A business plan is a formal written document containing the goals of a business, the methods for
attaining those goals, and the time-frame for the achievement of the goals
Importance of a business Plan
Though it may sound tedious and time-consuming, business plans are critical to success.
Provide insight as to what resources are needed to reach goals
Establish a clear timeline of when a company can expect to achieve goals
Can help a company determine the steps to take to expand into a new market
Offer a clear way to track progress as a company grows
Enable business owners to predict and plan for potential risks
Allow investors to see the viability of a company
To outline the importance of business plans, here are 10-reasons why you need one for your small
business.
1. To help you with critical decisions
While business plans have many purposes, the primary importance of a business plan is that they help
business owners make better decisions.
Entrepreneurship is often an endless exercise in decision making and crisis management. Sitting down
and considering all the ramifications of any given decision is a luxury that entrepreneurs can’t always
afford. That’s where a business plan comes in.
Building a business plan allows you to determine the answer to some of the most critical business
decisions ahead of time. Creating a robust business plan is a forcing function—you have to sit down and
think about major components of your business before you get started, like your marketing strategy and
what products you’ll sell. You answer many tough questions before they arise. And thinking deeply
about your core strategies can also help you understand how those decisions will impact your broader
strategy.
2. To iron out the kinks
Putting together a business plan requires entrepreneurs to ask themselves a lot of hard questions and
take the time to come up with well-researched and insightful answers. Even if the document itself were
to disappear as soon as it’s completed, the practice of writing it helps to articulate your vision in realistic
terms and better determine if there are any gaps in your strategy.
3. To avoid the big mistakes
According to the Small Business Administration, only about half of small businesses are still around to
celebrate their fifth birthday. While there are many reasons why small businesses fail, many of the most
common are purposefully addressed in business plans.
According to data from CB Insights, some of the most common reasons businesses fail include:
No market need: No one wants what you’re selling.
Lack of capital: Cash flow issues or businesses simply run out of money.
Inadequate team: This underscores the importance of hiring the right people to help you run your
business.
Stiff competition: It’s tough to generate a steady profit when you have a lot of competitors in your
space.
Pricing: Some entrepreneurs price their products or services too high or too low—both scenarios can be
a recipe for disaster.
However, the exercise of creating a business plan can help you avoid these major mistakes. Whether it’s
cash flow forecasts or a product-market fit analysis, every piece of a business plan can help spot some of
those potentially critical mistakes before they arise.
Get a jumpstart on your business plan by creating your own cash flow projection >
4. To prove the viability of the business
Many businesses are created out of passion, and while passion can be a great motivator, it’s not a great
proof point. Planning out exactly how you’re going to turn that vision into a successful business is
perhaps the most important step between concept and reality. Business plans can help you confirm that
your grand idea makes sound business sense.
A critical component of your business plan is the market research section. Market research can offer
deep insight into your customers, your competitors, and your chosen industry. Not only can it enlighten
entrepreneurs who are starting up a new business, but it can also better inform existing businesses on
activities like marketing, advertising, and releasing new products or services.
Want to prove there’s a market gap? Here’s how you can get started with market research >
5. To set better objectives and benchmarks
Without a business plan, objectives often become arbitrary, without much rhyme or reason behind
them. Having a business plan can help make those benchmarks more intentional and consequential.
They can also help keep you accountable to your long-term vision and strategy, and gain insights into
how your strategy is (or isn’t) coming together over time.
6. To communicate objectives and benchmarks
Whether you’re managing a team of 100 or a team of two, you can’t always be there to make every
decision yourself. Think of the business plan like a substitute teacher, ready to answer questions
anytime there’s an absence.
Let your staff know that when in doubt, they can always consult the business plan to understand the
next steps in the event that they can’t get an answer from you directly. Sharing your business plan with
team members also helps ensure that all member are aligned with what you’re doing, why, and share
the same understanding of long-term objectives.
7. To provide a guide for service providers
Small businesses typically employ contractors, freelancers, and other professionals to help them with
individual tasks like accounting, marketing, legal assistance, and as consultants. Having a business plan in
place allows you to easily share relevant sections with those you rely on to support the organization,
while ensuring everyone is on the same page.
Ready to grow your team? Learn when (and how) to hire a contractor for your business >
8. To secure financing
If you’re planning on pitching to venture capitalists, borrowing from a bank, or are considering selling
your company in the future, you’re likely going to need a business plan. After all, anyone that’s
interested in putting money into your company is going to want to know it’s in good hands and that it’s
viable in the long run.
Business plans are the most effective ways of proving that and are typically a requirement for anyone
seeking outside financing.
Learn what you need to get a small business loan >
9. To better understand the broader landscape
No business is an island, and while you might have a strong handle on everything happening under your
own roof, it’s equally important to understand the market terrain as well.
Writing a business plan can go a long way in helping you better understand your competition and the
market you’re operating in more broadly, illuminate consumer trends and preferences, potential
disruptions and other insights that aren’t always plainly visible.
10. To reduce risk
Entrepreneurship is a risky business, but that risk becomes significantly more manageable once tested
against a well-crafted business plan. Drawing up revenue and expense projections, devising logistics and
operational plans, and understanding the market and competitive landscape can all help reduce the risk
factor from an inherently precarious way to make a living.
Elements of a business Plan
10 essential components of a business plan
Effective business plans must contain several key components that cover various aspects of a company's
goals. The most important parts of a business plan include:
Executive summary
Business description
Market analysis and strategy
Marketing and sales plan
Competitive analysis
Management and organization description
Products and services description
Operating plan
Financial projection and needs
Exhibits and appendices
1. Executive summary
The executive summary is the first and one of the most critical parts of a business plan. This summary
provides an overview of the business plan as a whole and highlights what the business plan will cover.
It's often best to write the executive summary last so that you have a complete understanding of your
plan and can effectively summarize it.
Your executive summary should include your organization's mission statement and the products and
services you plan to offer or currently offer. You may also want to include why you are starting the
company if the business plan is for a new organization.
2. Business description
The next part of a business plan is the business description. This component provides a comprehensive
description of your business and its goals, products, services and target customer base. You should also
include details regarding the industry your company will serve, and any trends and major competitors
within the industry. You should also include you and your team's experience in the industry and what
sets your company apart from the competition in your business description.
Related: What To Include in a Strategic Business Plan (With Template)
3. Market analysis and strategy
The purpose of the market analysis and strategy component of a business plan is to research and
identify a company's primary target audience and where to find this audience. Factors to cover in this
section include:
Where your target market is geographically located
The primary pain points experienced by your target customers
The most prominent needs of your target market and how your products or services can meet these
needs
The demographics of your target audience
Where your target market spends most of their time, such as particular social media platforms and
physical locations
The goal of this section is to clearly define your target audience so that you can make strategic
estimations as to how your product or service will perform with this audience.
4. Marketing and sales plan
This part of your business plan should cover the specifics of how you plan to market and sell your
products and services. This section should include:
Your anticipated marketing and promotion strategies
Pricing plans for your company's products and services
Your strategies for making sales
Why your target audience should purchase from your company versus your competition
Your organization's unique selling proposal
How you will get your products and services in front of your target audience
5. Competitive analysis
Your business plan should also include a detailed competitive analysis that clearly outlines a comparison
of your organization to your competitors. Outline your competitors' weaknesses and strengths and how
you anticipate your company to compare to these. This section should also include any advantages your
competition has in the marketplace and how you plan to set your company apart. You should also cover
what makes your business different than other companies in the industry, as well as any potential issues
you may face when entering the marketplace if applicable.
6. Management and organization description
This section of your business plan should cover the details of your business's management and
organization strategy. Introduce your company leaders and their qualifications and responsibilities
within your business. You can also include human resources requirements and the legal structure of
your company.
7. Products and services description
Use this section to further expand on the details of the products and services your company offers that
you covered in the executive summary. Include all relevant information about your products and
services such as how you will manufacture them, how long they will last, what needs they will meet and
how much it will cost to create them.
8. Operating plan
This part of your business plan should describe how you plan to run your company. Include information
regarding how and where your company will operate, how many employees it will have and all other
pertinent details related to your organization's operations.
Related: How to Write a Strategic Plan: Guide to Strategic Planning
9. Financial projection and needs
The financial section of your business plan should detail how you anticipate bringing in revenue and the
funding you'll need to get started. You should include your financial statements, an analysis of these
statements and a cash flow projection.
10. Exhibits and appendices
The final section of your business plan should include any extra information to further support the
details outlined in your plan. You can also include exhibits and appendices to support the viability of
your business plan and give investors a clear understanding of the research that backs your plan.
Common information to put in this section includes:
Resumes of company management and other stakeholders
Marketing research
Permits
Proposed or current marketing materials
Relevant legal documentation
Pictures of your product
Financial documents
Types of Business Plan
Start-Up Business Plans
New businesses should detail the steps to start the new enterprise with a start-up business plan. This
document typically includes sections describing the company, the product or service your business will
supply, market evaluations and your projected management team. Potential investors will also require a
financial analysis with spreadsheets describing financial areas including, but not limited to, income,
profit and cash flow projections.
Internal Business Plans
Internal business plans target a specific audience within the business, for example, the marketing team
who need to evaluate a proposed project. This document will describe the company’s current state,
including operational costs and profitability, then calculate if and how the business will repay any capital
needed for the project. Internal plans provide information about project marketing, hiring and tech
costs. They also typically include a market analysis illustrating target demographics, market size and the
market’s positive effect on the company income.
Strategic Business Plans
A strategic business plan provides a high-level view of a company’s goals and how it will achieve them,
laying out a foundational plan for the entire company. While the structure of a strategic plan differs
from company to company, most include five elements: business vision, mission statement, definition of
critical success factors, strategies for achieving objectives and an implementation schedule. A strategic
business plan brings all levels of the business into the big picture, inspiring employees to work together
to create a successful culmination to the company’s goals.
Feasibility Business Plans
A feasibility business plan answers two primary questions about a proposed business venture: who, if
anyone, will purchase the service or product a company wants to sell, and if the venture can turn a
profit. Feasibility business plans include, but are not limited to, sections describing the need for the
product or service, target demographics and required capital. A feasibility plan ends with
recommendations for going forward.
Operations Business Plans
Operations plans are internal plans that consist of elements related to company operations. An
operations plan, specifies implementation markers and deadlines for the coming year. The operations
plan outlines employees’ responsibilities.
Growth Business Plans
Growth plans or expansion plans are in-depth descriptions of proposed growth and are written for
internal or external purposes. If company growth requires investment, a growth plan may include
complete descriptions of the company, its management and officers. The plan must provide all company
details to satisfy potential investors. If a growth plan needs no capital, the authors may forego obvious
company descriptions, but will include financial sales and expense projections.
