Business Plan: What It Is and How to Write One in 7 Steps

Starting a business is an exciting journey filled with possibilities, but it can also be overwhelming. Writing a solid business plan is one of the most crucial steps in turning your entrepreneurial dreams into reality.

What is a business plan?

A business plan is a strategic document that outlines your business goals and the steps you’ll take to achieve them. It covers key areas like marketing, finance, operations, and management. Think of it as a blueprint that guides your business from startup to success.

A business plan is not just for attracting investors or securing loans; it’s a valuable tool for understanding your business inside and out. It forces you to think critically about your goals, your target market, and how you plan to succeed in a competitive landscape.

Why a business plan matters

Imagine setting off on a road trip without a map or GPS. You might eventually reach your destination, but chances are you’ll take some wrong turns.

A business plan is like your map in the entrepreneurial journey. It outlines where you want to go and the best route.

A well-thought-out business plan helps you:

• Clarify your vision. It solidifies your ideas and goals, giving you a clear direction.
• Attract investors. A detailed plan shows potential investors that you’ve done your homework.
• Identify risks and opportunities. It highlights potential challenges and how you can address them.
• Measure progress. It provides benchmarks to track your growth and adjust strategies as needed.

Understanding different types of business plans

Depending on your business and objectives, you might choose a specific plan that best suits your needs. Here are ten common types of business plans:

Startup business plan

A startup business plan is designed for new ventures. It covers everything from your business idea to detailed financial projections. This type of plan is comprehensive, providing an in-depth look at how your business will operate and grow.

A startup business plan is designed to lay the foundation of your new business and attract potential investors or lenders.

Let’s say you’re starting an eco-friendly clothing line. Your startup business plan would detail your mission to promote sustainable fashion, how you’ll source materials, your marketing strategies to reach environmentally conscious consumers, and financial forecasts showing profitability over time.

Internal business plan

An internal business plan is used within an organization to keep the team aligned on goals and strategies. It focuses on operational aspects, setting department targets, and outlining how different teams will work together.

An internal business plan is designed to guide the company’s internal growth and ensure everyone is on the same page.

For example, if you’re running a small tech company planning to develop a new software product, an internal plan would outline development timelines, resource allocation, team responsibilities, and expected outcomes.

Strategic business plan

This plan takes a high-level view, focusing on long-term objectives and their strategies. It includes mission and vision statements, critical success factors, and strategic actions.

The strategic business plan is designed to set long-term goals and outline a path to achieve them, often over three to five years.

For example, a regional restaurant chain aiming to expand nationally would use a strategic business plan to map market research, brand positioning, franchising options, and steps to scale operations.

Operational business plan

An operational plan examines a business’s daily functions. It outlines processes, staffing, inventory management, and other operational details that keep the business running smoothly.

An operational business plan provides a detailed roadmap of the day-to-day operations necessary to run the business effectively.

For example, a local bakery would use an operational plan to schedule baking times, manage ingredient inventories, handle staff shifts, and ensure quality control of their products.

Feasibility business plan

A feasibility plan assesses an idea’s viability before starting a new venture. It examines market potential, risks, required resources, and the likelihood of success.

A feasibility business plan evaluates the practicality of a proposed business idea or project.

For example, an entrepreneur considering opening a virtual reality gaming arcade in Toronto, Canada, would conduct a feasibility plan to analyze the area’s demand, equipment costs, competition, and potential profitability.

Growth or expansion business plan

When a business is ready to expand, a growth plan outlines how to scale operations, enter new markets, or introduce new products.

A growth or expansion business plan helps strategize an existing business’s expansion.

For example, a successful online retailer planning to open physical stores would use a growth plan to research locations, assess market demand in different areas, and plan the logistics of expanding their supply chain. In planning for such growth, it’s also critical to understand why you might need a CMO (chief marketing officer) to effectively manage brand expansion and market positioning.

Lean or one-page business plan

This streamlined plan captures the essence of your business without going into extensive detail. It’s a quick overview that’s easy to update and share.

A lean or one-page business plan provides a succinct summary of your business, often used for internal purposes or initial discussions.

For example, a freelance photographer might create a one-page plan highlighting services offered, the target market, pricing strategies, and marketing channels.

Nonprofit business plan

Nonprofit organizations use this plan to outline their mission, the causes they support, fundraising strategies, and how they plan to make an impact.

A nonprofit business plan articulates how the nonprofit will fulfill its mission and sustain its operations financially.

For example, a nonprofit dedicated to literacy programs would detail its strategies for community outreach, partnerships with schools, volunteer recruitment, and fundraising events.

Franchise business plan

If you’re buying a franchise, this plan helps you understand the franchisor’s business model and how you’ll operate your franchise location.

A franchise business plan guides franchisees in setting up and running their business in alignment with the franchisor’s standards.

For example, an individual opening a franchised fitness center would use this plan to understand startup costs, marketing support from the franchisor, and expected return on investment.

Exit plan

An exit plan outlines how you intend to leave the business, whether through selling, merging, or closing down.

An exit plan prepares for the future transition of ownership or closure of the business.

For example, a business owner approaching retirement might create an exit plan to sell the company to a competitor or pass it on to a family member, detailing the steps and timeline for the transition. In such cases, identifying the Ultimate Beneficial Owner (UBO) is essential to ensure legal clarity and transparency in the transfer of ownership.

Key components of a business plan

A comprehensive business plan typically includes several critical components. Each section serves a specific purpose and provides valuable insights into your business idea.

1. Executive Summary

The executive summary is the opening section of your business plan, but it’s often written last. It concisely summarizes your entire plan, highlighting the most critical points. Think of it as your business’s elevator pitch.

The executive summary is designed to capture the reader’s attention and entice them to read the rest of the plan. It’s especially important if you’re seeking funding, as investors often make preliminary decisions based on this section alone.

What to include in the executive summary:

• Business overview. Briefly describe what your business does. For example, “EcoClean is an eco-friendly cleaning service offering non-toxic cleaning solutions for homes and offices.”
• Mission statement. Explain your purpose and core values. “Our mission is to provide safe, effective cleaning services that protect our clients’ health and the environment.”
• Products or services. Highlight what you’re offering. “We offer a range of cleaning services using biodegradable products, including residential cleaning, office maintenance, and post-construction cleanup.”
• Market opportunity. Summarize the gap in the market you’re filling. “With growing awareness of environmental issues, there’s a rising demand for green cleaning services that our competitors are not adequately meeting.”
• Financial projections. Provide a snapshot of expected revenues and profitability. “We project revenues of $500,000 in the first year, reaching $1 million by the third year.”
• Funding requirements. If seeking investment, state how much you need and why. “We are seeking a $100,000 investment to purchase equipment, hire staff, and launch our marketing campaign.”

Tips for writing the executive summary:

• Keep it to one or two pages.
• Avoid jargon or technical terms that might confuse readers.
• Emphasize your competitive advantages.
• Write it after completing the rest of your business plan.

2. Business Description

This section provides a detailed look at your business, including its goals, the problems it solves, and the factors that make it succeed. It’s where you set the stage for the rest of your plan.

A business description clearly explains your business idea, its uniqueness, and its potential in the market.

What to include in the business description:

• Company overview. Describe your business structure (sole proprietorship, partnership, LLC, corporation) and provide a brief history if applicable. Example: “Founded in 2023, TechWave is a limited liability company specializing in developing mobile applications for educational purposes.”
• Mission and vision statements. Articulate your business’s purpose and long-term aspirations. Example: “Our mission is to make quality education accessible through innovative technology. Our vision is to become a global leader in educational apps, empowering learners worldwide.”
• Goals and objectives. Outline short-term and long-term goals. Example: “In the next year, we aim to launch our flagship language learning app and acquire 50,000 active users. We plan to expand our app portfolio within five years to cover various educational subjects.”
• Value proposition. Explain what sets your business apart. Example: “Unlike other language apps, our platform uses AI to tailor lessons to individual learning styles, making language acquisition faster and more enjoyable.”
• Industry analysis. Provide insights into the industry, including trends, growth potential, and regulatory environment. Example: “The e-learning industry is projected to grow at a CAGR of 14% over the next five years, driven by increased demand for remote learning solutions.”

Tips for writing the business description:

• Provide concrete details rather than general statements.
• Convey your commitment and knowledge of the industry.
• Clearly define the market need and how your business addresses it.

3. Market Analysis

Understanding your market is crucial for your business’s success. This section demonstrates your industry knowledge, target market, and competition.

Market analysis is necessary to convince readers that there is a demand for your product or service and that you understand the market dynamics.

What to include in the market analysis:

• Industry Overview. Discuss the current state and future outlook of the industry. Example: “The organic skincare industry has seen a 10% annual growth, with consumers increasingly seeking natural and chemical-free products.”
• Target market. Define your ideal customers, including demographics, psychographics, and buying behaviors. Example: “Our target market comprises women aged 25-45 who prioritize sustainable and ethical beauty products.”
• Market size and growth potential. Provide data on the size of your market and its projected growth. Example: “The target market represents a $2 billion segment, expected to grow by 15% annually.”
• Competitive analysis. Identify your main competitors, their market share, strengths, and weaknesses. Example: “Competitors like Brands A and B dominate the market but rely on synthetic ingredients. Our use of 100% organic materials sets us apart.”
• Market trends and opportunities. Highlight trends that favor your business. Example: “A growing trend toward minimalism and transparency in skincare presents an opportunity for our simple, ingredient-focused products.”

Tips for conducting market analysis:

• Reference industry reports, market research, and credible publications.
• Charts and graphs can effectively convey data.
• Present an unbiased view, acknowledging potential challenges.

4. Organization and management

This section outlines your business’s organizational structure and introduces the key members of your team. It’s designed to show that you have a capable team to execute your business plan and manage operations effectively.

What to include in organization and management:

• Organizational structure. Describe how your company is organized, including departments and reporting hierarchies. Example: “Our company is structured into four main departments: Research and Development, Marketing and Sales, Operations, and Finance.”
• Ownership information. Detail the ownership structure. Example: “The company is co-owned by Jane Smith (60%) and John Doe (40%).”
• Management team profiles. Provide bios highlighting the experience and expertise of key team members. Example: “Jane Smith, CEO, brings over 15 years of experience in the skincare industry, having held executive roles at major cosmetic brands.”
• Advisory board. If applicable, introduce advisors or board members who contribute to your business. Example: “Our advisory board includes Dr. Emily Johnson, a dermatologist specializing in natural skincare.”
• Staffing needs. Outline current and future staffing requirements. Example: “We currently have a team of 10 employees and plan to hire additional sales representatives in the next quarter.”

Tips for writing about organization and management:

• Emphasize how your team’s skills align with business needs.
• Visuals can clarify structures.
• Clearly state roles, responsibilities, and ownership stakes.

5. Service or product line

This section highlights the details of your products or services. It is where you show how your offerings benefit customers and stand out.

What to include in the service or product line:

• Product/Service description. Provide detailed information about what you’re selling. Example: “We offer handcrafted, organic soaps made from locally sourced ingredients, available in various natural scents.”
• Benefits and features. Highlight how your product or service meets customer needs. Example: “Our soaps are free from harsh chemicals, catering to consumers with sensitive skin and environmental concerns.”
• Product life cycle. Discuss the current stage of your product (development, growth, maturity). Example: “Our flagship product is in the growth stage, and we plan to expand the line based on customer feedback.”
• Research and development. Outline any ongoing R&D activities. Example: “We are developing a new line of eco-friendly packaging to reduce our environmental impact further.”
• Intellectual property. Mention patents, trademarks, or proprietary technology. Example: “We hold a patent for our unique cold-press soap-making process, which preserves the natural benefits of the ingredients.”

Tips for describing your products or services:

• Explain how your offerings solve problems or improve lives.
• Avoid technical jargon unless necessary.
• Visuals can enhance understanding.

6. Marketing and sales strategy

Your product or service won’t sell itself. This section outlines how you plan to attract and retain customers, helping to demonstrate that you have a solid plan for reaching your target market and generating sales.

What to include in the marketing and sales strategy:

• Marketing goals. Define what you aim to achieve with your marketing efforts. Example: “Our goal is to achieve a 10% market share within two years.”
• Positioning statement. Describe how you want customers to perceive your brand. Example: “We position ourselves as a premium, eco-conscious brand committed to sustainability and quality.”
• Pricing strategy. Explain how you price your products and why. Example: “Our pricing reflects the high-quality, organic ingredients we use, targeting consumers willing to pay a premium for sustainable products.”
• Promotion and advertising. Detail the channels and tactics you’ll use. Example: “We will utilize social media advertising, influencer partnerships, and content marketing to reach our audience.”
• Sales strategy. Outline your sales process and team structure. Example: “Our sales team will focus on building relationships with boutique retailers and attending trade shows.”
• Customer retention. Describe how you’ll keep customers coming back. Example: “We will implement a loyalty program and regularly engage customers through email newsletters offering exclusive deals.”

Tips for crafting your marketing and sales strategy:

• Ensure your strategies address the opportunities identified earlier.
• Provide details on campaigns, platforms, and timelines.
• Include projected costs and expected ROI.

7. Funding request

This section is critical if you need funding. It outlines your financial needs and how you’ll use the funds.

What to include in the funding request:

• Current funding needs. Specify the amount you need now. Example: “We are seeking $250,000 in seed funding.”
• Future funding requirements. Mention any additional funding you might need in the future. Example: “We anticipate a Series A round in 18 months to support international expansion.”
• Use of funds. Break down how the money will be spent. Example: “Funds will be allocated as follows: 40% to product development, 30% to marketing, 20% to operations, and 10% to contingency reserves.”
• Financial planning. Discuss how you plan to repay loans or provide returns to investors. Example: “Investors will receive equity in the company with an expected ROI of 20% over five years.”

Tips for writing the funding request:

• Base your funding needs on detailed financial projections.
• Explain why each expenditure is necessary.
• Show how you’ll adapt if you receive less or more funding than requested.

8. Financial projections

This section provides financial forecasts to support your funding request and demonstrate the viability of your business. Entrepreneurs are increasingly relying on AI financial analysis to build more accurate projections, uncover potential risks, and strengthen their funding proposals. Your financial projections are necessary to convince readers that your business is financially sound and capable of generating profits.

What to include in financial projections:

• Income statements. Projected revenues, costs, and profits over the next three to five years.Example: “We project revenues of $1 million in the first year, growing to $3 million by year three, with net profits increasing from $100,000 to $500,000.”
• Cash flow statements. Expected cash inflows and outflows.Example: “Our cash flow analysis shows positive cash flow beginning in the second quarter of operation.”
• Balance sheets. Outline assets, liabilities, and equity. Example: “By the end of the first year, we expect total assets of $800,000 and liabilities of $300,000.”
• Break-even analysis. Determine when you’ll start making a profit. Example: “We anticipate reaching our break-even point within 14 months.”
• Assumptions. Explain the assumptions underlying your projections. Example: “Projections are based on acquiring 1,000 customers in the first six months, with a monthly growth rate of 10%.”

Tips for creating financial projections:

• It’s better to under-promise and over-deliver.
• Show how changes in assumptions affect outcomes.
• Consider consulting an accountant or financial advisor.

9. Appendix

The appendix contains supplementary information that supports your plan but is too detailed for the main sections. It provides additional documentation to help readers fully understand your business.

What to include in the appendix:

• Resumes of key team members. Highlighting relevant experience and qualifications.
• Market research data. Detailed reports or surveys.
• Product images or prototypes. Visual representations of your offerings.
• Legal documents. Contracts, patents, trademarks, or agreements.
• Letters of reference. Testimonials from previous clients or partners.
• Detailed financial calculations. Spreadsheets or formulas used in projections.

Tips for organizing the appendix:

• Use clear headings and a table of contents.
• Mention in the main sections when additional information is available in the appendix.
• Avoid overwhelming readers with irrelevant details.

Writing a business plan

Now that we’ve covered what goes into a business plan let’s walk through the process of creating one.

Step 1: Conduct thorough market research

Start by gathering as much information as possible about your industry, target market, and competitors. Use surveys, interviews, online research, and industry reports to understand market needs and trends.

If you’re launching a mobile app for fitness enthusiasts, research popular fitness apps, analyze user reviews to identify gaps, and understand trends like personalized workout plans or integration with wearable devices.

Step 2: Define your business model

Clearly articulate how your business will make money. Will you sell products, offer services, or generate revenue through subscriptions or advertising?

A language learning platform might offer free basic lessons but charge a subscription fee for advanced content and personalized tutoring.

Step 3: Outline your marketing and sales strategies

Determine how to reach your target audience and persuade them to buy your product or service. Consider which channels are most effective for your demographic.

A company targeting Gen Z consumers might market using TikTok and Instagram and using influencers to promote its products.

Step 4: Plan your operations

Detail the logistics of running your business, including production, suppliers, technology, and staffing.

An artisanal soap maker would outline their process for sourcing natural ingredients, production schedules, quality control measures, and packaging.

Step 5: Develop a financial plan

Create realistic financial projections based on your research. Be conservative in your estimates to account for unforeseen challenges.

A coffee shop would calculate expected daily sales based on foot traffic estimates, average transaction values, and operating costs like rent and utilities.

Step 6: Identify risks and prepare contingency plans

Acknowledge potential obstacles and how you’ll overcome them. This shows foresight and resilience.

An events company might recognize the risk of event cancellations due to unforeseen circumstances and plan to offer virtual event services as an alternative.

Step 7: Write the executive summary last

Once you’ve fleshed out all other sections, summarize the key points in your executive summary. This ensures you capture the most critical information accurately.

Conclusion

Writing a business plan is a significant undertaking but an invaluable tool for any entrepreneur. It helps you understand your business better and communicates your vision to others, whether they’re potential investors, partners, or team members.

Remember, your business plan is not set in stone. It’s a living document that should evolve as your business grows and market conditions change. Revisit and update it regularly to reflect new goals, strategies, and market insights.