, it’s essential to differentiate your business from competitors.
There are three primary strategies to achieve this:
- Cost leadership: Maximize profits by offering lower prices than competitors. Companies like Mejuri and Endy are examples of this.
- Differentiation: Offer a unique product or service that stands out from current cost leaders in the industry. Knix and Qalo are examples of businesses that use this approach.
- Segmentation: Focus on a niche target market and build traction with a smaller audience before expanding to a broader market. TomboyX and Heyday Footwear are examples of companies that use this strategy.
To determine the best fit for your business, you need to understand your business and the competitive landscape. Including a competitive overview in your business plan is critical, as there will always be competition in the market, even for an innovative product.
If you’re entering an established market, create a list of direct competitors and explain how you plan to differentiate your products and business from theirs. For instance, if you’re selling jewelry, you could differentiate yourself by donating a portion of your profits to a notable charity or by offering savings to your customers.
If you’re entering a market where direct competitors are challenging to identify, consider your indirect competitors, which offer substitutes for your product. For instance, if you’re selling an innovative new piece of kitchen equipment, consider what potential customers are doing to solve the same problems your product solves.
4. Establish the structure and management of the organization
In the management and organization section of your business plan, you should provide information about the individuals who are in charge of your company. This includes outlining the legal structure of your business and indicating whether you plan to incorporate as an S corporation, establish a limited partnership, or operate as a sole proprietorship.
If you have a management team, consider using an organizational chart to illustrate the internal structure of your company. This can show the roles, responsibilities, and relationships between people in your team and how each person will contribute to the success of your startup
5. Enumerate the products and services offered
In most parts of your business plan, your products or services will play a significant role, but it’s crucial to dedicate a section that provides crucial information about them for potential readers. If you offer numerous products, you may provide general information about each of your product lines.
In contrast, if you have a limited product range, it’s best to give more specific information about each product. For instance, BAGGU, a store that offers a vast selection of bags, home goods, and other accessories, would detail the types of bags it sells and provide essential features of each bag in its business plan.
In your business plan, it’s crucial to include information about any upcoming product launches and any intellectual property you may possess, and how these additions will impact your bottom line.
Furthermore, it’s necessary to mention the source of your products, as handmade crafts and trending products for a dropshipping business have different sourcing methods.
6. Identify and analyze the customer base
In your marketing plan or business plan, it is crucial to identify your ideal customer or target market. This person serves as the foundation of your strategic decisions, and having a clear overview of their characteristics is essential.
You can create a holistic understanding of your ideal customer by describing various demographic factors, including where they live, their age range, level of education, behavior patterns, how they spend their free time, where they work, what technology they use, how much they earn, where they’re commonly employed, and their values, beliefs, or opinions.
Customer segmentation often includes:
- Where they live
- Their age range
- Their level of education
- Some common behavior patterns
- How they spend their free time
- Where they work
- What technology do they use
- How much they earn
- Where they’re commonly employed
- Their values, beliefs, or opinions
While these characteristics will differ based on what you’re selling, you should be specific enough to clearly identify who you’re trying to reach and why you’ve made the choices you have.
For instance, a college student has different interests, shopping habits, and pricing sensitivity than a 50-year-old executive at a Fortune 500 company, which will significantly influence your business plan and strategic decisions.
7. Develop a marketing strategy
You can base your marketing efforts on your ideal customer, which is described in your business plan. Your marketing plan should detail your current and future strategies, focusing on how your ideas align with your ideal customer.
For instance, if you’re planning to heavily invest in Instagram marketing, it’s crucial to check whether Instagram is a leading platform for your audience; if it’s not, you may need to reconsider your marketing plan.
Marketing plans generally cover four primary topics, but the level of detail you provide will depend on your business and your plan’s audience. These topics are:
- Price: What are the prices of your products, and what is the rationale behind your pricing strategy?
- Product: What products are you selling, and how do they stand out in the market?
- Promotion: How will you reach your ideal customer and promote your products?
- Place: Where will you sell your products?
While Promotion may be the most detailed part of your marketing plan, the other three areas should also be covered, at least briefly, since each of them is a crucial strategic element of your marketing mix.
8. Detail the logistics and operational plan
The logistics and operations section of your business plan outlines the processes that will be put in place to bring your ideas to life. Even if you’re creating the plan solely for your own use, it’s still essential to consider this section, although you might not need to provide as much detail as you would if you were seeking investment.
Include all aspects of your intended operations, comprising:
- Suppliers: What is the source of the raw materials needed for production, or where are your products manufactured?
- Production: Will you produce, manufacture, wholesale, or dropship your products? What is the time frame for product manufacturing and shipping? How will you deal with busy periods or unforeseen surges in demand?
- Facilities: Where will you and your team members work? Are you planning to have a physical retail location, and if so, where?
- Equipment: What technology and tools do you require to operate? This encompasses everything from computers to light bulbs and everything in between.
- Shipping and fulfillment: Will you manage all fulfillment tasks in-house, or will you use a third-party fulfillment partner?
- Inventory: What will be the amount of inventory you will maintain, and where will it be stored? How will you ship it to partners if required, and what approach will you take to inventory management?
In addition, you should describe your facilities, the equipment you’ll need, how you’ll handle shipping and order fulfillment, and your inventory management strategies. This section should demonstrate to your reader that you have a clear understanding of your supply chain and have contingency plans in place to deal with any potential uncertainties.
If you’re the reader, it should give you a solid foundation for making other important decisions, such as how to price your products to cover costs and when you expect to break even.
9. Devise a financial plan
The financial health of a business is critical, regardless of the effort, time, and money invested or how great the idea is. To ensure the long-term viability of your business, it is crucial to include a detailed financial plan.
The extent of detail required in your financial plan will depend on your audience and objectives, but typically it should include an income statement, balance sheet, and cash-flow statement, as well as financial data and projections.
To make it easier to create these financial documents, a spreadsheet template that includes sample numbers is available, and it can be edited to reflect projections.
Income Statment:
An income statement provides a summary of your revenue sources and expenses over a specific period. It helps readers see the bottom line or the profit or loss experienced by the business during that time. If the business has not yet been launched, projected future milestones can be included.
Balance Sheet:
A balance sheet gives an overview of your business’s equity. It lists all your business assets (what you own) on one side and all your liabilities (what you owe) on the other. This provides a snapshot of your business’s shareholder equity, which can be calculated using the formula Assets – Liabilities = Equity.
Cash Flow Statement:
A cash-flow statement is similar to an income statement, but it takes into account when revenues are collected and when expenses are paid. It helps identify positive or negative cash flow, and where you might need to have a contingency plan to access funding to keep your business solvent.
Forecasting your cash-flow statement can help you identify gaps or negative cash flow and adjust operations as required. A full guide to working through cash-flow projections for your business is also available.