elements of a business plan in entrepreneurship

11.4 The Business Plan

Learning objectives.

By the end of this section, you will be able to:

• Describe the different purposes of a business plan
• Describe and develop the components of a brief business plan
• Describe and develop the components of a full business plan

Unlike the brief or lean formats introduced so far, the business plan is a formal document used for the long-range planning of a company’s operation. It typically includes background information, financial information, and a summary of the business. Investors nearly always request a formal business plan because it is an integral part of their evaluation of whether to invest in a company. Although nothing in business is permanent, a business plan typically has components that are more “set in stone” than a business model canvas , which is more commonly used as a first step in the planning process and throughout the early stages of a nascent business. A business plan is likely to describe the business and industry, market strategies, sales potential, and competitive analysis, as well as the company’s long-term goals and objectives. An in-depth formal business plan would follow at later stages after various iterations to business model canvases. The business plan usually projects financial data over a three-year period and is typically required by banks or other investors to secure funding. The business plan is a roadmap for the company to follow over multiple years.

Some entrepreneurs prefer to use the canvas process instead of the business plan, whereas others use a shorter version of the business plan, submitting it to investors after several iterations. There are also entrepreneurs who use the business plan earlier in the entrepreneurial process, either preceding or concurrently with a canvas. For instance, Chris Guillebeau has a one-page business plan template in his book The $100 Startup . 48 His version is basically an extension of a napkin sketch without the detail of a full business plan. As you progress, you can also consider a brief business plan (about two pages)—if you want to support a rapid business launch—and/or a standard business plan.

As with many aspects of entrepreneurship, there are no clear hard and fast rules to achieving entrepreneurial success. You may encounter different people who want different things (canvas, summary, full business plan), and you also have flexibility in following whatever tool works best for you. Like the canvas, the various versions of the business plan are tools that will aid you in your entrepreneurial endeavor.

Business Plan Overview

Most business plans have several distinct sections ( Figure 11.16 ). The business plan can range from a few pages to twenty-five pages or more, depending on the purpose and the intended audience. For our discussion, we’ll describe a brief business plan and a standard business plan. If you are able to successfully design a business model canvas, then you will have the structure for developing a clear business plan that you can submit for financial consideration.

Both types of business plans aim at providing a picture and roadmap to follow from conception to creation. If you opt for the brief business plan, you will focus primarily on articulating a big-picture overview of your business concept.

The full business plan is aimed at executing the vision concept, dealing with the proverbial devil in the details. Developing a full business plan will assist those of you who need a more detailed and structured roadmap, or those of you with little to no background in business. The business planning process includes the business model, a feasibility analysis, and a full business plan, which we will discuss later in this section. Next, we explore how a business plan can meet several different needs.

Purposes of a Business Plan

A business plan can serve many different purposes—some internal, others external. As we discussed previously, you can use a business plan as an internal early planning device, an extension of a napkin sketch, and as a follow-up to one of the canvas tools. A business plan can be an organizational roadmap , that is, an internal planning tool and working plan that you can apply to your business in order to reach your desired goals over the course of several years. The business plan should be written by the owners of the venture, since it forces a firsthand examination of the business operations and allows them to focus on areas that need improvement.

Refer to the business venture throughout the document. Generally speaking, a business plan should not be written in the first person.

A major external purpose for the business plan is as an investment tool that outlines financial projections, becoming a document designed to attract investors. In many instances, a business plan can complement a formal investor’s pitch. In this context, the business plan is a presentation plan, intended for an outside audience that may or may not be familiar with your industry, your business, and your competitors.

You can also use your business plan as a contingency plan by outlining some “what-if” scenarios and exploring how you might respond if these scenarios unfold. Pretty Young Professional launched in November 2010 as an online resource to guide an emerging generation of female leaders. The site focused on recent female college graduates and current students searching for professional roles and those in their first professional roles. It was founded by four friends who were coworkers at the global consultancy firm McKinsey. But after positions and equity were decided among them, fundamental differences of opinion about the direction of the business emerged between two factions, according to the cofounder and former CEO Kathryn Minshew . “I think, naively, we assumed that if we kicked the can down the road on some of those things, we’d be able to sort them out,” Minshew said. Minshew went on to found a different professional site, The Muse , and took much of the editorial team of Pretty Young Professional with her. 49 Whereas greater planning potentially could have prevented the early demise of Pretty Young Professional, a change in planning led to overnight success for Joshua Esnard and The Cut Buddy team. Esnard invented and patented the plastic hair template that he was selling online out of his Fort Lauderdale garage while working a full-time job at Broward College and running a side business. Esnard had hundreds of boxes of Cut Buddies sitting in his home when he changed his marketing plan to enlist companies specializing in making videos go viral. It worked so well that a promotional video for the product garnered 8 million views in hours. The Cut Buddy sold over 4,000 products in a few hours when Esnard only had hundreds remaining. Demand greatly exceeded his supply, so Esnard had to scramble to increase manufacturing and offered customers two-for-one deals to make up for delays. This led to selling 55,000 units, generating $700,000 in sales in 2017. 50 After appearing on Shark Tank and landing a deal with Daymond John that gave the “shark” a 20-percent equity stake in return for $300,000, The Cut Buddy has added new distribution channels to include retail sales along with online commerce. Changing one aspect of a business plan—the marketing plan—yielded success for The Cut Buddy.

Link to Learning

Watch this video of Cut Buddy’s founder, Joshua Esnard, telling his company’s story to learn more.

If you opt for the brief business plan, you will focus primarily on articulating a big-picture overview of your business concept. This version is used to interest potential investors, employees, and other stakeholders, and will include a financial summary “box,” but it must have a disclaimer, and the founder/entrepreneur may need to have the people who receive it sign a nondisclosure agreement (NDA) . The full business plan is aimed at executing the vision concept, providing supporting details, and would be required by financial institutions and others as they formally become stakeholders in the venture. Both are aimed at providing a picture and roadmap to go from conception to creation.

Types of Business Plans

The brief business plan is similar to an extended executive summary from the full business plan. This concise document provides a broad overview of your entrepreneurial concept, your team members, how and why you will execute on your plans, and why you are the ones to do so. You can think of a brief business plan as a scene setter or—since we began this chapter with a film reference—as a trailer to the full movie. The brief business plan is the commercial equivalent to a trailer for Field of Dreams , whereas the full plan is the full-length movie equivalent.

Brief Business Plan or Executive Summary

As the name implies, the brief business plan or executive summary summarizes key elements of the entire business plan, such as the business concept, financial features, and current business position. The executive summary version of the business plan is your opportunity to broadly articulate the overall concept and vision of the company for yourself, for prospective investors, and for current and future employees.

A typical executive summary is generally no longer than a page, but because the brief business plan is essentially an extended executive summary, the executive summary section is vital. This is the “ask” to an investor. You should begin by clearly stating what you are asking for in the summary.

In the business concept phase, you’ll describe the business, its product, and its markets. Describe the customer segment it serves and why your company will hold a competitive advantage. This section may align roughly with the customer segments and value-proposition segments of a canvas.

Next, highlight the important financial features, including sales, profits, cash flows, and return on investment. Like the financial portion of a feasibility analysis, the financial analysis component of a business plan may typically include items like a twelve-month profit and loss projection, a three- or four-year profit and loss projection, a cash-flow projection, a projected balance sheet, and a breakeven calculation. You can explore a feasibility study and financial projections in more depth in the formal business plan. Here, you want to focus on the big picture of your numbers and what they mean.

The current business position section can furnish relevant information about you and your team members and the company at large. This is your opportunity to tell the story of how you formed the company, to describe its legal status (form of operation), and to list the principal players. In one part of the extended executive summary, you can cover your reasons for starting the business: Here is an opportunity to clearly define the needs you think you can meet and perhaps get into the pains and gains of customers. You also can provide a summary of the overall strategic direction in which you intend to take the company. Describe the company’s mission, vision, goals and objectives, overall business model, and value proposition.

Rice University’s Student Business Plan Competition, one of the largest and overall best-regarded graduate school business-plan competitions (see Telling Your Entrepreneurial Story and Pitching the Idea ), requires an executive summary of up to five pages to apply. 51 , 52 Its suggested sections are shown in Table 11.2 .

Are You Ready?

Create a brief business plan.

Fill out a canvas of your choosing for a well-known startup: Uber, Netflix, Dropbox, Etsy, Airbnb, Bird/Lime, Warby Parker, or any of the companies featured throughout this chapter or one of your choice. Then create a brief business plan for that business. See if you can find a version of the company’s actual executive summary, business plan, or canvas. Compare and contrast your vision with what the company has articulated.

• These companies are well established but is there a component of what you charted that you would advise the company to change to ensure future viability?
• Map out a contingency plan for a “what-if” scenario if one key aspect of the company or the environment it operates in were drastically is altered?

Full Business Plan

Even full business plans can vary in length, scale, and scope. Rice University sets a ten-page cap on business plans submitted for the full competition. The IndUS Entrepreneurs , one of the largest global networks of entrepreneurs, also holds business plan competitions for students through its Tie Young Entrepreneurs program. In contrast, business plans submitted for that competition can usually be up to twenty-five pages. These are just two examples. Some components may differ slightly; common elements are typically found in a formal business plan outline. The next section will provide sample components of a full business plan for a fictional business.

Executive Summary

The executive summary should provide an overview of your business with key points and issues. Because the summary is intended to summarize the entire document, it is most helpful to write this section last, even though it comes first in sequence. The writing in this section should be especially concise. Readers should be able to understand your needs and capabilities at first glance. The section should tell the reader what you want and your “ask” should be explicitly stated in the summary.

Describe your business, its product or service, and the intended customers. Explain what will be sold, who it will be sold to, and what competitive advantages the business has. Table 11.3 shows a sample executive summary for the fictional company La Vida Lola.

Business Description

This section describes the industry, your product, and the business and success factors. It should provide a current outlook as well as future trends and developments. You also should address your company’s mission, vision, goals, and objectives. Summarize your overall strategic direction, your reasons for starting the business, a description of your products and services, your business model, and your company’s value proposition. Consider including the Standard Industrial Classification/North American Industry Classification System (SIC/NAICS) code to specify the industry and insure correct identification. The industry extends beyond where the business is located and operates, and should include national and global dynamics. Table 11.4 shows a sample business description for La Vida Lola.

Industry Analysis and Market Strategies

Here you should define your market in terms of size, structure, growth prospects, trends, and sales potential. You’ll want to include your TAM and forecast the SAM . (Both these terms are discussed in Conducting a Feasibility Analysis .) This is a place to address market segmentation strategies by geography, customer attributes, or product orientation. Describe your positioning relative to your competitors’ in terms of pricing, distribution, promotion plan, and sales potential. Table 11.5 shows an example industry analysis and market strategy for La Vida Lola.

Competitive Analysis

The competitive analysis is a statement of the business strategy as it relates to the competition. You want to be able to identify who are your major competitors and assess what are their market shares, markets served, strategies employed, and expected response to entry? You likely want to conduct a classic SWOT analysis (Strengths Weaknesses Opportunities Threats) and complete a competitive-strength grid or competitive matrix. Outline your company’s competitive strengths relative to those of the competition in regard to product, distribution, pricing, promotion, and advertising. What are your company’s competitive advantages and their likely impacts on its success? The key is to construct it properly for the relevant features/benefits (by weight, according to customers) and how the startup compares to incumbents. The competitive matrix should show clearly how and why the startup has a clear (if not currently measurable) competitive advantage. Some common features in the example include price, benefits, quality, type of features, locations, and distribution/sales. Sample templates are shown in Figure 11.17 and Figure 11.18 . A competitive analysis helps you create a marketing strategy that will identify assets or skills that your competitors are lacking so you can plan to fill those gaps, giving you a distinct competitive advantage. When creating a competitor analysis, it is important to focus on the key features and elements that matter to customers, rather than focusing too heavily on the entrepreneur’s idea and desires.

Operations and Management Plan

In this section, outline how you will manage your company. Describe its organizational structure. Here you can address the form of ownership and, if warranted, include an organizational chart/structure. Highlight the backgrounds, experiences, qualifications, areas of expertise, and roles of members of the management team. This is also the place to mention any other stakeholders, such as a board of directors or advisory board(s), and their relevant relationship to the founder, experience and value to help make the venture successful, and professional service firms providing management support, such as accounting services and legal counsel.

Table 11.6 shows a sample operations and management plan for La Vida Lola.

Marketing Plan

Here you should outline and describe an effective overall marketing strategy for your venture, providing details regarding pricing, promotion, advertising, distribution, media usage, public relations, and a digital presence. Fully describe your sales management plan and the composition of your sales force, along with a comprehensive and detailed budget for the marketing plan. Table 11.7 shows a sample marketing plan for La Vida Lola.

Financial Plan

A financial plan seeks to forecast revenue and expenses; project a financial narrative; and estimate project costs, valuations, and cash flow projections. This section should present an accurate, realistic, and achievable financial plan for your venture (see Entrepreneurial Finance and Accounting for detailed discussions about conducting these projections). Include sales forecasts and income projections, pro forma financial statements ( Building the Entrepreneurial Dream Team , a breakeven analysis, and a capital budget. Identify your possible sources of financing (discussed in Conducting a Feasibility Analysis ). Figure 11.19 shows a template of cash-flow needs for La Vida Lola.

Entrepreneur In Action

Laughing man coffee.

Hugh Jackman ( Figure 11.20 ) may best be known for portraying a comic-book superhero who used his mutant abilities to protect the world from villains. But the Wolverine actor is also working to make the planet a better place for real, not through adamantium claws but through social entrepreneurship.

A love of java jolted Jackman into action in 2009, when he traveled to Ethiopia with a Christian humanitarian group to shoot a documentary about the impact of fair-trade certification on coffee growers there. He decided to launch a business and follow in the footsteps of the late Paul Newman, another famous actor turned philanthropist via food ventures.

Jackman launched Laughing Man Coffee two years later; he sold the line to Keurig in 2015. One Laughing Man Coffee café in New York continues to operate independently, investing its proceeds into charitable programs that support better housing, health, and educational initiatives within fair-trade farming communities. 55 Although the New York location is the only café, the coffee brand is still distributed, with Keurig donating an undisclosed portion of Laughing Man proceeds to those causes (whereas Jackman donates all his profits). The company initially donated its profits to World Vision, the Christian humanitarian group Jackman accompanied in 2009. In 2017, it created the Laughing Man Foundation to be more active with its money management and distribution.

• You be the entrepreneur. If you were Jackman, would you have sold the company to Keurig? Why or why not?
• Would you have started the Laughing Man Foundation?
• What else can Jackman do to aid fair-trade practices for coffee growers?

What Can You Do?

Textbooks for change.

Founded in 2014, Textbooks for Change uses a cross-compensation model, in which one customer segment pays for a product or service, and the profit from that revenue is used to provide the same product or service to another, underserved segment. Textbooks for Change partners with student organizations to collect used college textbooks, some of which are re-sold while others are donated to students in need at underserved universities across the globe. The organization has reused or recycled 250,000 textbooks, providing 220,000 students with access through seven campus partners in East Africa. This B-corp social enterprise tackles a problem and offers a solution that is directly relevant to college students like yourself. Have you observed a problem on your college campus or other campuses that is not being served properly? Could it result in a social enterprise?

Work It Out

Franchisee set out.

A franchisee of East Coast Wings, a chain with dozens of restaurants in the United States, has decided to part ways with the chain. The new store will feature the same basic sports-bar-and-restaurant concept and serve the same basic foods: chicken wings, burgers, sandwiches, and the like. The new restaurant can’t rely on the same distributors and suppliers. A new business plan is needed.

• What steps should the new restaurant take to create a new business plan?
• Should it attempt to serve the same customers? Why or why not?

This New York Times video, “An Unlikely Business Plan,” describes entrepreneurial resurgence in Detroit, Michigan.

• 48 Chris Guillebeau. The $100 Startup: Reinvent the Way You Make a Living, Do What You Love, and Create a New Future . New York: Crown Business/Random House, 2012.
• 49 Jonathan Chan. “What These 4 Startup Case Studies Can Teach You about Failure.” Foundr.com . July 12, 2015. https://foundr.com/4-startup-case-studies-failure/
• 50 Amy Feldman. “Inventor of the Cut Buddy Paid YouTubers to Spark Sales. He Wasn’t Ready for a Video to Go Viral.” Forbes. February 15, 2017. https://www.forbes.com/sites/forbestreptalks/2017/02/15/inventor-of-the-cut-buddy-paid-youtubers-to-spark-sales-he-wasnt-ready-for-a-video-to-go-viral/#3eb540ce798a
• 51 Jennifer Post. “National Business Plan Competitions for Entrepreneurs.” Business News Daily . August 30, 2018. https://www.businessnewsdaily.com/6902-business-plan-competitions-entrepreneurs.html
• 52 “Rice Business Plan Competition, Eligibility Criteria and How to Apply.” Rice Business Plan Competition . March 2020. https://rbpc.rice.edu/sites/g/files/bxs806/f/2020%20RBPC%20Eligibility%20Criteria%20and%20How%20to%20Apply_23Oct19.pdf
• 53 “Rice Business Plan Competition, Eligibility Criteria and How to Apply.” Rice Business Plan Competition. March 2020. https://rbpc.rice.edu/sites/g/files/bxs806/f/2020%20RBPC%20Eligibility%20Criteria%20and%20How%20to%20Apply_23Oct19.pdf; Based on 2019 RBPC Competition Rules and Format April 4–6, 2019. https://rbpc.rice.edu/sites/g/files/bxs806/f/2019-RBPC-Competition-Rules%20-Format.pdf
• 54 Foodstart. http://foodstart.com
• 55 “Hugh Jackman Journey to Starting a Social Enterprise Coffee Company.” Giving Compass. April 8, 2018. https://givingcompass.org/article/hugh-jackman-journey-to-starting-a-social-enterprise-coffee-company/

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What Is a Business Plan?

Understanding business plans, how to write a business plan, common elements of a business plan, the bottom line, business plan: what it is, what's included, and how to write one.

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

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A business plan is a document that outlines a company's goals and the strategies to achieve them. It's valuable for both startups and established companies. For startups, a well-crafted business plan is crucial for attracting potential lenders and investors. Established businesses use business plans to stay on track and aligned with their growth objectives. This article will explain the key components of an effective business plan and guidance on how to write one.

Key Takeaways

• A business plan is a document detailing a company's business activities and strategies for achieving its goals.
• Startup companies use business plans to launch their venture and to attract outside investors.
• For established companies, a business plan helps keep the executive team focused on short- and long-term objectives.
• There's no single required format for a business plan, but certain key elements are essential for most companies.

Investopedia / Ryan Oakley

Any new business should have a business plan in place before beginning operations. Banks and venture capital firms often want to see a business plan before considering making a loan or providing capital to new businesses.

Even if a company doesn't need additional funding, having a business plan helps it stay focused on its goals. Research from the University of Oregon shows that businesses with a plan are significantly more likely to secure funding than those without one. Moreover, companies with a business plan grow 30% faster than those that don't plan. According to a Harvard Business Review article, entrepreneurs who write formal plans are 16% more likely to achieve viability than those who don't.

A business plan should ideally be reviewed and updated periodically to reflect achieved goals or changes in direction. An established business moving in a new direction might even create an entirely new plan.

There are numerous benefits to creating (and sticking to) a well-conceived business plan. It allows for careful consideration of ideas before significant investment, highlights potential obstacles to success, and provides a tool for seeking objective feedback from trusted outsiders. A business plan may also help ensure that a company’s executive team remains aligned on strategic action items and priorities.

While business plans vary widely, even among competitors in the same industry, they often share basic elements detailed below.

A well-crafted business plan is essential for attracting investors and guiding a company's strategic growth. It should address market needs and investor requirements and provide clear financial projections.

While there are any number of templates that you can use to write a business plan, it's best to try to avoid producing a generic-looking one. Let your plan reflect the unique personality of your business.

Many business plans use some combination of the sections below, with varying levels of detail, depending on the company.

The length of a business plan can vary greatly from business to business. Regardless, gathering the basic information into a 15- to 25-page document is best. Any additional crucial elements, such as patent applications, can be referenced in the main document and included as appendices.

Common elements in many business plans include:

• Executive summary : This section introduces the company and includes its mission statement along with relevant information about the company's leadership, employees, operations, and locations.
• Products and services : Describe the products and services the company offers or plans to introduce. Include details on pricing, product lifespan, and unique consumer benefits. Mention production and manufacturing processes, relevant patents , proprietary technology , and research and development (R&D) information.
• Market analysis : Explain the current state of the industry and the competition. Detail where the company fits in, the types of customers it plans to target, and how it plans to capture market share from competitors.
• Marketing strategy : Outline the company's plans to attract and retain customers, including anticipated advertising and marketing campaigns. Describe the distribution channels that will be used to deliver products or services to consumers.
• Financial plans and projections : Established businesses should include financial statements, balance sheets, and other relevant financial information. New businesses should provide financial targets and estimates for the first few years. This section may also include any funding requests.

Investors want to see a clear exit strategy, expected returns, and a timeline for cashing out. It's likely a good idea to provide five-year profitability forecasts and realistic financial estimates.

2 Types of Business Plans

Business plans can vary in format, often categorized into traditional and lean startup plans. According to the U.S. Small Business Administration (SBA) , the traditional business plan is the more common of the two.

• Traditional business plans : These are detailed and lengthy, requiring more effort to create but offering comprehensive information that can be persuasive to potential investors.
• Lean startup business plans : These are concise, sometimes just one page, and focus on key elements. While they save time, companies should be ready to provide additional details if requested by investors or lenders.

Why Do Business Plans Fail?

A business plan isn't a surefire recipe for success. The plan may have been unrealistic in its assumptions and projections. Markets and the economy might change in ways that couldn't have been foreseen. A competitor might introduce a revolutionary new product or service. All this calls for building flexibility into your plan, so you can pivot to a new course if needed.

How Often Should a Business Plan Be Updated?

How frequently a business plan needs to be revised will depend on its nature. Updating your business plan is crucial due to changes in external factors (market trends, competition, and regulations) and internal developments (like employee growth and new products). While a well-established business might want to review its plan once a year and make changes if necessary, a new or fast-growing business in a fiercely competitive market might want to revise it more often, such as quarterly.

What Does a Lean Startup Business Plan Include?

The lean startup business plan is ideal for quickly explaining a business, especially for new companies that don't have much information yet. Key sections may include a value proposition , major activities and advantages, resources (staff, intellectual property, and capital), partnerships, customer segments, and revenue sources.

A well-crafted business plan is crucial for any company, whether it's a startup looking for investment or an established business wanting to stay on course. It outlines goals and strategies, boosting a company's chances of securing funding and achieving growth.

As your business and the market change, update your business plan regularly. This keeps it relevant and aligned with your current goals and conditions. Think of your business plan as a living document that evolves with your company, not something carved in stone.

University of Oregon Department of Economics. " Evaluation of the Effectiveness of Business Planning Using Palo Alto's Business Plan Pro ." Eason Ding & Tim Hursey.

Bplans. " Do You Need a Business Plan? Scientific Research Says Yes ."

Harvard Business Review. " Research: Writing a Business Plan Makes Your Startup More Likely to Succeed ."

Harvard Business Review. " How to Write a Winning Business Plan ."

U.S. Small Business Administration. " Write Your Business Plan ."

SCORE. " When and Why Should You Review Your Business Plan? "

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What is a Business Plan? Definition, Tips, and Templates

Published: June 28, 2024

Years ago, I had an idea to launch a line of region-specific board games. I knew there was a market for games that celebrated local culture and heritage. I was so excited about the concept and couldn't wait to get started.

But my idea never took off. Why? Because I didn‘t have a plan. I lacked direction, missed opportunities, and ultimately, the venture never got off the ground.

And that’s exactly why a business plan is important. It cements your vision, gives you clarity, and outlines your next step.

In this post, I‘ll explain what a business plan is, the reasons why you’d need one, identify different types of business plans, and what you should include in yours.

Table of Contents

What is a business plan?

What is a business plan used for.

• Business Plan Template [Download Now]

Purposes of a Business Plan

What does a business plan need to include, types of business plans.

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A business plan is a comprehensive document that outlines a company's goals, strategies, and financial projections. It provides a detailed description of the business, including its products or services, target market, competitive landscape, and marketing and sales strategies. The plan also includes a financial section that forecasts revenue, expenses, and cash flow, as well as a funding request if the business is seeking investment.

The business plan is an undeniably critical component to getting any company off the ground. It's key to securing financing, documenting your business model, outlining your financial projections, and turning that nugget of a business idea into a reality.

The purpose of a business plan is three-fold: It summarizes the organization’s strategy in order to execute it long term, secures financing from investors, and helps forecast future business demands.

Business Plan Template [ Download Now ]

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How to make a business plan

Table of Contents

How to make a good business plan: step-by-step guide.

A business plan is a strategic roadmap used to navigate the challenging journey of entrepreneurship. It's the foundation upon which you build a successful business.

A well-crafted business plan can help you define your vision, clarify your goals, and identify potential problems before they arise.

But where do you start? How do you create a business plan that sets you up for success?

This article will explore the step-by-step process of creating a comprehensive business plan.

What is a business plan?

A business plan is a formal document that outlines a business's objectives, strategies, and operational procedures. It typically includes the following information about a company:

Products or services

Target market

Competitors

Marketing and sales strategies

Financial plan

Management team

A business plan serves as a roadmap for a company's success and provides a blueprint for its growth and development. It helps entrepreneurs and business owners organize their ideas, evaluate the feasibility, and identify potential challenges and opportunities.

As well as serving as a guide for business owners, a business plan can attract investors and secure funding. It demonstrates the company's understanding of the market, its ability to generate revenue and profits, and its strategy for managing risks and achieving success.

Business plan vs. business model canvas

A business plan may seem similar to a business model canvas, but each document serves a different purpose.

A business model canvas is a high-level overview that helps entrepreneurs and business owners quickly test and iterate their ideas. It is often a one-page document that briefly outlines the following:

Key partnerships

Key activities

Key propositions

Customer relationships

Customer segments

Key resources

Cost structure

Revenue streams

On the other hand, a Business Plan Template provides a more in-depth analysis of a company's strategy and operations. It is typically a lengthy document and requires significant time and effort to develop.

A business model shouldn’t replace a business plan, and vice versa. Business owners should lay the foundations and visually capture the most important information with a Business Model Canvas Template . Because this is a fast and efficient way to communicate a business idea, a business model canvas is a good starting point before developing a more comprehensive business plan.

A business plan can aim to secure funding from investors or lenders, while a business model canvas communicates a business idea to potential customers or partners.

Why is a business plan important?

A business plan is crucial for any entrepreneur or business owner wanting to increase their chances of success.

Here are some of the many benefits of having a thorough business plan.

Helps to define the business goals and objectives

A business plan encourages you to think critically about your goals and objectives. Doing so lets you clearly understand what you want to achieve and how you plan to get there.

A well-defined set of goals, objectives, and key results also provides a sense of direction and purpose, which helps keep business owners focused and motivated.

Guides decision-making

A business plan requires you to consider different scenarios and potential problems that may arise in your business. This awareness allows you to devise strategies to deal with these issues and avoid pitfalls.

With a clear plan, entrepreneurs can make informed decisions aligning with their overall business goals and objectives. This helps reduce the risk of making costly mistakes and ensures they make decisions with long-term success in mind.

Attracts investors and secures funding

Investors and lenders often require a business plan before considering investing in your business. A document that outlines the company's goals, objectives, and financial forecasts can help instill confidence in potential investors and lenders.

A well-written business plan demonstrates that you have thoroughly thought through your business idea and have a solid plan for success.

Identifies potential challenges and risks

A business plan requires entrepreneurs to consider potential challenges and risks that could impact their business. For example:

Is there enough demand for my product or service?

Will I have enough capital to start my business?

Is the market oversaturated with too many competitors?

What will happen if my marketing strategy is ineffective?

By identifying these potential challenges, entrepreneurs can develop strategies to mitigate risks and overcome challenges. This can reduce the likelihood of costly mistakes and ensure the business is well-positioned to take on any challenges.

Provides a basis for measuring success

A business plan serves as a framework for measuring success by providing clear goals and financial projections . Entrepreneurs can regularly refer to the original business plan as a benchmark to measure progress. By comparing the current business position to initial forecasts, business owners can answer questions such as:

Are we where we want to be at this point?

Did we achieve our goals?

If not, why not, and what do we need to do?

After assessing whether the business is meeting its objectives or falling short, business owners can adjust their strategies as needed.

How to make a business plan step by step

The steps below will guide you through the process of creating a business plan and what key components you need to include.

1. Create an executive summary

Start with a brief overview of your entire plan. The executive summary should cover your business plan's main points and key takeaways.

Keep your executive summary concise and clear with the Executive Summary Template . The simple design helps readers understand the crux of your business plan without reading the entire document.

2. Write your company description

Provide a detailed explanation of your company. Include information on what your company does, the mission statement, and your vision for the future.

Provide additional background information on the history of your company, the founders, and any notable achievements or milestones.

3. Conduct a market analysis

Conduct an in-depth analysis of your industry, competitors, and target market. This is best done with a SWOT analysis to identify your strengths, weaknesses, opportunities, and threats. Next, identify your target market's needs, demographics, and behaviors.

Use the Competitive Analysis Template to brainstorm answers to simple questions like:

What does the current market look like?

Who are your competitors?

What are they offering?

What will give you a competitive advantage?

Who is your target market?

What are they looking for and why?

How will your product or service satisfy a need?

These questions should give you valuable insights into the current market and where your business stands.

4. Describe your products and services

Provide detailed information about your products and services. This includes pricing information, product features, and any unique selling points.

Use the Product/Market Fit Template to explain how your products meet the needs of your target market. Describe what sets them apart from the competition.

5. Design a marketing and sales strategy

Outline how you plan to promote and sell your products. Your marketing strategy and sales strategy should include information about your:

Pricing strategy

Advertising and promotional tactics

Sales channels

The Go to Market Strategy Template is a great way to visually map how you plan to launch your product or service in a new or existing market.

6. Determine budget and financial projections

Document detailed information on your business’ finances. Describe the current financial position of the company and how you expect the finances to play out.

Some details to include in this section are:

Startup costs

Revenue projections

Profit and loss statement

Funding you have received or plan to receive

Strategy for raising funds

7. Set the organization and management structure

Define how your company is structured and who will be responsible for each aspect of the business. Use the Business Organizational Chart Template to visually map the company’s teams, roles, and hierarchy.

As well as the organization and management structure, discuss the legal structure of your business. Clarify whether your business is a corporation, partnership, sole proprietorship, or LLC.

8. Make an action plan

At this point in your business plan, you’ve described what you’re aiming for. But how are you going to get there? The Action Plan Template describes the following steps to move your business plan forward. Outline the next steps you plan to take to bring your business plan to fruition.

Types of business plans

Several types of business plans cater to different purposes and stages of a company's lifecycle. Here are some of the most common types of business plans.

Startup business plan

A startup business plan is typically an entrepreneur's first business plan. This document helps entrepreneurs articulate their business idea when starting a new business.

Not sure how to make a business plan for a startup? It’s pretty similar to a regular business plan, except the primary purpose of a startup business plan is to convince investors to provide funding for the business. A startup business plan also outlines the potential target market, product/service offering, marketing plan, and financial projections.

Strategic business plan

A strategic business plan is a long-term plan that outlines a company's overall strategy, objectives, and tactics. This type of strategic plan focuses on the big picture and helps business owners set goals and priorities and measure progress.

The primary purpose of a strategic business plan is to provide direction and guidance to the company's management team and stakeholders. The plan typically covers a period of three to five years.

Operational business plan

An operational business plan is a detailed document that outlines the day-to-day operations of a business. It focuses on the specific activities and processes required to run the business, such as:

Organizational structure

Staffing plan

Production plan

Quality control

Inventory management

Supply chain

The primary purpose of an operational business plan is to ensure that the business runs efficiently and effectively. It helps business owners manage their resources, track their performance, and identify areas for improvement.

Growth-business plan

A growth-business plan is a strategic plan that outlines how a company plans to expand its business. It helps business owners identify new market opportunities and increase revenue and profitability. The primary purpose of a growth-business plan is to provide a roadmap for the company's expansion and growth.

The 3 Horizons of Growth Template is a great tool to identify new areas of growth. This framework categorizes growth opportunities into three categories: Horizon 1 (core business), Horizon 2 (emerging business), and Horizon 3 (potential business).

One-page business plan

A one-page business plan is a condensed version of a full business plan that focuses on the most critical aspects of a business. It’s a great tool for entrepreneurs who want to quickly communicate their business idea to potential investors, partners, or employees.

A one-page business plan typically includes sections such as business concept, value proposition, revenue streams, and cost structure.

Best practices for how to make a good business plan

Here are some additional tips for creating a business plan:

Use a template

A template can help you organize your thoughts and effectively communicate your business ideas and strategies. Starting with a template can also save you time and effort when formatting your plan.

Miro’s extensive library of customizable templates includes all the necessary sections for a comprehensive business plan. With our templates, you can confidently present your business plans to stakeholders and investors.

Be practical

Avoid overestimating revenue projections or underestimating expenses. Your business plan should be grounded in practical realities like your budget, resources, and capabilities.

Be specific

Provide as much detail as possible in your business plan. A specific plan is easier to execute because it provides clear guidance on what needs to be done and how. Without specific details, your plan may be too broad or vague, making it difficult to know where to start or how to measure success.

Be thorough with your research

Conduct thorough research to fully understand the market, your competitors, and your target audience . By conducting thorough research, you can identify potential risks and challenges your business may face and develop strategies to mitigate them.

Get input from others

It can be easy to become overly focused on your vision and ideas, leading to tunnel vision and a lack of objectivity. By seeking input from others, you can identify potential opportunities you may have overlooked.

Review and revise regularly

A business plan is a living document. You should update it regularly to reflect market, industry, and business changes. Set aside time for regular reviews and revisions to ensure your plan remains relevant and effective.

Create a winning business plan to chart your path to success

Starting or growing a business can be challenging, but it doesn't have to be. Whether you're a seasoned entrepreneur or just starting, a well-written business plan can make or break your business’ success.

The purpose of a business plan is more than just to secure funding and attract investors. It also serves as a roadmap for achieving your business goals and realizing your vision. With the right mindset, tools, and strategies, you can develop a visually appealing, persuasive business plan.

Ready to make an effective business plan that works for you? Check out our library of ready-made strategy and planning templates and chart your path to success.

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How to Write a Business Plan in 9 Steps (+ Template and Examples)

Every successful business has one thing in common, a good and well-executed business plan. A business plan is more than a document, it is a complete guide that outlines the goals your business wants to achieve, including its financial goals . It helps you analyze results, make strategic decisions, show your business operations and growth.

If you want to start a business or already have one and need to pitch it to investors for funding, writing a good business plan improves your chances of attracting financiers. As a startup, if you want to secure loans from financial institutions, part of the requirements involve submitting your business plan.

Writing a business plan does not have to be a complicated or time-consuming process. In this article, you will learn the step-by-step process for writing a successful business plan.

You will also learn what you need a business plan for, tips and strategies for writing a convincing business plan, business plan examples and templates that will save you tons of time, and the alternatives to the traditional business plan.

Let’s get started.

What Do You Need A Business Plan For?

Businesses create business plans for different purposes such as to secure funds, monitor business growth, measure your marketing strategies, and measure your business success.

1. Secure Funds

One of the primary reasons for writing a business plan is to secure funds, either from financial institutions/agencies or investors.

For you to effectively acquire funds, your business plan must contain the key elements of your business plan . For example, your business plan should include your growth plans, goals you want to achieve, and milestones you have recorded.

A business plan can also attract new business partners that are willing to contribute financially and intellectually. If you are writing a business plan to a bank, your project must show your traction , that is, the proof that you can pay back any loan borrowed.

Also, if you are writing to an investor, your plan must contain evidence that you can effectively utilize the funds you want them to invest in your business. Here, you are using your business plan to persuade a group or an individual that your business is a source of a good investment.

2. Monitor Business Growth

A business plan can help you track cash flows in your business. It steers your business to greater heights. A business plan capable of tracking business growth should contain:

• The business goals
• Methods to achieve the goals
• Time-frame for attaining those goals

A good business plan should guide you through every step in achieving your goals. It can also track the allocation of assets to every aspect of the business. You can tell when you are spending more than you should on a project.

You can compare a business plan to a written GPS. It helps you manage your business and hints at the right time to expand your business.

3. Measure Business Success

A business plan can help you measure your business success rate. Some small-scale businesses are thriving better than more prominent companies because of their track record of success.

Right from the onset of your business operation, set goals and work towards them. Write a plan to guide you through your procedures. Use your plan to measure how much you have achieved and how much is left to attain.

You can also weigh your success by monitoring the position of your brand relative to competitors. On the other hand, a business plan can also show you why you have not achieved a goal. It can tell if you have elapsed the time frame you set to attain a goal.

4. Document Your Marketing Strategies

You can use a business plan to document your marketing plans. Every business should have an effective marketing plan.

Competition mandates every business owner to go the extraordinary mile to remain relevant in the market. Your business plan should contain your marketing strategies that work. You can measure the success rate of your marketing plans.

In your business plan, your marketing strategy must answer the questions:

• How do you want to reach your target audience?
• How do you plan to retain your customers?
• What is/are your pricing plans?
• What is your budget for marketing?

How to Write a Business Plan Step-by-Step

1. create your executive summary.

The executive summary is a snapshot of your business or a high-level overview of your business purposes and plans . Although the executive summary is the first section in your business plan, most people write it last. The length of the executive summary is not more than two pages.

Generally, there are nine sections in a business plan, the executive summary should condense essential ideas from the other eight sections.

A good executive summary should do the following:

• A Snapshot of Growth Potential. Briefly inform the reader about your company and why it will be successful)
• Contain your Mission Statement which explains what the main objective or focus of your business is.
• Product Description and Differentiation. Brief description of your products or services and why it is different from other solutions in the market.
• The Team. Basic information about your company’s leadership team and employees
• Business Concept. A solid description of what your business does.
• Target Market. The customers you plan to sell to.
• Marketing Strategy. Your plans on reaching and selling to your customers
• Current Financial State. Brief information about what revenue your business currently generates.
• Projected Financial State. Brief information about what you foresee your business revenue to be in the future.

The executive summary is the make-or-break section of your business plan. If your summary cannot in less than two pages cannot clearly describe how your business will solve a particular problem of your target audience and make a profit, your business plan is set on a faulty foundation.

Avoid using the executive summary to hype your business, instead, focus on helping the reader understand the what and how of your plan.

View the executive summary as an opportunity to introduce your vision for your company. You know your executive summary is powerful when it can answer these key questions:

• Who is your target audience?
• What sector or industry are you in?
• What are your products and services?
• What is the future of your industry?
• Is your company scaleable?
• Who are the owners and leaders of your company? What are their backgrounds and experience levels?
• What is the motivation for starting your company?
• What are the next steps?

Writing the executive summary last although it is the most important section of your business plan is an excellent idea. The reason why is because it is a high-level overview of your business plan. It is the section that determines whether potential investors and lenders will read further or not.

The executive summary can be a stand-alone document that covers everything in your business plan. It is not uncommon for investors to request only the executive summary when evaluating your business. If the information in the executive summary impresses them, they will ask for the complete business plan.

If you are writing your business plan for your planning purposes, you do not need to write the executive summary.

2. Add Your Company Overview

The company overview or description is the next section in your business plan after the executive summary. It describes what your business does.

Adding your company overview can be tricky especially when your business is still in the planning stages. Existing businesses can easily summarize their current operations but may encounter difficulties trying to explain what they plan to become.

Your company overview should contain the following:

• What products and services you will provide
• Geographical markets and locations your company have a presence
• What you need to run your business
• Who your target audience or customers are
• Who will service your customers
• Your company’s purpose, mission, and vision
• Information about your company’s founders
• Who the founders are
• Notable achievements of your company so far

When creating a company overview, you have to focus on three basics: identifying your industry, identifying your customer, and explaining the problem you solve.

If you are stuck when creating your company overview, try to answer some of these questions that pertain to you.

• Who are you targeting? (The answer is not everyone)
• What pain point does your product or service solve for your customers that they will be willing to spend money on resolving?
• How does your product or service overcome that pain point?
• Where is the location of your business?
• What products, equipment, and services do you need to run your business?
• How is your company’s product or service different from your competition in the eyes of your customers?
• How many employees do you need and what skills do you require them to have?

After answering some or all of these questions, you will get more than enough information you need to write your company overview or description section. When writing this section, describe what your company does for your customers.

The company description or overview section contains three elements: mission statement, history, and objectives.

• Mission Statement

The mission statement refers to the reason why your business or company is existing. It goes beyond what you do or sell, it is about the ‘why’. A good mission statement should be emotional and inspirational.

Your mission statement should follow the KISS rule (Keep It Simple, Stupid). For example, Shopify’s mission statement is “Make commerce better for everyone.”

When describing your company’s history, make it simple and avoid the temptation of tying it to a defensive narrative. Write it in the manner you would a profile. Your company’s history should include the following information:

• Founding Date
• Major Milestones
• Location(s)
• Flagship Products or Services
• Number of Employees
• Executive Leadership Roles

When you fill in this information, you use it to write one or two paragraphs about your company’s history.

Business Objectives

Your business objective must be SMART (specific, measurable, achievable, realistic, and time-bound.) Failure to clearly identify your business objectives does not inspire confidence and makes it hard for your team members to work towards a common purpose.

3. Perform Market and Competitive Analyses to Proof a Big Enough Business Opportunity

The third step in writing a business plan is the market and competitive analysis section. Every business, no matter the size, needs to perform comprehensive market and competitive analyses before it enters into a market.

Performing market and competitive analyses are critical for the success of your business. It helps you avoid entering the right market with the wrong product, or vice versa. Anyone reading your business plans, especially financiers and financial institutions will want to see proof that there is a big enough business opportunity you are targeting.

This section is where you describe the market and industry you want to operate in and show the big opportunities in the market that your business can leverage to make a profit. If you noticed any unique trends when doing your research, show them in this section.

Market analysis alone is not enough, you have to add competitive analysis to strengthen this section. There are already businesses in the industry or market, how do you plan to take a share of the market from them?

You have to clearly illustrate the competitive landscape in your business plan. Are there areas your competitors are doing well? Are there areas where they are not doing so well? Show it.

Make it clear in this section why you are moving into the industry and what weaknesses are present there that you plan to explain. How are your competitors going to react to your market entry? How do you plan to get customers? Do you plan on taking your competitors' competitors, tap into other sources for customers, or both?

Illustrate the competitive landscape as well. What are your competitors doing well and not so well?

Answering these questions and thoughts will aid your market and competitive analysis of the opportunities in your space. Depending on how sophisticated your industry is, or the expectations of your financiers, you may need to carry out a more comprehensive market and competitive analysis to prove that big business opportunity.

Instead of looking at the market and competitive analyses as one entity, separating them will make the research even more comprehensive.

Market Analysis

Market analysis, boarding speaking, refers to research a business carried out on its industry, market, and competitors. It helps businesses gain a good understanding of their target market and the outlook of their industry. Before starting a company, it is vital to carry out market research to find out if the market is viable.

The market analysis section is a key part of the business plan. It is the section where you identify who your best clients or customers are. You cannot omit this section, without it your business plan is incomplete.

A good market analysis will tell your readers how you fit into the existing market and what makes you stand out. This section requires in-depth research, it will probably be the most time-consuming part of the business plan to write.

• Market Research

To create a compelling market analysis that will win over investors and financial institutions, you have to carry out thorough market research . Your market research should be targeted at your primary target market for your products or services. Here is what you want to find out about your target market.

• Your target market’s needs or pain points
• The existing solutions for their pain points
• Geographic Location
• Demographics

The purpose of carrying out a marketing analysis is to get all the information you need to show that you have a solid and thorough understanding of your target audience.

Only after you have fully understood the people you plan to sell your products or services to, can you evaluate correctly if your target market will be interested in your products or services.

You can easily convince interested parties to invest in your business if you can show them you thoroughly understand the market and show them that there is a market for your products or services.

How to Quantify Your Target Market

One of the goals of your marketing research is to understand who your ideal customers are and their purchasing power. To quantify your target market, you have to determine the following:

• Your Potential Customers: They are the people you plan to target. For example, if you sell accounting software for small businesses , then anyone who runs an enterprise or large business is unlikely to be your customers. Also, individuals who do not have a business will most likely not be interested in your product.
• Total Households: If you are selling household products such as heating and air conditioning systems, determining the number of total households is more important than finding out the total population in the area you want to sell to. The logic is simple, people buy the product but it is the household that uses it.
• Median Income: You need to know the median income of your target market. If you target a market that cannot afford to buy your products and services, your business will not last long.
• Income by Demographics: If your potential customers belong to a certain age group or gender, determining income levels by demographics is necessary. For example, if you sell men's clothes, your target audience is men.

What Does a Good Market Analysis Entail?

Your business does not exist on its own, it can only flourish within an industry and alongside competitors. Market analysis takes into consideration your industry, target market, and competitors. Understanding these three entities will drastically improve your company’s chances of success.

You can view your market analysis as an examination of the market you want to break into and an education on the emerging trends and themes in that market. Good market analyses include the following:

• Industry Description. You find out about the history of your industry, the current and future market size, and who the largest players/companies are in your industry.
• Overview of Target Market. You research your target market and its characteristics. Who are you targeting? Note, it cannot be everyone, it has to be a specific group. You also have to find out all information possible about your customers that can help you understand how and why they make buying decisions.
• Size of Target Market: You need to know the size of your target market, how frequently they buy, and the expected quantity they buy so you do not risk overproducing and having lots of bad inventory. Researching the size of your target market will help you determine if it is big enough for sustained business or not.
• Growth Potential: Before picking a target market, you want to be sure there are lots of potential for future growth. You want to avoid going for an industry that is declining slowly or rapidly with almost zero growth potential.
• Market Share Potential: Does your business stand a good chance of taking a good share of the market?
• Market Pricing and Promotional Strategies: Your market analysis should give you an idea of the price point you can expect to charge for your products and services. Researching your target market will also give you ideas of pricing strategies you can implement to break into the market or to enjoy maximum profits.
• Potential Barriers to Entry: One of the biggest benefits of conducting market analysis is that it shows you every potential barrier to entry your business will likely encounter. It is a good idea to discuss potential barriers to entry such as changing technology. It informs readers of your business plan that you understand the market.
• Research on Competitors: You need to know the strengths and weaknesses of your competitors and how you can exploit them for the benefit of your business. Find patterns and trends among your competitors that make them successful, discover what works and what doesn’t, and see what you can do better.

The market analysis section is not just for talking about your target market, industry, and competitors. You also have to explain how your company can fill the hole you have identified in the market.

Here are some questions you can answer that can help you position your product or service in a positive light to your readers.

• Is your product or service of superior quality?
• What additional features do you offer that your competitors do not offer?
• Are you targeting a ‘new’ market?

Basically, your market analysis should include an analysis of what already exists in the market and an explanation of how your company fits into the market.

Competitive Analysis

In the competitive analysis section, y ou have to understand who your direct and indirect competitions are, and how successful they are in the marketplace. It is the section where you assess the strengths and weaknesses of your competitors, the advantage(s) they possess in the market and show the unique features or qualities that make you different from your competitors.

Many businesses do market analysis and competitive analysis together. However, to fully understand what the competitive analysis entails, it is essential to separate it from the market analysis.

Competitive analysis for your business can also include analysis on how to overcome barriers to entry in your target market.

The primary goal of conducting a competitive analysis is to distinguish your business from your competitors. A strong competitive analysis is essential if you want to convince potential funding sources to invest in your business. You have to show potential investors and lenders that your business has what it takes to compete in the marketplace successfully.

Competitive analysis will s how you what the strengths of your competition are and what they are doing to maintain that advantage.

When doing your competitive research, you first have to identify your competitor and then get all the information you can about them. The idea of spending time to identify your competitor and learn everything about them may seem daunting but it is well worth it.

Find answers to the following questions after you have identified who your competitors are.

• What are your successful competitors doing?
• Why is what they are doing working?
• Can your business do it better?
• What are the weaknesses of your successful competitors?
• What are they not doing well?
• Can your business turn its weaknesses into strengths?
• How good is your competitors’ customer service?
• Where do your competitors invest in advertising?
• What sales and pricing strategies are they using?
• What marketing strategies are they using?
• What kind of press coverage do they get?
• What are their customers saying about your competitors (both the positive and negative)?

If your competitors have a website, it is a good idea to visit their websites for more competitors’ research. Check their “About Us” page for more information.

If you are presenting your business plan to investors, you need to clearly distinguish yourself from your competitors. Investors can easily tell when you have not properly researched your competitors.

Take time to think about what unique qualities or features set you apart from your competitors. If you do not have any direct competition offering your product to the market, it does not mean you leave out the competitor analysis section blank. Instead research on other companies that are providing a similar product, or whose product is solving the problem your product solves.

The next step is to create a table listing the top competitors you want to include in your business plan. Ensure you list your business as the last and on the right. What you just created is known as the competitor analysis table.

Direct vs Indirect Competition

You cannot know if your product or service will be a fit for your target market if you have not understood your business and the competitive landscape.

There is no market you want to target where you will not encounter competition, even if your product is innovative. Including competitive analysis in your business plan is essential.

If you are entering an established market, you need to explain how you plan to differentiate your products from the available options in the market. Also, include a list of few companies that you view as your direct competitors The competition you face in an established market is your direct competition.

In situations where you are entering a market with no direct competition, it does not mean there is no competition there. Consider your indirect competition that offers substitutes for the products or services you offer.

For example, if you sell an innovative SaaS product, let us say a project management software , a company offering time management software is your indirect competition.

There is an easy way to find out who your indirect competitors are in the absence of no direct competitors. You simply have to research how your potential customers are solving the problems that your product or service seeks to solve. That is your direct competition.

Factors that Differentiate Your Business from the Competition

There are three main factors that any business can use to differentiate itself from its competition. They are cost leadership, product differentiation, and market segmentation.

1. Cost Leadership

A strategy you can impose to maximize your profits and gain an edge over your competitors. It involves offering lower prices than what the majority of your competitors are offering.

A common practice among businesses looking to enter into a market where there are dominant players is to use free trials or pricing to attract as many customers as possible to their offer.

2. Product Differentiation

Your product or service should have a unique selling proposition (USP) that your competitors do not have or do not stress in their marketing.

Part of the marketing strategy should involve making your products unique and different from your competitors. It does not have to be different from your competitors, it can be the addition to a feature or benefit that your competitors do not currently have.

3. Market Segmentation

As a new business seeking to break into an industry, you will gain more success from focusing on a specific niche or target market, and not the whole industry.

If your competitors are focused on a general need or target market, you can differentiate yourself from them by having a small and hyper-targeted audience. For example, if your competitors are selling men’s clothes in their online stores , you can sell hoodies for men.

4. Define Your Business and Management Structure

The next step in your business plan is your business and management structure. It is the section where you describe the legal structure of your business and the team running it.

Your business is only as good as the management team that runs it, while the management team can only strive when there is a proper business and management structure in place.

If your company is a sole proprietor or a limited liability company (LLC), a general or limited partnership, or a C or an S corporation, state it clearly in this section.

Use an organizational chart to show the management structure in your business. Clearly show who is in charge of what area in your company. It is where you show how each key manager or team leader’s unique experience can contribute immensely to the success of your company. You can also opt to add the resumes and CVs of the key players in your company.

The business and management structure section should show who the owner is, and other owners of the businesses (if the business has other owners). For businesses or companies with multiple owners, include the percent ownership of the various owners and clearly show the extent of each others’ involvement in the company.

Investors want to know who is behind the company and the team running it to determine if it has the right management to achieve its set goals.

Management Team

The management team section is where you show that you have the right team in place to successfully execute the business operations and ideas. Take time to create the management structure for your business. Think about all the important roles and responsibilities that you need managers for to grow your business.

Include brief bios of each key team member and ensure you highlight only the relevant information that is needed. If your team members have background industry experience or have held top positions for other companies and achieved success while filling that role, highlight it in this section.

A common mistake that many startups make is assigning C-level titles such as (CMO and CEO) to everyone on their team. It is unrealistic for a small business to have those titles. While it may look good on paper for the ego of your team members, it can prevent investors from investing in your business.

Instead of building an unrealistic management structure that does not fit your business reality, it is best to allow business titles to grow as the business grows. Starting everyone at the top leaves no room for future change or growth, which is bad for productivity.

Your management team does not have to be complete before you start writing your business plan. You can have a complete business plan even when there are managerial positions that are empty and need filling.

If you have management gaps in your team, simply show the gaps and indicate you are searching for the right candidates for the role(s). Investors do not expect you to have a full management team when you are just starting your business.

Key Questions to Answer When Structuring Your Management Team

• Who are the key leaders?
• What experiences, skills, and educational backgrounds do you expect your key leaders to have?
• Do your key leaders have industry experience?
• What positions will they fill and what duties will they perform in those positions?
• What level of authority do the key leaders have and what are their responsibilities?
• What is the salary for the various management positions that will attract the ideal candidates?

Additional Tips for Writing the Management Structure Section

1. Avoid Adding ‘Ghost’ Names to Your Management Team

There is always that temptation to include a ‘ghost’ name to your management team to attract and influence investors to invest in your business. Although the presence of these celebrity management team members may attract the attention of investors, it can cause your business to lose any credibility if you get found out.

Seasoned investors will investigate further the members of your management team before committing fully to your business If they find out that the celebrity name used does not play any actual role in your business, they will not invest and may write you off as dishonest.

2. Focus on Credentials But Pay Extra Attention to the Roles

Investors want to know the experience that your key team members have to determine if they can successfully reach the company’s growth and financial goals.

While it is an excellent boost for your key management team to have the right credentials, you also want to pay extra attention to the roles they will play in your company.

Organizational Chart

Adding an organizational chart in this section of your business plan is not necessary, you can do it in your business plan’s appendix.

If you are exploring funding options, it is not uncommon to get asked for your organizational chart. The function of an organizational chart goes beyond raising money, you can also use it as a useful planning tool for your business.

An organizational chart can help you identify how best to structure your management team for maximum productivity and point you towards key roles you need to fill in the future.

You can use the organizational chart to show your company’s internal management structure such as the roles and responsibilities of your management team, and relationships that exist between them.

5. Describe Your Product and Service Offering

In your business plan, you have to describe what you sell or the service you plan to offer. It is the next step after defining your business and management structure. The products and services section is where you sell the benefits of your business.

Here you have to explain how your product or service will benefit your customers and describe your product lifecycle. It is also the section where you write down your plans for intellectual property like patent filings and copyrighting.

The research and development that you are undertaking for your product or service need to be explained in detail in this section. However, do not get too technical, sell the general idea and its benefits.

If you have any diagrams or intricate designs of your product or service, do not include them in the products and services section. Instead, leave them for the addendum page. Also, if you are leaving out diagrams or designs for the addendum, ensure you add this phrase “For more detail, visit the addendum Page #.”

Your product and service section in your business plan should include the following:

• A detailed explanation that clearly shows how your product or service works.
• The pricing model for your product or service.
• Your business’ sales and distribution strategy.
• The ideal customers that want your product or service.
• The benefits of your products and services.
• Reason(s) why your product or service is a better alternative to what your competitors are currently offering in the market.
• Plans for filling the orders you receive
• If you have current or pending patents, copyrights, and trademarks for your product or service, you can also discuss them in this section.

What to Focus On When Describing the Benefits, Lifecycle, and Production Process of Your Products or Services

In the products and services section, you have to distill the benefits, lifecycle, and production process of your products and services.

When describing the benefits of your products or services, here are some key factors to focus on.

• Unique features
• Translating the unique features into benefits
• The emotional, psychological, and practical payoffs to attract customers
• Intellectual property rights or any patents

When describing the product life cycle of your products or services, here are some key factors to focus on.

• Upsells, cross-sells, and down-sells
• Time between purchases
• Plans for research and development.

When describing the production process for your products or services, you need to think about the following:

• The creation of new or existing products and services.
• The sources for the raw materials or components you need for production.
• Assembling the products
• Maintaining quality control
• Supply-chain logistics (receiving the raw materials and delivering the finished products)
• The day-to-day management of the production processes, bookkeeping, and inventory.

Tips for Writing the Products or Services Section of Your Business Plan

1. Avoid Technical Descriptions and Industry Buzzwords

The products and services section of your business plan should clearly describe the products and services that your company provides. However, it is not a section to include technical jargons that anyone outside your industry will not understand.

A good practice is to remove highly detailed or technical descriptions in favor of simple terms. Industry buzzwords are not necessary, if there are simpler terms you can use, then use them. If you plan to use your business plan to source funds, making the product or service section so technical will do you no favors.

2. Describe How Your Products or Services Differ from Your Competitors

When potential investors look at your business plan, they want to know how the products and services you are offering differ from that of your competition. Differentiating your products or services from your competition in a way that makes your solution more attractive is critical.

If you are going the innovative path and there is no market currently for your product or service, you need to describe in this section why the market needs your product or service.

For example, overnight delivery was a niche business that only a few companies were participating in. Federal Express (FedEx) had to show in its business plan that there was a large opportunity for that service and they justified why the market needed that service.

3. Long or Short Products or Services Section

Should your products or services section be short? Does the long products or services section attract more investors?

There are no straightforward answers to these questions. Whether your products or services section should be long or relatively short depends on the nature of your business.

If your business is product-focused, then automatically you need to use more space to describe the details of your products. However, if the product your business sells is a commodity item that relies on competitive pricing or other pricing strategies, you do not have to use up so much space to provide significant details about the product.

Likewise, if you are selling a commodity that is available in numerous outlets, then you do not have to spend time on writing a long products or services section.

The key to the success of your business is most likely the effectiveness of your marketing strategies compared to your competitors. Use more space to address that section.

If you are creating a new product or service that the market does not know about, your products or services section can be lengthy. The reason why is because you need to explain everything about the product or service such as the nature of the product, its use case, and values.

A short products or services section for an innovative product or service will not give the readers enough information to properly evaluate your business.

4. Describe Your Relationships with Vendors or Suppliers

Your business will rely on vendors or suppliers to supply raw materials or the components needed to make your products. In your products and services section, describe your relationships with your vendors and suppliers fully.

Avoid the mistake of relying on only one supplier or vendor. If that supplier or vendor fails to supply or goes out of business, you can easily face supply problems and struggle to meet your demands. Plan to set up multiple vendor or supplier relationships for better business stability.

5. Your Primary Goal Is to Convince Your Readers

The primary goal of your business plan is to convince your readers that your business is viable and to create a guide for your business to follow. It applies to the products and services section.

When drafting this section, think like the reader. See your reader as someone who has no idea about your products and services. You are using the products and services section to provide the needed information to help your reader understand your products and services. As a result, you have to be clear and to the point.

While you want to educate your readers about your products or services, you also do not want to bore them with lots of technical details. Show your products and services and not your fancy choice of words.

Your products and services section should provide the answer to the “what” question for your business. You and your management team may run the business, but it is your products and services that are the lifeblood of the business.

Key Questions to Answer When Writing your Products and Services Section

Answering these questions can help you write your products and services section quickly and in a way that will appeal to your readers.

• Are your products existing on the market or are they still in the development stage?
• What is your timeline for adding new products and services to the market?
• What are the positives that make your products and services different from your competitors?
• Do your products and services have any competitive advantage that your competitors’ products and services do not currently have?
• Do your products or services have any competitive disadvantages that you need to overcome to compete with your competitors? If your answer is yes, state how you plan to overcome them,
• How much does it cost to produce your products or services? How much do you plan to sell it for?
• What is the price for your products and services compared to your competitors? Is pricing an issue?
• What are your operating costs and will it be low enough for you to compete with your competitors and still take home a reasonable profit margin?
• What is your plan for acquiring your products? Are you involved in the production of your products or services?
• Are you the manufacturer and produce all the components you need to create your products? Do you assemble your products by using components supplied by other manufacturers? Do you purchase your products directly from suppliers or wholesalers?
• Do you have a steady supply of products that you need to start your business? (If your business is yet to kick-off)
• How do you plan to distribute your products or services to the market?

You can also hint at the marketing or promotion plans you have for your products or services such as how you plan to build awareness or retain customers. The next section is where you can go fully into details about your business’s marketing and sales plan.

6. Show and Explain Your Marketing and Sales Plan

Providing great products and services is wonderful, but it means nothing if you do not have a marketing and sales plan to inform your customers about them. Your marketing and sales plan is critical to the success of your business.

The sales and marketing section is where you show and offer a detailed explanation of your marketing and sales plan and how you plan to execute it. It covers your pricing plan, proposed advertising and promotion activities, activities and partnerships you need to make your business a success, and the benefits of your products and services.

There are several ways you can approach your marketing and sales strategy. Ideally, your marketing and sales strategy has to fit the unique needs of your business.

In this section, you describe how the plans your business has for attracting and retaining customers, and the exact process for making a sale happen. It is essential to thoroughly describe your complete marketing and sales plans because you are still going to reference this section when you are making financial projections for your business.

Outline Your Business’ Unique Selling Proposition (USP)

The sales and marketing section is where you outline your business’s unique selling proposition (USP). When you are developing your unique selling proposition, think about the strongest reasons why people should buy from you over your competition. That reason(s) is most likely a good fit to serve as your unique selling proposition (USP).

Target Market and Target Audience

Plans on how to get your products or services to your target market and how to get your target audience to buy them go into this section. You also highlight the strengths of your business here, particularly what sets them apart from your competition.

Before you start writing your marketing and sales plan, you need to have properly defined your target audience and fleshed out your buyer persona. If you do not first understand the individual you are marketing to, your marketing and sales plan will lack any substance and easily fall.

Creating a Smart Marketing and Sales Plan

Marketing your products and services is an investment that requires you to spend money. Like any other investment, you have to generate a good return on investment (ROI) to justify using that marketing and sales plan. Good marketing and sales plans bring in high sales and profits to your company.

Avoid spending money on unproductive marketing channels. Do your research and find out the best marketing and sales plan that works best for your company.

Your marketing and sales plan can be broken into different parts: your positioning statement, pricing, promotion, packaging, advertising, public relations, content marketing, social media, and strategic alliances.

Your Positioning Statement

Your positioning statement is the first part of your marketing and sales plan. It refers to the way you present your company to your customers.

Are you the premium solution, the low-price solution, or are you the intermediary between the two extremes in the market? What do you offer that your competitors do not that can give you leverage in the market?

Before you start writing your positioning statement, you need to spend some time evaluating the current market conditions. Here are some questions that can help you to evaluate the market

• What are the unique features or benefits that you offer that your competitors lack?
• What are your customers’ primary needs and wants?
• Why should a customer choose you over your competition? How do you plan to differentiate yourself from the competition?
• How does your company’s solution compare with other solutions in the market?

After answering these questions, then you can start writing your positioning statement. Your positioning statement does not have to be in-depth or too long.

All you need to explain with your positioning statement are two focus areas. The first is the position of your company within the competitive landscape. The other focus area is the core value proposition that sets your company apart from other alternatives that your ideal customer might consider.

Here is a simple template you can use to develop a positioning statement.

For [description of target market] who [need of target market], [product or service] [how it meets the need]. Unlike [top competition], it [most essential distinguishing feature].

For example, let’s create the positioning statement for fictional accounting software and QuickBooks alternative , TBooks.

“For small business owners who need accounting services, TBooks is an accounting software that helps small businesses handle their small business bookkeeping basics quickly and easily. Unlike Wave, TBooks gives small businesses access to live sessions with top accountants.”

You can edit this positioning statement sample and fill it with your business details.

After writing your positioning statement, the next step is the pricing of your offerings. The overall positioning strategy you set in your positioning statement will often determine how you price your products or services.

Pricing is a powerful tool that sends a strong message to your customers. Failure to get your pricing strategy right can make or mar your business. If you are targeting a low-income audience, setting a premium price can result in low sales.

You can use pricing to communicate your positioning to your customers. For example, if you are offering a product at a premium price, you are sending a message to your customers that the product belongs to the premium category.

Basic Rules to Follow When Pricing Your Offering

Setting a price for your offering involves more than just putting a price tag on it. Deciding on the right pricing for your offering requires following some basic rules. They include covering your costs, primary and secondary profit center pricing, and matching the market rate.

• Covering Your Costs: The price you set for your products or service should be more than it costs you to produce and deliver them. Every business has the same goal, to make a profit. Depending on the strategy you want to use, there are exceptions to this rule. However, the vast majority of businesses follow this rule.
• Primary and Secondary Profit Center Pricing: When a company sets its price above the cost of production, it is making that product its primary profit center. A company can also decide not to make its initial price its primary profit center by selling below or at even with its production cost. It rather depends on the support product or even maintenance that is associated with the initial purchase to make its profit. The initial price thus became its secondary profit center.
• Matching the Market Rate: A good rule to follow when pricing your products or services is to match your pricing with consumer demand and expectations. If you price your products or services beyond the price your customer perceives as the ideal price range, you may end up with no customers. Pricing your products too low below what your customer perceives as the ideal price range may lead to them undervaluing your offering.

Pricing Strategy

Your pricing strategy influences the price of your offering. There are several pricing strategies available for you to choose from when examining the right pricing strategy for your business. They include cost-plus pricing, market-based pricing, value pricing, and more.

• Cost-plus Pricing: This strategy is one of the simplest and oldest pricing strategies. Here you consider the cost of producing a unit of your product and then add a profit to it to arrive at your market price. It is an effective pricing strategy for manufacturers because it helps them cover their initial costs. Another name for the cost-plus pricing strategy is the markup pricing strategy.
• Market-based Pricing: This pricing strategy analyses the market including competitors’ pricing and then sets a price based on what the market is expecting. With this pricing strategy, you can either set your price at the low-end or high-end of the market.
• Value Pricing: This pricing strategy involves setting a price based on the value you are providing to your customer. When adopting a value-based pricing strategy, you have to set a price that your customers are willing to pay. Service-based businesses such as small business insurance providers , luxury goods sellers, and the fashion industry use this pricing strategy.

After carefully sorting out your positioning statement and pricing, the next item to look at is your promotional strategy. Your promotional strategy explains how you plan on communicating with your customers and prospects.

As a business, you must measure all your costs, including the cost of your promotions. You also want to measure how much sales your promotions bring for your business to determine its usefulness. Promotional strategies or programs that do not lead to profit need to be removed.

There are different types of promotional strategies you can adopt for your business, they include advertising, public relations, and content marketing.

Advertising

Your business plan should include your advertising plan which can be found in the marketing and sales plan section. You need to include an overview of your advertising plans such as the areas you plan to spend money on to advertise your business and offers.

Ensure that you make it clear in this section if your business will be advertising online or using the more traditional offline media, or the combination of both online and offline media. You can also include the advertising medium you want to use to raise awareness about your business and offers.

Some common online advertising mediums you can use include social media ads, landing pages, sales pages, SEO, Pay-Per-Click, emails, Google Ads, and others. Some common traditional and offline advertising mediums include word of mouth, radios, direct mail, televisions, flyers, billboards, posters, and others.

A key component of your advertising strategy is how you plan to measure the effectiveness and success of your advertising campaign. There is no point in sticking with an advertising plan or medium that does not produce results for your business in the long run.

Public Relations

A great way to reach your customers is to get the media to cover your business or product. Publicity, especially good ones, should be a part of your marketing and sales plan. In this section, show your plans for getting prominent reviews of your product from reputable publications and sources.

Your business needs that exposure to grow. If public relations is a crucial part of your promotional strategy, provide details about your public relations plan here.

Content Marketing

Content marketing is a popular promotional strategy used by businesses to inform and attract their customers. It is about teaching and educating your prospects on various topics of interest in your niche, it does not just involve informing them about the benefits and features of the products and services you have,

Businesses publish content usually for free where they provide useful information, tips, and advice so that their target market can be made aware of the importance of their products and services. Content marketing strategies seek to nurture prospects into buyers over time by simply providing value.

Your company can create a blog where it will be publishing content for its target market. You will need to use the best website builder such as Wix and Squarespace and the best web hosting services such as Bluehost, Hostinger, and other Bluehost alternatives to create a functional blog or website.

If content marketing is a crucial part of your promotional strategy (as it should be), detail your plans under promotions.

Including high-quality images of the packaging of your product in your business plan is a lovely idea. You can add the images of the packaging of that product in the marketing and sales plan section. If you are not selling a product, then you do not need to include any worry about the physical packaging of your product.

When organizing the packaging section of your business plan, you can answer the following questions to make maximum use of this section.

• Is your choice of packaging consistent with your positioning strategy?
• What key value proposition does your packaging communicate? (It should reflect the key value proposition of your business)
• How does your packaging compare to that of your competitors?

Social Media

Your 21st-century business needs to have a good social media presence. Not having one is leaving out opportunities for growth and reaching out to your prospect.

You do not have to join the thousands of social media platforms out there. What you need to do is join the ones that your customers are active on and be active there.

Businesses use social media to provide information about their products such as promotions, discounts, the benefits of their products, and content on their blogs.

Social media is also a platform for engaging with your customers and getting feedback about your products or services. Make no mistake, more and more of your prospects are using social media channels to find more information about companies.

You need to consider the social media channels you want to prioritize your business (prioritize the ones your customers are active in) and your branding plans in this section.

Strategic Alliances

If your company plans to work closely with other companies as part of your sales and marketing plan, include it in this section. Prove details about those partnerships in your business plan if you have already established them.

Strategic alliances can be beneficial for all parties involved including your company. Working closely with another company in the form of a partnership can provide access to a different target market segment for your company.

The company you are partnering with may also gain access to your target market or simply offer a new product or service (that of your company) to its customers.

Mutually beneficial partnerships can cover the weaknesses of one company with the strength of another. You should consider strategic alliances with companies that sell complimentary products to yours. For example, if you provide printers, you can partner with a company that produces ink since the customers that buy printers from you will also need inks for printing.

Steps Involved in Creating a Marketing and Sales Plan

1. Focus on Your Target Market

Identify who your customers are, the market you want to target. Then determine the best ways to get your products or services to your potential customers.

2. Evaluate Your Competition

One of the goals of having a marketing plan is to distinguish yourself from your competition. You cannot stand out from them without first knowing them in and out.

You can know your competitors by gathering information about their products, pricing, service, and advertising campaigns.

These questions can help you know your competition.

• What makes your competition successful?
• What are their weaknesses?
• What are customers saying about your competition?

3. Consider Your Brand

Customers' perception of your brand has a strong impact on your sales. Your marketing and sales plan should seek to bolster the image of your brand. Before you start marketing your business, think about the message you want to pass across about your business and your products and services.

4. Focus on Benefits

The majority of your customers do not view your product in terms of features, what they want to know is the benefits and solutions your product offers. Think about the problems your product solves and the benefits it delivers, and use it to create the right sales and marketing message.

Your marketing plan should focus on what you want your customer to get instead of what you provide. Identify those benefits in your marketing and sales plan.

5. Focus on Differentiation

Your marketing and sales plan should look for a unique angle they can take that differentiates your business from the competition, even if the products offered are similar. Some good areas of differentiation you can use are your benefits, pricing, and features.

Key Questions to Answer When Writing Your Marketing and Sales Plan

• What is your company’s budget for sales and marketing campaigns?
• What key metrics will you use to determine if your marketing plans are successful?
• What are your alternatives if your initial marketing efforts do not succeed?
• Who are the sales representatives you need to promote your products or services?
• What are the marketing and sales channels you plan to use? How do you plan to get your products in front of your ideal customers?
• Where will you sell your products?

You may want to include samples of marketing materials you plan to use such as print ads, website descriptions, and social media ads. While it is not compulsory to include these samples, it can help you better communicate your marketing and sales plan and objectives.

The purpose of the marketing and sales section is to answer this question “How will you reach your customers?” If you cannot convincingly provide an answer to this question, you need to rework your marketing and sales section.

7. Clearly Show Your Funding Request

If you are writing your business plan to ask for funding from investors or financial institutions, the funding request section is where you will outline your funding requirements. The funding request section should answer the question ‘How much money will your business need in the near future (3 to 5 years)?’

A good funding request section will clearly outline and explain the amount of funding your business needs over the next five years. You need to know the amount of money your business needs to make an accurate funding request.

Also, when writing your funding request, provide details of how the funds will be used over the period. Specify if you want to use the funds to buy raw materials or machinery, pay salaries, pay for advertisements, and cover specific bills such as rent and electricity.

In addition to explaining what you want to use the funds requested for, you need to clearly state the projected return on investment (ROI) . Investors and creditors want to know if your business can generate profit for them if they put funds into it.

Ensure you do not inflate the figures and stay as realistic as possible. Investors and financial institutions you are seeking funds from will do their research before investing money in your business.

If you are not sure of an exact number to request from, you can use some range of numbers as rough estimates. Add a best-case scenario and a work-case scenario to your funding request. Also, include a description of your strategic future financial plans such as selling your business or paying off debts.

Funding Request: Debt or Equity?

When making your funding request, specify the type of funding you want. Do you want debt or equity? Draw out the terms that will be applicable for the funding, and the length of time the funding request will cover.

Case for Equity

If your new business has not yet started generating profits, you are most likely preparing to sell equity in your business to raise capital at the early stage. Equity here refers to ownership. In this case, you are selling a portion of your company to raise capital.

Although this method of raising capital for your business does not put your business in debt, keep in mind that an equity owner may expect to play a key role in company decisions even if he does not hold a major stake in the company.

Most equity sales for startups are usually private transactions . If you are making a funding request by offering equity in exchange for funding, let the investor know that they will be paid a dividend (a share of the company’s profit). Also, let the investor know the process for selling their equity in your business.

Case for Debt

You may decide not to offer equity in exchange for funds, instead, you make a funding request with the promise to pay back the money borrowed at the agreed time frame.

When making a funding request with an agreement to pay back, note that you will have to repay your creditors both the principal amount borrowed and the interest on it. Financial institutions offer this type of funding for businesses.

Large companies combine both equity and debt in their capital structure. When drafting your business plan, decide if you want to offer both or one over the other.

Before you sell equity in exchange for funding in your business, consider if you are willing to accept not being in total control of your business. Also, before you seek loans in your funding request section, ensure that the terms of repayment are favorable.

You should set a clear timeline in your funding request so that potential investors and creditors can know what you are expecting. Some investors and creditors may agree to your funding request and then delay payment for longer than 30 days, meanwhile, your business needs an immediate cash injection to operate efficiently.

Additional Tips for Writing the Funding Request Section of your Business Plan

The funding request section is not necessary for every business, it is only needed by businesses who plan to use their business plan to secure funding.

If you are adding the funding request section to your business plan, provide an itemized summary of how you plan to use the funds requested. Hiring a lawyer, accountant, or other professionals may be necessary for the proper development of this section.

You should also gather and use financial statements that add credibility and support to your funding requests. Ensure that the financial statements you use should include your projected financial data such as projected cash flows, forecast statements, and expenditure budgets.

If you are an existing business, include all historical financial statements such as cash flow statements, balance sheets and income statements .

Provide monthly and quarterly financial statements for a year. If your business has records that date back beyond the one-year mark, add the yearly statements of those years. These documents are for the appendix section of your business plan.

8. Detail Your Financial Plan, Metrics, and Projections

If you used the funding request section in your business plan, supplement it with a financial plan, metrics, and projections. This section paints a picture of the past performance of your business and then goes ahead to make an informed projection about its future.

The goal of this section is to convince readers that your business is going to be a financial success. It outlines your business plan to generate enough profit to repay the loan (with interest if applicable) and to generate a decent return on investment for investors.

If you have an existing business already in operation, use this section to demonstrate stability through finance. This section should include your cash flow statements, balance sheets, and income statements covering the last three to five years. If your business has some acceptable collateral that you can use to acquire loans, list it in the financial plan, metrics, and projection section.

Apart from current financial statements, this section should also contain a prospective financial outlook that spans the next five years. Include forecasted income statements, cash flow statements, balance sheets, and capital expenditure budget.

If your business is new and is not yet generating profit, use clear and realistic projections to show the potentials of your business.

When drafting this section, research industry norms and the performance of comparable businesses. Your financial projections should cover at least five years. State the logic behind your financial projections. Remember you can always make adjustments to this section as the variables change.

The financial plan, metrics, and projection section create a baseline which your business can either exceed or fail to reach. If your business fails to reach your projections in this section, you need to understand why it failed.

Investors and loan managers spend a lot of time going through the financial plan, metrics, and projection section compared to other parts of the business plan. Ensure you spend time creating credible financial analyses for your business in this section.

Many entrepreneurs find this section daunting to write. You do not need a business degree to create a solid financial forecast for your business. Business finances, especially for startups, are not as complicated as they seem. There are several online tools and templates that make writing this section so much easier.

Use Graphs and Charts

The financial plan, metrics, and projection section is a great place to use graphs and charts to tell the financial story of your business. Charts and images make it easier to communicate your finances.

Accuracy in this section is key, ensure you carefully analyze your past financial statements properly before making financial projects.

Address the Risk Factors and Show Realistic Financial Projections

Keep your financial plan, metrics, and projection realistic. It is okay to be optimistic in your financial projection, however, you have to justify it.

You should also address the various risk factors associated with your business in this section. Investors want to know the potential risks involved, show them. You should also show your plans for mitigating those risks.

What You Should In The Financial Plan, Metrics, and Projection Section of Your Business Plan

The financial plan, metrics, and projection section of your business plan should have monthly sales and revenue forecasts for the first year. It should also include annual projections that cover 3 to 5 years.

A three-year projection is a basic requirement to have in your business plan. However, some investors may request a five-year forecast.

Your business plan should include the following financial statements: sales forecast, personnel plan, income statement, income statement, cash flow statement, balance sheet, and an exit strategy.

1. Sales Forecast

Sales forecast refers to your projections about the number of sales your business is going to record over the next few years. It is typically broken into several rows, with each row assigned to a core product or service that your business is offering.

One common mistake people make in their business plan is to break down the sales forecast section into long details. A sales forecast should forecast the high-level details.

For example, if you are forecasting sales for a payroll software provider, you could break down your forecast into target market segments or subscription categories.

Your sales forecast section should also have a corresponding row for each sales row to cover the direct cost or Cost of Goods Sold (COGS). The objective of these rows is to show the expenses that your business incurs in making and delivering your product or service.

Note that your Cost of Goods Sold (COGS) should only cover those direct costs incurred when making your products. Other indirect expenses such as insurance, salaries, payroll tax, and rent should not be included.

For example, the Cost of Goods Sold (COGS) for a restaurant is the cost of ingredients while for a consulting company it will be the cost of paper and other presentation materials.

2. Personnel Plan

The personnel plan section is where you provide details about the payment plan for your employees. For a small business, you can easily list every position in your company and how much you plan to pay in the personnel plan.

However, for larger businesses, you have to break the personnel plan into functional groups such as sales and marketing.

The personnel plan will also include the cost of an employee beyond salary, commonly referred to as the employee burden. These costs include insurance, payroll taxes , and other essential costs incurred monthly as a result of having employees on your payroll.

3. Income Statement

The income statement section shows if your business is making a profit or taking a loss. Another name for the income statement is the profit and loss (P&L). It takes data from your sales forecast and personnel plan and adds other ongoing expenses you incur while running your business.

Every business plan should have an income statement. It subtracts your business expenses from its earnings to show if your business is generating profit or incurring losses.

The income statement has the following items: sales, Cost of Goods Sold (COGS), gross margin, operating expenses, total operating expenses, operating income , total expenses, and net profit.

• Sales refer to the revenue your business generates from selling its products or services. Other names for sales are income or revenue.
• Cost of Goods Sold (COGS) refers to the total cost of selling your products. Other names for COGS are direct costs or cost of sales. Manufacturing businesses use the Costs of Goods Manufactured (COGM) .
• Gross Margin is the figure you get when you subtract your COGS from your sales. In your income statement, you can express it as a percentage of total sales (Gross margin / Sales = Gross Margin Percent).
• Operating Expenses refer to all the expenses you incur from running your business. It exempts the COGS because it stands alone as a core part of your income statement. You also have to exclude taxes, depreciation, and amortization. Your operating expenses include salaries, marketing expenses, research and development (R&D) expenses, and other expenses.
• Total Operating Expenses refers to the sum of all your operating expenses including those exemptions named above under operating expenses.
• Operating Income refers to earnings before interest, taxes, depreciation, and amortization. It is simply known as the acronym EBITDA (earnings before interest, taxes, depreciation, and amortization). Calculating your operating income is simple, all you need to do is to subtract your COGS and total operating expenses from your sales.
• Total Expenses refer to the sum of your operating expenses and your business’ interest, taxes, depreciation, and amortization.
• Net profit shows whether your business has made a profit or taken a loss during a given timeframe.

4. Cash Flow Statement

The cash flow statement tracks the money you have in the bank at any given point. It is often confused with the income statement or the profit and loss statement. They are both different types of financial statements. The income statement calculates your profits and losses while the cash flow statement shows you how much you have in the bank.

5. Balance Sheet

The balance sheet is a financial statement that provides an overview of the financial health of your business. It contains information about the assets and liabilities of your company, and owner’s or shareholders’ equity.

You can get the net worth of your company by subtracting your company’s liabilities from its assets.

6. Exit Strategy

The exit strategy refers to a probable plan for selling your business either to the public in an IPO or to another company. It is the last thing you include in the financial plan, metrics, and projection section.

You can choose to omit the exit strategy from your business plan if you plan to maintain full ownership of your business and do not plan on seeking angel investment or virtual capitalist (VC) funding.

Investors may want to know what your exit plan is. They invest in your business to get a good return on investment.

Your exit strategy does not have to include long and boring details. Ensure you identify some interested parties who may be interested in buying the company if it becomes a success.

Key Questions to Answer with Your Financial Plan, Metrics, and Projection

Your financial plan, metrics, and projection section helps investors, creditors, or your internal managers to understand what your expenses are, the amount of cash you need, and what it takes to make your company profitable. It also shows what you will be doing with any funding.

You do not need to show actual financial data if you do not have one. Adding forecasts and projections to your financial statements is added proof that your strategy is feasible and shows investors you have planned properly.

Here are some key questions to answer to help you develop this section.

• What is your sales forecast for the next year?
• When will your company achieve a positive cash flow?
• What are the core expenses you need to operate?
• How much money do you need upfront to operate or grow your company?
• How will you use the loans or investments?

9. Add an Appendix to Your Business Plan

Adding an appendix to your business plan is optional. It is a useful place to put any charts, tables, legal notes, definitions, permits, résumés, and other critical information that do not fit into other sections of your business plan.

The appendix section is where you would want to include details of a patent or patent-pending if you have one. You can always add illustrations or images of your products here. It is the last section of your business plan.

When writing your business plan, there are details you cut short or remove to prevent the entire section from becoming too lengthy. There are also details you want to include in the business plan but are not a good fit for any of the previous sections. You can add that additional information to the appendix section.

Businesses also use the appendix section to include supporting documents or other materials specially requested by investors or lenders.

You can include just about any information that supports the assumptions and statements you made in the business plan under the appendix. It is the one place in the business plan where unrelated data and information can coexist amicably.

If your appendix section is lengthy, try organizing it by adding a table of contents at the beginning of the appendix section. It is also advisable to group similar information to make it easier for the reader to access them.

A well-organized appendix section makes it easier to share your information clearly and concisely. Add footnotes throughout the rest of the business plan or make references in the plan to the documents in the appendix.

The appendix section is usually only necessary if you are seeking funding from investors or lenders, or hoping to attract partners.

People reading business plans do not want to spend time going through a heap of backup information, numbers, and charts. Keep these documents or information in the Appendix section in case the reader wants to dig deeper.

Common Items to Include in the Appendix Section of Your Business Plan

The appendix section includes documents that supplement or support the information or claims given in other sections of the business plans. Common items you can include in the appendix section include:

• Additional data about the process of manufacturing or creation
• Additional description of products or services such as product schematics
• Additional financial documents or projections
• Articles of incorporation and status
• Backup for market research or competitive analysis
• Bank statements
• Business registries
• Client testimonials (if your business is already running)
• Copies of insurances
• Credit histories (personal or/and business)
• Deeds and permits
• Equipment leases
• Examples of marketing and advertising collateral
• Industry associations and memberships
• Images of product
• Intellectual property
• Key customer contracts
• Legal documents and other contracts
• Letters of reference
• Links to references
• Market research data
• Organizational charts
• Photographs of potential facilities
• Professional licenses pertaining to your legal structure or type of business
• Purchase orders
• Resumes of the founder(s) and key managers
• State and federal identification numbers or codes
• Trademarks or patents’ registrations

Avoid using the appendix section as a place to dump any document or information you feel like adding. Only add documents or information that you support or increase the credibility of your business plan.

Tips and Strategies for Writing a Convincing Business Plan

To achieve a perfect business plan, you need to consider some key tips and strategies. These tips will raise the efficiency of your business plan above average.

1. Know Your Audience

When writing a business plan, you need to know your audience . Business owners write business plans for different reasons. Your business plan has to be specific. For example, you can write business plans to potential investors, banks, and even fellow board members of the company.

The audience you are writing to determines the structure of the business plan. As a business owner, you have to know your audience. Not everyone will be your audience. Knowing your audience will help you to narrow the scope of your business plan.

Consider what your audience wants to see in your projects, the likely questions they might ask, and what interests them.

• A business plan used to address a company's board members will center on its employment schemes, internal affairs, projects, stakeholders, etc.
• A business plan for financial institutions will talk about the size of your market and the chances for you to pay back any loans you demand.
• A business plan for investors will show proof that you can return the investment capital within a specific time. In addition, it discusses your financial projections, tractions, and market size.

2. Get Inspiration from People

Writing a business plan from scratch as an entrepreneur can be daunting. That is why you need the right inspiration to push you to write one. You can gain inspiration from the successful business plans of other businesses. Look at their business plans, the style they use, the structure of the project, etc.

To make your business plan easier to create, search companies related to your business to get an exact copy of what you need to create an effective business plan. You can also make references while citing examples in your business plans.

When drafting your business plan, get as much help from others as you possibly can. By getting inspiration from people, you can create something better than what they have.

3. Avoid Being Over Optimistic

Many business owners make use of strong adjectives to qualify their content. One of the big mistakes entrepreneurs make when preparing a business plan is promising too much.

The use of superlatives and over-optimistic claims can prepare the audience for more than you can offer. In the end, you disappoint the confidence they have in you.

In most cases, the best option is to be realistic with your claims and statistics. Most of the investors can sense a bit of incompetency from the overuse of superlatives. As a new entrepreneur, do not be tempted to over-promise to get the interests of investors.

The concept of entrepreneurship centers on risks, nothing is certain when you make future analyses. What separates the best is the ability to do careful research and work towards achieving that, not promising more than you can achieve.

To make an excellent first impression as an entrepreneur, replace superlatives with compelling data-driven content. In this way, you are more specific than someone promising a huge ROI from an investment.

4. Keep it Simple and Short

When writing business plans, ensure you keep them simple throughout. Irrespective of the purpose of the business plan, your goal is to convince the audience.

One way to achieve this goal is to make them understand your proposal. Therefore, it would be best if you avoid the use of complex grammar to express yourself. It would be a huge turn-off if the people you want to convince are not familiar with your use of words.

Another thing to note is the length of your business plan. It would be best if you made it as brief as possible.

You hardly see investors or agencies that read through an extremely long document. In that case, if your first few pages can’t convince them, then you have lost it. The more pages you write, the higher the chances of you derailing from the essential contents.

To ensure your business plan has a high conversion rate, you need to dispose of every unnecessary information. For example, if you have a strategy that you are not sure of, it would be best to leave it out of the plan.

5. Make an Outline and Follow Through

A perfect business plan must have touched every part needed to convince the audience. Business owners get easily tempted to concentrate more on their products than on other sections. Doing this can be detrimental to the efficiency of the business plan.

For example, imagine you talking about a product but omitting or providing very little information about the target audience. You will leave your clients confused.

To ensure that your business plan communicates your full business model to readers, you have to input all the necessary information in it. One of the best ways to achieve this is to design a structure and stick to it.

This structure is what guides you throughout the writing. To make your work easier, you can assign an estimated word count or page limit to every section to avoid making it too bulky for easy reading. As a guide, the necessary things your business plan must contain are:

• Table of contents
• Introduction
• Product or service description
• Target audience
• Market size
• Competition analysis
• Financial projections

Some specific businesses can include some other essential sections, but these are the key sections that must be in every business plan.

6. Ask a Professional to Proofread

When writing a business plan, you must tie all loose ends to get a perfect result. When you are done with writing, call a professional to go through the document for you. You are bound to make mistakes, and the way to correct them is to get external help.

You should get a professional in your field who can relate to every section of your business plan. It would be easier for the professional to notice the inner flaws in the document than an editor with no knowledge of your business.

In addition to getting a professional to proofread, get an editor to proofread and edit your document. The editor will help you identify grammatical errors, spelling mistakes, and inappropriate writing styles.

Writing a business plan can be daunting, but you can surmount that obstacle and get the best out of it with these tips.

Business Plan Examples and Templates That’ll Save You Tons of Time

1. hubspot's one-page business plan.

The one-page business plan template by HubSpot is the perfect guide for businesses of any size, irrespective of their business strategy. Although the template is condensed into a page, your final business plan should not be a page long! The template is designed to ask helpful questions that can help you develop your business plan.

Hubspot’s one-page business plan template is divided into nine fields:

• Business opportunity
• Company description
• Industry analysis
• Target market
• Implementation timeline
• Marketing plan
• Financial summary
• Funding required

2. Bplan’s Free Business Plan Template

Bplans' free business plan template is investor-approved. It is a rich template used by prestigious educational institutions such as Babson College and Princeton University to teach entrepreneurs how to create a business plan.

The template has six sections: the executive summary, opportunity, execution, company, financial plan, and appendix. There is a step-by-step guide for writing every little detail in the business plan. Follow the instructions each step of the way and you will create a business plan that impresses investors or lenders easily.

3. HubSpot's Downloadable Business Plan Template

HubSpot’s downloadable business plan template is a more comprehensive option compared to the one-page business template by HubSpot. This free and downloadable business plan template is designed for entrepreneurs.

The template is a comprehensive guide and checklist for business owners just starting their businesses. It tells you everything you need to fill in each section of the business plan and how to do it.

There are nine sections in this business plan template: an executive summary, company and business description, product and services line, market analysis, marketing plan, sales plan, legal notes, financial considerations, and appendix.

4. Business Plan by My Own Business Institute

My Own Business Institute (MOBI) which is a part of Santa Clara University's Center for Innovation and Entrepreneurship offers a free business plan template. You can either copy the free business template from the link provided above or download it as a Word document.

The comprehensive template consists of a whopping 15 sections.

• The Business Profile
• The Vision and the People
• Home-Based Business and Freelance Business Opportunities
• Organization
• Licenses and Permits
• Business Insurance
• Communication Tools
• Acquisitions
• Location and Leasing
• Accounting and Cash Flow
• Opening and Marketing
• Managing Employees
• Expanding and Handling Problems

There are lots of helpful tips on how to fill each section in the free business plan template by MOBI.

5. Score's Business Plan Template for Startups

Score is an American nonprofit organization that helps entrepreneurs build successful companies. This business plan template for startups by Score is available for free download. The business plan template asks a whooping 150 generic questions that help entrepreneurs from different fields to set up the perfect business plan.

The business plan template for startups contains clear instructions and worksheets, all you have to do is answer the questions and fill the worksheets.

There are nine sections in the business plan template: executive summary, company description, products and services, marketing plan, operational plan, management and organization, startup expenses and capitalization, financial plan, and appendices.

The ‘refining the plan’ resource contains instructions that help you modify your business plan to suit your specific needs, industry, and target audience. After you have completed Score’s business plan template, you can work with a SCORE mentor for expert advice in business planning.

6. Minimalist Architecture Business Plan Template by Venngage

The minimalist architecture business plan template is a simple template by Venngage that you can customize to suit your business needs .

There are five sections in the template: an executive summary, statement of problem, approach and methodology, qualifications, and schedule and benchmark. The business plan template has instructions that guide users on what to fill in each section.

7. Small Business Administration Free Business Plan Template

The Small Business Administration (SBA) offers two free business plan templates, filled with practical real-life examples that you can model to create your business plan. Both free business plan templates are written by fictional business owners: Rebecca who owns a consulting firm, and Andrew who owns a toy company.

There are five sections in the two SBA’s free business plan templates.

• Executive Summary
• Company Description
• Service Line
• Marketing and Sales

8. The $100 Startup's One-Page Business Plan

The one-page business plan by the $100 startup is a simple business plan template for entrepreneurs who do not want to create a long and complicated plan . You can include more details in the appendices for funders who want more information beyond what you can put in the one-page business plan.

There are five sections in the one-page business plan such as overview, ka-ching, hustling, success, and obstacles or challenges or open questions. You can answer all the questions using one or two sentences.

9. PandaDoc’s Free Business Plan Template

The free business plan template by PandaDoc is a comprehensive 15-page document that describes the information you should include in every section.

There are 11 sections in PandaDoc’s free business plan template.

• Executive summary
• Business description
• Products and services
• Operations plan
• Management organization
• Financial plan
• Conclusion / Call to action
• Confidentiality statement

You have to sign up for its 14-day free trial to access the template. You will find different business plan templates on PandaDoc once you sign up (including templates for general businesses and specific businesses such as bakeries, startups, restaurants, salons, hotels, and coffee shops)

PandaDoc allows you to customize its business plan templates to fit the needs of your business. After editing the template, you can send it to interested parties and track opens and views through PandaDoc.

10. Invoiceberry Templates for Word, Open Office, Excel, or PPT

InvoiceBerry is a U.K based online invoicing and tracking platform that offers free business plan templates in .docx, .odt, .xlsx, and .pptx formats for freelancers and small businesses.

Before you can download the free business plan template, it will ask you to give it your email address. After you complete the little task, it will send the download link to your inbox for you to download. It also provides a business plan checklist in .xlsx file format that ensures you add the right information to the business plan.

Alternatives to the Traditional Business Plan

A business plan is very important in mapping out how one expects their business to grow over a set number of years, particularly when they need external investment in their business. However, many investors do not have the time to watch you present your business plan. It is a long and boring read.

Luckily, there are three alternatives to the traditional business plan (the Business Model Canvas, Lean Canvas, and Startup Pitch Deck). These alternatives are less laborious and easier and quicker to present to investors.

Business Model Canvas (BMC)

The business model canvas is a business tool used to present all the important components of setting up a business, such as customers, route to market, value proposition, and finance in a single sheet. It provides a very focused blueprint that defines your business initially which you can later expand on if needed.

The sheet is divided mainly into company, industry, and consumer models that are interconnected in how they find problems and proffer solutions.

Segments of the Business Model Canvas

The business model canvas was developed by founder Alexander Osterwalder to answer important business questions. It contains nine segments.

• Key Partners: Who will be occupying important executive positions in your business? What do they bring to the table? Will there be a third party involved with the company?
• Key Activities: What important activities will production entail? What activities will be carried out to ensure the smooth running of the company?
• The Product’s Value Propositions: What does your product do? How will it be different from other products?
• Customer Segments: What demography of consumers are you targeting? What are the habits of these consumers? Who are the MVPs of your target consumers?
• Customer Relationships: How will the team support and work with its customer base? How do you intend to build and maintain trust with the customer?
• Key Resources: What type of personnel and tools will be needed? What size of the budget will they need access to?
• Channels: How do you plan to create awareness of your products? How do you intend to transport your product to the customer?
• Cost Structure: What is the estimated cost of production? How much will distribution cost?
• Revenue Streams: For what value are customers willing to pay? How do they prefer to pay for the product? Are there any external revenues attached apart from the main source? How do the revenue streams contribute to the overall revenue?

Lean Canvas

The lean canvas is a problem-oriented alternative to the standard business model canvas. It was proposed by Ash Maurya, creator of Lean Stack as a development of the business model generation. It uses a more problem-focused approach and it majorly targets entrepreneurs and startup businesses.

Lean Canvas uses the same 9 blocks concept as the business model canvas, however, they have been modified slightly to suit the needs and purpose of a small startup. The key partners, key activities, customer relationships, and key resources are replaced by new segments which are:

• Problem: Simple and straightforward number of problems you have identified, ideally three.
• Solution: The solutions to each problem.
• Unfair Advantage: Something you possess that can't be easily bought or replicated.
• Key Metrics: Important numbers that will tell how your business is doing.

Startup Pitch Deck

While the business model canvas compresses into a factual sheet, startup pitch decks expand flamboyantly.

Pitch decks, through slides, convey your business plan, often through graphs and images used to emphasize estimations and observations in your presentation. Entrepreneurs often use pitch decks to fully convince their target audience of their plans before discussing funding arrangements.

Considering the likelihood of it being used in a small time frame, a good startup pitch deck should ideally contain 20 slides or less to have enough time to answer questions from the audience.

Unlike the standard and lean business model canvases, a pitch deck doesn't have a set template on how to present your business plan but there are still important components to it. These components often mirror those of the business model canvas except that they are in slide form and contain more details.

Using Airbnb (one of the most successful start-ups in recent history) for reference, the important components of a good slide are listed below.

• Cover/Introduction Slide: Here, you should include your company's name and mission statement. Your mission statement should be a very catchy tagline. Also, include personal information and contact details to provide an easy link for potential investors.
• Problem Slide: This slide requires you to create a connection with the audience or the investor that you are pitching. For example in their pitch, Airbnb summarized the most important problems it would solve in three brief points – pricing of hotels, disconnection from city culture, and connection problems for local bookings.
• Solution Slide: This slide includes your core value proposition. List simple and direct solutions to the problems you have mentioned
• Customer Analysis: Here you will provide information on the customers you will be offering your service to. The identity of your customers plays an important part in fundraising as well as the long-run viability of the business.
• Market Validation: Use competitive analysis to show numbers that prove the presence of a market for your product, industry behavior in the present and the long run, as well as the percentage of the market you aim to attract. It shows that you understand your competitors and customers and convinces investors of the opportunities presented in the market.
• Business Model: Your business model is the hook of your presentation. It may vary in complexity but it should generally include a pricing system informed by your market analysis. The goal of the slide is to confirm your business model is easy to implement.
• Marketing Strategy: This slide should summarize a few customer acquisition methods that you plan to use to grow the business.
• Competitive Advantage: What this slide will do is provide information on what will set you apart and make you a more attractive option to customers. It could be the possession of technology that is not widely known in the market.
• Team Slide: Here you will give a brief description of your team. Include your key management personnel here and their specific roles in the company. Include their educational background, job history, and skillsets. Also, talk about their accomplishments in their careers so far to build investors' confidence in members of your team.
• Traction Slide: This validates the company’s business model by showing growth through early sales and support. The slide aims to reduce any lingering fears in potential investors by showing realistic periodic milestones and profit margins. It can include current sales, growth, valuable customers, pre-orders, or data from surveys outlining current consumer interest.
• Funding Slide: This slide is popularly referred to as ‘the ask'. Here you will include important details like how much is needed to get your business off the ground and how the funding will be spent to help the company reach its goals.
• Appendix Slides: Your pitch deck appendix should always be included alongside a standard pitch presentation. It consists of additional slides you could not show in the pitch deck but you need to complement your presentation.

It is important to support your calculations with pictorial renditions. Infographics, such as pie charts or bar graphs, will be more effective in presenting the information than just listing numbers. For example, a six-month graph that shows rising profit margins will easily look more impressive than merely writing it.

Lastly, since a pitch deck is primarily used to secure meetings and you may be sharing your pitch with several investors, it is advisable to keep a separate public version that doesn't include financials. Only disclose the one with projections once you have secured a link with an investor.

Advantages of the Business Model Canvas, Lean Canvas, and Startup Pitch Deck over the Traditional Business Plan

• Time-Saving: Writing a detailed traditional business plan could take weeks or months. On the other hand, all three alternatives can be done in a few days or even one night of brainstorming if you have a comprehensive understanding of your business.
• Easier to Understand: Since the information presented is almost entirely factual, it puts focus on what is most important in running the business. They cut away the excess pages of fillers in a traditional business plan and allow investors to see what is driving the business and what is getting in the way.
• Easy to Update: Businesses typically present their business plans to many potential investors before they secure funding. What this means is that you may regularly have to amend your presentation to update statistics or adjust to audience-specific needs. For a traditional business plan, this could mean rewriting a whole section of your plan. For the three alternatives, updating is much easier because they are not voluminous.
• Guide for a More In-depth Business Plan: All three alternatives have the added benefit of being able to double as a sketch of your business plan if the need to create one arises in the future.

Business Plan FAQ

Business plans are important for any entrepreneur who is looking for a framework to run their company over some time or seeking external support. Although they are essential for new businesses, every company should ideally have a business plan to track their growth from time to time.  They can be used by startups seeking investments or loans to convey their business ideas or an employee to convince his boss of the feasibility of starting a new project. They can also be used by companies seeking to recruit high-profile employee targets into key positions or trying to secure partnerships with other firms.

Business plans often vary depending on your target audience, the scope, and the goals for the plan. Startup plans are the most common among the different types of business plans.  A start-up plan is used by a new business to present all the necessary information to help get the business up and running. They are usually used by entrepreneurs who are seeking funding from investors or bank loans. The established company alternative to a start-up plan is a feasibility plan. A feasibility plan is often used by an established company looking for new business opportunities. They are used to show the upsides of creating a new product for a consumer base. Because the audience is usually company people, it requires less company analysis. The third type of business plan is the lean business plan. A lean business plan is a brief, straight-to-the-point breakdown of your ideas and analysis for your business. It does not contain details of your proposal and can be written on one page. Finally, you have the what-if plan. As it implies, a what-if plan is a preparation for the worst-case scenario. You must always be prepared for the possibility of your original plan being rejected. A good what-if plan will serve as a good plan B to the original.

A good business plan has 10 key components. They include an executive plan, product analysis, desired customer base, company analysis, industry analysis, marketing strategy, sales strategy, financial projection, funding, and appendix. Executive Plan Your business should begin with your executive plan. An executive plan will provide early insight into what you are planning to achieve with your business. It should include your mission statement and highlight some of the important points which you will explain later. Product Analysis The next component of your business plan is your product analysis. A key part of this section is explaining the type of item or service you are going to offer as well as the market problems your product will solve. Desired Consumer Base Your product analysis should be supplemented with a detailed breakdown of your desired consumer base. Investors are always interested in knowing the economic power of your market as well as potential MVP customers. Company Analysis The next component of your business plan is your company analysis. Here, you explain how you want to run your business. It will include your operational strategy, an insight into the workforce needed to keep the company running, and important executive positions. It will also provide a calculation of expected operational costs.  Industry Analysis A good business plan should also contain well laid out industry analysis. It is important to convince potential investors you know the companies you will be competing with, as well as your plans to gain an edge on the competition. Marketing Strategy Your business plan should also include your marketing strategy. This is how you intend to spread awareness of your product. It should include a detailed explanation of the company brand as well as your advertising methods. Sales Strategy Your sales strategy comes after the market strategy. Here you give an overview of your company's pricing strategy and how you aim to maximize profits. You can also explain how your prices will adapt to market behaviors. Financial Projection The financial projection is the next component of your business plan. It explains your company's expected running cost and revenue earned during the tenure of the business plan. Financial projection gives a clear idea of how your company will develop in the future. Funding The next component of your business plan is funding. You have to detail how much external investment you need to get your business idea off the ground here. Appendix The last component of your plan is the appendix. This is where you put licenses, graphs, or key information that does not fit in any of the other components.

The business model canvas is a business management tool used to quickly define your business idea and model. It is often used when investors need you to pitch your business idea during a brief window.

A pitch deck is similar to a business model canvas except that it makes use of slides in its presentation. A pitch is not primarily used to secure funding, rather its main purpose is to entice potential investors by selling a very optimistic outlook on the business.

Business plan competitions help you evaluate the strength of your business plan. By participating in business plan competitions, you are improving your experience. The experience provides you with a degree of validation while practicing important skills. The main motivation for entering into the competitions is often to secure funding by finishing in podium positions. There is also the chance that you may catch the eye of a casual observer outside of the competition. These competitions also provide good networking opportunities. You could meet mentors who will take a keen interest in guiding you in your business journey. You also have the opportunity to meet other entrepreneurs whose ideas can complement yours.

Exlore Further

• 12 Key Elements of a Business Plan (Top Components Explained)
• 13 Sources of Business Finance For Companies & Sole Traders
• 5 Common Types of Business Structures (+ Pros & Cons)
• How to Buy a Business in 8 Steps (+ Due Diligence Checklist)

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The 12 Key Components of a Business Plan

There are 12 components of a business plan entrepreneurs must know as they lay out how their business will work.

Entrepreneurs who create business plans are more likely to succeed than those who don’t. 

Not only can a sound plan help your business access investment capital but—as the study found—it can even determine the success or failure of your venture. 

Here are the critical components of a business plan to help you craft your own.

What is a business plan?

A business plan is a document outlining your business goals and your strategies for achieving them. It might include your company’s mission statement , details about your products or services, how you plan to bring them to market, and how much time and money you need to execute the plan. 

For a thorough explanation of how to write a business plan, refer to Shopify’s guide .

12 key components of a business plan

Business plans vary depending on the product or service. Some entrepreneurs choose to use diagrams and charts, while others rely on text alone. Regardless of how you go about it, good business plans tend to include the following elements:

• Executive summary
• Company description
• Market analysis
• Marketing plan
• Competitive analysis 
• Organizational structure
• Products and services
• Operating plan
• Financial plan
• Funding sources

1. Executive summary

The executive summary briefly explains your business’s products or services and why it has the potential to be profitable. You may also include basic information about your company, such as its location and the number of employees.

2. Company description

The company description helps customers, lenders, and potential investors gain a deeper understanding of your product or service. It provides detailed descriptions of your supply chains and explains how your company plans to bring its products or services to market. 

3. Market analysis

The market analysis section outlines your plans to reach your target audience . It usually includes an estimate of the potential demand for the product or service and a summary of market research . 

The market analysis also includes information about marketing strategies, advertising ideas, or other ways of attracting customers. 

Another component of this section is a detailed breakdown of target customers. Many businesses find it helpful to analyze their target market using customer segments , often with demographic data such as age or income. This way, you can customize your marketing plans to reach different groups of customers. 

4. Marketing plan

The marketing plan section details how you plan to attract and retain customers. It covers the marketing mix: product, price, place, and promotion. It shows you understand your market and have clear, measurable goals to guide your marketing strategy.

For example, a fashion retail store might 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’ll take to achieve sales targets and drive revenue. It’s different from a marketing plan because it’s more about the direct process of selling the product to your customer. It looks at the methods used from lead generation to closing the sale, as well as revenue targets. 

An ecommerce sales strategy might involve optimizing your online shopping experience, using targeted digital marketing to drive traffic, and employing tactics like flash sales , personalized email marketing, or loyalty programs to boost sales.

6. Competitive analysis

It’s essential that you understand your competitors and distinguish your business. There are two main types of competitors: direct and indirect competitors. 

• Direct competitors. Direct competitors offer the same or similar products and services. For example, the underwear brand Skims is a direct competitor with Spanx .
• Indirect competitors. Indirect competitors, on the other hand, offer different products and services that may satisfy the same customer needs. For example, cable television is an indirect competitor to Netflix.

A competitive analysis explains your business’s unique strengths that give it a competitive advantage over other businesses.

7. Organizational structure

The organizational structure explains your company’s legal structure and provides information about the management team. It also describes the business’s operating plan and details who is responsible for which aspects of the company.

8. Products and services

This component goes in-depth on what you’re actually selling and why it’s valuable to customers. It’ll provide a description of your products and services with all their features, benefits, and unique selling points. It may also discuss the current development stage of your products and plans for the future. 

The products and services section also looks at pricing strategy , intellectual property (IP) rights, and any key supplier information. For example, in an ecommerce business plan focusing on eco-friendly home products, this section would detail the range of products, explain how they are environmentally friendly, outline sourcing and production practices, discuss pricing, and highlight any certifications or eco-labels the products have received.

9. Operating plan

Here is where you explain the day-to-day operations of the business. Your operating plan will cover aspects from production or service delivery to human and resource management. It shows readers how you plan to deliver on your promises. 

For example, in a business plan for a startup selling artisanal crafts, this section would include details on how artisans are sourced, how products are cataloged and stored, the ecommerce platform used for sales, and the logistics for packaging and shipping orders worldwide.

10. Financial plan

The financial plan is one of the most critical parts of the business plan, especially for companies seeking outside funding.

A plan often includes capital expenditure budgets, forecasted income statements , and cash flow statements , which can help predict when your company will become profitable and how it expects to survive in the meantime. 

If your business is already profitable, your financial plan can help with convincing investors of future growth. At the end of the financial section, you may also include a value proposition , which estimates the value of your business.

11. Funding sources

Some businesses planning to expand or to seek funds from venture capitalists may include a section devoted to their long-term growth strategy, including ways to broaden product offerings and penetrate new markets.

12. Appendix

The final component of a business plan is the appendix. Here, you may include additional documents cited in other sections or requested by readers. These might be résumés, financial statements, product pictures, patent approvals, and legal records.

Components of a business plan FAQ

What are 8 common parts of a good business plan.

Some of the most common components of a business plan are an executive summary, a company description, a marketing analysis, a competitive analysis, an organization description, a summary of growth strategies, a financial plan, and an appendix.

What is a business plan format?

A business plan format is a way of structuring a business plan. Shopify offers a free business plan template for startups that you can use to format your business plan.

What are the 5 functions of a business plan?

A business plan explains your company’s products or services, how you expect to make money, the reliability of supply chains, and factors that might affect demand.

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7 Key Components of a Precise Business Plan (2024)

Learn the art of entrepreneurship with a business plan. Dive into executive summaries, discover templates, and understand what to include for a strategic edge.

Hadar Peretz

7 minute read

Short answer

What is a Business Plan?

A business plan is a strategic document outlining a company's vision, objectives, market analysis, marketing and sales strategies, organizational structure, and financial projections to guide its growth.

Innovation in Planning: The Untold Ingredient to Business Success

In the turbulent landscape of entrepreneurship, where over 20% of small ventures falter in their early days , this blog post sheds light on the importance of a well-structured business plan.

It delves into the specifics of an executive summary, steps, what to include, and innovation in business planning , guiding businesses to thrive rather than become failure statistics.

3 Main Purposes of a Business Plan

Embarking on the entrepreneurial journey without a business plan is like sailing in turbulent waters without a map.

A business plan serves three pivotal roles that steer the helm of a startup toward the shores of success.

1) Navigation Tool: Direction for Your Business

A business plan is your business’s North Star, providing direction and ensuring you stay on course amidst the storm of uncertainties.

Let’s take the example of “Bean There Coffee Shop,” a start-up that envisioned being a community hub. Their business plan outlined their mission, target market, competition analysis, and financial forecasts.

This helped them navigate the competition and establish a loyal customer base by providing a cozy ambiance that encouraged customer interaction.

2) Attraction for Investments: Encouraging Potential Investors

Your business plan is your passport to the realm of investors. Bean There Coffee Shop required a modern interior to reflect its brand's personality.

The detailed business plan showcased their unique selling proposition to investors, who were enticed by the predicted ROI and agreed to fund the renovations.

3) Measurement of Success: Evaluating Progress and Growth

A business plan sets a baseline to measure progress. Bean There Coffee Shop sets quarterly targets for customer retention and revenue in its business plan.

By comparing actual performance with the plan, they gauged their success and identified areas for improvement.

6 Key Elements of a Business Plan

Drafting a business plan might seem daunting initially, but breaking it down into core components makes it manageable and effective.

It’s about telling your business’s story in a compelling way to garner support and guide your actions.

1) Executive Summary

The executive summary is your business narrative condensed into a snapshot. For instance, the executive summary of Bean There Coffee Shop encapsulated its vision, mission, the experience it aimed to provide, and financial aspirations succinctly, giving readers an essence of what to expect in the subsequent sections.

For more information on executive summary design, delve into the design aspects of an executive summary. To glean insights on crafting a compelling and visually appealing executive summary for your startup venture.

2) Company Description

Delve into the what and why of your business. Bean There Coffee Shop described its longing to foster community interactions, reflecting its ethos in its service and interior design , resonating with the locals and creating a clientele.

3) Market Analysis

Understanding your market landscape is crucial. Analyze your competitors, the preferences of your target audience, and market trends.

For Bean There Coffee Shop, studying coffee consumption trends and identifying a locale lacking a community-centric cafe was a game-changer.

4) Organization and Management

Outline your business structure and team. Investors want to know who steers the ship.

At Bean There Coffee Shop, the experienced baristas and a seasoned manager showcased a competent team, instilling confidence in potential investors.

5) Product Line

Describe your offerings. Bean There Coffee Shop highlighted its organic coffee and locally sourced pastries, striking a chord with environmentally conscious consumers.

6) Marketing and Sales

How you plan to lure customers and keep them coming back is vital. Bean There Coffee Shop’s loyalty programs and community events were a hit, creating a buzz and building a loyal customer base.

What is a Business Plan in Entrepreneurship?

In the realm of entrepreneurship, a business plan goes beyond being just a document—it is a vibrant testament to your business vision and the roadmap illustrating how you aim to overcome challenges and achieve your objectives.

It's like the script of your entrepreneurial saga waiting to unfold.

A Framework for Strategy

A business plan embodies the strategy and operations of your entrepreneurial endeavor. Here's a simplified breakdown of what it may encompass:

Market Analysis: A thorough exploration of the market including size, demographics, and consumer behaviors.

Competitor Analysis: A detailed examination of competitors, their strengths, weaknesses, and market position.

Marketing Strategy: Tactics and channels you plan to use to promote your business.

Financial Projections: Anticipated income, expenses, and profitability over a certain period.

Risk Management

Venturing into entrepreneurship is akin to navigating turbulent waters, where risks are inevitable. A business plan aids in:

Identifying Potential Risks: Whether it's market fluctuation or operational challenges, a business plan helps in foreseeing possible hurdles.

Devising Contingency Plans: Strategies to mitigate identified risks, ensuring the business stays on the right track.

For instance, a cafe's business plan might highlight the risk of decreased foot traffic during winter months and propose hosting indoor events or offering seasonal promotions to maintain revenue.

Communication with Stakeholders

A business plan serves as a conduit between entrepreneurs and stakeholders, articulating the business vision, goals, and strategies.

When seeking investments for expansion, a well-drafted business plan can effectively communicate the growth potential and return on investment to investors, facilitating the funding process.

7 Steps of a Business Plan

Creating a business plan is a blend of art and science, distilled into seven systematic steps to ensure your entrepreneurial venture is on a trajectory toward success.

1) Research, Research, and Research

Before you set pen to paper, immerse yourself in thorough research about your industry, market, and competition. This step lays the groundwork for informed decision-making as you progress through subsequent stages of business planning.

Industry Insights: Delve into current industry trends, challenges, and opportunities to gain a comprehensive understanding.

Market Dynamics: Explore market demographics, customer preferences, and purchasing behaviors to tailor your business approach.

Competitor Analysis: Assess the strengths, weaknesses, and market positioning of competitors to identify your business’s unique selling proposition.

2) Defining Your Business Objectives

Having clear objectives is crucial. Whether it's capturing market share, hitting revenue targets, or achieving expansion goals, defining these objectives paves the way for a focused strategy.

Establishing well-defined objectives also serves as a yardstick for measuring your business’s performance over time.

3) Company Description

Articulate the ethos, offerings, and unique value proposition of your business.

Providing a compelling company description helps stakeholders, including potential investors and employees, to grasp your business's mission and the problems it aims to solve

4) Market Analysis

Delve into market trends, customer behavior, and competition analysis to tailor your strategies.

A robust market analysis provides the data necessary to target your audience effectively and position your business for success in a competitive landscape.

5) Organization and Management

Detail your organizational structure, key team members, and their expertise.

Illustrating a solid organizational structure demonstrates your business’s capacity to execute its strategies and achieve its objectives.

6) Service or Product Line

Describe your products or services, highlighting the benefits to customers. Detailing the attributes and advantages of your offerings allows stakeholders to understand the value your business brings to the market.

7. Marketing and Sales

Illustrate your marketing and sales strategy to attract and retain customers.

Outlining clear strategies for marketing and sales is crucial for driving business growth and achieving your financial objectives.

Market Positioning: Define how your products or services will be positioned in the market and how you intend to differentiate your offerings from competitors.

Promotional Strategies: Outline the various promotional tactics you will employ, such as social media marketing, search engine optimization, and paid advertising.

Sales Process: Describe the steps of your sales process from lead generation to closing sales, and identify the metrics you will use to measure sales effectiveness.

Customer Retention: Highlight the strategies for customer retention such as loyalty programs, excellent customer service (through call centers and customer relationship management software), and regular engagement to keep customers coming back.

Pricing Strategy: Determine the pricing strategy that will be most effective for your market, considering factors like cost, competition, and perceived value.

Time to Master Your Business Pitch

Now that you have a robust business plan, it’s time to translate it into a compelling business pitch.

The mastery of your pitch lies in knowing your audience, presenting data compellingly, and choosing the right format for resonance.

Understanding Audience Expectations

Understanding your audience is pivotal. Tailoring your pitch to meet the expectations of investors, potential partners, or customers enhances its effectiveness significantly.

Here’s our CEO, Itai Amoza, discussing the key elements that make a presentation engaging:

Emphasizing Data Visualization for a Better Appeal

Visual presentation of data, through graphs or charts, can make complex information easily digestible.

Using the right data visualization tools can effectively narrate the story of your venture compellingly.

PDF (conservative) vs. Interactive

Choosing between a traditional PDF or interactive presentations like those on Storydoc or PowerPoint can significantly impact the engagement level of your audience.

Interactive formats allow for dynamic presentations with embedded videos and other multimedia elements making your pitch more engaging and memorable.

Consider Business Plan One-pager

Creating a one-page business plan rather than a multi-page business plan involves summarizing your business's essential aspects concisely.

This includes your value proposition, company overview, market analysis, the problem and solution, marketing strategy, financial projections, and a call to action for potential investors or partners.

Ready to Narrate Your Story? Begin with This Business Plan Template

Ah, the exhilarating journey of a startup. It's like crafting a story, with characters, plots, and a dash of suspense on what the next chapter brings.

Now, before you get swept away in this narrative, remember, that every good story needs a structured outline, and in the startup world, that outline is your business plan.

Pick a business plan one-pager template:

Create story from scratch

I am a Marketing Specialist at Storydoc, I research, analyze and write on our core topics of business presentations, sales, and fundraising. I love talking to clients about their successes and failures so I can get a rounded understanding of their world.

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8 Components of a Business Plan

Back to Business Plans

Written by: Carolyn Young

Carolyn Young is a business writer who focuses on entrepreneurial concepts and the business formation. She has over 25 years of experience in business roles, and has authored several entrepreneurship textbooks.

Edited by: David Lepeska

David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.

Published on February 19, 2023 Updated on February 27, 2024

A key part of the business startup process is putting together a business plan , particularly if you’d like to raise capital. It’s not going to be easy, but it’s absolutely essential, and an invaluable learning tool. 

Creating a business plan early helps you think through every aspect of your business, from operations and financing to growth and vision. In the end, the knowledge you’ll gain could be the difference between success and failure. 

But what exactly does a business plan consist of? There are eight essential components, all of which are detailed in this handy guide.

1. Executive Summary 

The executive summary opens your business plan , but it’s the section you’ll write last. It summarizes the key points and highlights the most important aspects of your plan. Often investors and lenders will only read the executive summary; if it doesn’t capture their interest they’ll stop reading, so it’s important to make it as compelling as possible.

The components touched upon should include:

• The business opportunity – what problem are you solving in the market?
• Your idea, meaning the product or service you’re planning to offer, and why it solves the problem in the market better than other solutions.
• The history of the business so far – what have you done to this point? When you’re just getting started, this may be nothing more than coming up with the idea, choosing a business name , and forming a business entity.
• A summary of the industry, market size, your target customers, and the competition.
• A strong statement about how your company is going to stand out in the market – what will be your competitive advantage?
• A list of specific goals that you plan to achieve in the short term, such as developing your product, launching a marketing campaign, or hiring a key person. 
• A summary of your financial plan including cost and sales projections and a break-even analysis.
• A summary of your management team, their roles, and the relevant experience that they have to serve in those roles.
• Your “ask”, if applicable, meaning what you’re requesting from the investor or lender. You’ll include the amount you’d like and how it will be spent, such as “We are seeking $50,000 in seed funding to develop our beta product”. 

Remember that if you’re seeking capital, the executive summary could make or break your venture. Take your time and make sure it illustrates how your business is unique in the market and why you’ll succeed.

The executive summary should be no more than two pages long, so it’s important to capture the reader’s interest from the start. 

• 2. Company Description/Overview

In this section, you’ll detail your full company history, such as how you came up with the idea for your business and any milestones or achievements. 

You’ll also include your mission and vision statements. A mission statement explains what you’d like your business to achieve, its driving force, while a vision statement lays out your long-term plan in terms of growth. 

A mission statement might be “Our company aims to make life easier for business owners with intuitive payroll software”, while a vision statement could be “Our objective is to become the go-to comprehensive HR software provider for companies around the globe.”

In this section, you’ll want to list your objectives – specific short-term goals. Examples might include “complete initial product development by ‘date’” or “hire two qualified sales people” or “launch the first version of the product”. 

It’s best to divide this section into subsections – company history, mission and vision, and objectives.

3. Products/Services Offered 

Here you’ll go into detail about what you’re offering, how it solves a problem in the market, and how it’s unique. Don’t be afraid to share information that is proprietary – investors and lenders are not out to steal your ideas. 

Also specify how your product is developed or sourced. Are you manufacturing it or does it require technical development? Are you purchasing a product from a manufacturer or wholesaler? 

You’ll also want to specify how you’ll sell your product or service. Will it be a subscription service or a one time purchase?  What is your target pricing? On what channels do you plan to sell your product or service, such as online or by direct sales in a store? 

Basically, you’re describing what you’re going to sell and how you’ll make money.

• 4. Market Analysis 

The market analysis is where you’re going to spend most of your time because it involves a lot of research. You should divide it into four sections.

Industry analysis 

You’ll want to find out exactly what’s happening in your industry, such as its growth rate, market size, and any specific trends that are occurring. Where is the industry predicted to be in 10 years? Cite your sources where you can by providing links. 

Then describe your company’s place in the market. Is your product going to fit a certain niche? Is there a sub-industry your company will fit within? How will you keep up with industry changes? 

Competitor analysis 

Now you’ll dig into your competition. Detail your main competitors and how they differentiate themselves in the market. For example, one competitor may advertise convenience while another may tout superior quality. Also highlight your competitors’ weaknesses.

Next, describe how you’ll stand out. Detail your competitive advantages and how you’ll sustain them. This section is extremely important and will be a focus for investors and lenders. 

Target market analysis 

Here you’ll describe your target market and whether it’s different from your competitors’.  For example, maybe you have a younger demographic in mind? 

You’ll need to know more about your target market than demographics, though. You’ll want to explain the needs and wants of your ideal customers, how your offering solves their problem, and why they will choose your company. 

You should also lay out where you’ll find them, where to place your marketing and where to sell your products. Learning this kind of detail requires going to the source – your potential customers. You can do online surveys or even in-person focus groups. 

Your goal will be to uncover as much about these people as possible. When you start selling, you’ll want to keep learning about your customers. You may end up selling to a different target market than you originally thought, which could lead to a marketing shift. 

SWOT analysis 

SWOT stands for strengths, weaknesses, opportunities, and threats, and it’s one of the more common and helpful business planning tools.   

First describe all the specific strengths of your company, such as the quality of your product or some unique feature, such as the experience of your management team. Talk about the elements that will make your company successful.

Next, acknowledge and explore possible weaknesses. You can’t say “none”, because no company is perfect, especially at the start. Maybe you lack funds or face a massive competitor. Whatever it is, detail how you will surmount this hurdle. 

Next, talk about the opportunities your company has in the market. Perhaps you’re going to target an underserved segment, or have a technology plan that will help you surge past the competition. 

Finally, examine potential threats. It could be a competitor that might try to replicate your product or rapidly advancing technology in your industry. Again, discuss your plans to handle such threats if they come to pass. 

5. Marketing and Sales Strategies

Now it’s time to explain how you’re going to find potential customers and convert them into paying customers.  

Marketing and advertising plan

When you did your target market analysis, you should have learned a lot about your potential customers, including where to find them. This should help you determine where to advertise. 

Maybe you found that your target customers favor TikTok over Instagram and decided to spend more marketing dollars on TikTok. Detail all the marketing channels you plan to use and why.

Your target market analysis should also have given you information about what kind of message will resonate with your target customers. You should understand their needs and wants and how your product solves their problem, then convey that in your marketing. 

Start by creating a value proposition, which should be no more than two sentences long and answer the following questions:

• What are you offering
• Whose problem does it solve
• What problem does it solve
• What benefits does it provide
• How is it better than competitor products

An example might be “Payroll software that will handle all the payroll needs of small business owners, making life easier for less.”

Whatever your value proposition, it should be at the heart of all of your marketing.

Sales strategy and tactics 

Your sales strategy is a vision to persuade customers to buy, including where you’ll sell and how. For example, you may plan to sell only on your own website, or you may sell from both a physical location and online. On the other hand, you may have a sales team that will make direct sales calls to potential customers, which is more common in business-to-business sales.

Sales tactics are more about how you’re going to get them to buy after they reach your sales channel. Even when selling online, you need something on your site that’s going to get them to go from a site visitor to a paying customer. 

By the same token, if you’re going to have a sales team making direct sales, what message are they going to deliver that will entice a sale? It’s best for sales tactics to focus on the customer’s pain point and what value you’re bringing to the table, rather than being aggressively promotional about the greatness of your product and your business. 

Pricing strategy

Pricing is not an exact science and should depend on several factors. First, consider how you want your product or service to be perceived in the market. If your differentiator is to be the lowest price, position your company as the “discount” option. Think Walmart, and price your products lower than the competition. 

If, on the other hand, you want to be the Mercedes of the market, then you’ll position your product as the luxury option. Of course you’ll have to back this up with superior quality, but being the luxury option allows you to command higher prices.

You can, of course, fall somewhere in the middle, but the point is that pricing is a matter of perception. How you position your product in the market compared to the competition is a big factor in determining your price.

Of course, you’ll have to consider your costs, as well as competitor prices. Obviously, your prices must cover your costs and allow you to make a good profit margin. 

Whatever pricing strategy you choose, you’ll justify it in this section of your plan.

• 6. Operations and Management 

This section is the real nuts and bolts of your business – how it operates on a day-to-day basis and who is operating it. Again, this section should be divided into subsections.

Operational plan

Your plan of operations should be specific , detailed and mainly logistical. Who will be doing what on a daily, weekly, and monthly basis? How will the business be managed and how will quality be assured? Be sure to detail your suppliers and how and when you’ll order raw materials. 

This should also include the roles that will be filled and the various processes that will be part of everyday business operations . Just consider all the critical functions that must be handled for your business to be able to operate on an ongoing basis. 

Technology plan

If your product involves technical development, you’ll describe your tech development plan with specific goals and milestones. The plan will also include how many people will be working on this development, and what needs to be done for goals to be met.

If your company is not a technology company, you’ll describe what technologies you plan to use to run your business or make your business more efficient. It could be process automation software, payroll software, or just laptops and tablets for your staff. 

Management and organizational structure 

Now you’ll describe who’s running the show. It may be just you when you’re starting out, so you’ll detail what your role will be and summarize your background. You’ll also go into detail about any managers that you plan to hire and when that will occur.

Essentially, you’re explaining your management structure and detailing why your strategy will enable smooth and efficient operations. 

Ideally, at some point, you’ll have an organizational structure that is a hierarchy of your staff. Describe what you envision your organizational structure to be. 

Personnel plan 

Detail who you’ve hired or plan to hire and for which roles. For example, you might have a developer, two sales people, and one customer service representative.

Describe each role and what qualifications are needed to perform those roles. 

• 7. Financial Plan 

Now, you’ll enter the dreaded world of finance. Many entrepreneurs struggle with this part, so you might want to engage a financial professional to help you. A financial plan has five key elements.

Startup Costs

Detail in a spreadsheet every cost you’ll incur before you open your doors. This should determine how much capital you’ll need to launch your business. 

Financial projections 

Creating financial projections, like many facets of business, is not an exact science. If your company has no history, financial projections can only be an educated guess. 

First, come up with realistic sales projections. How much do you expect to sell each month? Lay out at least three years of sales projections, detailing monthly sales growth for the first year, then annually thereafter. 

Calculate your monthly costs, keeping in mind that some costs will grow along with sales. 

Once you have your numbers projected and calculated, use them to create these three key financial statements: 

• Profit and Loss Statement , also known as an income statement. This shows projected revenue and lists all costs, which are then deducted to show net profit or loss. 
• Cash Flow Statement. This shows how much cash you have on hand at any given time. It will have a starting balance, projections of cash coming in, and cash going out, which will be used to calculate cash on hand at the end of the reporting period.
• Balance Sheet. This shows the net worth of the business, which is the assets of the business minus debts. Assets include equipment, cash, accounts receivables, inventory, and more. Debts include outstanding loan balances and accounts payable.

You’ll need monthly projected versions of each statement for the first year, then annual projections for the following two years.

Break-even analysis

The break-even point for your business is when costs and revenue are equal. Most startups operate at a loss for a period of time before they break even and start to make a profit. Your break-even analysis will project when your break-even point will occur, and will be informed by your profit and loss statement. 

Funding requirements and sources 

Lay out the funding you’ll need, when, and where you’ll get it. You’ll also explain what those funds will be used for at various points. If you’re in a high growth industry that can attract investors, you’ll likely need various rounds of funding to launch and grow. 

Key performance indicators (KPIs)

KPIs measure your company’s performance and can determine success. Many entrepreneurs only focus on the bottom line, but measuring specific KPIs helps find areas of improvement. Every business has certain crucial metrics. 

If you sell only online, one of your key metrics might be your visitor conversion rate. You might do an analysis to learn why just one out of ten site visitors makes a purchase. 

Perhaps the purchase process is too complicated or your product descriptions are vague. The point is, learning why your conversion rate is low gives you a chance to improve it and boost sales. 

8. Appendices

In the appendices, you can attach documents such as manager resumes or any other documents that support your business plan.

As you can see, a business plan has many components, so it’s not an afternoon project. It will likely take you several weeks and a great deal of work to complete. Unless you’re a finance guru, you may also want some help from a financial professional. 

Keep in mind that for a small business owner, there may be no better learning experience than writing a detailed and compelling business plan. It shouldn’t be viewed as a hassle, but as an opportunity! 

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What should be in your business plan?

Creating a business plan is a key part of starting any business venture. Even if you’ll never use it in this format for attracting investors and raising capital, it can be vital for helping all entrepreneurs to ask and think through essential questions.

Nowadays business plans are used as an internal roadmap for the execution of the company since pitch decks have taken over when it comes to fundraising required materials.  For a winning deck, take a look at the pitch deck template created by Silicon Valley legend, Peter Thiel ( see it here ) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash. Moreover, I also provided a commentary on a pitch deck from an Uber competitor that has raised over $400 million ( see it here ).

Don’t skip this part of the process. Though, do not let it become a distraction and slow you down from creating an actual business either.

For key insights on the why, when and how to create a business plan, and emerging alternatives for startups versus small businesses, see my Forbes article on How To Create A Business Plan .

There are many variations of business plans today. Especially, with the rapid growth of lean startups. A few minutes on Google will provide plenty of free business plan template options. The following is adapted from the SCORE Association’s recommended outline of categories, which covers most of the bases for exactly what to include in your business plan.

Executive Summary

This is the most critical part of your business planning. If you never flesh out a full business plan, make sure you create a fantastic executive summary. This brings together all of the key elements of your plan and will often be the make or break document which decides whether commercial lenders or investors will have any interest in seeing the rest of your documentation or pursuing a relationship with you. For additional guidance, you may want to review the Executive Summary Template that I recently covered on Forbes as well.

Company Description

This section provides a further overview of your company now.

• The company purpose, mission and vision
• Company formation information
• Who the founders are
• Location and geographical markets served or where you have a presence
• Current status and stage of business
• Any notable achievements so far

Products & Services

List what products and services your company has been formed to create. How are you solving the main problem and are serving the community with your business?

• Definition of the core product or service
• Development stage
• Screenshots or diagrams
• Current pricing
• Past test results
• Anticipated future products and services you hope to develop and roll out

Marketing Plan

This is another section which is an absolute must-have, even if you never develop a fully fledged business plan in its entirety. This holds key information that all financiers and potential investors are going to want to know. Even if you hope to just get away with using a pitch deck to raise the capital you need.

This is also a vital guide for yourself as a founder, and for your growing team as to what needs to be done and how.

Every minute invested in this section can pay great dividends over the longer term.

• Competition and market research
• SWOT analysis (Strengths, Weaknesses, Opportunities & Threats)
• Target market research (total market size and total addressable market (TAM))
• Brand and product positioning
• Elevator pitches and tag-lines
• Target customer personas and profiles
• Results of any testing conducted so far
• Marketing channels to be used
• Marketing budget
• Estimates of cost per action (CPAs)

For further guidance on this section, you may want to review the piece on Forbes with the title How To Create A Marketing Plan . 

Operational Plan

This is your opportunity to organize and demonstrate your understanding of this industry and business.

• Facilities and space needed
• Technology needs
• Equipment needs
• Supply chain management
• Logistics and distribution plans
• Order and fulfillment processes
• Quality control checks
• Legal and accounting needs

Management & Organization

This section of your business plan will help you to identify your own needs, and demonstrate to investors and other licensing bodies and agencies that you are the team to get this job done.

It basically shows your management and industry experience and who will do what.

• Founders and executive team
• Any owners and shareholders
• Board of directors
• Consultants and special advisors
• Key team members and department heads

Financial Plan

Provide an honest snapshot of where you are and where you reasonably hope to go, providing you secure the funding you need.

• Current balance sheet
• Past 2 years’ financials if applicable
• Financial projections for 12 months, and annually through year 5
• Break even analysis
• Cash flow projections
• Income and expenses

In this section you may also be including startup cost and capitalization requirements, or funding and loan requests.

Startup costs should be thorough, have some additional cushion built in, and focus on development of physical product or intellectual property and growth. Not what you want to pay yourself as a salary.

If fundraising, be sure to include a repayment schedule for any loans, use of funds, runway to follow up fundraising rounds, and the milestones you expect to achieve by then.

Include all other information, references and required documentation here.

This will typically include:

• Articles of incorporation and status
• Resumes of founders and key team members
• Copies of insurances
• Trademarks and patent registrations
• Deeper research data or links to references

Stay Flexible

Just like your first attempt at coding a website, practicing your pitch, or riding a bike, it’s not going to be perfect. Do your best. Get outside input from an expert. Just don’t wait until you think your business plan is perfectly polished and cannot possible go any further in depth. Otherwise, chances are you will have missed your window of opportunity by a long way.

It is also crucial to understand that nothing in this document is set in stone. Pretty much everything will absolutely change over time. Roles will change, marketing will change, financial projections will change, and your product and service menu can change.

Having raised money for startups, exited them, and after interviewing many of the most successful founders and angel investors on the DealMakers Podcast , I’ve got to experience both the struggles and wins in startup life. Things change rapidly overnight and for this reason you need to adapt quickly to the market and change whatever is required. 

This is a great guide and exercise. It’s a gateway to getting to the next step. Get it done, start taking action and stay flexible.

Creating a business plan remains a valuable part of launching any new business venture. Formats and business plan templates may have evolved, and new documents like pitch decks are becoming even more important.

Though without going through this process many entrepreneurs will find they have huge gaps in their ideas and may fall short when it comes to fielding questions from serious investors. Using this template you will cover most of the bases and will be able to take the next steps with confidence.

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Elements of a Business Plan There are seven major sections of a business plan, and each one is a complex document. Read today's selection from our business plan tutorial to fully understand the components of your business plan.

By Laura Tiffany Nov 30, 2004

Opinions expressed by Entrepreneur contributors are their own.

Now that you understand why you need a business plan and you've spent some time doing your homework gathering the information you need to create one, it's time to roll up your sleeves and get everything down on paper. The following pages will describe in detail the seven essential sections of a business plan: what you should include, what you shouldn't include, how to work the numbers and additional resources you can turn to for help. With that in mind, jump right in.

Executive Summary

Within the overall outline of the business plan, the executive summary will follow the title page. The summary should tell the reader what you want. This is very important. All too often, what the business owner desires is buried on page eight. Clearly state what you're asking for in the summary.

The statement should be kept short and businesslike, probably no more than half a page. It could be longer, depending on how complicated the use of funds may be, but the summary of a business plan, like the summary of a loan application, is generally no longer than one page. Within that space, you'll need to provide a synopsis of your entire business plan. Key elements that should be included are:

1. Business concept. Describes the business, its product and the market it will serve. It should point out just exactly what will be sold, to whom and why the business will hold a competitive advantage.

2. Financial features. Highlights the important financial points of the business including sales, profits, cash flows and return on investment.

3. Financial requirements. Clearly states the capital needed to start the business and to expand. It should detail how the capital will be used, and the equity, if any, that will be provided for funding. If the loan for initial capital will be based on security instead of equity, you should also specify the source of collateral.

4. Current business position. Furnishes relevant information about the company, its legal form of operation, when it was formed, the principal owners and key personnel.

5. Major achievements. Details any developments within the company that are essential to the success of the business. Major achievements include items like patents, prototypes, location of a facility, any crucial contracts that need to be in place for product development, or results from any test marketing that has been conducted.

When writing your statement of purpose, don't waste words. If the statement of purpose is eight pages, nobody's going to read it because it'll be very clear that the business, no matter what its merits, won't be a good investment because the principals are indecisive and don't really know what they want. Make it easy for the reader to realize at first glance both your needs and capabilities.

Business Description

The business description usually begins with a short descriptionof the industry. When describing the industry, discuss the presentoutlook as well as future possibilities. You should also provideinformation on all the various markets within the industry,including any new products or developments that will benefit oradversely affect your business. Base all of your observations onreliable data and be sure to footnote sources of information asappropriate. This is important if you're seeking funding; theinvestor will want to know just how dependable your information is,and won't risk money on assumptions or conjecture.

When describing your business, the first thing you need toconcentrate on is its structure. By structure we mean the type ofoperation, i.e. wholesale, retail, food service, manufacturing orservice-oriented. Also state whether the business is new or alreadyestablished.

In addition to structure, legal form should be reiterated onceagain. Detail whether the business is a sole proprietorship,partnership or corporation, who its principals are, and what theywill bring to the business.

You should also mention who you will sell to, how the productwill be distributed, and the business's support systems.Support may come in the form of advertising, promotions andcustomer service.

Once you've described the business, you need to describe theproducts or services you intend to market. The product descriptionstatement should be complete enough to give the reader a clear ideaof your intentions. You may want to emphasize any unique featuresor variations from concepts that can typically be found in theindustry.

Be specific in showing how you will give your business acompetitive edge. For example, your business will be better becauseyou will supply a full line of products; competitor A doesn'thave a full line. You're going to provide service after thesale; competitor B doesn't support anything he sells. Yourmerchandise will be of higher quality. You'll give a money-backguarantee. Competitor C has the reputation for selling the bestFrench fries in town; you're going to sell the best ThousandIsland dressing.

How Will You Profit?

Now you must be a classic capitalist and ask yourself, "Howcan I turn a buck? And why do I think I can make a profit thatway?" Answer that question for yourself, and then convey thatanswer to others in the business concept section. You don'thave to write 25 pages on why your business will be profitable.Just explain the factors you think will make it successful, likethe following: it's a well-organized business, it will havestate-of-the-art equipment, its location is exceptional, the marketis ready for it, and it's a dynamite product at a fairprice.

If you're using your business plan as a document forfinancial purposes, explain why the added equity or debt money isgoing to make your business more profitable.

Show how you will expand your business or be able to createsomething by using that money.

Show why your business is going to be profitable. A potentiallender is going to want to know how successful you're going tobe in this particular business. Factors that support your claimsfor success can be mentioned briefly; they will be detailed later.Give the reader an idea of the experience of the other key peoplein the business. They'll want to know what suppliers or expertsyou've spoken to about your business and their response to youridea. They may even ask you to clarify your choice of location orreasons for selling this particular product.

The business description can be a few paragraphs in length to afew pages, depending on the complexity of your plan. If your planisn't too complicated, keep your business description short,describing the industry in one paragraph, the product in another,and the business and its success factors in three or fourparagraphs that will end the statement.

While you may need to have a lengthy business description insome cases, it's our opinion that a short statement conveys therequired information in a much more effective manner. Itdoesn't attempt to hold the reader's attention for anextended period of time, and this is important if you'representing to a potential investor who will have other plans he orshe will need to read as well. If the business description is longand drawn-out, you'll lose the reader's attention, andpossibly any chance of receiving the necessary funding for theproject.

Market Strategies

Market strategies are the result of a meticulous marketanalysis. A market analysis forces the entrepreneur to becomefamiliar with all aspects of the market so that the target marketcan be defined and the company can be positioned in order to garnerits share of sales. A market analysis also enables the entrepreneurto establish pricing, distribution and promotional strategies thatwill allow the company to become profitable within a competitiveenvironment. In addition, it provides an indication of the growthpotential within the industry, and this will allow you to developyour own estimates for the future of your business.

Begin your market analysis by defining the market in terms ofsize, structure, growth prospects, trends and sales potential.

The total aggregate sales of your competitors will provide youwith a fairly accurate estimate of the total potential market. Forinstance, within the beer brewing industry, the total marketpotential would be the total sales of malt beverages in the UnitedStates, which is $15.2 billion.

Once the size of the market has been determined, the next stepis to define the target market. The target market narrows down thetotal market by concentrating on segmentation factors that willdetermine the total addressable market-the total number of userswithin the sphere of the business's influence. The segmentationfactors can be geographic, customer attributes orproduct-oriented.

For instance, if the distribution of your product is confined toa specific geographic area, then you want to further define thetarget market to reflect the number of users or sales of thatproduct within that geographic segment.

Once the target market has been detailed, it needs to be furtherdefined to determine the total feasible market. This can be done inseveral ways, but most professional planners will delineate thefeasible market by concentrating on product segmentation factorsthat may produce gaps within the market. In the case of amicrobrewery that plans to brew a premium lager beer, the totalfeasible market could be defined by determining how many drinkersof premium pilsner beers there are in the target market.

It's important to understand that the total feasible marketis the portion of the market that can be captured provided everycondition within the environment is perfect and there is verylittle competition. In most industries this is simply not the case.There are other factors that will affect the share of the feasiblemarket a business can reasonably obtain. These factors are usuallytied to the structure of the industry, the impact of competition,strategies for market penetration and continued growth, and theamount of capital the business is willing to spend in order toincrease its market share.

Projecting Market Share

Arriving at a projection of the market share for a business planis very much a subjective estimate. It's based on not only ananalysis of the market but on highly targeted and competitivedistribution, pricing and promotional strategies. For instance,even though there may be a sizable number of premium pilsnerdrinkers to form the total feasible market, you need to be able toreach them through your distribution network at a price pointthat's competitive, and then you have to let them know it'savailable and where they can buy it. How effectively you canachieve your distribution, pricing and promotional goals determinesthe extent to which you will be able to garner market share.

For a business plan, you must be able to estimate market sharefor the time period the plan will cover. In order to project marketshare over the time frame of the business plan, you'll need toconsider two factors:

1. Industry growth which will increase the total number ofusers. Most projections utilize a minimum of two growth modelsby defining different industry sales scenarios. The industry salesscenarios should be based on leading indicators of industry sales,which will most likely include industry sales, industry segmentsales, demographic data and historical precedence.

2. Conversion of users from the total feasible market. This is based on a sales cycle similar to a product life cyclewhere you have five distinct stages: early pioneer users, earlyusers, early majority users, late majority users and late users.Using conversion rates, market growth will continue to increaseyour market share during the period from early pioneers to earlymajority users, level off through late majority users, and declinewith late users.

Defining the market is but one step in your analysis. With theinformation you've gained through market research, you need todevelop strategies that will allow you to fulfill yourobjectives.

Positioning Your Business When discussing market strategy,it's inevitable that positioning will be brought up. Acompany's positioning strategy is affected by a number ofvariables that are closely tied to the motivations and requirementsof target customers within as well as the actions of primarycompetitors.

Before a product can be positioned, you need to answer severalstrategic questions such as:

• How are your competitors positioning themselves?
• What specific attributes does your product have that yourcompetitors' don't?
• What customer needs does your product fulfill?

Once you've answered your strategic questions based onresearch of the market, you can then begin to develop yourpositioning strategy and illustrate that in your business plan. Apositioning statement for a business plan doesn't have to belong or elaborate. It should merely point out exactly how you wantyour product perceived by both customers and the competition.

How you price your product is important because it will have adirect effect on the success of your business. Though pricingstrategy and computations can be complex, the basic rules ofpricing are straightforward:

• All prices must cover costs.
• The best and most effective way of lowering your sales pricesis to lower costs.
• Your prices must reflect the dynamics of cost, demand, changesin the market and response to your competition.
• Prices must be established to assure sales. Don't priceagainst a competitive operation alone. Rather, price to sell.
• Product utility, longevity, maintenance and end use must bejudged continually, and target prices adjusted accordingly.
• Prices must be set to preserve order in the marketplace.

There are many methods of establishing prices available toyou:

• Cost-plus pricing. Used mainly by manufacturers,cost-plus pricing assures that all costs, both fixed and variable,are covered and the desired profit percentage is attained.
• Demand pricing. Used by companies that sell theirproduct through a variety of sources at differing prices based ondemand.
• Competitive pricing. Used by companies that are enteringa market where there is already an established price and it isdifficult to differentiate one product from another.
• Markup pricing. Used mainly by retailers, markup pricingis calculated by adding your desired profit to the cost of theproduct. Each method listed above has its strengths andweaknesses.
• Distribution

Distribution includes the entire process of moving the productfrom the factory to the end user. The type of distribution networkyou choose will depend upon the industry and the size of themarket. A good way to make your decision is to analyze yourcompetitors to determine the channels they are using, then decidewhether to use the same type of channel or an alternative that mayprovide you with a strategic advantage.

Some of the more common distribution channels include:

• Direct sales. The most effective distribution channel isto sell directly to the end-user.
• OEM (original equipment manufacturer) sales. When yourproduct is sold to the OEM, it is incorporated into their finishedproduct and it is distributed to the end user.
• Manufacturer's representatives. One of the best waysto distribute a product, manufacturer's reps, as they areknown, are salespeople who operate out of agencies that handle anassortment of complementary products and divide their selling timeamong them.
• Wholesale distributors. Using this channel, amanufacturer sells to a wholesaler, who in turn sells it to aretailer or other agent for further distribution through thechannel until it reaches the end user.
• Brokers. Third-party distributors who often buy directlyfrom the distributor or wholesaler and sell to retailers or endusers.
• Retail distributors. Distributing a product through thischannel is important if the end user of your product is the generalconsuming public.
• Direct Mail. Selling to the end user using a direct mailcampaign.

As we've mentioned already, the distribution strategy youchoose for your product will be based on several factors thatinclude the channels being used by your competition, your pricingstrategy and your own internal resources.

Promotion Plan

With a distribution strategy formed, you must develop apromotion plan. The promotion strategy in its most basic form isthe controlled distribution of communication designed to sell yourproduct or service. In order to accomplish this, the promotionstrategy encompasses every marketing tool utilized in thecommunication effort. This includes:

• Advertising. Includes the advertising budget, creativemessage(s), and at least the first quarter's mediaschedule.
• Packaging. Provides a description of the packagingstrategy. If available, mockups of any labels, trademarks orservice marks should be included.
• Public relations. A complete account of the publicitystrategy including a list of media that will be approached as wellas a schedule of planned events.
• Sales promotions. Establishes the strategies used tosupport the sales message. This includes a description ofcollateral marketing material as well as a schedule of plannedpromotional activities such as special sales, coupons, contests andpremium awards.
• Personal sales. An outline of the sales strategyincluding pricing procedures, returns and adjustment rules, salespresentation methods, lead generation, customer service policies,salesperson compensation, and salesperson marketresponsibilities.

Sales Potential

Once the market has been researched and analyzed, conclusionsneed to be developed that will supply a quantitative outlookconcerning the potential of the business. The first financialprojection within the business plan must be formed utilizing theinformation drawn from defining the market, positioning theproduct, pricing, distribution, and strategies for sales. The salesor revenue model charts the potential for the product, as well asthe business, over a set period of time. Most business plans willproject revenue for up to three years, although five-yearprojections are becoming increasingly popular among lenders.

When developing the revenue model for the business plan, theequation used to project sales is fairly simple. It consists of thetotal number of customers and the average revenue from eachcustomer. In the equation, "T" represents the totalnumber of people, "A" represents the average revenue percustomer, and "S" represents the sales projection. Theequation for projecting sales is: (T)(A) = S

Using this equation, the annual sales for each year projectedwithin the business plan can be developed. Of course, there areother factors that you'll need to evaluate from the revenuemodel. Since the revenue model is a table illustrating the sourcefor all income, every segment of the target market that is treateddifferently must be accounted for. In order to determine anydifferences, the various strategies utilized in order to sell theproduct have to be considered. As we've already mentioned,those strategies include distribution, pricing and promotion.

Competitive Analysis

The competitive analysis is a statement of the business strategyand how it relates to the competition. The purpose of thecompetitive analysis is to determine the strengths and weaknessesof the competitors within your market, strategies that will provideyou with a distinct advantage, the barriers that can be developedin order to prevent competition from entering your market, and anyweaknesses that can be exploited within the product developmentcycle.

The first step in a competitor analysis is to identify thecurrent and potential competition. There are essentially two waysyou can identify competitors. The first is to look at the marketfrom the customer's viewpoint and group all your competitors bythe degree to which they contend for the buyer's dollar. Thesecond method is to group competitors according to their variouscompetitive strategies so you understand what motivates them.

Once you've grouped your competitors, you can start toanalyze their strategies and identify the areas where they'remost vulnerable. This can be done through an examination of yourcompetitors' weaknesses and strengths. A competitor'sstrengths and weaknesses are usually based on the presence andabsence of key assets and skills needed to compete in themarket.

To determine just what constitutes a key asset or skill withinan industry, David A. Aaker in his book, Developing BusinessStrategies suggests concentrating your efforts in fourareas:

• The reasons behind successful as well as unsuccessfulfirms
• Prime customer motivators
• Major component costs
• Industry mobility barriers

According to theory, the performance of a company within amarket is directly related to the possession of key assets andskills. Therefore, an analysis of strong performers should revealthe causes behind such a successful track record. This analysis, inconjunction with an examination of unsuccessful companies and thereasons behind their failure, should provide a good idea of justwhat key assets and skills are needed to be successful within agiven industry and market segment.

For instance, in the personal-computer operating-system softwaremarket, Microsoft reigns supreme with DOS and Windows. It'sbeen able to establish its dominance in this industry because ofsuperior marketing and research as well strategic partnerships witha large majority of the hardware vendors that produce personalcomputers. This has allowed DOS and Windows to become the operatingenvironment, maybe not of choice, but of necessity for the majorityof personal computers on the market.

Microsoft's primary competitors, Apple and IBM, both havecompeting operating systems with a great deal of marketing toaccompany them; however, both suffer from weaknesses that Microsofthas been able to exploit. Apple's operating system for itsMacintosh line of computers, while superior in many ways to DOS andWindows, is limited to the Macintosh personal computers; therefore,it doesn't run many of the popular business applications thatare readily available to DOS and Windows. To an extent, IBM'sOS/2 operating system suffers from the same problem. While it willrun on all of the personal computers DOS and Windows can run on andeven handle Windows applications, the number of programs producedfor OS/2 in its native environment is very small. This is the typeof detailed analysis you need in analyzing an industry.

Through your competitor analysis, you will also have to create amarketing strategy that will generate an asset or skill competitorsdon't have, which will provide you with a distinct and enduringcompetitive advantage. Since competitive advantages are developedfrom key assets and skills, you should sit down and put together acompetitive strength grid. This is a scale that lists all yourmajor competitors or strategic groups based upon their applicableassets and skills and how your own company fits on this scale.

Create a Competitive Strength Grid

To put together a competitive strength grid, list all the keyassets and skills down the left margin of a piece of paper. Alongthe top, write down two column headers: "weakness" and"strength." In each asset or skill category, place allthe competitors that have weaknesses in that particular categoryunder the weakness column, and all those that have strengths inthat specific category in the strength column. After you'vefinished, you'll be able to determine just where you stand inrelation to the other firms competing in your industry.

Once you've established the key assets and skills necessaryto succeed in this business and have defined your distinctcompetitive advantage, you need to communicate them in a strategicform that will attract market share as well as defend it.Competitive strategies usually fall into these five areas:

• Advertising

Many of the factors leading to the formation of a strategyshould already have been highlighted in previous sections,specifically in marketing strategies. Strategies primarily revolvearound establishing the point of entry in the product life cycleand an endurable competitive advantage. As we've alreadydiscussed, this involves defining the elements that will set yourproduct or service apart from your competitors or strategic groups.You need to establish this competitive advantage clearly so thereader understands not only how you will accomplish your goals, butalso why your strategy will work.

Design and Development Plan

The purpose of the design and development plan section is toprovide investors with a description of the product's design,chart its development within the context of production, marketingand the company itself, and create a development budget that willenable the company to reach its goals.

There are generally three areas you'll cover in thedevelopment plan section:

• Product development
• Market development
• Organizational development

Each of these elements needs to be examined from the funding ofthe plan to the point where the business begins to experience acontinuous income. Although these elements will differ in natureconcerning their content, each will be based on structure andgoals.

The first step in the development process is setting goals forthe overall development plan. From your analysis of the market andcompetition, most of the product, market and organizationaldevelopment goals will be readily apparent. Each goal you defineshould have certain characteristics. Your goals should bequantifiable in order to set up time lines, directed so they relateto the success of the business, consequential so they have impactupon the company, and feasible so that they aren't beyond thebounds of actual completion.

Goals For Product Development

Goals for product development should center on the technical as well as the marketing aspects of theproduct so that you have a focused outline from which thedevelopment team can work. For example, a goal for productdevelopment of a microbrewed beer might be "Produce recipe forpremium lager beer" or "Create packaging for premiumlager beer." In terms of market development, a goal might be,"Develop collateral marketing material." Organizationalgoals would center on the acquisition of expertise in order toattain your product and market-development goals. This expertiseusually needs to be present in areas of key assets that provide acompetitive advantage. Without the necessary expertise, the chancesof bringing a product successfully to market diminish.

With your goals set and expertise in place, you need to form aset of procedural tasks or work assignments for each area of thedevelopment plan. Procedures will have to be developed for productdevelopment, market development, and organization development. Insome cases, product and organization can be combined if the list ofprocedures is short enough.

Procedures should include how resources will be allocated, whois in charge of accomplishing each goal, and how everything willinteract. For example, to produce a recipe for a premium lagerbeer, you would need to do the following:

• Gather ingredients.
• Determine optimum malting process.
• Gauge mashing temperature.
• Boil wort and evaluate which hops provide the best flavor.
• Determine yeast amounts and fermentation period.
• Determine aging period.
• Carbonate the beer.
• Decide whether or not to pasteurize the beer.

The development of procedures provides a list of workassignments that need to be accomplished, but one thing itdoesn't provide are the stages of development that coordinatethe work assignments within the overall development plan. To dothis, you first need to amend the work assignments created in theprocedures section so that all the individual work elements areaccounted for in the development plan. The next stage involvessetting deliverable dates for components as well as the finishedproduct for testing purposes. In Terence P. McGarty's book, Business Plans That Win Venture Capital there are primarilythree steps you need to go through before the product is ready forfinal delivery:

• Preliminary product review . All the product'sfeatures and specifications are checked.
• Critical product review . All the key elements of theproduct are checked and gauged against the development schedule tomake sure everything is going according to plan.
• Final product review . All elements of the product arechecked against goals to assure the integrity of theprototype.

Scheduling and Costs

This is one of the most important elements in the developmentplan. Scheduling includes all of the key work elements as well asthe stages the product must pass through before customer delivery.It should also be tied to the development budget so that expensescan be tracked. But its main purpose is to establish time framesfor completion of all work assignments and juxtapose them withinthe stages through which the product must pass. When producing theschedule, provide a column for each procedural task, how long ittakes, start date and stop date. If you want to provide a numberfor each task, include a column in the schedule for the tasknumber.

Development Budget

That leads us into a discussion of the development budget. Whenforming your development budget, you need to take into account allthe expenses required to design the product and to take it fromprototype to production.

Costs that should be included in the development budgetinclude:

• Material . All raw materials used in the development ofthe product.
• Direct labor . All labor costs associated with thedevelopment of the product.
• Overhead . All overhead expenses required to operate thebusiness during the development phase such as taxes, rent, phone,utilities, office supplies, etc.
• G&A costs . The salaries of executive andadministrative personnel along with any other office supportfunctions.
• Marketing & sales . The salaries of marketingpersonnel required to develop pre-promotional materials and planthe marketing campaign that should begin prior to delivery of theproduct.
• Professional services . Those costs associated with theconsultation of outside experts such as accountants, lawyers, andbusiness consultants.
• Miscellaneous Costs . Costs that are related to productdevelopment.
• Capital equipment . To determine the capital requirementsfor the development budget, you first have to establish what typeof equipment you will need, whether you will acquire the equipmentor use outside contractors, and finally, if you decide to acquirethe equipment, whether you will lease or purchase it.

As we mentioned already, the company has to have the properexpertise in key areas to succeed; however, not every company willstart a business with the expertise required in every key area.Therefore, the proper personnel have to be recruited, integratedinto the development process, and managed so that everyone forms ateam focused on the achievement of the development goals.

Before you begin recruiting, however, you should determine whichareas within the development process will require the addition ofpersonnel. This can be done by reviewing the goals of yourdevelopment plan to establish key areas that need attention. Afteryou have an idea of the positions that need to be filled, youshould produce a job description and job specification.

Once you've hired the proper personnel, you need tointegrate them into the development process by assigning tasks fromthe work assignments you've developed. Finally, the whole teamneeds to know what their role is within the company and how eachinterrelates with every position within the development team. Inorder to do this, you should develop an organizational chart foryour development team.

Assessing Risks

Finally, the risks involved in developing the product should beassessed and a plan developed to address each one. The risks duringthe development stage will usually center on technical developmentof the product, marketing, personnel requirements, and financialproblems. By identifying and addressing each of the perceived risksduring the development period, you will allay some of your majorfears concerning the project and those of investors as well.

Operations and Management Plan

The operations and management plan is designed to describe justhow the business functions on a continuing basis. The operationsplan will highlight the logistics of the organization such as thevarious responsibilities of the management team, the tasks assignedto each division within the company, and capital and expenserequirements related to the operations of the business. In fact,within the operations plan you'll develop the next set offinancial tables that will supply the foundation for the"Financial Components" section.

The financial tables that you'll develop within theoperations plan include:

• The operating expense table
• The capital requirements table
• The cost of goods table

There are two areas that need to be accounted for when planningthe operations of your company. The first area is theorganizational structure of the company, and the second is theexpense and capital requirements associated with its operation.

Organizational Structure

The organizational structure of the company is an essentialelement within a business plan because it provides a basis fromwhich to project operating expenses. This is critical to theformation of financial statements, which are heavily scrutinized byinvestors; therefore, the organizational structure has to bewell-defined and based within a realistic framework given theparameters of the business.

Although every company will differ in its organizationalstructure, most can be divided into several broad areas thatinclude:

• Marketing and sales (includes customer relations andservice)
• Production (including quality assurance)
• Research and development
• Administration

These are very broad classifications and it's important tokeep in mind that not every business can be divided in this manner.In fact, every business is different, and each one must bestructured according to its own requirements and goals.

Terence P. McGarty in his book, Business Plans That WinVenture Capital , lists four stages for organizing abusiness:

Calculate Your Personnel Numbers

Once you've structured your business, however, you need toconsider your overall goals and the number of personnel required toreach those goals. In order to determine the number of employeesyou'll need to meet the goals you've set for your business,you'll need to apply the following equation to each departmentlisted in your organizational structure: C / S = P

In this equation, C represents the total number of customers, Srepresents the total number of customers that can be served by eachemployee, and P represents the personnel requirements. Forinstance, if the number of customers for first year sales isprojected at 10,110 and one marketing employee is required forevery 200 customers, you would need 51 employees within themarketing department: 10,110 / 200 = 51

Once you calculate the number of employees that you'll needfor your organization, you'll need to determine the laborexpense. The factors that need to be considered when calculatinglabor expense (LE) are the personnel requirements (P) for eachdepartment multiplied by the employee salary level (SL). Therefore,the equation would be: P * SL = LE

Using the marketing example from above, the labor expense forthat department would be: 51 * $40,000 = $2,040,000

Calculate Overhead Expenses

Once the organization's operations have been planned, theexpenses associated with the operation of the business can bedeveloped. These are usually referred to as overhead expenses.Overhead expenses refer to all non-labor expenses required tooperate the business. Expenses can be divided into fixed (those that must be paid, usually at the same rate, regardless ofthe volume of business) and variable or semivariable (those which change according to the amount of business).

Overhead expenses usually include the following:

• Maintenance and repair
• Equipment leases
• Advertising & promotion
• Packaging & shipping
• Payroll taxes and benefits
• Uncollectible receivables
• Professional services
• Loan payments
• Depreciation

In order to develop the overhead expenses for the expense tableused in this portion of the business plan, you need to multiply thenumber of employees by the expenses associated with each employee.Therefore, if NE represents the number of employees and EE is theexpense per employee, the following equation can be used tocalculate the sum of each overhead (OH) expense: OH = NE *EE

Develop a Capital Requirements Table

In addition to the expense table, you'll also need todevelop a capital requirements table that depicts the amount ofmoney necessary to purchase the equipment you'll use toestablish and continue operations. It also illustrates the amountof depreciation your company will incur based on all equipmentelements purchased with a lifetime of more than one year.

In order to generate the capital requirements table, you firsthave to establish the various elements within the business thatwill require capital investment. For service businesses, capital isusually tied to the various pieces of equipment used to servicecustomers.

Capital for manufacturing companies, on the other hand, is basedon the equipment required in order to produce the product.Manufacturing equipment usually falls into three categories:testing equipment, assembly equipment and packaging equipment.

With these capital elements in mind, you need to determine thenumber of units or customers, in terms of sales, that eachequipment item can adequately handle. This is important becausecapital requirements are a product of income, which is producedthrough unit sales. In order to meet sales projections, a businessusually has to invest money to increase production or supply betterservice. In the business plan, capital requirements are tied toprojected sales as illustrated in the revenue model shown earlierin this chapter.

For instance, if the capital equipment required is capable ofhandling the needs of 10,000 customers at an average sale of $10each, that would be $100,000 in sales, at which point additionalcapital will be required in order to purchase more equipment shouldthe company grow beyond this point. This leads us to another factorwithin the capital requirements equation, and that is equipmentcost.

If you multiply the cost of equipment by the number of customersit can support in terms of sales, it would result in the capitalrequirements for that particular equipment element. Therefore, youcan use an equation in which capital requirements (CR) equals sales(S) divided by number of customers (NC) supported by each equipmentelement, multiplied by the average sale (AS), which is thenmultiplied by the capital cost (CC) of the equipment element. Giventhese parameters, your equation would look like the following: CR = [(S / NC) * AS] * CC

The capital requirements table is formed by adding all yourequipment elements to generate the total new capital for that year.During the first year, total new capital is also the total capitalrequired. For each successive year thereafter, total capital (TC)required is the sum of total new capital (NC) plus total capital(PC) from the previous year, less depreciation (D), once again,from the previous year. Therefore, your equation to arrive at totalcapital for each year portrayed in the capital requirements modelwould be: TC = NC + PC - D

Keep in mind that depreciation is an expense that shows thedecrease in value of the equipment throughout its effectivelifetime. For many businesses, depreciation is based upon schedulesthat are tied to the lifetime of the equipment. Be careful whenchoosing the schedule that best fits your business. Depreciation isalso the basis for a tax deduction as well as the flow of money fornew capital. You may need to seek consultation from an expert inthis area.

Create a Cost of Goods Table

The last table that needs to be generated in the operations andmanagement section of your business plan is the cost of goodstable. This table is used only for businesses where the product isplaced into inventory. For a retail or wholesale business, costof goods sold -or cost of sales -refers to the purchase ofproducts for resale, i.e. the inventory. The products that are soldare logged into cost of goods as an expense of the sale, whilethose that aren't sold remain in inventory.

For a manufacturing firm, cost of goods is the cost incurred bythe company to manufacture its product. This usually consists ofthree elements:

As in retail, the merchandise that is sold is expensed as a cost of goods , while merchandise that isn't sold isplaced in inventory. Cost of goods has to be accounted for in theoperations of a business. It is an important yardstick formeasuring the firm's profitability for the cash-flow statementand income statement.

In the income statement, the last stage of the manufacturingprocess is the item expensed as cost of goods, but it is importantto document the inventory still in various stages of themanufacturing process because it represents assets to the company.This is important to determining cash flow and to generating thebalance sheet.

That is what the cost of goods table does. It's one of themost complicated tables you'll have to develop for yourbusiness plan, but it's an integral part of portraying the flowof inventory through your operations, the placement of assetswithin the company, and the rate at which your inventory turns.

In order to generate the cost of goods table, you need a littlemore information in addition to what your labor and material costis per unit. You also need to know the total number of units soldfor the year, the percentage of units which will be fullyassembled, the percentage which will be partially assembled, andthe percentage which will be in unassembled inventory. Much ofthese figures will depend on the capacity of your equipment as wellas on the inventory control system you develop. Along with thesefactors, you also need to know at what stage the majority of thelabor is performed.

Financial Components

Financial data is always at the back of the business plan, butthat doesn't mean it's any less important than up-frontmaterial such as the business concept and the management team.Astute investors look carefully at the charts, tables, formulas andspreadsheets in the financial section, because they know that thisinformation is like the pulse, respiration rate and blood pressurein a human-it shows whether the patient is alive and what the oddsare for continued survival.

Financial statements, like bad news, come in threes. The news infinancial statements isn't always bad, of course, but takentogether it provides an accurate picture of a company's currentvalue, plus its ability to pay its bills today and earn a profitgoing forward.

The three common statements are a cash flow statement, an incomestatement and a balance sheet. Most entrepreneurs should providethem and leave it at that. But not all do. Robert Crowley, vicepresident of Massachusetts Technology Development Corp., astate-owned venture firm, once described it as "this horribledisease . . . called spreadsheet-itis. It's the most commonailment in business plans today." Crowley says electronicspreadsheet software allows business plan writers to easily crankout many pages and many varieties of financial documents. But thisis a case of the more, the less merry. As a rule, stick with thebig three: income, balance sheet and cash flow statements.

These three statements are interlinked, with changes in onenecessarily altering the others, but they measure quite differentaspects of a company's financial health. It's hard to saythat one of these is more important than another. But of the three,the income statement may be the best place to start.

Income Statement

The income statement is a simple and straightforward report onthe proposed business's cash-generating ability. It's ascore card on the financial performance of your business thatreflects when sales are made and when expenses are incurred. Itdraws information from the various financial models developedearlier such as revenue, expenses, capital (in the form ofdepreciation), and cost of goods. By combining these elements, theincome statement illustrates just how much your company makes orloses during the year by subtracting cost of goods and expensesfrom revenue to arrive at a net result-which is either a profit ora loss.

For a business plan, the income statement should be generated ona monthly basis during the first year, quarterly for the second,and annually for each year thereafter. It's formed by listingyour financial projections in the following manner:

• Income . Includes all the income generated by thebusiness and its sources.
• Cost of goods . Includes all the costs related to thesale of products in inventory.
• Gross profit margin . The difference between revenue andcost of goods. Gross profit margin can be expressed in dollars, asa percentage, or both. As a percentage, the GP margin is alwaysstated as a percentage of revenue.
• Operating expenses . Includes all overhead and laborexpenses associated with the operations of the business.
• Total expenses . The sum of all overhead and laborexpenses required to operate the business.
• Net profit . The difference between gross profit marginand total expenses, the net income depicts the business's debtand capital capabilities.
• Depreciation . Reflects the decrease in value of capitalassets used to generate income. Also used as the basis for a taxdeduction and an indicator of the flow of money into newcapital.
• Net profit before interest . The difference between netprofit and depreciation.
• Interest . Includes all interest derived from debts, bothshort-term and long-term. Interest is determined by the amount ofinvestment within the company.
• Net profit before taxes . The difference between netprofit before interest and interest.
• Taxes . Includes all taxes on the business.
• Profit after taxes . The difference between net profitbefore taxes and the taxes accrued. Profit after taxes is thebottom line for any company.

Following the income statement is a short note analyzing thestatement. The analysis statement should be very short, emphasizingkey points within the income statement.

Cash Flow Statement

The cash-flow statement is one of the most critical informationtools for your business, showing how much cash will be needed tomeet obligations, when it is going to be required, and from whereit will come. It shows a schedule of the money coming into thebusiness and expenses that need to be paid. The result is theprofit or loss at the end of the month or year. In a cash-flowstatement, both profits and losses are carried over to the nextcolumn to show the cumulative amount. Keep in mind that if you runa loss on your cash-flow statement, it is a strong indicator thatyou will need additional cash in order to meet expenses.

Like the income statement, the cash-flow statement takesadvantage of previous financial tables developed during the courseof the business plan. The cash-flow statement begins with cash onhand and the revenue sources. The next item it lists is expenses,including those accumulated during the manufacture of a product.The capital requirements are then logged as a negative afterexpenses. The cash-flow statement ends with the net cash flow.

The cash-flow statement should be prepared on a monthly basisduring the first year, on a quarterly basis during the second year,and on an annual basis thereafter. Items that you'll need toinclude in the cash-flow statement and the order in which theyshould appear are as follows:

• Cash sales . Income derived from sales paid for bycash.
• Receivables . Income derived from the collection ofreceivables.
• Other income . Income derived from investments, intereston loans that have been extended, and the liquidation of anyassets.
• Total income . The sum of total cash, cash sales,receivables, and other income.
• Material/merchandise . The raw material used in themanufacture of a product (for manufacturing operations only), thecash outlay for merchandise inventory (for merchandisers such aswholesalers and retailers), or the supplies used in the performanceof a service.
• Production labor . The labor required to manufacture aproduct (for manufacturing operations only) or to perform aservice.
• Overhead . All fixed and variable expenses required forthe production of the product and the operations of thebusiness.
• Marketing/sales . All salaries, commissions, and otherdirect costs associated with the marketing and salesdepartments.
• R&D . All the labor expenses required to support theresearch and development operations of the business.
• G&A . All the labor expenses required to support theadministrative functions of the business.
• Taxes . All taxes, except payroll, paid to theappropriate government institutions.
• Capital . The capital required to obtain any equipmentelements that are needed for the generation of income.
• Loan payment . The total of all payments made to reduceany long-term debts.
• Total expenses . The sum of material, direct labor,overhead expenses, marketing, sales, G&A, taxes, capital andloan payments.
• Cash flow . The difference between total income and totalexpenses. This amount is carried over to the next period asbeginning cash.
• Cumulative cash flow . The difference between currentcash flow and cash flow from the previous period.

As with the income statement, you will need to analyze thecash-flow statement in a short summary in the business plan. Onceagain, the analysis statement doesn't have to be long andshould cover only key points derived from the cash-flowstatement.

The Balance Sheet

The last financial statement you'll need to develop is thebalance sheet. Like the income and cash-flow statements, thebalance sheet uses information from all of the financial modelsdeveloped in earlier sections of the business plan; however, unlikethe previous statements, the balance sheet is generated solely onan annual basis for the business plan and is, more or less, asummary of all the preceding financial information broken down intothree areas:

To obtain financing for a new business, you may need to providea projection of the balance sheet over the period of time thebusiness plan covers. More importantly, you'll need to includea personal financial statement or balance sheet instead of one thatdescribes the business. A personal balance sheet is generated inthe same manner as one for a business.

As mentioned, the balance sheet is divided into three sections.The top portion of the balance sheet lists your company'sassets. Assets are classified as current assets and long-term orfixed assets. Current assets are assets that will be converted tocash or will be used by the business in a year or less. Currentassets include:

• Cash . The cash on hand at the time books are closed atthe end of the fiscal year.
• Accounts receivable . The income derived from creditaccounts. For the balance sheet, it's the total amount ofincome to be received that is logged into the books at the close ofthe fiscal year.
• Inventory . This is derived from the cost of goods table.It's the inventory of material used to manufacture a productnot yet sold.
• Total current assets . The sum of cash, accountsreceivable, inventory, and supplies.

Other assets that appear in the balance sheet are calledlong-term or fixed assets. They are called long-term because theyare durable and will last more than one year. Examples of this typeof asset include:

• Capital and plant . The book value of all capitalequipment and property (if you own the land and building), lessdepreciation.
• Investment . All investments by the company that cannotbe converted to cash in less than one year. For the most part,companies just starting out have not accumulated long-terminvestments.
• Miscellaneous assets . All other long-term assets thatare not "capital and plant" or"investments."
• Total long-term assets . The sum of capital and plant,investments, and miscellaneous assets.
• Total assets . The sum of total current assets and totallong-term assets.

After the assets are listed, you need to account for theliabilities of your business. Like assets, liabilities areclassified as current or long-term. If the debts are due in oneyear or less, they are classified as a current liabilities. If theyare due in more than one year, they are long-term liabilities.Examples of current liabilities are as follows:

• Accounts payable . All expenses derived from purchasingitems from regular creditors on an open account, which are due andpayable.
• Accrued liabilities . All expenses incurred by thebusiness which are required for operation but have not been paid atthe time the books are closed. These expenses are usually thecompany's overhead and salaries.
• Taxes . These are taxes that are still due and payable atthe time the books are closed.
• Total current liabilities . The sum of accounts payable,accrued liabilities, and taxes.

Long-term liabilities include:

• Bonds payable . The total of all bonds at the end of theyear that are due and payable over a period exceeding oneyear.
• Mortgage payable . Loans taken out for the purchase ofreal property that are repaid over a long-term period. The mortgagepayable is that amount still due at the close of books for theyear.
• Notes payable . The amount still owed on any long-termdebts that will not be repaid during the current fiscal year.
• Total long-term liabilities . The sum of bonds payable,mortgage payable, and notes payable.
• Total liabilities . The sum of total current andlong-term liabilities.

Once the liabilities have been listed, the final portion of thebalance sheet-owner's equity-needs to be calculated. The amountattributed to owner's equity is the difference between totalassets and total liabilities. The amount of equity the owner has inthe business is an important yardstick used by investors whenevaluating the company. Many times it determines the amount ofcapital they feel they can safely invest in the business.

In the business plan, you'll need to create an analysisstatement for the balance sheet just as you need to do for theincome and cash flow statements. The analysis of the balance sheetshould be kept short and cover key points about the company.

Source: The Small Business Encyclopedia , Business Plans Made Easy , Start Your Own Business and Entrepreneur magazine.

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Directive Speech vs. Dialogue: How Leaders Communicate with Clarity, Balance

In this “best of” podcast episode, Stanford president Jon Levin shares his thoughts on effective communication.

August 06, 2024

“In a leadership role, so much more of communication is about connecting with people, establishing shared humanity, motivating them, inspiring them, sometimes challenging them.”

On August 1, 2024, Jonathan D. Levin , the tenth dean of Stanford Graduate School of Business, was appointed the 13th President of Stanford University. In this Think Fast, Talk Smart episode from 2022, Levin reflects on the importance of communication for leaders. There is a balance, he says, in being direct with your dialogue, while also “leaving space for people to form their own opinions, to discuss ideas, to debate.”

Listen & Subscribe

Think Fast, Talk Smart is a podcast produced by Stanford Graduate School of Business. Each episode provides concrete, easy-to-implement tools and techniques to help you hone and enhance your communication skills.

Full Transcript:

Note: Transcripts are generated by machine and lightly edited by humans. They may contain errors.

Matt Abrahams: Communication is a critical element to success in business and in life. In this best of episode, we revisit my conversation with Stanford Graduate School of Business, Dean Jon Levin. In our conversation, Jon provides insight and personal experiences regarding the role and importance of communication. Jon will soon become Stanford University’s 13th president. We thank him for his strong support over all these years of our podcast, and we wish him well as he steps into his new role. Without further ado, enjoy our conversation. A big challenge for leaders and managers is to balance the tension between being directive and specific and allowing for space for discussion, debate, and difference. Today on the podcast, we’ll discuss this and the ever-changing expectations of leaders in communication. I’m Matt Abrahams and I teach strategic communication at Stanford Graduate School of Business. Welcome to Think Fast, Talk Smart , the podcast. I’m excited to chat with Jon Levin, who is the Philip H. Knight professor and dean of Stanford Graduate School of Business. Before becoming Dean in 2016, Jon spent 16 years in the economic department at Stanford. In 2021, he was appointed to President Joe Biden’s, council of Advisors on science and Technology. Well, hi Jon. Welcome to the podcast. I’m super excited to have you here.

Jon Levin: Thanks, Matt. Great to be here.

Matt Abrahams: Cool. Let’s get started. As your career has unfolded, you’ve had more and more opportunities to share your thoughts with larger and larger audiences. I’m curious to learn more about this and how your thinking on communication has evolved over time.

Jon Levin: My thinking about communication has evolved over my career. I started as a professor teaching, and when you’re giving research talks, it’s just everything is about presenting ideas and information clearly, and maybe even impressing people a little bit and getting them to change the way they think about a problem in a leadership role, so much more of communication is about connecting with people, establishing shared humanity, motivating them, inspiring them, sometimes challenging them. So I’ve gone through my career that has really reinforced to me the different purposes that communication serves to inform people, to connect with people, to motivate and inspire them.

Matt Abrahams: I too have seen over my time how it’s changed and the expectation has changed, and I think a lot of people who listen in have found themselves as their career has developed. They’ve had to adjust the way they perceive communication, much like you have, and for many people that can be very challenging. It’s good to hear that you recognize that. Any particular moments or thoughts that you’ve had that really helped you make that shift from talking about your own research in your own department to now being on a larger stage?

Jon Levin: I wish there was just a single moment when the light bulb went on and I magically got better, figured out different ways to communicate. For me, it didn’t happen that way. It was more of a gradual process of learning and improving. And like anything, communication is a craft and the craft that you teach and you have to work at it.

Matt Abrahams: Thank you for that candor, and thank you for reinforcing the fact that communication is something you have to work on in practice. Very, very true. In your six years as Dean of the Stanford Graduate School of Business, you’ve had to address many significant issues happening on campus and beyond. What are your thoughts on the role of leaders in communication in times of ambiguity and challenge, and do you have any best practices you’ve learned that you rely on?

Jon Levin: One of the most important things is to be able to provide clarity in a timely way. Often the way I tend to think about that is what do people need to know and how would I like them to feel when they read a message? For me, there’s a very complex set of issues that has arisen on campuses in an academic leadership that has to do with how do you communicate about issues that are going on in the world? And the landscape for that particular question has changed hugely over the last, say, five or 10 years, where historically academic leaders were hesitant, often did not rarely communicated about the events of the day and so forth. And today there’s a much higher expectation and a much greater demand to know where did the institutions stand? What does the president of the university think? What do deans think about different issues? I find that to be one of the most complicated and challenging set of questions in leadership, communication, figuring out what to talk about and how to talk about it, wanting to be able to make clear statements about what I think or institutional values to reassure groups of people who really want to hear something about that. But at the same time, leaving space for people to form their own opinions, to discuss ideas, to debate what’s going on because that diversity of ideas, of viewpoints of perspectives is just so absolutely central to our mission.

Matt Abrahams: I think in that you’ve clearly defined attention that all business leaders need to manage, which is how do you step forward and put forth your position, but also leave space for people to discuss, to debate, to discover? And that’s a hard tension. And it sounds like part of how you navigate through that is by thinking through what do you want people to know and how do you want them to feel about those issues? And that is something we’ve talked about before on this podcast. And I think critical in all communication, it’s not just the information you need to put out there, it’s how do people need to feel or do you want people to feel about it? So thank you,

Jon Levin: And I wanted to try to maintain that. And so I did keep that up through the main part of the pandemic, and I got a lot of positive responses and appreciation partly just for putting that effort in to try to maintain community.

Matt Abrahams: As you think about the future of business and business education, I’m wondering what you think about the role communication is playing now and will play in the future.

Jon Levin: There is just no doubt whatsoever that communication is going to play, is going to continue to play such an important role for business leaders. That’s true. Whether they’re communicating individually to their leadership team or to different people in their company or to employees or to customers or to shareholders or testifying in Congress or to the public. It really is just so important for people who are in leadership roles to be able to communicate with clarity. Our students are really fortunate to have folks like you to help prepare them for that world. Such an essential skill.

Matt Abrahams: Thank you. And I agree with you that the role of communication, the pandemic taught us how critical communication is and when we’re cut off in some ways from our communication, it could be very challenging. Let me ask you about a question that is relevant to someone who is an economist and the dean of a business school. Capitalism is under fire these days. We’re facing problems of economic inequality, climate change, loss of jobs to technology, privacy concerns and many other things. How is the GSB teaching students to think about capitalism and what is the role of the school in leading a broader conversation on the subject?

Jon Levin: I love that question because I think you’re just spot on with where the world is today. The place I like to start in thinking about that is just to think about the extraordinary triumph that we’ve had in this country and in many other places around the world over the last century, century and a half in the United States, over the last 150 years, standards of living almost doubled every generation and that rise from subsistence to prosperity. There’s no precedent in human history, and it’s been even more dramatic in countries like China, for example, that adopted many elements of capitalism. And so it’s just incredibly important to keep in mind that markets that private enterprise coupled with stable political legal institutions can be the single greatest engine for societal progress. Particularly important to keep that in mind at a business school because that is the engine we’re trying to build and support at the same time.

You’re absolutely right. You think of challenges like climate change, inequality, the misuses of technology. These are serious issues that we have to grapple with in this century, and we’re living at a time when our political system, which in some sense is the right place to deal with those types of challenges, just seems entirely unable to come to terms with them and address them in any sort of reasonable way. And so people naturally then look elsewhere for solutions and for leadership. And so they look to business, they look to investors, they look to the private sector to tackle these market failures, externalities, these problems to be responsive to relative stakeholders. And that just raises all kinds of hard questions. It’s hard enough to run a business to maximize long-term value for your shareholders. And then someone asks you to solve global climate change.

So when I think about what we want in educating students today to be business leaders, we want them to dive into those questions, to wrestle with them. There’s all kinds of tensions and trade-offs. We want them to really think hard and understand those complexities. And of course, we also believe, particularly a place like Stanford, we’re an epicenter of innovation. We want our students to be the source of the solutions. We want them to solve problems like climate change, to bring new technologies, ideas to market with great business models that deliver them with scale, with speed. We hope students when they come here are going to be inspired to take on big challenges and then to do it in ways that will restore people’s faith in business and the ways it contributes to society.

Matt Abrahams: I certainly see as our students leave here, that energy, that excitement to do just that. It’s one of the greatest pleasures I have teaching here.

Jon Levin: It’s incredibly inspiring. Absolutely renews your faith in humanity and people every day and every year when we get a new generation of students.

Matt Abrahams: I so agree, because the challenges are formidable and yet the students leave ready to tackle them, and it’s very rewarding. Stanford GSB is one of the most competitive management education programs in the world. What do you see as the opportunities for the GSB to reach and educate even a broader set of leaders than those fortunate enough to come here?

Jon Levin: So your question sort of alludes to attention in our core model of education at a place like Stanford, which is we take a very small and highly selected set of students and we pair them up with an even smaller and highly selected set of faculty. That’s a magical, immersive educational environment, very intense campus experience. We hope that the outcome of that is that students go on, graduates go on to have an outsized impact in the world. At the same time, we need a much larger, stronger cohort of global business leaders to help continue to move toward prosperity and to have growth and solve the big challenges of the world. And particularly with the interests that people have in continuing to learn throughout their lifetime and the capabilities that we’ve developed others have developed with technology. I have a very strong feeling that places like Stanford have a tremendous, in some ways a responsibility to try to reach and engage with and educate a broader set of people around the world. And to do that in ways that are transformative and meaningful and impactful. We do that today through short on campus programs. We run for executives or for other leaders in our online programs. Our lead program nearly doubled during the pandemic in programs we run globally, like Stanford Seed, which we run for entrepreneurs in Africa and South Asia. And we continue to look for new opportunities to do that. And it’s one of the things that I find most exciting about the future.

Matt Abrahams: I have certainly seen your commitment and your leadership team’s commitment to expanding how this place, the business school, but also Stanford reaches people. And I truly appreciate the support you have of what we do here because we’re trying to reach people as well.

Jon Levin: I think a podcast like this is such a great example of the ways that a place like Stanford can share ideas with the world and reach a broader audience and give people a sense of what’s going on, what are people thinking, what happens here.

Matt Abrahams: So before we end, I’d like to ask you the same three questions I ask everybody who joins me. Are you up for that?

Jon Levin: Let’s do it.

Matt Abrahams: Alright. Question number one. If you were to capture the best communication advice you’ve ever received as a five to seven word presentation slide title, what would it be?

Jon Levin: I have a story about this, which is maybe 20 years ago, my brother and I were asked to speak at an event that was in honor of my father, and we were supposed to be the dinner speakers. And so we wrote to the people organizing this event and we said, well, what should we say? What’s going? What do you think? And so forth. And they wrote back this incredibly long email with, well, maybe you could touch on this and that and this and that, and you could do it this way. And oh, by the way, maybe tell a joke and say something about your mom and all this stuff. And I looked at this email and I was like, wow, this is going to be the tough assignment. And my brother immediately just hits reply all and he says, got it. Standard talk. Funny, touching and short.

Matt Abrahams: I love it. Funny, touching and short. I think that’s great advice for many of our communication situations. I’m curious, how did the talk go?

Jon Levin: We were short.

Matt Abrahams: I’ll leave it at that. I’m curious, Jon, who is a communicator that you admire and why?

Jon Levin: So one person is Barack Obama. No matter your political affiliation, you have to admire President Obama as a communicator. He came and spoke on campus. He gave a incredibly detailed, pretty technocratic talk about social media and misinformation. It was easily an hour, maybe even an hour and a half, and it was mesmerizing. He’s a wonderful speaker.

Matt Abrahams: Let me ask you my third and final question. What are the first three ingredients that go into a successful communication recipe?

Jon Levin: Clarity, connection, inspiration,

Matt Abrahams: Very, very important. All three. And you do all three of those very well and serve as a good role model for all of us. And I think all business leaders and people developing their careers can think about how they can leverage those three together to help them successfully navigate the communication challenges that they have. Jon, thank you so much for being here. I appreciate your time, your insights, your candor, and truly appreciate what you do for us and for all of our students.

Jon Levin: Thank you, Matt. Thank you so much for having me on. And we’re so fortunate to have you teaching at the GSB and doing this podcast.

Matt Abrahams: Thank you for joining us for another best of episode of Think Fast Talk Smart, the podcast. To learn more about leadership, please listen to episode 1 21 with Jacob Morgan. This episode was produced by Jenny Luna, Ryan Campos and me Matt Abrahams. Our music is from Floyd Wonder. With special thanks to Podium podcast company. Please find us on YouTube and wherever you get your podcasts. Be sure to subscribe and rate us. Also follow us on LinkedIn and Instagram. Check out faster smarter.io for deep dive videos, English language learning content, and our newsletter.

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Class takeaways — how to run a meeting effectively, conviction and compassion: how to have hard conversations, communicating through conflict: how to get along with anyone, editor’s picks.

July 19, 2022 The Price of Cheap Talk: What Economics Teaches Us About Communication In this episode, we explore how economic concepts show up in everyday communication.

March 14, 2022 Leadership and Ethics: How to Communicate Your Core Values On this podcast episode, we discuss the keys to making ethical decisions in your professional and personal life.

November 11, 2021 Step Into Power: What Acting Can Teach Us About Power and Responsibility In this podcast episode, we discuss how lessons from the theater inform leadership styles and power dynamics at work.

April 04, 2024 Stanford Alum, Business School Dean Jonathan Levin Named Stanford President Jonathan Levin has been appointed the 13th president of Stanford University.

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IU Bloomington, partners celebrate College and Community Collaboration Grant from Lilly Endowment Inc.

BLOOMINGTON, Ind. — Today Indiana University announced the IU Foundation’s receipt of a $16 million grant from Lilly Endowment Inc. through its statewide initiative College and Community Collaboration. The grant will help IU Bloomington and key community partners accelerate the development of Bloomington’s Trades District into a thriving hub for innovation, economic development and community engagement, stimulating economic growth and opportunity in the city and the 11-county Indiana Uplands region.

“Our collaboration with Bloomington is a pivotal priority for IU,” said Pamela Whitten, president of Indiana University. “As the state’s flagship university, we have a responsibility to work alongside our campus’s community to create opportunities for people on both sides of the town-and-gown relationship. We are grateful to Lilly Endowment for sharing that commitment.

“We are excited to join our partners in energizing the local economy by fostering innovation and creating new pathways for our talented students, staff and faculty to boldly and creatively engage with the people and businesses of Bloomington. This is a win-win for everyone.”

The grant will partially support the development and activation of the Trades District. The collaborative efforts seek to expand capacity to incubate entrepreneurs at The Mill, a nonprofit that is developing pathways so entrepreneurs and startups can connect with the Trades District; attract high-wage jobs at the city’s new sustainable tech center in the Trades District, known as The Forge; facilitate the success of area development and revitalization projects; and create new artwork, arts pathways and cultural programming that engages Bloomington’s creative community alongside the Eskenazi School of Art, Architecture + Design.

Additional schools across IU Bloomington are expected to participate in the engagement, including the College of Arts and Sciences, the Luddy School of Informatics, Computing and Engineering, and the Kelley School of Business.

The grant will also enhance engagement by other IU schools and programs, including IU Innovates and IU Ventures, in projects that spur innovation and entrepreneurship on campus and in town. As such, the desired outcomes align closely with IU 2030: The Indiana University Strategic Plan and its investments in innovative and transformative research with industry and community partners.

The $16 million College and Community Collaboration grant will leverage $64.4 million in investments from key partner organizations and planned developments, totaling over $80 million in total investment. The City of Bloomington and The Mill were the two primary partners on the IU Foundation’s grant application.

“We are deeply grateful to Lilly Endowment for this investment in our community. By formally joining together with Indiana University and The Mill, we are setting the stage for a future where Bloomington thrives as a hub of creativity and progress,” Mayor Kerry Thomson said. “Bloomington is a community with all the elements of vibrant innovation: research, creativity and progress-minded development. We are not just envisioning a better future; we are actively creating it with every step, every idea and every partnership.”

“This transformative grant from Lilly Endowment will accelerate the revitalization of Bloomington’s Trades District,” said Pat East, executive director of The Mill. “This funding is a catalyst for economic growth, creating high-paying jobs and attracting more investment to our city. We are excited to partner with Indiana University and the City of Bloomington to bring this vision to life, and we are deeply grateful for the trust placed in us to help contribute to this important work.”

Through the grant to IU Foundation, IU is one of 13 Indiana higher education institutions receiving funds in the latest and final round of implementation grants through the College and Community Collaboration, a competitive Lilly Endowment initiative.

“While varied in scope and reach, the proposed initiatives and projects reflect a commitment by all stakeholders, inclusive of faculty, staff and students from these institutions, business leaders, government officials and community leaders, to creating vibrant communities for all residents to enjoy and in which to thrive,” said Jennett M. Hill, president of Lilly Endowment. “The Endowment looks forward to seeing all the projects in the CCC initiative evolve. We are enthusiastic about the prospects for both the institutions and communities and are eager to see these institutions and their community stakeholders collaborate to breathe life into their promising projects.”

Lilly Endowment launched the College and Community Collaboration initiative in early 2023. The initiative is designed to encourage Indiana’s colleges and universities to work closely with community stakeholders to envision and jointly undertake significant community development efforts to create more vibrant places in which to live, learn, work and play.

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