How to Write a Business Plan: A Step-by-Step Guide

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A business plan captures in writing your best thinking about the future of your business. It is a mix of objective data and informed projections that readers will use to gain an understanding of what you want to do and how you plan to do it.

Business Plan Basics

The three major portions of a business plan address the:

  • Business concept: A discussion about your business, industry, product or service, and plan for success.
  • Marketplace: Analyzing your customers and competitors.
  • Finances: Including financial reports, ratio analysis, and break-even analyses.

The audiences for a business plan include:

  • Owners/managers: The business plan serves as a mission statement and action guide. It helps shape decisions about staffing, funding, operations, marketing and more. It also serves as a scorecard by which owners can know whether they are meeting their objectives.
  • Investors and creditors: The business plan should support the financing efforts of a business, explaining why supplying capital and debt is a good idea for investors and creditors.
  • Candidate employees: Companies can use the business plan to recruit high-level employees, managers, directors and even board members. The business plan should indicate the senior positions to be filled.

With so much riding on it, it's not surprising that a great deal of effort goes into writing a good business plan. You don't have to invent the structure of your business plan, as generally accepted guidelines have developed over many years. Let's dive into the sections found in a typical business plan. Keep in mind that there will inevitably be some overlap and redundancies among the sections to accommodate the reality that not all readers will look at all sections.

Executive Summary

The executive summary section has the widest scope because it serves as an overview and summary for readers who aren't certain they want to delve into the body of the business plan. It contains the major points covered in the plan and serves as an "elevator pitch" for your business to grab the interest of investors.

Preparation: The executive summary is usually the last section written. It contains salient information from all other parts of the business plan so readers can get a high-level overview of your business. Topics include the business opportunity, the customer base in the target market, the appeal of your products/services, an outline of market/sales strategy, an overview of the competition and how you will gain market share, a summary of financials, a staffing summary, and an implementation schedule.

Resources: All the information in the executive summary should be taken from the remainder of the business plan.

Quality: A good executive summary is clear, concise and inviting. It succeeds at motivating investors to read the entire plan and seriously consider investing in your company. Aim for one to two pages written in positive, strong language. Consider multiple summaries tailored to different audiences—investors, lenders and recruits.

Business Description

The business description section outlines important information about your industry (at a summary level) and your company. The scope includes a description of what your company does, the properties it owns or leases, company size and facilities, and a statement describing your vision for the future of the business.

Preparation: Start the section with a one-paragraph elevator pitch that highlights the most important information about your business. The business description should then provide information about your industry, your company (including its name and structure), the owners and management team, the company history (if any) and mission statement, immediate objectives, and long-range vision.

Resources: Internal company documents are the primary source of information about your company. Industry information is available from government and public sources as well as any marketing studies you've commissioned.

Quality: The section should be pitched at a high level, leaving details for later sections. The writing should show your commitment to and excitement about your business and what you hope to achieve. Be passionate but not overly wordy. The section succeeds if it piques the curiosity of readers without taxing their patience.

Industry, Competitor and Market Analysis

This section presents detailed information about your industry, your competitors and the potential demand for your offerings. These factors help determine your sales volume and how much market share you plan to steal from others. For each of your competitors, you'll want to include the markets and market segments they compete in, the benefits of their offerings, the reasons customers buy their offerings, and details about the features, pricing and marketing of each offering.

Preparation: The analysis required for this section can be time-consuming because it can require substantial investigation. Typically, startups focus on local competitors, which makes the research somewhat easier, as you can use the internet to search for local companies. The section can present competitive data through a table that characterizes each competitor's pricing, quality, service, advertising, social media, hours of operation and so forth. This can be followed by an analysis of your challenges and opportunities relative to each competitor.

Resources: The SEC EDGAR Database will have the financial reports filed by your competitors. You can visit the websites of competitors to gather primary information about offerings, including pricing and promotion strategies. If you are willing, you can interview customers as they leave your competitors' stores or check their online forums. Other sources of information include vendors and employees. You can also check out trade shows that your competitors attend. Finally, you can commission market studies and let professionals gather the data you need.

Quality: The section is high-quality if it is convincing about an opportunity to capture a specific target market by meeting needs not currently being met. This can include recognizing overlooked market segments and services not offered. All of these should be summarized in a statement about the competitive advantages you have and realistic estimates of market demand.

Description of Products and Services

This section explains in detail the features of each product or service you plan to offer, why each is needed in the marketplace, and how they will compete with similar offerings. The contents should include information about costs, pricing, selling method(s), sales literature for each product, legal issues such as patents, and products you plan to offer at a later time.

Preparation: The format for this section depends on whether you are a manufacturer, merchandiser or service provider. If you are a merchandiser, the emphasis is on the types of products you'll sell and why your presence in the marketplace is needed. If you make products or deliver services, the section describes their unique features and how they compare to competitors' offerings. The section should also describe how orders will be fulfilled and processed and what facilities, expertise and equipment you'll need to create/produce your offerings.

Resources: Internal documentation will provide the bulk of information about your offerings. Detailed information about competitors' offerings should be readily available directly from them in the form of sales literature, technical specifications, website copy, patents and other sources.

Quality: A successful section convinces readers about the need for your offerings, their unique features that set your business apart from others, and how your offerings benefit consumers with an attractive value proposition. You should be able to draw a direct line from your offerings' features to their benefits. Readers should come away with an understanding of how your offerings will fill a gap, fix a problem or improve a consumer's life.

Marketing and Sales Plan

You've identified your target market in earlier sections. Here, you describe how you will reach and sell to that market.

Preparation: It is here that you address the five P's of marketing:

  • Product: A recap of each product or service in terms of its unique features and value proposition.
  • Price: Discuss your pricing strategies that will let you achieve your desired profit margin. Include fixed and variable costs that go into each offering and how to justify your prices in light of what competitors charge for their offerings.
  • Place: Explain where and how you will deliver your offerings. Will selling take place at brick-and-mortar locations, online or both? What is the expected sales volume for each location? What terms will apply for shipping, delivery and returns?
  • Promotion: Explain how you'll get the word out to your target audience, including advertising, social media, internet search, direct mailings and so forth. Give details about the cost of marketing each offering, the amount of sales volume you expect to generate from each advertising channel, and your plans for offering discounts, coupons, loyalty rewards and other incentives.
  • People: Describe who will be delivering any services associated with your offerings, what training and skills they will require, how salespeople will be compensated, and how you plan to handle customer satisfaction issues.

Resources: The information you provided in the Market Analysis and the Products/Services sections can serve as a resource here. Internal development of this section will rely on in-house and third-party expertise. If your business is large enough, you might employ marketing specialists and/or salespeople who can supply much of the information for this section.

Quality: This section should demonstrate that considerable thought has gone into your sales and marketing plans. This means a sufficient discussion of quantitative and qualitative factors governing the costs and benefits of your sales/marketing plans is required. The section should also include a discussion on how you will evaluate the effectiveness of your marketing efforts, including the use of marketing surveys, A/B tests and social media analytics.

Operations Plan

The scope and contents of this section depend greatly on the type of business. You may need to include information about manufacturing, suppliers, inventory requirements, and the capital and expenses that will be needed. If you are a service provider, the section will cover resources you will need to deliver the service.

Preparation: The section should begin with a status of what has been set in place so far, to be followed by what is yet to be accomplished. Include a description of your production workflows; feasibility testing of prototypes, products and pricing; the various risks that might interfere with production; and your plans to mitigate those risks. Include information about the production process, including daily operations, the physical plant and special equipment, material and labor inputs, inventory tracking plans, and permits and other requirements for creating your offerings. Also include information about the supply chains you plan to employ and how you plan to control quality.

Resources: A great deal of technical expertise is necessary to research and write this section. You will need information about engineering, materials, fabrication techniques, equipment, inventory systems, distribution requirements and much more. Your operational staff, if it already exists, will be a primary source of the necessary information. You will also need to refer to various types of technical information from third parties, such as machine and parts makers, suppliers, vendors, and logistical experts. Much of this information is readily available, but enough time should be allocated for research. You can include technical information in the appendices.

Quality: Investors need to have confidence that you can deliver what you promise. This means you must convey your expertise in producing your offerings, controlling costs, meeting production scheduling demands and handling contingencies. Low-level information can be placed in the business plan's appendix and referenced in this section.

Organizational and Management Plan

This section addresses issues surrounding your managers and staff and how your business is structured. You should also touch on external management resources and human resource needs.

Preparation: Start with the ownership structure of the company—sole proprietorship, partnership, limited liability company or corporation. Include percentages held by major shareholders. Next, turn to the internal management team, highlighting the resumes of employees in charge of sales, marketing, administration, production, human resources and other management categories. An organizational chart is a useful graphic. Also describe compensation plans, benefits and profit-sharing plans. Work contracts should be included in the appendix. Other topics to address include external management resources, external professional service providers, human resources needs (required head counts, budgets, type of employment and recruitment plans), and any advisory boards you want to set up. Address any obstacles to recruitment, such as candidate shortages, and plans to overcome these obstacles.

Resources: Your staff will submit resume information. You might want to research how competitors are staffed in terms of numbers, structures and skills. Industry compensation averages are easily available on the internet.

Quality: This section of the business plan should show how the skills and experience of the company's managers and staff contribute to the success of the business. Having skilled managers and a rational organizational chart will help impress investors that you are serious about the long-term success of your company.

Financial Projections

Numbers please investors and creditors, but be aware that projections can be dicey, especially ones more than a year in the future. You do need to make short- and intermediate-term financial projections, based on reasonable and clear assumptions. Your first-year projections should be laid out by month. Also include a two- or three-year projection, accounting for capital requirements necessary to support growth. It's a good idea to include a best- and worst-case scenario.

Preparation: If your business is already in operation, you have access to your previous financial reports, which you should publish in the appendix. The centerpiece of your financial projections are pro-forma income statements, cash-flow statements and balance sheets for the upcoming year. Projections should be based on generally accepted accounting principles. If you are a startup, account for startup costs.

Resources: Your existing financial statements, if any, are the starting point for this section. If you are a startup, you can use industry averages to estimate revenues and costs. The federal government issues macroeconomic statistics, including the inflation rate and projected interest rates, that will color your estimates.

Quality: Investors and creditors will look askance at overly optimistic projections, so keep things real by referencing the financial information published by competitors and/or industry averages. Include realistic assumptions regarding the money you will draw from the business as personal compensation.

Appendices

This section contains a variety of documents, including financial reports, bank statements, engineering reports, technical specifications, receipts, contracts, legal forms, market research reports and anything else that sheds light on your business.

Preparation: Organize your appendices in a logical fashion and include a table of contents. Consistently use the same labels that you reference in the body of the business plan.

Resources: The information in the appendix is usually confidential and proprietary. Therefore, it is often packaged separately from the body of the business plan. The appendices should always be included when distributing the business plan to lenders and investors.

Quality: The appendix should be updated as needed to contain the latest information, such as bank statements, insurance policies and financial reports. The documents should be clean, legible copies.

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