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Writing a Business Plan
While it may be tempting to put off, creating a business plan is an essential part of starting your own business. Plans and proposals should be put in a clear format making it easy for potential investors to understand. Because every company has a different goal and product or service to offer, there are business plan templates readily available to help you get on the right track. Many of these templates can be adapted for any company. In general, a business plan writing guide will recommend that the following sections be incorporated into your plan.
Executive Summary
The executive summary is the first section that business plans open with, but is often the last section to actually be written as it’s the most difficult to write. The executive summary is a summary of the overall plan that highlights the key points and gives the reader an idea of what lies ahead in the document. It should include areas such as the business opportunity, target market, marketing and sales strategy, competition, the summary of the financial plan, staff members and a summary of how the plan will be implemented. This section needs to be extremely clear, concise and engaging as you don’t want the reader to push your hard work aside.
Company Description
The company description follows the executive summary and should cover all the details about the company itself. For example, if you are writing a business plan for an internet café, you would want to include the name of the company, where the café would be located, who the main team members involved are and why, how large the company is, who the target market for the internet cafe is, what type of business structure the café is, such as LLC, sole proprietorship, partnership, or corporation, what the internet café business mission and vision statements are, and what the business’s short-term objectives are.
Services and Products
This is the exciting part of the plan where you get to explain what new and improved services or products you are offering. On top of describing the product or service itself, include in the plan what is currently in the market in this area, what problems there are in this area and how your product is the solution. For example, in a business plan for a food truck, perhaps there are numerous other food trucks in the area, but they are all fast –food style and unhealthy so, you want to introduce fast food that serves only organic and fresh ingredients every day. This is where you can also list your price points and future products or services you anticipate.
Market Analysis
The market analysis section will take time to write and research as a lot of effort and research need to go into it. Here is where you have the opportunity to describe what trends are showing up, what the growth rate in this sector looks like, what the current size of this industry is and who your target audience is. A cleaning business plan, for example, may include how this sector has been growing by 10% every year due to an increase in large businesses being built in the city.
Organization and Management
Marketing and sales are the part of the business plan where you explain how you will attract and retain clients. How are you reaching your target customers and what incentives do you offer that will keep them coming back? For a dry cleaner business plan, perhaps if they refer customers, they will get 10% off their next visit. In addition, you may want to explain what needs to be done in order for the business to be profitable. This is a great way of showing that you are conscious about what clear steps need to be taken to make a business successful.
Financial Projections & Appendix
The financial business plan section can be a tricky one to write as it is based on projections. Usually what is included is the short-term projection, which is a year broken down by month and should include start-up permits, equipment, and licenses that are required. This is followed by a three-year projection broken down by year and many often write a five-year projection, but this does not need to be included in the business plan.
The appendix is the last section and contains all the supporting documents and/or required material. This often includes resumes of those involved in the company, letters of reference, product pictures and credit histories. Keep in mind that your business plan is always in development and should be adjusted regularly as your business grows and changes.
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Your Guide to Writing a Business Plan
If you’re starting a new business, then you need an effective plan. Not only does this enable you to plan your company, but it also gives potential clients an insight into how your business works. A business plan is also vital if you want to attract investors or secure a loan from the bank. Drafting a business plan is a complex process, but it doesn’t have to be. This guide will ensure you create a definite plan to impress investors and clients.
When creating your business plan, there are some essential elements you must include. The Executive Summary provides a description of your business, and what you hope to achieve. People usually write at least one page, but leave their Executive Summary until last.
You’ll also need to detail what your business offers and define your target audience. This makes it easier for people to see whether your company has a chance of succeeding. The opportunity section is also an excellent way for you to see what competitors offer and how you can create a USP to stand out from the competition.
Appealing to Investors
Every business that wants growth and prosperity must ensure they promote themselves to potential investors. Business plans aren’t just about what the business is, but who is part of it too. Detail your current team members and explain what they bring to the company. Investors want to know they’re making a wise investment.
Your current finances and financial forecast are also essential aspects of your business plan. Look at your products, how much you’re selling them for and what kind of profit margin you expect to gain. It’s also vital you detail your outgoings and look at how various economic situations could affect your finances.
Writing a Winning Executive Summary
There are problems in every market, and a successful business solves that problem. If you can show how you’ll be able to offer solutions in your business plan, you’ll appeal to investors. Choose your target audience based on research and ensure you show your research. There are many ways to conduct market research including defining SOMs, SAMs and TAMs.
TAM stands for Total Available Market and comprises everyone you want your product to reach. Your Segmented Addressable Market (SAM) is a specific portion of the market you’ll target. This is important because it shows you’re able to direct your product at the right people and not just everyone. Your SOM (Share of the Market) is what you feel you’ll gain with your product.
How to Determine Pricing
Pricing your product is one of the most challenging things you’ll have to do. There are many things to consider, such as how much it’s worth and making sure you don’t charge unrealistically. Many new businesses believe undercharging is the best way to go, but doing this can undermine your company’s authority and cause fewer people to be interested in investing.
Market-based pricing involves looking at your competitors and evaluating their prices. Which company has the most customers? How does their pricing match others? These are all vital aspects you should consider. Remember, customers expect quality and a fair price, so make sure you combine the two.
Future Goals
Investors and banks want to know that you’ve considered what the future will hold for your company. When you write your business plan, be sure to take into account how you see the company growing, what you’ll do to ensure it thrives and that you understand the potential risks. Banks and investors want to know that you can build a business and are aware of the obstacles you’ll have to overcome.
Starting your own business doesn’t have to be difficult. If you ensure you produce a robust business plan, it can be an exciting process. Your business is part of your future, so start by outlining your goals and look forward to seeing results.
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What Are the Benefits of a Business Plan?
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Checklist for a Business Plan
Why is an effective business plan introduction important, what does "abridged" mean on a business plan.
- What Does a Business Plan Consist Of?
- Importance of Following a Business Plan
What is a business plan, and what’s the point of a business plan? To understand the benefits of a business plan, it is important to first understand why it's useful and how to create one.
In essence, a business plan describes a business in detail, including its goals and how it intends to achieve them. Business plans are typically written for new businesses, though they can be written for existing ones as well. The plan includes the operational, financial and marketing aspects of the venture.
The business plan is a fundamental tool and is necessary for a startup that needs a sense of direction. One of the reasons a business plan is so important is that it is one of the main requirements of venture capital firms and banks interested in investing funds in businesses. The business plan usually starts with an executive summary, followed by a description of the business in detail, including its products and services, and a section on how the business is going to achieve its goals from operational, financial and marketing standpoints. The business plan also typically includes a brief look at the industry within which the business will operate and how the business will differentiate itself from the competition.
What Are the Various Types of Business Plans?
There are many types of business plans. These include: feasibility plans, annual plans, internal plans, operations plans, growth plans and more. These different types of plans are drafted to match the different business situations. For example, if you’re preparing a business plan for internal reasons and not to seek funding from a financial institution, there is absolutely no need to include background information in your business plan. When you’re preparing a business plan for external investors, you should describe the management team; if you’re preparing the business plan for a bank, you should include the financial history and background of the company. With different circumstances, different pieces of information are included in the business plan.
Business Plans for Start-Ups
The business plan you prepare for a startup is about as standard as it gets when it comes to explaining all the steps that need to be taken by a new business to achieve its goals. These plans typically include information on the financial analysis of the business, the milestones for implementation, the management team, the strategy of the business, various forecasts, the marketplace and the product or service offering of the organization.
Notable among the plan's forecasts are predictions for the sales, profit, loss, cash flow and balance sheet of the company. There will also likely be additional tables included in the section on financial analysis, as well as the monthly projections for the first year. The plan for a startup usually begins with an abstract and contains an appendix at the end.
Internal Business Plans
Any business plan you do not prepare with the intent to show a financial institution, an external investor or any other third party is known as an internal business plan. In such plans, you don’t really need to describe in detail the organization or the management team. You may also choose whether or not to include financial projections like forecasts and budget. Usually, in internal business plans, the whole plan is written as a report using paragraph form. The main points will either be depicted as bullet points or as slides, in the case of a PowerPoint presentation.
Operational Business Plans
Operational business plans are typically prepared for use by the business itself, so they are strictly a type of internal business plan. They are also known as annual plans and include detailed information on deadlines, implementation milestones, specific dates, and the responsibilities of teams and their managers.
The operational business plan doesn’t go into much detail about who needs to do what and when. It looks at the responsibilities and dates from the perspective of what is a top priority and what is high level. It typically arranges data in the form of bullet points on slides in a presentation. There's no need for descriptions of the management teams or the organization. You also won’t find detailed explanations of all financial projections in these business plans. They are typically not regarded at all when the business plan is being used to formulate strategies going forward.
Growth Business Plans
Some business plans do not concern themselves with the entirety of the business. They are only interested in a part of the business or a specific area of interest. These are called growth plans, new product plans or expansion plans, depending on what they are looking to achieve. They may or may not be internal plans, depending whether they are meant to attract outside investment or meet the loan requirements of a bank. For example, you could prepare a startup plan to attract new investment when the business is just starting out. When you need to attract new funding or some kind of debt finance, you would prepare an expansion plan. Both plans should include a detailed description of the organization as well as extensive background data on each member of the management team. If, however, the expansion plan is for the business’s own internal consumption, it will be categorized as an internal business plan and won’t contain details about the organizations or the management team. Internal expansion and growth plans are used to strategize on the steps the business needs to take to expand and grow. Such internal plans also involve internal funding provided by the business itself. There may or may not be detailed financial projections. However, the projections of the sales and costs of any expansion plans are typically laid out in detail.
The bigger picture: This is one of the key advantages of a business plan. When you plan your business right, you can get a clearer picture of the business as a whole. You can easily comnect the dots between strategy and tactics, and everything is easier to work out.
Strategic focus: As a startup, you need to create an identity and focus on building that identity. It is usually defined by your target market, and the products and services you are tailoring to match their needs.
Set priorities: It’s impossible to do everything at once in a business. When you plan your business, you can order things in terms of their importance and allocate your effort, resources and time in an efficient and strategic manner.
Manage change: When you plan your business effectively, you can check your assumptions, track your progress and see new developments right from the beginning, allowing you to adjust accordingly.
Forces you to be accountable: When you plan effectively, you set expectations for yourself and a means by which you will be able to track your results. You can constantly review your business plan in terms of what you expect and what eventually happens.
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Nicky is a business writer with nearly two decades of hands-on and publishing experience. She's been published in several business publications, including The Employment Times, Web Hosting Sun and WOW! Women on Writing. She also studied business in college.
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Planning, Startups, Stories
Tim berry on business planning, starting and growing your business, and having a life in the meantime., 10 benefits of business planning for all businesses.
(Note: I posted this Wednesday on the Small Business Administration’s Industry Word blog, where I am a guest expert. I’m reposting it here because it seems appropriate. View the original .)
And I’d like to point out that none of these benefits require a big formal business plan document. A lean business plan (as in What Business Plan Type is Best for Me) is usually enough. It takes an hour or two to do the first plan, then just an hour or two to review and revise monthly.
Here are those top ten benefits.
- See the whole business . Business planning done right connects the dots in your business so you get a better picture of the whole. Strategy is supposed to relate to tactics with strategic alignment. Does that show up in your plan? Do your sales connect to your sales and marketing expenses? Are your products right for your target market? Are you covering costs including long-term fixed costs, product development, and working capital needs as well? Take a step back and look at the larger picture.
- Strategic Focus . Startups and small business need to focus on their special identities, their target markets, and their products or services tailored to match.
- Set priorities . You can’t do everything. Business planning helps you keep track of the right things, and the most important things. Allocate your time, effort, and resources strategically.
- Manage change . With good planning process you regularly review assumptions, track progress, and catch new developments so you can adjust. Plan vs. actual analysis is a dashboard, and adjusting the plan is steering.
- Develop accountability . Good planning process sets expectations and tracks results. It’s a tool for regular review of what’s expected and what happened. Good work shows up. Disappointments show up too. A well-run monthly plan review with plan vs. actual included becomes an impromptu review of tasks and accomplishments.
- Manage cash . Good business planning connects the dots in cash flow. Sometimes just watching profits is enough. But when sales on account, physical products, purchasing assets, or repaying debts are involved, cash flow takes planning and management. Profitable businesses suffer when slow-paying clients or too much inventory constipate cash flow. A plan helps you see the problem and adjust to it.
- Strategic alignment . Does your day-to-day work fit with your main business tactics? Do those tactics match your strategy? If so, you have strategic alignment. If not, the business planning will bring up the hidden mismatches. For example, if you run a gourmet restaurant that has a drive-through window, you’re out of alignment.
- Milestones . Good business planning sets milestones you can work towards. These are key goals you want to achieve, like reaching a defined sales level, hiring that sales manager, or opening the new location. We’re human. We work better when we have visible goals we can work towards.
- Metrics . Put your performance indicators and numbers to track into a business plan where you can see them monthly in the plan review meeting. Figure out the numbers that matter. Sales and expenses usually do, but there are also calls, trips, seminars, web traffic, conversion rates, returns, and so forth. Use your business planning to define and track the key metrics.
- Realistic regular reminders to keep on track . We all want to do everything for our customers, but sometimes we need to push back to maintain quality and strategic focus. It’s hard, during the heat of the everyday routine, to remember the priorities and focus. The business planning process becomes a regular reminder.
These tips are great for beginners .
This article is a must-read for anyone looking to start their own business. It covers the basics of what it takes to get started with your future in mind!
Great article and very well written! Keep up the good work!
Either starting a business or just collaborating for a gig, It is very important to have a likewise mindset partner. And especially we are into supply and manufacturing which you explained very well.
This is an insightful read for young entrepreneurs. We understand the value of content.
I have personally never been able to plan or organize things without penning them down on a piece of paper. It helps me visualize things in a better way. Also, seeing things written down in front of me helps connect the dots. A great article and absolutely in line with my perspective. Cheers!
Wow, I had never considered the fact that business planning can help you keep track of the most important things and prioritize them. My entire life I have strived to be an organized person, and I think it is a good skill to have when it comes to a professional career. Do you know how often one should revise a plan in order to make corrections according to new circumstances and opportunities?
@Sam, generally once a month, but it depends on the nature and specifics of the business. Some can last 2-3 months without review … and you don’t necessarily correct every time you review the plan. Thanks for asking.
Thank you very much for helping the world to understand the genesis of how to plan business and make it reality in life. Business is made by minded person with great and love.
Hi Tim I appreciate you for writing this article,it has really helped me understand the importance of planning and how vital it is to a business and now to me planning is like the foundation of each and every business,keep up with the good work.
Very useful article and very well written. A business plan is important for every person who is planning to start a business because of the mentioned benefits in the article. Thanks for sharing it.
I was looking for the full list of books you recommend in each of these categories, but the link at the end of the article doesn’t seem to be working. I’m particularly interested in good “Applied Statistics” and “Statistical Analysis” books, if that helps. Could you point me to the list with your recommendations?
Sorry, all four links at the bottom of the article work for me, so I can’t help you with links. The closest thing I have to a list of book recommendations is the blog category books here on this blog, which is a list of blog posts about books, most of which are books I recommend. But I have no recommendations for books related to applied statistics or statistical analysis, that’s not my expertise.
That is really interesting that business planning can help you catch new developments and adjust. Something I have been thinking about lately is starting an online business. It has been something that seems to do well for others, and I want to find the opportunities.
I like how you said that business planning helps you keep track of the important stuff. That seems like a really important thing to do because it would allow you to progress more. Focusing on the necessary and essential would really mean that you could do more and accomplish more it seems to me.
Very good summary. I think one great benefit of developing/using Business Plans is that it will give you the chance of training your mindset and exercise the forrest-tree approach. One of the key elements of the BP is to drill down from the overall defined strategy, down to the critical success factors and define metrics to achieve them. As you gain experience, this way of thinking will become more and more embedded and I honestly believe it will help you be a more analytical person i.e. be able to better build BP’s. That is obviously my opinion, some people might argue.
Thanks again Antonio
Thank you Antonio for the welcome addition. I agree with you, another great benefit is the drilling down with the forest-tree thinking. Thanks for adding that. Tim
Hi Tim I couldn’t agree more. I could weep at the networking meetings I go to when I ask how many businesses have business plans and only my hand goes up (and those of my clients :-)) It’s how to persuade them that this really is an important thing to do when they think they are poddling along quite happily now. I’ve tried waving my plan at them and telling them it just got me a £1k grant and if they want a grant too, come to me and I’ll help them! The lot of a decent business coach/consultant can be a frustrating one 🙂
Thanks Karen, and I hope you emphasize the “coach” element in your practice, so that your clients always understand that it’s something they do, with you helping. Check out this one: https://timberry.bplans.com/2007/07/my-worst-ever-b.html (still very valid today).
And thanks for your addition. Glad to have you here.
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Why do you need a business plan?
14 Reasons Why You Need a Business Plan
10 min. read
Updated March 8, 2023
There’s no question that starting and running a business is hard work. But it’s also incredibly rewarding. And, one of the most important things you can do to increase your chances of success is to have a business plan.
A business plan is a foundational document that is essential for any company, no matter the size or age. From attracting potential investors to keeping your business on track—a business plan helps you achieve important milestones and grow in the right direction.
A business plan isn’t just a document you put together once when starting your business. It’s a living, breathing guide for existing businesses – one that business owners should revisit and update regularly.
Unfortunately, writing a business plan is often a daunting task for potential entrepreneurs. So, do you really need a business plan? Is it really worth the investment of time and resources? Can’t you just wing it and skip the whole planning process?
Good questions. Here’s every reason why you need a business plan.
On this page
1. Business planning is proven to help you grow 30 percent faster
2. planning is a necessary part of the fundraising process, 3. having a business plan minimizes your risk, 4. crafts a roadmap to achieve important milestones, 5. a plan helps you figure out if your idea can become a business, 6. you’ll make big spending decisions with confidence, 7. you’re more likely to catch critical cash flow challenges early, 8. position your brand against the competition, 9. determines financial needs and revenue models, 10. helps you think through your marketing strategy, 11. clarifies your vision and ensures everyone is on the same page, 12. future-proof your business, 13. tracks your progress and measures success, 14. your business plan is an asset if you ever want to sell, writing your business plan.
Writing a business plan isn’t about producing a document that accurately predicts the future of your company. The process of writing your plan is what’s important. Writing your plan and reviewing it regularly gives you a better window into what you need to do to achieve your goals and succeed.
You don’t have to just take our word for it. Studies have proven that companies that plan and review their results regularly grow 30 percent faster. Beyond faster growth, research also shows that companies that plan actually perform better. They’re less likely to become one of those woeful failure statistics, or experience cash flow crises that threaten to close them down.
One of the top reasons to have a business plan is to make it easier to raise money for your business. Without a business plan, it’s difficult to know how much money you need to raise, how you will spend the money once you raise it, and what your budget should be.
Investors want to know that you have a solid plan in place – that your business is headed in the right direction and that there is long-term potential in your venture.
A business plan shows that your business is serious and that there are clearly defined steps on how it aims to become successful. It also demonstrates that you have the necessary competence to make that vision a reality.
Investors, partners, and creditors will want to see detailed financial forecasts for your business that shows how you plan to grow and how you plan on spending their money.
When you’re just starting out, there’s so much you don’t know—about your customers, your competition, and even about operations.
As a business owner, you signed up for some of that uncertainty when you started your business, but there’s a lot you can do to reduce your risk . Creating and reviewing your business plan regularly is a great way to uncover your weak spots—the flaws, gaps, and assumptions you’ve made—and develop contingency plans.
Your business plan will also help you define budgets and revenue goals. And, if you’re not meeting your goals, you can quickly adjust spending plans and create more realistic budgets to keep your business healthy.
A business plan is like a roadmap for your business. It helps you set, track and reach business milestones.
For your plan to function in this way, your business plan should first outline your company’s short- and long-term goals. You can then fill in the specific steps necessary to reach those goals. This ensures that you measure your progress (or lack thereof) and make necessary adjustments along the way to stay on track while avoiding costly detours.
In fact, one of the top reasons why new businesses fail is due to bad business planning. Combine this with inflexibility and you have a recipe for disaster.
And planning is not just for startups. Established businesses benefit greatly from revisiting their business plan. It keeps them on track, even when the global market rapidly shifts as we’ve seen in recent years.
To turn your idea into reality, you need to accurately assess the feasibility of your business idea.
You need to verify:
- If there is a market for your product or service
- Who your target audience is
- How you will gain an edge over the current competition
- If your business can run profitably
A business plan forces you to take a step back and look at your business objectively, which makes it far easier to make tough decisions down the road. Additionally, a business plan helps you to identify risks and opportunities early on, providing you with the necessary time to come up with strategies to address them properly.
Finally, a business plan helps you work through the nuts and bolts of how your business will work financially and if it can become sustainable over time.
As your business grows, you’ll have to figure out when to hire new employees, when to expand to a new location, or whether you can afford a major purchase.
These are always major spending decisions, and if you’re regularly reviewing the forecasts you mapped out in your business plan, you’re going to have better information to use to make your decisions.
The other side of those major spending decisions is understanding and monitoring your business’s cash flow. Your cash flow statement is one of the three key financial statements you’ll put together for your business plan. (The other two are your balance sheet and your income statement (P&L).
Reviewing your cash flow statement regularly as part of your regular business plan review will help you see potential cash flow challenges earlier so you can take action to avoid a cash crisis where you can’t pay your bills.
Competitors are one of the factors that you need to take into account when starting a business. Luckily, competitive research is an integral part of writing a business plan. It encourages you to ask questions like:
- What is your competition doing well? What are they doing poorly?
- What can you do to set yourself apart?
- What can you learn from them?
- How can you make your business stand out?
- What key business areas can you outcompete?
- How can you identify your target market?
Finding answers to these questions helps you solidify a strategic market position and identify ways to differentiate yourself. It also proves to potential investors that you’ve done your homework and understand how to compete.
A vital part of starting a business is understanding what your expenses will be and how you will generate revenue to cover those expenses. Creating a business plan helps you do just that while also defining ongoing financial needs to keep in mind.
Without a business model, it’s difficult to know whether your business idea will generate revenue. By detailing how you plan to make money, you can effectively assess the viability and scalability of your business.
Understanding this early on can help you avoid unnecessary risks and start with the confidence that your business is set up to succeed.
A business plan is a great way to document your marketing plan. This will ensure that all of your marketing activities are aligned with your overall goals. After all, a business can’t grow without customers and you’ll need a strategy for acquiring those customers.
Your business plan should include information about your target market, your marketing strategy, and your marketing budget. Detail things like how you plan to attract and retain customers, acquire new leads, how the digital marketing funnel will work, etc.
Having a documented marketing plan will help you to automate business operations, stay on track and ensure that you’re making the most of your marketing dollars.
In order to create a successful business, you need a clear vision and a plan for how you’re going to achieve it. This is all detailed with your mission statement, which defines the purpose of your business, and your personnel plan, which outlines the roles and responsibilities of current and future employees. Together, they establish the long-term vision you have in mind and who will need to be involved to get there.
Additionally, your business plan is a great tool for getting your team in sync. Through consistent plan reviews, you can easily get everyone in your company on the same page and direct your workforce toward tasks that truly move the needle.
A business plan helps you to evaluate your current situation and make realistic projections for the future.
This is an essential step in growing your business, and it’s one that’s often overlooked. When you have a business plan in place, it’s easier to identify opportunities and make informed decisions based on data.
Therefore, it requires you to outline goals, strategies, and tactics to help the organization stay focused on what’s important.
By regularly revisiting your business plan, especially when the global market changes, you’ll be better equipped to handle whatever challenges come your way, and pivot faster.
You’ll also be in a better position to seize opportunities as they arise.
An often overlooked purpose of a business plan is as a tool to define success metrics. A key part of writing your plan involves pulling together a viable financial plan. This includes financial statements such as your profit and loss, cash flow, balance sheet, and sales forecast.
By housing these financial metrics within your business plan, you suddenly have an easy way to relate your strategy to actual performance. You can track progress, measure results, and follow up on how the company is progressing. Without a plan, it’s almost impossible to gauge whether you’re on track or not.
Additionally, by evaluating your successes and failures, you learn what works and what doesn’t and you can make necessary changes to your plan. In short, having a business plan gives you a framework for measuring your success. It also helps with building up a “lessons learned” knowledge database to avoid costly mistakes in the future.
Down the road, you might decide that you want to sell your business or position yourself for acquisition. Having a solid business plan is going to help you make the case for a higher valuation. Your business is likely to be worth more to a buyer if it’s easy for them to understand your business model, your target market, and your overall potential to grow and scale.
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By taking the time to create a business plan, you ensure that your business is heading in the right direction and that you have a roadmap to get there. We hope that this post has shown you just how important and valuable a business plan can be. While it may still seem daunting, the benefits far outweigh the time investment and learning curve for writing one.
Luckily, you can write a plan in as little as 30 minutes. And there are plenty of excellent planning tools out there if you’re looking for more step-by-step guidance. Whatever it takes, write your plan and you’ll quickly see how useful it can be.
Tim Berry is the founder and chairman of Palo Alto Software , a co-founder of Borland International, and a recognized expert in business planning. He has an MBA from Stanford and degrees with honors from the University of Oregon and the University of Notre Dame. Today, Tim dedicates most of his time to blogging, teaching and evangelizing for business planning.
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Do you REALLY need a business plan?
The top three questions that I get asked most frequently as a professional business plan writer will probably not surprise you:
- What is the purpose of a business plan – why is it really required?
- How is it going to benefit my business if I write a business plan?
- Is a business plan really that important – how can I actually use it?
Keep reading to get my take on what the most essential advantages of preparing a business plan are—and why you may (not) need to prepare one.
The importance, purpose and benefit of a business plan is in that it enables you to validate a business idea, secure funding, set strategic goals – and then take organized action on those goals by making decisions, managing resources, risk and change, while effectively communicating with stakeholders.
Let’s take a closer look at how each of the important business planning benefits can catapult your business forward:
1. Validate Your Business Idea
The process of writing your business plan will force you to ask the difficult questions about the major components of your business, including:
- External: industry, target market of prospective customers, competitive landscape
- Internal: business model, unique selling proposition, operations, marketing, finance
Business planning connects the dots to draw a big picture of the entire business.
And imagine how much time and money you would save if working through a business plan revealed that your business idea is untenable. You would be surprised how often that happens – an idea that once sounded so very promising may easily fall apart after you actually write down all the facts, details and numbers.
While you may be tempted to jump directly into start-up mode, writing a business plan is an essential first step to check the feasibility of a business before investing too much time and money into it. Business plans help to confirm that the idea you are so passionate and convinced about is solid from business point of view.
Take the time to do the necessary research and work through a proper business plan. The more you know, the higher the likelihood that your business will succeed.
2. Set and Track Goals
Successful businesses are dynamic and continuously evolve. And so are good business plans that allow you to:
- Priorities: Regularly set goals, targets (e.g., sales revenues reached), milestones (e.g. number of employees hired), performance indicators and metrics for short, mid and long term
- Accountability: Track your progress toward goals and benchmarks
- Course-correction: make changes to your business as you learn more about your market and what works and what does not
- Mission: Refer to a clear set of values to help steer your business through any times of trouble
Essentially, business plan is a blueprint and an important strategic tool that keeps you focused, motivated and accountable to keep your business on track. When used properly and consulted regularly, it can help you measure and manage what you are working so hard to create – your long-term vision.
As humans, we work better when we have clear goals we can work towards. The everyday business hustle makes it challenging to keep an eye on the strategic priorities. The business planning process serves as a useful reminder.
3. Take Action
A business plan is also a plan of action . At its core, your plan identifies where you are now, where you want your business to go, and how you will get there.
Planning out exactly how you are going to turn your vision into a successful business is perhaps the most important step between an idea and reality. Success comes not only from having a vision but working towards that vision in a systematic and organized way.
A good business plan clearly outlines specific steps necessary to turn the business objectives into reality. Think of it as a roadmap to success. The strategy and tactics need to be in alignment to make sure that your day-to-day activities lead to the achievement of your business goals.
4. Manage Resources
A business plan also provides insight on how resources required for achieving your business goals will be structured and allocated according to their strategic priority. For example:
Large Spending Decisions
- Assets: When and in what amount will the business commit resources to buy/lease new assets, such as computers or vehicles.
- Human Resources: Objectives for hiring new employees, including not only their pay but how they will help the business grow and flourish.
- Business Space: Information on costs of renting/buying space for offices, retail, manufacturing or other operations, for example when expanding to a new location.
Cash Flow It is essential that a business carefully plans and manages cash flows to ensure that there are optimal levels of cash in the bank at all times and avoid situations where the business could run out of cash and could not afford to pay its bills.
Revenues v. Expenses In addition, your business plan will compare your revenue forecasts to the budgeted costs to make sure that your financials are healthy and the business is set up for success.
5. Make Decisions
Whether you are starting a small business or expanding an existing one, a business plan is an important tool to help guide your decisions:
Sound decisions Gathering information for the business plan boosts your knowledge across many important areas of the business:
- Industry, market, customers and competitors
- Financial projections (e.g., revenue, expenses, assets, cash flow)
- Operations, technology and logistics
- Human resources (management and staff)
- Creating value for your customer through products and services
Decision-making skills The business planning process involves thorough research and critical thinking about many intertwined and complex business issues. As a result, it solidifies the decision-making skills of the business owner and builds a solid foundation for strategic planning , prioritization and sound decision making in your business. The more you understand, the better your decisions will be.
Planning Thorough planning allows you to determine the answer to some of the most critical business decisions ahead of time , prepare for anticipate problems before they arise, and ensure that any tactical solutions are in line with the overall strategy and goals.
If you do not take time to plan, you risk becoming overwhelmed by countless options and conflicting directions because you are not unclear about the mission , vision and strategy for your business.
6. Manage Risk
Some level of uncertainty is inherent in every business, but there is a lot you can do to reduce and manage the risk, starting with a business plan to uncover your weak spots.
You will need to take a realistic and pragmatic look at the hard facts and identify:
- Major risks , challenges and obstacles that you can expect on the way – so you can prepare to deal with them.
- Weaknesses in your business idea, business model and strategy – so you can fix them.
- Critical mistakes before they arise – so you can avoid them.
Essentially, the business plan is your safety net . Naturally, business plan cannot entirely eliminate risk, but it can significantly reduce it and prepare you for any challenges you may encounter.
7. Communicate Internally
Attract talent For a business to succeed, attracting talented workers and partners is of vital importance.
A business plan can be used as a communication tool to attract the right talent at all levels, from skilled staff to executive management, to work for your business by explaining the direction and growth potential of the business in a presentable format.
Align performance Sharing your business plan with all team members helps to ensure that everyone is on the same page when it comes to the long-term vision and strategy.
You need their buy-in from the beginning, because aligning your team with your priorities will increase the efficiency of your business as everyone is working towards a common goal .
If everyone on your team understands that their piece of work matters and how it fits into the big picture, they are more invested in achieving the objectives of the business.
It also makes it easier to track and communicate on your progress.
Share and explain business objectives with your management team, employees and new hires. Make selected portions of your business plan part of your new employee training.
8. Communicate Externally
Alliances If you are interested in partnerships or joint ventures, you may share selected sections of your plan with the potential business partners in order to develop new alliances.
Suppliers A business plan can play a part in attracting reliable suppliers and getting approved for business credit from suppliers. Suppliers who feel confident that your business will succeed (e.g., sales projections) will be much more likely to extend credit.
In addition, suppliers may want to ensure their products are being represented in the right way .
Professional Services Having a business plan in place allows you to easily share relevant sections with those you rely on to support the organization, including attorneys, accountants, and other professional consultants as needed, to make sure that everyone is on the same page.
Advisors Share the plan with experts and professionals who are in a position to give you valuable advice.
Landlord Some landlords and property managers require businesses to submit a business plan to be considered for a lease to prove that your business will have sufficient cash flows to pay the rent.
Customers The business plan may also function as a prospectus for potential customers, especially when it comes to large corporate accounts and exclusive customer relationships.
9. Secure Funding
If you intend to seek outside financing for your business, you are likely going to need a business plan.
Whether you are seeking debt financing (e.g. loan or credit line) from a lender (e.g., bank or financial institution) or equity capital financing from investors (e.g., venture or angel capital), a business plan can make the difference between whether or not – and how much – someone decides to invest.
Investors and financiers are always looking at the risk of default and the earning potential based on facts and figures. Understandably, anyone who is interested in supporting your business will want to check that you know what you are doing, that their money is in good hands, and that the venture is viable in the long run.
Business plans tend to be the most effective ways of proving that. A presentation may pique their interest , but they will most probably request a well-written document they can study in detail before they will be prepared to make any financial commitment.
That is why a business plan can often be the single most important document you can present to potential investors/financiers that will provide the structure and confidence that they need to make decisions about funding and supporting your company.
Be prepared to have your business plan scrutinized . Investors and financiers will conduct extensive checks and analyses to be certain that what is written in your business plan faithful representation of the truth.
10. Grow and Change
It is a very common misconception that a business plan is a static document that a new business prepares once in the start-up phase and then happily forgets about.
But businesses are not static. And neither are business plans. The business plan for any business will change over time as the company evolves and expands .
In the growth phase, an updated business plan is particularly useful for:
Raising additional capital for expansion
- Seeking financing for new assets , such as equipment or property
- Securing financing to support steady cash flows (e.g., seasonality, market downturns, timing of sale/purchase invoices)
- Forecasting to allocate resources according to strategic priority and operational needs
- Valuation (e.g., mergers & acquisitions, tax issues, transactions related to divorce, inheritance, estate planning)
Keeping the business plan updated gives established businesses better chance of getting the money they need to grow or even keep operating.
Business plan is also an excellent tool for planning an exit as it would include the strategy and timelines for a transfer to new ownership or dissolution of the company.
Also, if you ever make the decision to sell your business or position yourself for a merger or an acquisition , a strong business plan in hand is going to help you to maximize the business valuation.
Valuation is the process of establishing the worth of a business by a valuation expert who will draw on professional experience as well as a business plan that will outline what you have, what it’s worth now and how much will it likely produce in the future.
Your business is likely to be worth more to a buyer if they clearly understand your business model, your market, your assets and your overall potential to grow and scale .
Related Questions
Business plan purpose: what is the purpose of a business plan.
The purpose of a business plan is to articulate a strategy for starting a new business or growing an existing one by identifying where the business is going and how it will get there to test the viability of a business idea and maximize the chances of securing funding and achieving business goals and success.
Business Plan Benefits: What are the benefits of a business plan?
A business plan benefits businesses by serving as a strategic tool outlining the steps and resources required to achieve goals and make business ideas succeed, as well as a communication tool allowing businesses to articulate their strategy to stakeholders that support the business.
Business Plan Importance: Why is business plan important?
The importance of a business plan lies in it being a roadmap that guides the decisions of a business on the road to success, providing clarity on all aspects of its operations. This blueprint outlines the goals of the business and what exactly is needed to achieve them through effective management.
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4 Benefits of a Business Plan for Your Small Business
Do you need a business plan for your small business? If you are seeking outside funding, you are required to present a formal proposal. But, the benefits of a business plan go beyond finding lenders.
A strategy can help you grow your company. Think of the concept like this:
If you’re like most people, you probably wouldn’t buy a car without doing some research. You would choose one after weighing the good and bad traits of different vehicles. You’d make sure the car starts before signing the title.
It’s a similar situation with your business venture. You need to be sure your business has the potential to be a worthwhile investment.
A business plan can be a simple outline or a detailed document. Your plan is a roadmap that steers you in the right direction. A business plan is not a promise you have to keep over time.
Download our free guide on what you need to start your business to learn more, plus get a checklist!
4 Benefits of a business plan
So what can a solid strategy for building your business help you accomplish? Here are four benefits of a business plan:
1. You can get outside funding
To get funding from lenders or investors, you need to show a business plan. Lenders want to see that they are investing in a company that will last and grow. You must give lenders a plan detailing the steps you will take as a business owner.
Even if your lenders are friends and family, it’s good to organize your ideas.
A business plan helps others understand your passion and see where their money is going. Communicating clear ideas to investors helps prove you can get your business off the ground and build it up.
You’ll need to know how to write an exit strategy for a business plan as well. A thriving business is no good to your investors if they have no way to eventually cash in on their investment.
2. You gain an understanding of your market
One key piece of your business plan is knowing how to conduct a market analysis . When you conduct this study, you look at your industry, target market, and competitors. You can see trends in decisions that could help, or harm, your business.
Another great benefit of a business plan is learning from someone else’s mistakes. Learning from other’s mistakes is less time consuming and financially burdening than learning from your own mistakes. The more prepared you are to deal with the aspects of your market, the easier it might be to handle issues down the road.
3. You focus your strategies
The entrepreneur in you is eager to dive right into business. But, having a business plan can help you pinpoint the best strategies for your company. Before you take the plunge into ownership, work out the important details.
This business plan benefit also helps you prioritize tasks. By looking at the big picture of your business, you can decide which challenges to tackle first. A business plan could also help you choose which tasks to address later.
4. You can check the financial numbers
Business plans include financial projections for your company. While the projections are not a peek inside a crystal ball, they do represent a forecast of your financial health . Planning for expenses will be important for keeping operations steady.
Cash flow projections help you see if your goals are possible. They also point out trends that could potentially harm your business. The faster you spot upcoming issues, the faster you can correct problems.
Be sure that your projections match up to your expectations. Have you set aside enough money to do the tasks at hand? Double-check your numbers so you are prepared to handle your finances in the future.
Business plan parts
Here are a few items you could include in your business plan:
- Company description telling how you will meet your customers’ needs.
- A market analysis that talks about your industry, target market, and competitors.
- Services or products you will sell.
- Marketing plans for generating sales.
- Funding requests with a budget outlined.
- Financial projections from your financial statements.
Your business plan could be anything between a basic outline to a 40-page presentation. If the plan is just to keep you on track, you can cover the areas you think need to be addressed. The benefits of a business plan are not limited to a specific length, but can be tailored to your needs.
If you write your business plan for lenders, you will want a more formal, detailed plan. Include a table of contents, a summary of your business, and an appendix with supporting documents.
Does your business plan include a system for tracking finances? Our accounting software is an easy-to-use program for small business owners and their accountants. Try it for free today!
This article has been updated from its original publication date of February 19, 2016.
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Why You Should Write a Business Plan
Susan Ward wrote about small businesses for The Balance for 18 years. She has run an IT consulting firm and designed and presented courses on how to promote small businesses.
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To Test the Feasibility of Your Business Idea
To give your new business the best chance of success, to secure funding, to make business planning manageable and effective, to attract investors, frequently asked questions (faqs).
The Balance / Getty Images
A business plan is the blueprint for your business. Starting a business without a business plan is like building a house without a blueprint. Yet, unlike a house, a business isn't static. We often make the mistake of thinking of a business plan as a single document that you put together once when you're starting out and never touch again. But as the business develops, so should its business plan. In fact, any particular business may have multiple business plans as its objectives change.
Writing a business plan is time-consuming, but it's essential if you want to have a successful business that's going to survive the startup phase.
Key Takeaways
- Writing a business plan reveals how tenable your idea is.
- Updating and amending a business plan as the business develops and its goals change is vital to your success.
- A good business plan helps you define your target market, competitive advantage, optimum pricing strategies, and better prepares the business for upcoming challenges.
- A business plan helps you secure funding and attract new investors.
Writing a business plan is the best way—other than going out and doing it—to test whether an idea for starting a business is feasible. In this sense, the business plan is your safety net. If working through a business plan reveals that your business idea is untenable, it will save you a great deal of time and money.
Often, an idea for starting a business is discarded at the marketing analysis or competitive analysis stage , freeing you to move on to a new (and better) idea.
Unfortunately, many prospective business owners are so convinced that their idea for a product or service is a can't-miss proposition, that they don't take the time to do the necessary research and work through a proper business plan. The more you know about your industry, your prospective customers, and the competition, the greater the likelihood that your business will succeed.
Writing a business plan will ensure that you pay attention to the broad operational and financial objectives of your new business and the small details, such as budgeting and market planning. The process will ultimately make for a smoother startup period and fewer unforeseen problems as your business gets up and running.
The exercise of budgeting and market planning will help you define your target market , your unique selling proposition, optimum pricing strategies, and outline how you intend to sell and deliver your products to customers. In addition, developing a budget for implementation will assist with determining your startup and operating capital requirements.
According to the Small Business Administration, one of the most-cited reasons why businesses fail is inadequate planning. By starting too soon and without a sufficient plan, your business is setting itself up for failure.
Most new businesses need startup and operating capital to get off the ground. Without a well-developed business plan, there is no chance of getting debt financing from established financial institutions such as banks or equity financing from angel investors.
Established businesses often need money, too, to buy new equipment or property, or because of market downturns. Having an up-to-date business plan gives you a much better chance of getting the money you need to keep operating or expand.
Even an angel investor will want to ensure their money is going to a business that knows what it's doing. The easiest way to prove this is via a well-developed business plan.
Investors and financiers are always looking at the risk of default, and word of mouth is no substitute for written facts and figures in a properly prepared business plan.
A business plan is essential if you're thinking of starting a business, but it's also an important tool for established businesses. Viable businesses are dynamic; they change and grow. Your company's original business plan needs to be revised as you set new goals .
Reviewing the business plan can also help you see what goals have been accomplished, what changes need to be made, or what new directions your company's growth should take.
Whether you want to shop your business to venture capitalists or attract angel investors , you need to have a solid business plan. A presentation may pique their interest, but they'll need a well-written document they can study before they'll be prepared to make any investment commitment.
Be prepared to have your business plan scrutinized. Both venture capitalists and angel investors will want to conduct extensive background checks and competitive analyses to be certain that what's written in your business plan is indeed the case.
What are the sections of a business plan?
A comprehensive business plan should include the following sections:
- Executive summary
- Company description
- Competitor analysis
- Industry analysis
- Product and services description
- Financial data
What is the purpose of a business plan?
A business plan has four main purposes:
- Tests the feasibility and model of your business idea
- Attracts investors
- Sets a plan for growth
- Identifies capital needs
Small Business Administration. " Selecting a Business That Fits ."
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Should you really spend your time writing a business plan? ... Established businesses benefit greatly from revisiting their business plan.
The importance, purpose and benefit of a business plan is in that it enables you to validate a business idea, secure funding, set strategic goals – and then
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A good business plan helps you define your target market, competitive advantage, optimum pricing strategies, and better prepares the business
4. A business plan can help you attract customers. A well-written business plan can help you attract customers and partners. It can also help