What is a Business Plan?
Are you worried about your business’s success? You’re right. In an era when more than 50 percent of small businesses fail in their first year, having a clear, defined, and thoughtful business plan is a critical first step to starting a successful business.
A business plan is an essential component of starting any company. It’s key to securing financing, documenting your business model, making financial projections, and making your business idea a reality.
Business plans are essential for all entrepreneurs, business owners, business buyers, and even business students. But what exactly is a business plan?
In this article, we’ll explain what a business plan is, why you need one, identify the different types of plans, and what a business plan should contain.
Business Plan Definition
A business plan is a documented strategy for a business that outlines goals and plans for achieving them. It includes a go-to-market plan, financial projections, market research, business objectives, and a company mission statement. Key personnel responsible for achieving the goals and a timeline may also be included in the business plan.
What is the purpose of a business plan?
A business plan has three primary purposes: it summarizes the organization’s long-term strategy, secures financing from investors, and helps predict future business demands.
Business Plan Objectives
A business plan is likely to be prepared for one or more of the following reasons:
1. Obtain financing from investors
Since the plan’s content centers around how businesses will succeed, reach the break-even point, and make a profit, it is used as a tool to raise capital. This entrepreneurial document shows potential investors or lenders how their capital will be used and how it will help the business thrive.
All banks, investors, and venture capitalists want to see a business plan before they hand over their money, and investors typically expect a 10% or higher return on their investment in a business.
So, these investors need to know when they will get their money back (and when and how much). In addition, they want to understand the business’s process and strategy for achieving those financial goals.
2. Documenting a Company’s Strategy and Goals
A business plan should be the finishing touch.
Business plans can be dozens or even hundreds of pages long, and their writers will detail the business’s goals and how it will achieve them.
Entrepreneurs must thoroughly explain their marketing, sales, and operations strategies to answer investors’ questions, concerns, and possible scenarios. This explanation ranges from providing a location for the business to explaining a tactical marketing approach.
This explanation leads to a break-even point for the business, supported by sales forecasts and financial projections. The business plan writer should be able to talk about the whys and wherefores of everything specified in the plan.
3. Legitimizing a Business Idea
Everyone has an excellent idea for a company. But when they take the pen to put the idea on paper, they realize it’s not feasible.
With the help of a business plan, the entrepreneur proves the value of executing a business idea.
As entrepreneurs document their go-to-market process, capital needs, and expected return on investment, they will likely encounter problems that require them to second-guess their strategies and metrics, precisely what a business plan is for.
By having a plan, the entrepreneur ensures that they have considered everything and reassures readers that whoever wrote the plan is confident in their business idea, has spent hours thinking about it, formulating growth tactics, and calculating the financials.
What are the components of a business plan?
- 1. Business Plan Subtitle
- 2. Executive Summary
- 3. Company Description
- 4. Business Opportunity
- 5. Competitive Analysis
- 6. Target Market
- 7. Marketing Plan
- 8. Financial Summary
- 9. Team
- 10. Items Needing Financing
1. Business Plan Subtitle
A great business plan starts with a compelling title and subtitle. You should clarify that this is a business plan, but a subtitle can tell the story of your business in one short sentence.
2. Executive Summary
Although you write this section of the plan last, it is the first and perhaps only section that stakeholders will read. The executive summary sets the stage for the rest of the document. This section includes your company’s mission or vision statement, value proposition, and long-term goals.
3. Company Description
This brief section of your business plan includes your business name, how many years you’ve been in business, your key offerings, and your brand positioning statement. You might even want to include your core values or a brief history of your company. The company description aims to introduce your business to the reader in a compelling and concise way.
4. Business Opportunity
The business opportunity should convince investors that your organization meets a market need like no other company. This section explains the specific problem your business solves in the market and how it solves it. It will also include your value proposition and some high-level information about your target market.
5. Competitive Analysis
Almost every industry has more than one market player. Even if your business has most of the market share in your industry or is the first of its kind, you’re still competing with others. In the competitive analysis section, you objectively examine the industry landscape to determine where your business stands. A SWOT analysis is an organized way to structure this section.
6. Target Market
Who are your key customers and why? The target market section of your business plan details your key customers. The target market should explain your ideal customer’s demographic, psychographic, behavioral, and geographic information.
7. Marketing Plan
Marketing is broad, and it would be tempting to cover every possible type of marketing. However, a brief overview of how marketing offers value to your target audience and a tactical plan will suffice. Think broadly, then narrow it down: Are you focused on a slow, steady process where the initial investment is in organic customer acquisition? Or will you use an advertising strategy to gain many customers? This type of information should inform your marketing plan.
8. Financial Summary
Money doesn’t grow on trees; even the most digital and sustainable businesses have costs. The financial summary is about where your business is now and where it will go. Include any financial information that would help potential investors and contribute to the economic health of your business—assets, liabilities, costs, expenses, investments, revenues, and more go here.
9. Team
So you’ve set big goals, you have a credible business opportunity, and the industry is receptive to your idea. Who is responsible for making this happen in the best possible way? Your business plan’s “Team” section provides an overview of the roles accountable for each goal. Don’t worry if you don’t have all the team members yet; knowing who you need to hire will be handy when pitching for capital.
10. Financing Requirements
Remember that one of the goals of a business plan is to secure funding from investors, so you should include financing requirements. That is, how much capital your business needs, for what reasons, and for how long.
Types of Business Plans
There is no one-size-fits-all business plan because many different types of businesses exist today. From one-person startups to historic family names that need to stay competitive, every business needs a plan tailored to its needs. Here are some of the most common types of business plans.
1. Startup Business Plan
As one of the most common types of business plans and suitable for new business ideas, it lays the foundation for the ultimate success of a business.
The biggest challenge with a startup business plan is that it is written entirely from scratch. Startup plans typically reference existing industry data and explain unique business strategies and go-to-market plans.
2. Business Acquisition Plan
Believe it or not, investors also use business plans to acquire existing businesses (not just new ones).
A business plan explains the current company, its operating model, what will remain the same under new ownership, and why things will change or stay the same. Additionally, the plan should explain the current state of the business and why it is being sold.
For example, suppose someone is buying a failed business. In that case, the business plan should explain why it should be acquired by referencing its previous metrics, post-purchase sales projections, and justifications.
3. Business Repositioning Plan
CEOs or owners develop a business repositioning plan when a business wants to avoid acquisitions, change its brand name, or try something new.
This plan:
- Determines the current state of the company.
- State the company’s vision for the future.
- Explains the reason for the business change.
- Outlines a process for how the company will adapt to the change.
Companies that plan to reposition their businesses do so proactively or retrospectively because of changing market trends and customer needs. For example, Pizza Hut announced plans to overhaul its brand to shift from dine-in to delivery. This decision was based on years of observing industry and corporate trends and the need to change the workplace.
4. Business Expansion Plan
Expanding a successful business to another location usually requires a business plan, as the project may focus on a new target market and require additional capital.
Fortunately, a business expansion plan is unlike a startup plan, starting from scratch. Instead, the plan points to sales, revenue, and existing successes. However, as great as these points can be to reference, don’t rely too heavily on them because there are still many reasons any business will succeed or fail.
Finally
Ultimately, a business plan explains a business idea and why it will succeed. The more detail and thought you put into it, your strategy and business will be more successful.
When writing your own business plan, organize your thoughts using extensive research, feedback from your team or board, and a solid template.