Benjamin Franklin once said, “If you fail to plan, you are planning to fail.” While he may not have had the components of a business plan in mind when he first uttered those words, time and small business data show us how that same quote is perfectly applicable to building a business strategy.
A business plan helps lay the foundation for your future success. It can also serve as your North Star when questions arise from potential funders or business partners. Of course, putting words on paper is just the beginning of the journey. Grasping the importance of a business plan and knowing how to execute it will ultimately determine your success.
What is a business plan?
A business plan serves as a detailed roadmap outlining your business’s trajectory and growth strategy over the next three to five years, including how you will make and increase revenue. The written tool is typically 15 to 25 pages, depending on the variables of your business, and should be considered a living document. Meaning, there’s enough flexibility in your plan for adjustments to be made as needed. A lot can happen over five years, so know that the first version you write will (and should) evolve over time.
While research shows crafting a business plan for your startup is a foundational element of success, established companies may also find growth through creating and implementing the tool. In fact, 71% 1 of fast-growing companies report having a business, strategic, or long-range plan in place.
Why is a business plan important?
Before we dive into the core components of a small business plan, let’s uncover “why” you should spend time and energy mapping out those intricate details. It’s important to have a business plan because it will:
- Allow you to plan for opportunities and risks in your business cycle
- Establish a measurable way to chart progress for the company
- Guide your choices as you select resources for the business to achieve its goals
- Provide a concrete timeline or projection of goal completion
- Provide evidence of viability to investors or potential partners
- Support accurate steps toward expanding the company when it’s time
Essential components of a business plan
While it’s important to customize your business plan to the unique strategy and goals of your venture, there are nine fundamental components that most businesses will find essential to include. These components serve as a foundational framework, offering invaluable guidance in strategizing for success.
By integrating these key elements into your plan, you ensure a comprehensive approach that addresses critical aspects such as market analysis, financial projections, marketing strategies, operational logistics, and more. Customizing these components to suit your business’s distinct characteristics and aspirations empowers you to craft a plan that is both relevant and impactful in achieving your objectives.
1. Executive summary
The executive summary portion of a business plan is a critical overview of the entire company. It encompasses information like the products or services your company will offer, the company’s mission statement, information about employees and leadership, and highlights what readers can expect in the subsequent pages of the plan.
If you’re creating a new business, you may also consider stating why you’re launching the company. And, although the executive summary is typically the first component in the plan, it’s best to compose this portion last — after you’ve written out all the details — so you can produce a more accurate summary.
2. Company description
The company description includes information you would expect, like the company name, goals, organizational structure, and target customer base. This is also the area where you’ll identify the company type (e.g., corporation, Limited Liability Company (LLC), partnership, or sole proprietorship). Finally, share a bit of the company’s history. You may include how the company was founded, the team’s relevant experience, and your unique selling proposition.
3. Products and services
Detailed information about the company’s products and services should be outlined in this portion, including product lifespan and purpose, manufacturing information, research and development, quality assurance, and competitors in the marketplace. This is also the place to note patents for your products and proprietary technology if applicable.
4. Market analysis
A market analysis is an assessment of the various factors that affect a market for a particular product or service. It involves gathering and interpreting data about the target market, including its size, trends, competitors, and potential customers. For example, the Total Addressable Market (TAM) is a key metric that provides an estimate of the maximum revenue opportunity available and helps businesses understand the overall size and potential of the market they are operating in or planning to enter.
Overall, the information included in your market analysis can be used to help you better understand the market, identify trends, assess competition, evaluate opportunities for growth or expansion, mitigate risks, and support strategic decision-making.
5. Marketing strategy
How you plan to attract, convert, and keep customers will be outlined in your marketing and sales strategy. Explain where and how you’ll advertise your company’s products, including the type of media to be used for marketing campaigns. Other than paid advertisement, how else will you get your product in front of potential customers? Summarize your unique selling proposition by explaining why your target customers will purchase your product over the competition.
6. Competitive analysis
Add a thorough competitive analysis that gives a straightforward comparison of your company with top competitors. Outline your competitor’s strengths and weaknesses, highlighting their unique selling proposition or other advantages they have in the market. You may add potential challenges you may face when entering the marketplace or in attempts to lure customers from another company.
7. Business financial plan
You may develop a more comprehensive business financial plan for your company outside of this portion of the business plan, but it is ideal to give your readers a truncated money overview. Explain how your company will produce revenue. What is your cash flow projection? This portion should also list your funding sources and the amount of money provided. Finally, include the company’s financial statements with a brief analysis and explanation of how the company will become profitable and how it will succeed until that time.
8. Organizational structure
The organizational structure portion should define your business’s management and organization strategy. Identify your company’s leaders, their responsibilities, and who they will supervise. You can also mention human resources requirements, including onboarding procedures, and detail standard operating procedures. If you plan to hire employees in the immediate future, include a projected hiring plan by listing the proposed position, pay, responsibilities, and the timeline for hire.
9. Operating plan
Fittingly named, the operating plan portion of your business plan is where you’ll explain how you plan to operate your company. Include details like where the company will operate, both the geographical location of the headquarters or main office and the shipping location. This is also where you’ll outline how you plan to meet your company’s primary goals or objectives.
Startup business plan template
Many startup business plan templates include primary elements, like an executive summary, company description, services and products, market analysis, marketing strategy, and a business financial plan. However, it’s important to remember that a small business plan template is your starting point. Add or remove portions that aren’t needed when you launch and modify the sections as you grow. Your business plan should serve as a living document that is regularly reviewed and modified.
Every business should have a business plan
Business plans can be as unique as the company they represent. You may opt to use charts, diagrams, and other imagery to help detail the story of your business. Regardless of how you choose to create it, a good business plan is part of the necessary foundation of a successful company.
- Nancy Upton, Elisabeth J. Teal & Joe T. Felan (2001) Strategic and Business Planning Practices of Fast Growth Family Firms, Journal of Small Business Management, 39:1, 60-72, DOI: 10.1111/0447-2778.00006