What is a business plan?
A business plan is a document that details the goals of a company and how it plans to achieve them. Business plans benefit both start-ups and established businesses. For start-ups, a business plan is essential to attract potential lenders and investors. For established businesses, a business plan helps them stay on track and keep track of their goals. In this article, we'll explain what an effective business plan should include and how to create one.
Key Takeaways
- A business plan is a document that describes a company's business activities and how it plans to achieve its goals.
- Startups use business plans to launch their business and attract outside investors.
- For established companies, a business plan helps management focus on and work towards the company's short-term and long-term goals.
- While there is no single format that a business plan must follow, there are certain key elements that most businesses will want to include.
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Understand the business plan
Every new business needs to have a business plan before it can begin operations. In fact, banks and venture capital firms often want to see a business plan before they consider lending money or providing capital to a new business.
Even if your company isn’t looking to raise additional capital, a business plan can help you achieve your goals. Harvard Business Review The article reports that “Entrepreneurs who created a formal plan were 16% more likely to achieve business continuity than similar entrepreneurs who did not create a plan.”
Ideally, business plans should be reviewed and updated regularly to reflect achieved or changed goals. If an existing business decides to move in a new direction, an entirely new business plan may be written.
Creating and following a well-crafted business plan has many benefits, including allowing you to think carefully before investing large amounts of money in an idea and uncovering any obstacles that may be preventing your success. You can also share your business plan with trusted outsiders to get objective feedback. Additionally, a business plan helps your company's leadership team stay on the same page about strategic action items and priorities.
Business plans are rarely identical among competitors in the same industry, but they often share some fundamental elements, as explained below.
It's a good idea to include as much detail as necessary, but it's also important that your business plan is concise enough to hold the reader's attention until the end.
How to Write a Business Plan
There are many templates you can use to create a business plan, but it's best to avoid creating something generic — make sure your plan reflects the unique personality of your business.
Many business plans use a combination of the following sections, with varying levels of detail depending on your company:
Common Elements of a Business Plan
The length of a business plan varies greatly from company to company. Either way, it's best to keep your basic information in a 15-25 page document. Any other important elements that take up a lot of space, like patent applications, can be referenced in the main document and attached as appendices.
These are some of the most common elements found in many business plans.
- executive summary: This section introduces your company and includes your company mission statement along with relevant information about your company's executives, employees, operations, and locations.
- Products & Services: This is where you should describe the products or services your company offers or plans to introduce. It may include details such as price, product lifespan, and unique benefits to consumers. Other elements that can be included in this section include the production and manufacturing process, any relevant patents held by your company, proprietary technologies, etc. Information about research and development (R&D) can also be included here.
- Market Analysis: Your company should have a good understanding of the current state of your industry and your existing competitors. This section should explain where your company fits in, what type of customers you plan to target, and how easy or difficult it will be for you to take market share from the incumbents.
- Marketing Strategy: This section describes how the company plans to attract and retain customers, what advertising and marketing campaigns it anticipates, and what distribution channels it will use to get its products and services to consumers.
- Financial planning and forecasting: An existing business can include financial statements, balance sheets, and other relevant financial information. A new business can provide financial goals and projections for the first few years. The plan might also include a funding request.
Tip
The best business plans aren't generic plans created from easily accessible templates. Companies should aim to captivate readers with a plan that shows their uniqueness and potential for success.
Two types of business plans
Business plans come in many different forms, but they can be divided into two basic categories: traditional business plans and lean startup. According to the U.S. Small Business Administration (SBA), traditional business plans are the more common of the two.
- Traditional Business PlanThese plans tend to be much longer and contain a lot more detail than Lean Startup plans, which results in more work on the company's part, but also makes them more compelling (and reassuring) to potential investors.
- Lean Startup Business Plan: These use a simplified structure that highlights key elements. These business plans are short (about one page) and provide only the most basic details. If a company uses this type of plan, it should be prepared to provide more detailed information upon request from an investor or lender.
Why Business Plans Fail
A business plan is not a foolproof recipe for success. To begin with, the assumptions and predictions in the plan may prove unrealistic. Markets and entire economies may change in ways you couldn't foresee. Competitors may introduce revolutionary new products or services. In all of this, you need to build flexibility into your plan so that you can pivot in new directions if necessary.
How often should you update your business plan?
How often you need to revise your business plan will depend on the nature of your business. Established businesses should review their plan annually and make changes as needed. New or fast-growing businesses in a competitive market may need to revise it more frequently, such as quarterly.
What does a Lean Startup business plan include?
A lean startup business plan is an option for companies who want to provide a simple explanation of their business. For example, new companies may feel that they don't have a lot of information to provide yet.
Sections can include your value proposition, your company's main activities and benefits, resources like staff, intellectual property, and capital, a list of partnerships, customer segments, revenue streams, etc.
Conclusion
Business plans are useful for all kinds of businesses. But as your business grows and the world around it changes, your business plan needs to change, too. So think of your business plan as a living document, not carved in granite, designed to evolve with your business.
