What is a business plan?

Competitions - There are many business plan

A business plan is a roadmap describing a
business, its products or services, how it earns
(or will earn) money, its leadership and staffing,
its financing, its operations model, and many
other details essential to its success.
What is a business plan?
Investors rely on business plans to evaluate the
feasibility of a business before funding it, which
is why business plans are commonly associated
with getting a loan. But there are several
compelling reasons to consider writing a
business plan, even if you don’t need funding.
competitions offering prizes such as
mentorships, grants, or investment capital. To
find relevant competitions in your industry and
area, try Googling “business plan competition +
[your location]” and “business plan competition
+ [your industry].”
“We had a marketing background, but not much
experience in the other functions needed to run
a fashion ecommerce business, like operations,
finance, production, and tech. Laying out a
business plan helped us identify the ‘unknowns’
and made it easier to spot the gaps where we’d
need help or, at the very least, to skill up
ourselves.”

—Jordan Barnett, Kapow Meggings

Planning - Writing out your plan is an invaluable
exercise for clarifying your ideas and can help “We own a bricks-and-mortar and ecommerce
you understand the scope of your business, as jewelry business that moved from Magento
well as the amount of time, money, and over to Shopify. We created a business plan for
resources you’ll need to get started. the move, just as we did with our original
website and ecommerce business.”
Evaluating ideas - If you’ve got multiple ideas in
mind, a rough business plan for each can help —Jeff Moriarty, Tanzanite Jewelry Designs
you focus your time and energy on the ones
with the highest chance of success.
How to write a business plan, step by step
Research - To write a business plan, you’ll need
to research your ideal customer and your Few things are more intimidating than a blank
competitors—information that will help you page. Starting your business plan with a
make more strategic decisions. structured outline and key details about what
you’ll include in each section is the best first
Recruiting - Your business plan is one of the
step you can take.
easiest ways to communicate your vision to
potential new hires and can help build their Since an outline is such an important step in the
confidence in the venture, especially if you’re in process of writing a business plan, we’ve put
the early stages of growth. together a high-level overview you can copy
into your blank document to get you started
Partnerships. If you plan to approach other
(and avoid the terror of facing a blank page).
companies to collaborate, having a clear
overview of your vision, your audience, and
your growth strategy will make it much easier
for them to identify whether your business is
agood fit for theirs—especially if they’re further
along than you in their growth trajectory.
Here’s what your standard table of contents
looks like:
1.Executive summary
2.Company description
3.Market analysis
4.Management and organization
5.Products and services
6.Customer segmentation
7.Marketing plan
8.Logistics and operations plan
9.Financial plan
Executive summary - A good executive
summary is one of the most crucial sections of
your plan—it’s also the last section you should
write.The executive summary’s purpose is to
distill everything that follows and give time-
crunched reviewers (e.g., potential investors
and lenders) a high-level overview of your
business that persuades them to read further.
Again, it’s a summary, so highlight the key
points you’ve uncovered while writing your
plan. If you’re writing for your own planning
purposes, you can skip the summary altogether
—although you might want to give it a try
anyway, just for practice.An executive summary
shouldn’t exceed one page. Admittedly, that
space constraint can make squeezing in all of
the salient information a bit stressful—but it’s
not impossible. Here’s what your business
plan’s executive summary should include:
Business concept. What does your business do?
Business goals and vision. What does your
business want to do?
Product description and differentiation. What
do you sell, and why is it different?
Target market. Who do you sell to?
Marketing strategy. How do you plan on
reaching your customers?
Current financial state. What do you currently
earn in revenue?
Projected financial state. What do you foresee
earning in revenue?
The ask. How much money are you asking for?
The team. Who’s involved in the business?
Company description - This section of your
business plan should answer two fundamental
questions: who are you, and what do you plan
to do? Answering these questions provides an
introduction to why you’re in business, why
you’re different, what you have going for you,
and why you’re a good investment
bet.Clarifying these details is still a useful
exercise, even if you’re the only person who’s
going to see them. It’s an opportunity to put to
paper some of the more intangible facets of
your business, like your principles, ideals, and
cultural philosophies.
Here are some of the components you should
include in your company overview:
-Your business structure (are you a
soleproprietorship, general partnership, limited
partnership, or incorporated company?)
-Your business model
-Your industry
-Your business’s vision and mission statement
and value proposition
-Background information on your business or its
history
-Business objectives, both short and long term
-Your team, including key personnel and their
salaries
Some of these points are statements of fact, but
others will require a bit more thought to define,
especially when it comes to your business’s vision,
mission, and values. This is where you start getting
to the core of why your business exists, what you
hope to accomplish, and what you stand for.
This is where you start getting to the core of
why your business exists, what you hope to
accomplish, and what you stand for.
To define your values, think about all the people
your company is accountable to, including owners,
employees, suppliers, customers, and investors. Now
consider how you’d like to conduct business with
each of them. As you make a list, your core values
should start to emerge.Once you know your values,
you can pen a mission statement. Your statement
should explain, in a convincing manner, why your
business exists, and should be no longer than a
single sentence.As an example, Shopify’s mission
statement is “Make commerce better for everyone.”
It’s the “why” behind everything we do and clear
enough that it needs no further explanation.
What impact do you envision your business
having on the world once you’ve achieved your
vision?
Next, craft your vision statement: what impact
do you envision your business having on the
world once you’ve achieved your vision? Phrase
this impact as an assertion—begin the
statement with “We will” and you’ll be off to a
great start. Your vision statement, unlike your
mission statement, can be longer than a single
sentence, but try to keep it to three at most.
The best vision statements are concise.
Finally, your company overview should include
both short- and long-term goals. Short-
termgoals, generally, should be achievable
within the next year, while one to five years is a
good window for long-term goals. Make sure all
your goals are S.M.A.R.T.: specific, measurable,
attainable, realistic, and time-bound.
Market analysis - No matter what type of
business you start, it’s no exaggeration to say
your market can make or break it. Choose the
right market for your products—one with
plenty of customers who understand and need
your product—and you’ll have a head start on
success. If you choose the wrong market, or the
right market at the wrong time, you may find
yourself struggling for each sale.
Market analysis is a key section of your
business plan, whether or not you ever intend
for anyone else to read it.
This is why market research and analysis is a key
section of your business plan, whether or not
you ever intend for anyone else to read it. It
should include an overview of how big you
estimate the market is for your products, an
analysis of your business’s position in the
market, and an overview of the competitive
landscape. Thorough research supporting your
conclusions is important both to persuade
investors and to validate your own assumptions
as you work through your plan.
How big is your potential market?
The potential market is an estimate of how
many people need your product. While it’s
exciting to imagine sky-high sales figures, you’ll
want to use as much relevant independent data
as possible to validate your estimated potential
market.
Since this can be a daunting process, here are
some general tips to help you begin your
research:
Understand your ideal customer profile,
especially as it relates to demographics. If
you’re targeting millennial consumers in the US,
you first can look for government data about
the size of that group. You also could look at
projected changes to the number of people in
your target age range over the next few years.
Research relevant industry trends and Here’s an example.
trajectory. If your product serves retirees, try to
find data about how many people will be
retiring in the next five years, as well as any
information you can find about consumption
patterns among that group. If you’re selling
fitness equipment, you could look at trends in
gym memberships and overall health and
fitness among your target audience or the
population at large. Finally, look for information
on whether your general industry is projected
to grow or decline over the next few years.

Make informed guesses. You’ll never have
perfect, complete information about the size of
your total addressable market. Your goal is to
base your estimates on as many verifiable data
points as necessary for a confident guess.
Some sources to consult for market data
include government statistics offices, industry
associations, academic research, and respected
news outlets covering your industry.
SWOT analysis - A SWOT analysis looks at your
strengths, weaknesses, opportunities, and
threats. What are the best things about your
company? What are you not so good at? What
market or industry shifts can you take
advantage of and turn into opportunities? Are
there external factors threatening your ability
to succeed?
These breakdowns often are presented as a
grid, with bullet points in each section breaking
down the most relevant information—so you
can probably skip writing full paragraphs here.
Strengths and weaknesses—both internal
company factors—are listed first, with
opportunities and threats following in the next
row. With this visual presentation, your reader
can quickly see the factors that may impact
your business and determine your competitive
advantage in the market.
Competitive analysis -There are three
overarching factors you can use to differentiate
your business in the face of competition:
Cost leadership. You have the capacity to
maximize profits by offering lower prices than
the majority of your competitors. Examples
include companies like Mejuri and Endy.
Differentiation. Your product or service offers
something distinct from the current cost leaders
in your industry and banks on standing out
based on your uniqueness. Think of companies
like Knix and Qalo.
Segmentation. You focus on a very specific, or
niche, target market and focus on building
traction with a smaller audience before moving
on to a broader market. Companies like
TomboyX and Heyday Footwear are great
examples of this strategy.
To understand which is the best fit, you’ll need
to understand your business as well as the
competitive landscape.You’ll always have
competition in the market, even with an
innovative product, so it’s important to include
a competitive overview in your business plan. If
you’re entering an established market, include a
list of a few companies you consider direct
competitors and explain how you plan to
differentiate your products and business from
theirs.
You’ll always have competition in the market,
even with an innovative product.
For example, if you’re selling jewelry, your
competitive differentiation could be that, unlike
many high-end competitors, you donate a
percentage of your profits to a notable charity or
pass savings on to your customers.
If you’re entering a market where you can’t easily
identify direct competitors, consider your indirect
competitors—companies offering products that are
substitutes for yours. For example, if you’re selling
an innovative new piece of kitchen equipment, it’s
too easy to say that because your product is new,
you have no competition. Consider what your
potential customers are doing to solve the same
problems your product solves.
Management and organization
The management and organization section of your
business plan should tell readers about who’s
running your company. Detail the legal structure of
your business. Communicate whether you’ll
incorporate your business as an S corporation or
create a limited partnership or sole proprietorship. If
you have a management team, use an organizational
chart to show your company’s internal structure,
including the roles, responsibilities, and relationships
between people in your chart. Communicate how
each person will contribute to the success of your
startup.
Products and services - Your products or
services will feature prominently in most areas
of your business plan, but it’s important to
provide a section that outlines key details about
them for interested readers. If you sell many
items, you can include more general
information on each of your product lines; if
you only sell a few, provide additional
information on each. Describe new products
you’ll launch in the near future and any
intellectual property you own. Express how
they’ll improve profitability.
It’s also important to note where products are
coming from—handmade crafts are sourced
differently than trending products for a
dropshipping business, for instance.
Customer segmentation - Your ideal customer,
also known as your target market, is the
foundation of your marketing plan, if not your
business plan as a whole. You’ll want to keep
this person in mind as you make strategic
decisions, which is why an overview of who
they are is important to understand and include
in your plan.To give a holistic overview of your
ideal customer, describe a number of general
and specific demographic characteristics.
Customer segmentation often includes:
-Where they live
-Their age range
-Their level of education
-Some common behavior patterns
-How they spend their free time
-Where they work
-What technology they use
-How much they earn
-Where they’re commonly employed
-Their values, beliefs, or opinions
This information will vary based on what you’re
selling, but you should be specific enough that
it’s unquestionably clear who you’re trying to
reach—and more importantly, why you’ve
made the choices you have based on who your
customers are and what they value.
For example, a college student has different
interests, shopping habits, and pricing
sensitivity than a 50-year old executive at a
Fortune 500 company. Your business plan and
decisions would look very different based on
which one was your ideal customer.

Marketing plan - Your marketing efforts are
directly informed by your ideal customer. Your
plan should outline your current decisions and
your future strategy, with a focus on how your
ideas are a fit for that ideal customer.
If you’re planning to invest heavily in Instagram
marketing, for example, it might make sense to
include whether Instagram is a leading platform
for your audience—if it’s not, that might be a
sign to rethink your marketing plan.Most
marketing plans include information on four key
subjects. How much detail you present on each
will depend on both your business and your
plan’s audience.
Price. How much do your products cost, and
why have you made that decision?
Product. What are you selling and how do you
differentiate it in the market?
Promotion. How will you get your products in
front of your ideal customer?
Place. Where will you sell your products?
Promotion may be the bulk of your plan since
you can more readily dive into tactical details,
but the other three areas should be covered at
least briefly—each is an important strategic
lever in your marketing mix.
Logistics and operations plan - Logistics and
operations are the workflows you’ll implement
to make your ideas a reality. If you’re writing a
business plan for your own planning purposes,
this is still an important section to consider,
even though you might not need to include the
same level of detail as if you were seeking
investment.
Cover all parts of your planned operations,
including:
Suppliers. Where do you get the raw materials
you need for production, or where are your
products produced?
Production. Will you make, manufacture,
wholesale or dropship your products? How long
does it take to produce your products and get
them shipped to you? How will you handle a
busy season or an unexpected spike in demand?
Facilities. Where will you and any team
members work? Do you plan to have a physical
retail space? If yes, where?
Equipment. What tools and technology do you
require to be up and running? This includes
everything from computers to lightbulbs and
everything in between.
Shipping and fulfillment. Will you be handling
all the fulfillment tasks in-house, or will you use
a third-party fulfillment partner?
Inventory. How much will you keep on hand,
and where will it be stored? How will you ship it
to partners if required, and how will you
approach inventory management?
This section should signal to your reader that
you’ve got a solid understanding of your supply
chain and strong contingency plans in place to
cover potential uncertainty. If your reader is
you, it should give you a basis to make other
important decisions, like how to price your
products to cover your estimated costs, and at
what point you plan to break even on your
initial spending.
Financial plan - No matter how great your idea
is, and regardless of the effort, time, and money
you invest, a business lives or dies based on its
financial health. At the end of the day, people
want to work with a business they expect to be
viable for the foreseeable future.
The level of detail required in your financial
plan will depend on your audience and goals,
but typically you’ll want to include three major
views of your financials: an income statement, a
balance sheet, and a cash-flow statement. It
also may be appropriate to include financial
projections.
Income statement - Your income statement is
designed to give readers a look at your revenue
sources and expenses over a given time period.
With those two pieces of information, they can
see the all-important bottom line or the profit
or loss your business experienced during that
time. If you haven’t launched your business yet,
you can put together a forecast of the same
information.
Balance sheet - Your balance sheet offers a look
at how much equity you have in your business.
On one side, you list all your business assets
(what you own), and on the other side, all your
liabilities (what you owe). This provides a
snapshot of your business’s shareholder equity,
which is calculated as
Assets - Liabilities = Equity
Cash flow statement - Your cash flow
statement is similar to your income statement,
with one important difference: it takes into
account when revenues are collected and when
expenses are paid.When the cash you have
coming in is greater than the cash you have
going out, your cash flow is positive. When the
opposite scenario is true, your cash flow is
negative. Ideally, your cash flow statement will
help you see when cash is low, when you might
have a surplus, and where you might need to
have a contingency plan to access funding to
keep your business solvent.
Why do business plans fail?
Warning: Other articles on business plans would
never tell you what we’re about to tell you. But
your business plan can fail. The last thing you
want is for time and effort to go down the
drain. Avoid these common mistakes:
Bad business idea. Not every idea is going to
win. Sometimes your idea may be too risky and
you won’t be able to get funding for it. Other
times it’s too expensive or there’s no market.
Aim for low-investment business ideas you start
with little money and bypass traditional startup
costs.
No exit strategy. Investors reading your
business plan want to know one thing: will your
venture make them money? If you don’t show
an exit strategy, or a plan for them to leave the
business with maximum profits, you’ll have little
luck finding capital.
Unbalanced teams. A great product is the cost
of entry to starting a business. But an incredible
team will take it to the top. Unfortunately,
many business owners overlook a balanced
team. They assume readers want to see
potential profits, without worrying about how
you’ll get it done. If you’re pitching a new
software idea, it makes sense to have at least
one developer or IT specialist on your team.
Missing financial projections. Your numbers are
the most interesting part for readers. Don’t
leave out your balance sheet, cash flow
statements, P&L statements, and income
statements. Include your break-even analysis
and return-on-investment calculations to create
a successful business plan. Sometimes, a
business loan may be essential to grow your
business. Check our guide on how to get a
business loan to understand if you need a
business loan or what type of loan you need.
Spelling and grammar errors. Some businesses
think hiring a professional editor is overkill.
Thereality is, all the best organizations have an
editor review their documents. If someone
spots typos while reading your business plan,
how can they believe you’ll run a successful
company?
Tips for creating a small-business planThere are How do I write a business plan?
a few key things to keep in mind to help you write an
1.Executive summary
effective business plan.
2.Company description
Know your audience.When you know who will be
reading your plan—even if you’re just writing it for 3.Market analysis
yourself to clarify your ideas—you can tailor the
language and level of detail to them. This can also 4.Management and organization
help you make sure you’re including the most 5.Products and services
relevant information and figure out when to omit
sections that aren’t as impactful. 6.Customer segmentation

Have a clear goal.You’ll need to put in more work 7.Marketing plan

and deliver a more thorough plan if your goal is to 8.Logistics and operations
secure funding for your business versus working
through a plan for yourself or even your team. 9.Financial plan

Invest time in research. Sections of your business What is a good business plan?
plan will primarily be informed by your ideas and
vision, but some of the most crucial information A good business plan starts with a strong
you’ll need requires research from independent executive summary. It also adequately outlines
sources. This is where you can invest time in idea feasibility, target market insights, and the
understanding who you’re selling to, whether there’s competitive landscape, which we go over in this
demand for your products, and who else is selling blog post.
similar products or services.
What are the 3 main purposes of a business
Keep it short and to the point.No matter who plan?
you’re writing for, your business plan should be
short and readable—generally no longer than 15 to The three main purposes of a business plan are:
20 pages. If you do have additional documents you (1) to clarify your plans for growth; (2) to
think may be valuable to your audience and your understand your financial needs; and (3) to
goals, consider adding them as appendices. attract funding from investors, banks, and
Keep the tone, style, and voice consistent.This lenders.
is best managed by having a single person write the What are the different types of business plans?
plan or allowing time for the plan to be properly
edited before distributing it. The types of business plans include startup,
refocusing, internal, annual, strategic,
Business planning gives you a solid foundation
feasibility, operations, growth, and scenario-
for growthA business plan can help you identify
based. Each type of business plan has a
clear, deliberate next steps for your business, even
ifyou never plan to pitch investors—and it can help different purpose.
you see gaps in your plan before they become
issues.Whether you’ve written a business plan for a
new online business idea, a retail storefront, or
growing your current company, you now have a
comprehensive guide and the information you need
to help you start working on the next phase of your
own business.

Business plans FAQ