Entrepreneurs who create a business plan are more likely to be successful than those who don't.
A sound plan can not only help a business obtain investment capital, but, as the study found, it can even make or break a business.
Here we will discuss the key elements of a business plan to help you write one.
What is a business plan?
A business plan is a document that outlines your business goals and the strategy for achieving them. It can include your company's mission statement, details of your products or services and how you'll bring them to market, and the time and money you'll need to execute your plan.
For more information on how to write a business plan, check out Shopify's guide.
12 Elements of a Business Plan
Business plans vary depending on your product or service. Some entrepreneurs use diagrams and graphs, while others rely solely on text. However you create one, a good business plan tends to include these elements:
- executive summary
- Company Profile
- Market Analysis
- Marketing Plan
- sales plan
- Competitive analysis
- Organizational Structure
- Products & Services
- Operational Plan
- Financial Planning
- Funding source
- appendix
1. Executive Summary
The overview should briefly explain your company's product or service and explain why it is likely to be profitable. You can also include basic information about your company, such as where it is located and how many employees it has.
2. Company Profile
A company description helps customers, lenders, and potential investors gain a deeper understanding of your product or service. It provides a detailed description of your supply chain and explains how your company plans to bring its products or services to market.
3. Market Analysis
The market analysis section outlines your plan for reaching your target audience. It usually includes an estimate of the potential demand for your product or service and an outline of your market research.
The market analysis also includes information on marketing strategies, advertising ideas, and other ways to attract customers.
Another element of this section is a detailed breakdown of your target customers. Many businesses find it useful to analyze their target market using customer segments that include demographic data such as age and income. This way, they can customize their marketing plan to reach different customer groups.
4. Marketing Plan
The marketing plan section details your plan for attracting and keeping customers. Covers your marketing mix (product, price, place, promotion). Demonstrates that you understand your market and have clear, measurable goals guiding your marketing strategy.
For example, a fashion retailer may focus on online sales channels, competitive pricing strategies, high-quality products, and aggressive social media promotion.
5. Sales Plan
This section focuses on the actions you will take to reach your sales goals and increase revenue. Unlike a marketing plan, it focuses on the direct process of selling your product to customers. It considers the methods you will use from lead generation to closing the sale, as well as your revenue goals.
E-commerce sales strategies include optimizing the online shopping experience, driving traffic through targeted digital marketing, and employing tactics such as flash sales, personalized email marketing, and loyalty programs to drive sales.
6. Competitive Analysis
It is important to understand your competitors and differentiate your business. There are two main types of competitors: direct competitors and indirect competitors.
- Direct competitors. A direct competitor offers the same or similar products or services. For example, the underwear brand Skims is a direct competitor of Spanx.
- Indirect competitors. On the other hand, indirect competitors offer different products or services that may fulfill the same customer needs. For example, cable television is an indirect competitor of Netflix.
A competitive analysis describes the unique strengths of your company that give you a competitive advantage over other companies.
7. Organizational Structure
The organizational structure describes the legal structure of your company, provides information about your management team, explains how your business plans to operate, and details who is responsible for which aspects of your company.
8. Products and Services
In this component, you'll go into detail about what you actually sell and why it's valuable to your customers. Describe your product and service, including all of its features, benefits, and unique selling points. You'll also explain the product's current stage of development and future plans.
The products and services section also considers your pricing strategy, intellectual property rights (IP), and key supplier information. For example, in an e-commerce business plan focused on eco-friendly household products, this section would detail your product range, explain why it's eco-friendly, outline your sourcing and production practices, explain your pricing, and highlight any certifications or eco-labels your products have earned.
9. Operational Plan
This is where you describe the day-to-day running of your business. Your operational plan encompasses many different aspects, from production and service delivery to managing people and resources. It shows your readers how you plan to deliver on your promises.
For example, in a business plan for a startup selling artisan crafts, this section might include details about how you will source artisans, how you will catalogue and store your products, what e-commerce platform you will use to sell, and the logistics of packaging and shipping orders worldwide.
10. Financial Planning
The financial plan is one of the most important parts of a business plan, especially for companies seeking outside financing.
The plan often includes a capital expenditure budget, a projected income statement, and a cash flow statement to help predict when the company will become profitable and how it will survive in the meantime.
If your business is already profitable, a financial plan can help you convince investors of your future growth. At the end of your financial section, you can also include a value proposition that estimates what your business is worth.
11. Source of Funding
Some companies that are planning to expand or are looking to raise funding from venture capitalists may have a section dedicated to their long-term growth strategies, such as how they will expand their product offerings or enter new markets.
12. Appendix
The final component of your business plan is the appendix. Here you can include any additional documents cited in other sections or requested by your reader. This can include a resume, financial statements, product photos, patent approvals, legal records, etc.
Frequently asked questions about business plan components
What are the eight elements that every good business plan has in common?
The most common components of a business plan include an executive summary, company profile, marketing analysis, competitive analysis, organizational description, outline of growth strategy, financial plan, and appendices.
What is the format of a business plan?
What are the 5 features of a business plan?
A business plan describes your company's products or services, revenue potential, supply chain reliability, and factors that may affect demand.
