Writing a business plan can be an intimidating endeavor. Whether you’ve decided to start a business, or you already have a business and need to write a business plan to apply for a loan or to pitch to investors, we cover the process in-depth.
What Is a Business Plan?
The traditional business plan is typically a 20 to 40-page formal document that describes what your business does, what your objectives are, and how you plan to achieve them.
It lays out your plans for operating, marketing, and managing your business, along with your goals and financial projections.
There are many different types of business plans, depending on the stage of your venture and the purpose of your business plan. In the earliest stages of your business idea, you may want to start small with a three-sentence business plan, or perhaps by sketching out a lean canvas or business model canvas.
Once your business idea has been developed, you’ll be ready to begin writing your business plan.
Why Do You Need a Business Plan?
Writing a business plan requires you to think through all of the key elements of your business. This gives you insights into the challenges you’ll face and the strengths you bring.
A business plan is also often requested by lenders or investors when you are ready to seek financing.
While many companies do not need a formal business plan unless they are planning on seeking investors or applying for a business loan, writing a business plan has extensive benefits.
The process of writing your business plan allows you to take an in-depth look at your industry, market, and competitive position. It helps you set goals, determine your keys to success, and plan your strategies. It also allows you to explore your financial projections and manage cash. So, even if you do not need a formal business plan, the process of planning may still reap huge rewards.
You need to think carefully about who is going to read your business plan.
Although you might begin writing a business plan only to convince yourself, there are a number of stakeholders who may end up reading your business plan.
Your plan might be read by your:
- Partners or potential partners
- Board of directors
- Senior management team
- Current employees
- New hires
- Employment candidates
Outside the organization, the following stakeholders may want to read your business plan before they decide to do business with you:
- And independent contractors
Think about your primary audience when you are writing your business plan. What are the aspects that are most important to them? This is where you will want to put the majority of your focus.
For example, lenders will be most interested in your financial projections — your cash flow statement and balance sheet.
Investors might be most interested in your business model, the uniqueness of your product or service, and your competitive advantage.
Partners, your senior management team, and current employees might be most interested in your strategic plans- your vision, your operational plan, and your organizational plan.
Find Sample Business Plans in Your Industry
One great resource you should check out before sitting down to write your business plan are sample business plans in your industry.
Not only will you have the opportunity to gain insights on your industry and your competitors, you also might be able to find troves of industry and market research that will make conducting your own analysis of the industry and market much easier.
To find example business plans in your industry, try searching the web for “your industry business plan example.”
Writing Your Business Plan
Once you have spent some time looking at sample business plans in your industry, it is now time to start writing your business plan. An easy place to begin is by outlining the major sections you will need in your plan.
What you need to include in your business plan will depend on the type of business you are creating, your business model, and who your intended audience is.
Common business plan sections include:
- Executive Summary — a high-level overview of your business or business idea
- Venture Overview — a description of your company, vision, mission, and goals
- Product or Service Description — a detailed description of your product or service
- Industry and Market Analysis — an analysis of the industry and market you compete in
- Marketing Plan — your overall strategy and specific plans to capture market share
- Organizational Plan — the legal form of the business and the key players
- Operational Plan — how you will operate the business and your key resources
- Goals, Milestones, and Risks — short and long-term goals, milestones, and risks
- Financial Statements — Financial statements or the projected financials of your business
Not every type of venture will require every one of these sections to be included in their business plans. However, most business plans will at least include an executive summary, venture overview, a description of the products and services, and some form of financial projections.
As suggested in its name, an executive summary is a summary of the key points in your business plan. This is your first chance to convey to readers the what, why, who, and how of your business or business idea.
Although there is no set structure for an executive summary, a good executive summary should summarize:
- The problem you are solving
- Your solution
- Your target market
- Any competitive advantages
- The team you’ll build
- Goals and objectives
- An overview of your financials or financial forecast
If you are writing your business plan for the purpose of acquiring funding, you will also need to discuss the amount of funding required, the purpose of the funds, as well as how your investors will get paid back.
The executive summary should be clear and concise. Ideally, this section should be one to two pages and typically follows either a synopsis or story approach, depending on the intended audience.
In the synopsis approach, you would provide a brief summary of each of the key sections of your business plan. In the story approach, your executive summary reads like a narrative, allowing you to tell the “story” of your business or idea.
With either approach to writing the executive summary, the information you want to convey remains the same. The executive summary needs to provide an overall picture of your current business or business idea.
The executive summary should include:
- A brief description of you and your venture,
- The problem your product or service is solving,
- Some information on your target market, including size, potential, & competition, and
- The solution you are offering.
The executive summary should also include:
- A statement of where you are now,
- A statement of your objectives and future plans,
- A list of what you see as keys to your success, and
(if you are seeking investors)
- Any relevant financial information such as start-up costs, funding required, and how you will use investor funding.
Although the executive summary is the first section in the business plan, because it is a summary of the rest of your business plan, it is often written last.
The venture overview is a top-level depiction of your company.
It contains the:
- Description of the Venture
- Vision Statement
- Mission Statement
- Goals & Objectives
- Keys to Your Success
Description of the Venture
The first part of your venture overview is a description of your venture.
The description of your venture should include what you do (a brief description of your products or services), the value you provide to customers, your current operating status or a brief history of the venture, and a short description of the industry or niche in which you compete.
How to Write a Vision Statement
After describing your venture, a vision statement is a very simple, 5 to 10 word sentence or tagline that expresses the fundamental goals of your firm. Good vision statements reflect your company’s long term passion and purpose, often in a way that evokes emotion.
Take a look at the vision statements below for some inspiration:
Disney — To make people happy.
Oxfam — A world without poverty.
Stanford — To become the Harvard of the West.
Marriott — To be the #1 hospitality company in the world.
Microsoft — A computer on every desk and in every home; all running Microsoft software.
How to Write a Mission Statement
After having crafted your vision statement, you should also create a mission statement. A mission statement explains your company's goals in terms of what you do for your customers. A good mission statement should tell your reader what your company does, who you do it for, and why you do what you do.
Check out these excellent examples of compelling mission statements:
Patagonia — “Our Reason For Being: Build the best products, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis.”
Trader Joes — “Our mission is to give our customers the best food and beverage values that they can find anywhere and to provide them with the information required to make informed buying decisions. We provide these with a dedication to the highest quality of customer satisfaction delivered with a sense of warmth, friendliness, fun, individual pride, and company spirit.”
Facebook — "Founded in 2004, Facebook's mission is to give people the power to build community and bring the world closer together. People use Facebook to stay connected with friends and family, to discover what's going on in the world, and to share and express what matters to them."
Goals and Objectives
In this section of the business plan, break down your most important short-term and long-term goals and objectives.
Aim for five to seven of your most important short and long term goals.
This subsection of your venture description should be kept short. You will come back to your goals at the end of your business plan.
However, your key short-term and long-term goals should be highlighted early on in your business plan as well. The rest of your business plan will act as evidence of how you plan on achieving your goals.
Keys to Success
Your keys to success are your insights into what it takes to be successful in your industry, market, or niche.
Your keys to success can include several of the most important milestones that you will need to accomplish in order to achieve your goals.
These may include providing high quality products and services, your ability to attract customers or users and gain market share, or even your ability to develop the technology to deliver your products or services.
Your keys to success may also include the major milestones that you will need to reach along the way in order to achieve your vision. You will come back to your milestones and objectives at the end of your business plan.
Product or Service Description
The product or service description section is where you will go into detail in describing your products or services.
Not only will you describe your product in more detail, you should also discuss the uniqueness of your product, and what gives you an advantage over your competitors.
These are the three main parts of the Product (or Service) Description:
- Description of Products or Services
- Uniqueness of Product
- Competitive Advantage
Description of Products or Services
In this subsection of your business plan, describe the products or services you will provide, why they are a fit in the market, and how you will compete with similar products and services.
Begin by clearly describing the products or services you will provide. Make sure to explain the features and characteristics of your products and services. Your product or service description does not have to be highly technical. Rather, in addition to describing the features, focus on highlighting the advantages and benefits associated with your products or services.
Also, let your reader know why your product or service is needed. How does your product or service differ from those offered by your competitors? How does it better fill your customers wants and needs?
Uniqueness of Product
This is where you tell your reader why your solution is unique. Is it different from everything else out there? How is it different? Why would potential users choose your product or service over your competitors? In order to stand out, you need to distinguish yourself in some way.
To describe your product or service’s uniqueness, you may want to come up with a unique value proposition (or unique selling point). A value proposition is a short description of what you do, who you do it for, and how this benefits them.
A value proposition is similar to a mission statement. However, it differs in that a mission statement is written from the perspective of the company, while a value proposition is written from the perspective of the customer.
Your value proposition should be the center of your customer messaging. It should be front and center on your website, in your marketing materials, and in your advertising.
Here a few examples of great value propositions:
Dollar Shave Club — A Great Shave for a Few Bucks a Month. No Commitment. No Fees. No B.S.
Unbounce — Build, Publish, & A/B Test Landing Pages Without IT
Freshbooks — Small Business Accounting Software Built for You, the Non-Accountant
Skype — Skype Keeps the World Talking, for Free. Share, Message, and Call - Now with Group Video on Mobile and Tablet Too.
What makes you better than competitors?
Does your competitive advantage come from superior products and services, customer service, technical support, logistics, price? What are the factors that give you an advantage over your competitors?
Clearly defining your competitive advantage is important.
Your competitive advantage is not just some abstract concept. It is at the core of how you deliver value to your customers. Your competitive advantage lays the foundation for your business model and should be a key component of your strategic plans.
Common areas where businesses find competitive advantages include:
- Intellectual Property
- Economies of Scale
- Connections and Network
- Customer Service
- Technical Support
- Brand Recognition/Loyalty
Industry and Market Analyses
The industry and market analysis is the “big picture” view of your industry and market.
Conducting an industry and market analysis is going to take a good deal of research. You will likely need to research your industry, your competitors, and your customers. But do not rush through this section of your business plan.
A good understanding of your industry and market is critical to your success. By understanding the forces at play within your industry, you will be better able to find additional ways to create value that will allow you to succeed in the current and anticipated competitive environment.
Conducting an industry and market analysis can be intimidating, especially if you do not know what to look for or how to find the information you need. In the next section, we will discuss what should be included in your industry analysis. Then, we will tell you where to begin looking.
The industry analysis is a big picture analysis of the industry you will compete in. What does your overall industry look like today? There are a number of insights that will help you assess the attractiveness of your idea and form a big picture view of the industry and segment you are considering competing in.
Key insights to be alert for include:
- The dominant economic features of the industry
- The industry’s driving forces
- The industry’s competitive environment
- The competitive position of major players and key competitors
- Key industry success factors
To arrive at meaningful insights from your industry analysis, try to find answers to the following questions:
- What primary products or services are provided by your industry?
- What is the size and trajectory of the industry?
- What was the annual growth rate of the industry over the past year? Three years? Five years? Ten years?
- What is the forecasted annual growth rate over the next three years? Five years? Ten years?
- What is the average profitability of firms in your industry?
- What trends are affecting your industry?
- Who are the major customer segments served by your industry?
- Who are the major players in your industry?
- Who will be your key competitors in your industry?
- What key factors determine success or failure?
Now that you have a better idea of what to look for, you will need to know where to begin your search. There are a number of great free resources to begin looking for industry research. However, the first step is to determine the industry you are in.
While by this point, you should have some idea of the industry you are in, it is not always so clear. You could try an internet search to see what information you can find on your industry, but you will also want to find the NAICS code. You can do a NAICS Code Lookup and find the NAICS Code for LLC that matches your industry.
Here, you use the NAICS identification tool to drill-down through a list of industries to find the appropriate NAICS code for your business.
Once you know your industry, you can begin collecting more information about the industry trends and trajectory.
www.Bizstats.com provides free industry statistics including industry averages for income statement revenues and expenses, balance sheets, and key financial ratios. This is very helpful in making financial forecasts and setting benchmarks.
The US Census Bureau also provides several tools to help you conduct industry research:
- The Economic Census provides information on employer businesses, including data sorted by industry, state, region, and more.
- Statistics of US Businesses (SUSB) provides additional data on US businesses by enterprise size and industry. Both of these tools may help in conducting your industry analysis.
Target Market Analysis
Once you have a better understanding of the industry, you can begin to narrow down to your target market. In this section of the business plan you describe who your target market is and what you know about them.
What is a target market? Your target market is the specific group of customers to whom your product is intended. And no, it is not everyone. Although many new venture founders would like to sell their product or service to everyone, you should focus your efforts on your most likely customers.
Narrowing your target market requires understanding the three types of markets for your products or services. Your venture’s market can be narrowed down into three categories, the TAM, the SAM, and the SOM.
The total available market (TAM) is the total market for your products and services. Everyone in the universe who might be your customer.
The serviceable available market (SAM) is the subset of the total market that you can actually reach. Although anyone in your universe might be your customer, you are limited in your ability to reach them all.
The share of market (SOM) is the subset of the serviceable available market that you will actually reach. These are your most likely customers. Your target market.
Target markets can be segmented in many different ways. The idea is to narrow down to your most likely customers. This is where your focus should be.
Ways you can segment the market include:
- Demographic (e.g., age, gender, family size, education, income)
- Geographic (e.g., country, state, region, city, neighborhood)
- Psychographic (e.g., benefits sought, personality, social class, lifestyle)
- Behavioral (e.g., benefits sought, usage, attitude, loyalty)
Once you understand who your target market segments are, you will be able to start determining how you can reach them. To do this, consider:
- Where does your target market get information to make purchasing decisions?
- What is it they are looking for when considering buying this product/service?
- What will your target market pay attention to?
To determine your target market and conduct a market analysis, you will most likely have to do market research.
Market research is the collection, analysis, and interpretation of data related to your target market and target customer to support strategic decision making.
There are two types of market research: secondary market research, and primary market research.
Secondary market research is the collection, analysis, and interpretation of data that has already been collected for other purposes. Secondary market research may include the collection of data from a number of sources such as the U.S. Census Bureau, consumer agencies, and for-profit organizations.
Primary market research is the collection of new information to gain a further understanding of the problem at hand. Primary market research involves you collecting the data or hiring a market research firm to collect data for you. This is you going out and actually collecting the opinions of your potential customers.
Common methods of primary market research include customer observation, focus groups, customer surveys, and customer interviews.
Because primary market research typically takes more time to complete and may incur significant costs, secondary market research is often conducted before conducting primary market research. This allows you to gather enough insights that you can narrow your primary market research to those more likely to be your customers.
To begin conducting secondary market research, consider these sources:
Think with Google provides a number of free tools and resources to help you find and understand your target market. From tools like Find My Audience and an Insights Library to a wealth of information on customer trends and the consumer journey, Think with Google is a valuable tool in conducting your market analysis.
City Town Info provides free statistics on people and places, colleges and universities, and jobs and careers. You can search for data on more than 20,000 U.S. communities at the city and state levels.
Google Trends is another useful tool for conducting market research. Google Trends allows you to explore what people are searching on the internet. You can examine trending topics, see trends by year, or search your own topic to discover interest over time, by region, or by related queries.
Social Mention allows you to conduct a real-time social media search for topics across more than 100 social media platforms. Social Mention provides you with information on the sentiment behind topic mentions, top keywords, top hashtags, and the social media platforms where these topics are being discussed.
Needless to say, there are several other great sources for both industry and market research. The key is to get creative to find the data and information to both guide your strategy as well as justify your business opportunity.
Once you understand your industry and market, you should also include an analysis of your major competitors.
Your competitors may include anyone offering alternatives to your solution that people are using now to solve the same problem.
You will want to understand and explain who your competitors are along with their market share, price, major competitive advantages and disadvantages, and what makes your product unique from theirs.
Start by identifying the major competitors within your industry. You should focus on your closest competitors. Those that compete with you directly.
Next, for each competitor, describe their strategies, their strengths, and their weaknesses. In doing so, try to answer the following questions:
- What are their primary products and or services?
- Who are their target customers?
- What differentiates your product or service from theirs?
- What is their pricing strategy?
- What is their marketing strategy?
- What is their main message or value proposition?
- What are their strengths and weaknesses?
- What are their competitive advantages?
You should complete a competitive analysis for your top three to five competitors. Doing so will allow you to gain a much better perspective on the competitive landscape and may provide insight into how you can distinguish yourself from your competitors and even how you can take advantage of areas where your competitors fall short.
The marketing plan depicts the overall strategy your venture pursues to capture market share.
The marketing plan describes all aspects of marketing for your venture, including the product, price, place, and promotion. This includes a big picture view of your marketing strategy, your planned marketing mix, as well as your pricing strategy, sales strategy, and advertising strategy.
The marketing plan should be well informed by your industry and market analysis. By now, you have a plethora of knowledge about who your target customer is, the problem and pain points that you are alleviating for them, and how your competitors are positioned. All of this knowledge allows you to hone your marketing plan to reach your target market with the right message in the channels they turn to for information.
The first section of your marketing plan is your marketing strategy. Your marketing strategy refers to your overall strategy of how you will market your product. How will you get your message out to your potential customers?
Your marketing strategy should consider the four essential elements of marketing:
The 4 Ps of Marketing:
The product is everything the customer gets, whether it be a physical product, a service, or an experience.
It is what you deliver. This includes the product or service itself, along with its branding, packaging, labeling, and even benefits.
The price is what you charge. What the customer gives you. Your business plan should discuss your pricing strategy and where this fits in your marketing mix.
Are you competing on price and thus offer low pricing? Or are you focusing on value at a medium price point? Or maybe you are positioned as a luxury label or item, and compete at a high price point? Why did you choose this strategy? Does it fit with your target market and within your marketing mix?
Location refers to where your customers find you, or where you find them.
While much of today’s marketing is done online, location is still as important as ever. Once you understand the place, you will have a much better idea on how to deploy your marketing mix. Where do your ideal customers get their information? Where do they shop? What forms of social media do they use?
Promotion is how you tell customers about your products and services.
Simply put, promotion is how you raise awareness of your products, services, or brand. Promotion strategies may include public relations, content creation and curation, marketing, and advertising.
But, keep in mind, your promotional strategies should be focused on one thing: your target customer and the strategies and messaging that works for them.
Your Marketing Mix
Your marketing mix is how you allocate resources to the marketing channels that you plan to pursue. In this section of your marketing plan, you will describe the marketing messaging and channels that you plan to use, and why these are appropriate for your target market.
Inbound marketing, or content marketing, is a form of marketing designed to draw traffic to your website by providing valuable content to your target market. This is often achieved by posting useful web content, content, videos, and blogs.
The idea behind inbound marketing is pretty simple- by providing knowledge and information on your products, services, and other information that is valuable to your customers, you generate more leads and, hopefully, more sales.
Social Media Marketing
With over 3.5 billion people around the world using social media, social media marketing is another powerful tool to reach potential customers.
Social media marketing has many advantages, including allowing you to get your message in front of your specified target audience at little to no cost.
Although there is an overabundance of social media channels to choose from. Focus on the ones that your target market uses to get their information.
For instance, if your target market is middle age or older people, you may want to focus on platforms that are more popular with these demographics such as Facebook, Twitter, and Pinterest. However, if your target market is teen agers and young adults, you are more likely to find them on platforms such as Instagram and TikTok.
The Power of Video Marketing
Do not forget to discuss the use of video marketing in your marketing mix.
In both inbound and social media marketing, video has begun to play an increasingly important role. Video marketing can be employed in inbound marketing, email marketing, and social media marketing to serve a variety of purposes. The most common uses of video marketing include explainer videos, presentation videos, testimonial videos, sales videos, and video ads.
Not only can video marketing be used in a variety of methods and contexts, it is a highly consumed type of advertising. In fact, in 2020, 96% of consumers watched an explainer video to find out more about a product or service. Video works. And marketers believe this too. 92% of marketers who utilize video marketing say that it is a key part of their marketing strategy.
Depending on the type of venture your company is, email marketing may also be an important element in your marketing mix. A good email marketing strategy balances gaining new customers with keeping your existing customers engaged with your company.
Although you do not want to overdo it, and a lot of email marketing seems “spammy”, email marketing can be very effective in the right form. Welcome notes, confirmation emails, informational emails, newsletters, digital magazines, promotional emails, and seasonal and birthday campaigns are just a few of the many types of email marketing.
Another common type of marketing in a company's marketing mix is referral or recommendation marketing. Referral or recommendation marketing can take many forms. Referral marketing might include good old organic word-of-mouth marketing wherein you ask customers for referrals, or even a formal system for rewarding customers who refer new clients.
The Marketing Plan section of the business plan should also describe your pricing strategy. How are you going to price your products and services?
There are a number of ways you can approach pricing:
Markup Pricing — Markup pricing is pricing based on your costs, plus a predetermined markup. The amount you mark up your product or service is usually expressed as a percentage, known as the gross margin. Markup pricing is most often found in high volume manufacturing industries where manufacturers must cover the cost of the products they are making.
Competitive Pricing — Competitive pricing is pricing based on your competitors prices for similar products or services. Competitive pricing is most often seen in products or services where there are numerous competitors or substitutes.
Value Pricing — Value pricing is pricing based on the value or perceived value that you deliver to your customers. In value-based pricing, you set the prices of your products and services in line with what the customer believes your product or service is worth. Value-based pricing is most often seen in higher value products and services, those that cater to self-image, or those that are niche or unique.
Penetration Pricing — Penetration pricing is setting a low initial price, and then raising it as demand increases. Penetration pricing is designed to capture market share. It is a strategy often used by a new business or in launching new products and services. The idea is to set the price low enough to draw customers from your competition.
Price skimming — Price skimming pricing is setting a high initial price and then reducing this price as the market evolves. Price skimming is most often used on new or trendy products and services. As initial demand slows and alternatives or competitors emerge, the high initial pricing must then be lowered to stay competitive in the market.
A sales strategy is how you plan on selling your products or services to your target market. This includes your sales channels (where will your product or service be available for sale) as well as how you will sell your product or service.
Your sales strategy depends on your business model and the nature of your business. If your business involves retailing, food services, or personal services where your customers come to you to make a purchase, your sales strategy may be quite simple (or even unnecessary to income). However, if your business involves personal selling, you may need a more thought-out sales strategy.
Some questions to ask to determine and document your sales strategy in your business plan:
- Where will your products or services be available?
- Will your products or services be available on your website?
- On a third-party website?
- In retail locations?
- In your own stores?
- In other retail stores?
- Who will you sell to?
- Directly to consumers? (Business to Consumer or B2C)
- To businesses? (Business to Business or B2B)
- Does your sales strategy involve finding prospects?
- Cold calling?
- Who will sell your product or service?
- Inside salespeople?
- Outside sales representatives?
- Sales through strategic partners?
An advertising strategy is how you plan to use sponsored, non-personal messaging to reach and inform potential customers of your product, service, or brand.
Your advertising plan should describe the mediums you are going to advertise in, who you are targeting advertising in these mediums, your advertising message(s), and your advertising budget. A good advertising plan is also measurable, so be sure to consider how you are going to measure the effect of your advertising strategy to see if it is working.
The most common advertising mediums typically fall into the categories of traditional advertising and digital advertising.
Traditional advertising includes print advertising such as newspapers, magazines, flyers, direct mail, and even billboards, as well as radio and tv advertising.
Digital advertising includes email advertising, search engine advertising, website advertising, social media advertising, influencer advertising, among many, many more.
The secret to finding the right advertising strategy and advertising mediums for your business is knowing where to find your most likely customers. Where is your target market, and where do they go to get their information?
The organizational (or management) plan describes:
- The legal form of the business
- Its organizational structure
- The background and roles of the leadership team
- Key personnel that are already in place or you will need to fill.
Organizational Type and Structure
The first part of your organizational plan describes your organizational type and structure. Who owns your company? And what is its legal business structure?
There are four primary types of organizational structures:
- Sole Proprietorships
- Limited Liability Companies (LLCs)
Sole Proprietorships and Partnerships are informal business structures, while LLCs and Corporations are more formal business structures.
The best type of structure for your business will depend on your business’s particular characteristics and needs. A partnership structure may be the best choice for some businesses, while an LLC or a corporation might work better for others.
Sole proprietorships are an informal type of business structure. While many businesses start out as sole proprietorships because they are an informal business structure the owner is liable for 100% of the business's liabilities and risks. Thus sole proprietorships are typically not the preferred ownership structure for small businesses.
Similar to a sole proprietorship, a partnership is also an informal type of business structure. While a sole proprietorship involves only one owner, a partnership is a business structure with two or more partners where there is still no legal distinction between the owners of a partnership and their business.
An LLC is a formal business structure that distinguishes the owners from the business itself.
LLCs offer the personal liability protection of a corporation with the pass-through taxation of a sole proprietorship or partnership.
It is the simplest way of structuring your business to protect your personal assets in the event your business is sued.
LLCs can be owned by one or more people, who are known as LLC “members.” An LLC with one owner is known as a single-member LLC, and an LLC with more than one owner is a multi-member LLC.
LLCs require operating agreements. Operating agreements are legal documents that outline the ownership and member duties of your LLC. This agreement allows you to set out the financial and working relations among business owners ("members") and between members and managers.
A corporation is a legal business entity that is owned by shareholders, run by a board of directors, and created through registration with the state.
Corporations offer limited liability and tax benefits but are required to follow more complex operating procedures than their counterpart, the limited liability company (LLC).
Ownership and Executive Team
Now it’s time to sell the single most important element in your business plan. You!
This subsection of your business plan tells readers who is in your ownership and executive team and outlines the accomplishments of your team.
You should include a short profile on each member of your ownership and executive team that will play a role in company decision making.
Who is on your ownership and executive team? What roles will each perform? What knowledge, experience, and accomplishments do you and your team bring to the table? What roles do you still need to fill, and how and when do you plan on filling them?
It is well known that many investors consider the experience and ability of the ownership and management team to be just as important as the idea itself. Do not pass over this opportunity to highlight how your knowledge, experience, and accomplishments set you up to succeed.
Also, remember that when you are writing your descriptions of your ownership team, talk about your accomplishments- as opposed to experience. Accomplishments signify that you have a track record and can get things done.
This section of the business plan highlights the key personnel associated with the business. This may include members of the management team outside of the owners and executive management, the board of directors, and any outside advisors.
Here, include profiles on each key figure associated with your company, focusing on their accomplishments and the knowledge and skill they bring to the business.
The operational plan describes how you will operate. The processes, strategies, and resources that you will use to operate your business on a daily basis.
This includes descriptions of production (if you produce a product) or the process you will use to carry out your service. The operational plan may also include, as necessary, descriptions of your logistics and supply chain, physical resources and needs, human resources and needs, technological resources and needs, and timetables for carrying out your plan.
Production Plan or Service Description
The production plan or service description explains how you are going to make and deliver your product(s) or provide your service(s). Although the production plans for products and services may look slightly different, both describe how your company will operate in the day-to-day.
If you are making a product, the production plan is where you will describe the process for making the product. What are your methods of production? What are the steps in your processes? How will you ensure quality? Maintain inventory? Handle Logistics?
If you are providing a service, the production plan is where you can describe the process you go through providing that service. What are your service methods? What will your sales and customer service look like? What is the customer experience like?
Most importantly, which of these might give you an advantage over your competitors? If you have any superior methods, processes, or other advantages, make sure to highlight them in your production plan or service description.
Logistics and Supply Chain
This section of the business plan describes your logistics and where you fall within the supply chain in your industry.
If you produce a product, you should discuss how you source materials, where your materials come from, and who your suppliers are. You will also need to discuss how you handle inventory, how you warehouse, and how you distribute your product(s).
If you are a service business, you may still have to discuss how you source materials used in your service, who your suppliers are, and how you handle inventory.
In this section of the operational plan, you describe the physical resources that you have and the physical resources that you need to acquire. Think through everything you might need. This will become important when it is time to make financial projections.
- What facilities, machinery, equipment, and supplies do you require?
- Do you require raw materials?
- Who will be your primary suppliers?
- Secondary suppliers?
- Do you have back up suppliers and contingency plans if you cannot acquire raw materials?
You should discuss the technological resources that you are developing, have, or need to create or acquire. Technological resources may include any software, applications, or websites that you have or will need to create, outsource, or purchase.
- What hardware or machinery will you require?
- What software or applications will you require?
- Can you purchase the software and applications you need?
- Are the software and applications you will need off-the-shelf or specialty?
- Will you have to create the software and applications you need?
- Do you need a website?
- Will you create and maintain your website inside the company or have it created and maintained by someone else?
Here, you describe the people that are a part of your team, and the human resources that you need to add to your team, hire, or outsource. Since you have already described the ownership and management team as well as key personnel, this section is more focused on production level workers and lower management.
- How much staffing will you need?
- What skills will your staff require?
- What will your staffing typically look like?
- How will you recruit, train, and retain employees?
Goals, Milestone, and Risk
The goals, milestones, and risks section of your business plan is the place to outline your goals, set key milestones, and explore and explain your preparation for the risks you will face.
Goals lay the foundation of where you intend to take your company and how you are going to get there. It is important to ascertain the short and long-term goals for your company.
Your goals should be connected to your mission and vision, your business model, and your strategic plans. They should also reflect your ambition to move the company forward and are often reflected in key performance indicators (KPIs), such as numbers of users and customers, revenues, expenses, retention, satisfaction, and other indicators of performance.
Here are some questions to help you develop the goals for your company:
- When do you expect to break even?
- What do you expect your revenue to be in one year? Three years? Five years?
- What market share do you expect to capture in the next year? Three years? Five years?
- Where do you plan to expand from here?
- What KPIs do you need to achieve or improve?
- When do you expect to implement major objectives?
- What level of customer satisfaction do you hope to achieve?
When developing your goals, in addition to defining what your goals are, you also need to consider the how, the when, and the who. First, consider how your goals will get accomplished? What actions need to be taken to achieve your goals? What milestones do you need to accomplish along the way?
Your goals should also include your plan on when you plan on attaining each goal. Not only will your readers be curious about when you plan to achieve your goals, due dates and deadlines make for really powerful motivators.
Finally, you should also determine who is going to be responsible for working toward each goal. In a sole-proprietorship or startup it may be you, the business owner, or your founding team. However, as your organization grows, it will become more and more important to define who is responsible for pushing toward and achieving each goal.
Your goals should be SMART: Specific, Measurable, Attainable, Realistic, and Timely.
- Specific — Your goals should be clear and specific. They should be narrow enough that you can determine the appropriate steps to attain them. In addition to what, in planning your goals, do not forget to be specific about how, when, and who. How will your goals be attained? When do you anticipate achieving them? Who is going to be responsible?
- Measurable — Your goals should be measurable. There should be some objective metric or performance indicator by which you can tell if you have met your goals? How are you going to measure your goals? What metrics or performance indicators will you use? How will you know if you achieve your goals?
- Attainable — Your goals must also be realistic and attainable. For a goal to be attainable you must be able to achieve it. Do not be afraid to push yourself, but setting unrealistic goals will cast doubt on your entire business plan. Ask yourself, can your goals be accomplished? By you? What will it take to attain them?
- Relevant — Your goals also need to be relevant. To be relevant, they should contribute to the mission, vision, and success of your venture. Do your goals align with your company’s values? Are they within the scope of and aligned with your operational plan? Your marketing plan? Are they within the budget?
- Timely — Your goals should also be timely and time-bound. Their process and progress should be clearly defined and they should have a starting and ending date. Without a timeframe, there is no sense of urgency, or motivation to get started. Make your goals time-bound. How long do you expect it to take? When do you plan on getting started? When do you anticipate achieving each goal?
Milestones are important events in your venture’s growth that mark significant change or stage of development.
Creating a list of milestones can act as a checklist of what you need to accomplish for your venture to reach its goals. They tell the story of how you are going to get from where you are to where you are going.
Milestones might include major events and accomplishments, such as:
- Forming an LLC
- Writing a Business Plan
- Securing Seed Capital
- Develop a Prototype
- Begin Production
- First Major Sale
- Reach 10,000 Downloads
- Achieve 1,000 Paying Customers
It is alright to list a few milestones that you have already completed. Or to leave them in your business plan once you complete them. Accomplished milestones show that you are making traction.
Milestones act as a signal to potential investors and other stakeholders what to expect from your venture and when to expect it. They also signal whether the venture is progressing and growing as expected.
The implementation timeline is where you describe where your company is in its lifespan. You should set a timeline to reach your goals and milestones. This should include a short-term timeframe as well as where you anticipate being in the long term.
This section of the business plan should not be long. A simple chart will do. You can find several free timeline templates online to plug in your milestones and the time frame you expect to achieve them.
You will also want to include a section in your business plan showing that you understand the critical risks that your business may be subject to. The risks you will face in your business include both internal and external risks. These are any areas that expose your venture to any kind of loss- assets, customers, sales, profits, and reputation, among others.
By exploring your assumptions and identifying possible risks in those assumptions, you can show that you have assessed and are prepared to handle risks and threats that may arise. There are several tools available to analyze business risks, including SWOT Analysis and contingency planning.
You may want to conduct a SWOT analysis or even include it in your business plan. A SWOT analysis is an analysis of your strengths, weaknesses, opportunities, and threats.
A SWOT analysis can help you understand your industry and market, your venture, and the strategies that you should pursue.
To conduct a SWOT analysis, you will need to assess factors both inside and outside your venture.
Here is how to conduct your own:
- Assess Your Venture’s Strengths
- What does your company do well?
- What are your company’s advantages?
- What do you do better than your competitors?
- What unique or low-cost assets do you have access to?
- Assess Your Venture’s Weaknesses
- What does your company not do well?
- What are your company’s disadvantages?
- What do your competitors do better than you?
- What needs to be improved?
- Identify Opportunities for Your Venture
- Where can you improve?
- Where can you grow?
- How can you turn your strengths into opportunities?
- How can you turn your weaknesses into opportunities?
- Understand the Threats to Your Venture
- Do the trends of the industry or market represent a threat?
- Is the number of competitors growing?
- Do changes in technology or regulation threaten your success?
- Do your weaknesses represent a threat?
After assessing your risks and your SWOT analysis, you should address any major threats or risks that your venture faces with contingency plans.
Contingency plans are plans to help mitigate these risks by establishing a plan of action should an adverse event happen.
Contingency plans show that you understand the threats and risks to your venture, and you have a plan in place to lessen the damage should these risks emerge. There are various ways to prepare for adverse events. One is through planning- identifying alternatives and determining the best course of action. Another is business insurance.
Business insurance protects against risk from several sources. The type of business insurance you will need varies greatly depending on the nature of your business.
While there are standard types of coverage like general liability insurance, professional liability insurance, workers’ compensation, insurance for commercial property and commercial auto insurance, there are also insurance policies that cover specific business activities and specialized equipment.
You can bundle most of these into what is called a Business Owner’s Policy (BOP) by a trusted insurance provider to get you started doing business.
Your financial statements should include detailed projections of your income statement, cash flow statement, and balance sheet for the first year. You should also provide quarterly projections for the first three (or preferably five) years as well.
You also will likely need to include some sort of financial statement in your business plan. If you are a new venture, you will supply pro forma financial statements. Pro forma financial statements are simply financial projections.
Financial statements can help you to evaluate the cash needs of your venture, determine whether your venture is feasible and desirable, compare your expected returns with the alternatives, identify milestones and benchmarks, and demonstrate the value of your venture to investors.
Before you begin completing your financial statements, you should first sit down and list the assumptions you will rely on to project your financial statements.
These should include projections concerning your:
- Initial revenue level per month
- Your growth and factors affecting growth
- Your inventory and inventory turnover
- And your operating expenses.
One of the biggest mistakes new ventures make is in making unrealistic assumptions.
Remember, revenue assumptions are key assumptions in determining whether your business will be viable. However, many entrepreneurs are overly optimistic about their revenue assumptions and tend to underestimate their expenses.
In order to make more accurate financial assumptions, back up your assumptions with data whenever possible. To find data to back up your assumptions, look for things like industry averages, market trends, and comparisons with similar ventures. You should already have a substantial amount of this data from your industry and market research.
Pro Forma Income Statements
The income statement, also known as the profit and loss statement, is a statement that shows the projections of your venture’s income and expenses over a fiscal year. On the income statement, you will detail your revenue and sources of revenue based on the assumptions you have made. You will also detail your anticipated expenses and use these to estimate your net income.
The typical income statement includes:
- Revenue — the total amount of sales, or revenue, projected to be brought in by your business.
- Cost of Goods Sold — the total direct cost of producing your product or delivering your service.
- Gross Margin — the difference between revenue and cost of goods sold.
- Operating Expenses — this section of your income statement details all of the expenses associated with operating your business. Common operating expenses might include rent, utilities, office
- expenses, salary expenses, and marketing and advertising expenses, among others.
- Total Operating Expenses — the total of your operating expenses, excluding interest, depreciation, and taxes.
- Operating Income — the difference between your gross margin and operating expenses.
- Interest, Depreciation, and Taxes — this section of your income statement lists your non-operating expenses- expenses such as interest, depreciation, amortization, and taxes.
- Net Profit — the total of how much you actually made. This is calculated by subtracting interest, depreciation, and taxes from your operating income.
Pro Forma Cash Flow Statements
The cash flow statement is a financial statement that shows when and where cash (and cash equivalents) flow in and out of your venture. This tells you how much cash you will have on hand at any single point in time.
- Cash from Operating — Cash flowing into and out of your venture from operating, beginning with “cash on hand.” Cash flowing into your venture from operating includes cash from sales, payments from credit sales, investment income, and any other types of cash income related to operations.
Cash flowing out of your venture from operations, your expenses, includes costs of raw goods, materials, inventory, salary expenses, office expenses, marketing and advertising expenses, rent, interest, taxes, insurance, or any other expenses that are paid by the venture.
- Capital Cash Flow — Cash flow, in or out of the venture, for capital assets such as the purchase or sale of fixed assets.
- Cash from Financing — Cash flow from financing includes cash flowing in or out of your venture relating to venture financing activities. Inflows of cash from financing include the investments by founders or owners, any loans taken out during the period, or the issuance of any equity. The outflow of cash from financing may include the payment of the principal of any loans, along with the repurchase of any outstanding equity.
Pro Forma Balance Sheet
The balance sheet is a financial statement that balances a venture's finances at a specific point in time. It describes how much the company is worth. The balance sheet uses the accounting equation: assets = liabilities + equity. In fact, these are the main components of the balance sheet:
- Assets — Resources that hold economic value. A business's assets include current assets and fixed assets. Current assets are resources that can be accessed in the short term. These include cash, accounts receivable, inventory, and other currently available resources. Fixed assets are resources that are intended for long-term use but hold economic value. These include land and buildings, machinery and equipment, furniture and fixtures, vehicles, and other fixed resources.
- Liabilities — What the business owes. Like assets, a business’s liabilities are also current liabilities and long-term liabilities. Current liabilities are liabilities that are due within 12 months. Current liabilities include accounts payable, loans, and taxes. Long-term liabilities are liabilities that are due after one year. These include long-term loans, notes, and other long-term debts.
- Equity — What the owners or shareholders own. Equity is also composed of two parts: Capital and Retained Earnings. Retained earnings is the amount of profit that has been retained by the company over the life of the venture. Capital earnings, then, is what’s left. It is what has been invested. For new ventures, this may be the founder’s or early investors’ initial investments. For larger corporations, this would be the value of their shares of stock.
The break-even analysis shows you how much you have to sell before you break even. The break-even analysis uses fixed and variable costs in order to determine the sales volume you have to attain to reach a break-even point. This is the point where your sales volume covers both your fixed costs and your variable costs.
The break-even point is most often expressed as a number of units. You can calculate the break-even point by dividing fixed cost by the average profit per unit (average price per unit minus the variable cost).
Break-Even Point = Fixed Costs/ Profit Per Unit (Avg. Price - Avg. Variable Costs)
You can also calculate the break-even point in terms of $ of sales. To calculate the break-even point in $ of sales, you can divide total fixed costs for the period by the contribution margin ratio (net sales minus total variable cost / net sales).
Break-Even Point ($ of Sales) = Fixed Costs / Contribution Margin Ratio
Contribution Margin Ratio = (Net Sales - Total Variable Cost) / Net Sales
If you are writing your business plan for the purpose of seeking funding, you should conclude your business plan by describing the investment opportunity.
With your financial projections in place, you will now be able to determine the amount of startup capital or investment you require.
This is because the funding you need is highly dependent on your profit and loss, cash flow, and break-even point. With well-researched assumptions and the evidence to back them up, you are ready to make the case that your business is worth the investment and will be able to pay it back or reward investors in the future.
In this section of the business plan, you will need to explain the amount of funding you are requesting as well as describe what those funds will be used for. The startup funding request will need to cover all expenses (maybe even your own personal expenses) at least until you reach your break-even point.
Business Plan Appendices (Optional)
If you have additional evidence to support your business idea, your business model, or your ability to achieve your goals and meet your financial objectives, you may want to consider including it as an appendix to your business plan.
Additional / Optional Evidence
Owners’ Resumes — One thing you may want to consider including in your business plan is the resume for each owner. Investors often invest as much in the startup team as they do in the idea itself.
Illustrations of Product — Another helpful appendix is pictures or illustrations of your product. These are especially helpful for new products or those which are difficult to depict with words.
Storyboard of Customer Experience — If your business is a service business, you could also consider including a storyboard depicting your customer’s experience.
Customer Survey Results — You can also include any market research that you have conducted in an appendix. Showing that you have solicited feedback from real customers or potential customers provides further credence to your venture and venture idea.
Develop Your Business Idea
Before writing your business plan, it is important to take some time to develop your business idea.
If you are starting a new company, there are likely many details of the venture that have not been fully worked through. If you already have an existing venture, the following tools can also be useful in evaluating your business model:
- A three-sentence business plan
- The Lean Canvas
- The Business Model Canvas
Three-Sentence Business Plan
An easy place to start is with a three-sentence business plan. The three-sentence business plan is easy to construct, and consists of three parts:
- your product or service
- your market and marketing
- your revenue model.
Your Product or Service
The first sentence of your business plan clearly yet simply states your business's primary product or service. This includes the what and the where.
Example: “CoffeeMe is an upscale bakery and coffee shop specializing in imported coffees and international delicacies that will be located in downtown Atlanta.”
The second sentence of your three-sentence business plan describes who your target market is and how you will promote to them.
Example: “CoffeeMe’s target market is urban professionals living and working in downtown Atlanta, marketed and promoted through traditional advertising, company partnerships, and social media.”
Your Revenue Model
The third sentence of your three-sentence business plan explains your revenue model. How will you make money?
Example: “CoffeeMe’s revenue model includes one-time retail sales as well as a unique subscription model featuring all-you-can-drink coffee for subscribers.”
Put it all together, and you have your three-sentence business plan:
Example: “CoffeeMe is an upscale bakery and coffee shop specializing in imported coffees and international delicacies that will be located in downtown Atlanta. CoffeeMe’s target market is urban professionals living and working in downtown Atlanta, marketed and promoted through traditional advertising, company partnerships, and social media. Our revenue model includes one-time retail sales as well as a unique subscription model featuring all-you-can-drink coffee for subscribers.”
The Lean Canvas
Another useful tool for developing your business idea is the Lean Canvas. The Lean Canvas takes a problem-solution approach to helping you plan your business, focusing on the problems you are solving for your customers.
The Lean Canvas helps you describe and visualize your problem, solution, customers, value proposition, key performance indicators, and competitive advantage.
The steps to complete the Lean Canvas are:
- Define your target customers or users
- List the problems you are solving for them and how they are currently solving those problems today
- Describe your solution
- Explain your unique value proposition
- Describe your revenue streams
- Depict how you will reach customers
- Define the key metrics that will tell if you are doing well
- Detail your cost structure
- Explain your unfair advantage
The Lean Canvas, created by Ash Maurya, and licensed under Creative Commons Attribution-Share Alike 3.0 Unported License: https://leanstack.com/lean-canvas
The Business Model Canvas
The Business Model Canvas helps you describe and visualize the key aspects of your venture including your customers, value proposition, infrastructure, and revenue and cost models.
If you have already completed a Lean Canvas, you will already have several of the central parts of the Business Model Canvas complete.
The steps to complete the Business Model Canvas are:
- Define your target customers or users
- Explain your value proposition
- Depict how you will reach customers
- Describe how you interact with customers
- Describe your revenue streams
- List the key activities that you will need to do to deliver on your value proposition
- List the key assets that you will need to deliver on your value proposition
- Describe the key partnerships that you will need to put in place to deliver on your value proposition
- Detail your cost structure