What is a Business plan?

         

This Article is part of our "Business Planning Guide" - A curated list of our article that will help you with planning process. 

what is business plan? in its simplest form, a business plan is guide- roadmap for your business that outlines goals and details how you plan to achieve those goals. 

In this article , I'll explore the section of a business plan, as well as: 

• Who needs a business plan 
• How to choose the right kind of business plan 
• The key components that every business plan should include 
• How to use your plan to achieve faster growth than your competition 

To start, don't swallow the obsolete idea that the business plan must be a long formal documents as if we were some term paper you have to write  that's not true anymore. while every business has huge benefits to gain from going through the business planning process only a small subset needs the formal business plan document required for seeking or supporting a commercial loan.

most of us need just a Lean Business Plan, for internal use with just bullet point lists and important projections. Good businesses always keep their Lean Plan up to date.

The lean business plan is great news because it makes the planning process much less daunting. you start simple and grow it organically. you don't do anything the doesn't have business process so you don't describe your management team unless you need that section for outsiders. more on that in the section on the Lean Plan. 

And furthermore even for those  of you who do need to produce a business plan document, the task of writing a formal business plan today is much less daunting than it used to be. these days business plan are simpler shorted and easier to produce then they have ever been. gone are the days of 30 and 40 page business plan modern business plan are shorter easier to write and thankfully easier to read and you could always have our MBA business plan consulting expert write a business plan for you if you so choose. 

What is a business plan ?

if you've ever jotted down a business idea on napkin with a few task you need to accomplish you've written a business plan- or at least the very basic components of one. at its heart a business plan is just a plan for how your business is going to work, and how you're going to make it succeed.

How long should your plan be?

Typically a business plan is longer that a list on a napkin (although as you all see below it is possible and sometimes ideal. to write your entire business plan on one page. for me in practice and for most real businesses it can be as simple as as the lean Plan that has few bullet points to focus strategy, tactics milestones to track task and responsibilities, and the basic financial projections you need to plan cash flow budget expenses.

How should you present your business plan?

A note on format: business plan should only become printed documents on select occasions like when you need to share information with outsiders team members otherwise they should by dynamic documents that you maintain on your computer.

The plan goes on forever  meaning  that you're constantly tweaking it, because you're regularly evaluating your business health so the printed version is like a snapchat of what the plan was on the day that it was printed.

What does a formal plan Include?

if you do need a formal business plan document that the include elements like 

• An executive Summary 
• A company overview
• some information about your products and/or service
• Your marketing plan 
• A list of major company Milestones
• Some information about each member of the management team and their role in the company
• Details of your company's financial plan 

these are often called the "section" or" chapters" of the business plan and I'll go into much greater depth about each of them below.

How often should you revise your business plan?

in all cases the most important element of business planning is the review schedule set specific times to review your progress towards your goals that's as simple as the third Thursday of every month to cite one obvious example.

Specially it's the time to review your progress on milestones and to compare your actual against your financial projections. A real business plan is always wrong - hence the regular review and revisions and never done because the process of review and revising is vital. 

Who needs a business plan?

if you're just planning up some freelance work to supplement your income you can skip the business plan. but if you're embarking on a more significant endeavor then you need a business plan.

if you're serious about business taking planning seriously is critical to your success.

Unfortunately, many people think of business plans only for starting a new business or applying for business loans but plans are also vital for running a business strategic planning whether or not it needs new loans or new investment existing. businesses should have business plans that they maintain and update as market conditions change and as new opportunities arise.

Every business has long term goals sales target and expense budgets a business plan encompasses all of things and is as useful to a startup trying to raise funds as it is to a 10- year old business that's looking to grow.

1. Startup business

The most classic business planning scenario is for a startup for which the plan helps the founders break uncertainly down into meaningful pieces like the sales projection expense budget milestones and tasks.

the need becomes obvious as soon as you recognize that you don't know how much money you need and when you need it with lying out projects sales costs expenses and timing of payment and that's for all startup whether or not they need to convince investors banks or friends and family to part with their money and fund the new venture.

in this case the business plan is focused on explaining what the new company is going to do how it is going to accomplish its goals and most importantly why the founders are the right people to do the job.

A startup business plan also details the amount of money needed to get the business off the ground and through the initial growth phases that will lead hopefully to profitability. 

2. Existing businesses 

Not all business plans are for startup that are launching the next big thing. Existing businesses use business plan to strategically manage and steer the business, no just to address change in their market and to take advantage of new opportunities. they use a plan to reinforce strategy, establish metrics manage responsibilities and goals track result and mange plan to set the schedule for regular review and revision.

business plans can be a critical driver of growth for existing businesses. did you know that businesses that write plans and use them to mange their business grow30 percent faster than business that take a seat of the pants approach  A study by professor Andrew burke the founding director of the Bettany center for Entrepreneurial performance and economics at 

Cranfield school of management discovered exactly this.

For existing businesses a robust business planning process  can be a competitive advantage that drives faster growth and greater innovations. instead of a static document business plan in existing  businesses become dynamic tools that are used to track growth and spot potential problems before they are derail the business.

Choosing the right kind of business plan for your business 

considering the business plan serve many different purpose it's no surprise that they come in many different forms.

before you even start writing your business plan you need to think about who the audience is and what the goals of your plan are. while there are common components that are found in almost every business plan such as sales forecasts and marketing strategy business plan format can be very different depending on the audience and the type of business.

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For example if you're building a plan for a biotech firm you plan will go into details about government approval process if you are writing a plan for a restaurant details about location and renovations might critical factors. and the language you'd use in the biotech firm's business plan would be much more technical than the language you'd use  in the plan for the restaurant.

plans can also differ greatly in length detail and presentation plans the never leave the office and are used exclusively for internal strategic planning and management might more casual language and might not have much polish.

on the other end of the spectrum a plan that is destined for the desk of a top venture capitalist will have a high degree of polish and will focus on the high growth aspects of the business and the experienced team that is going to deliver stunning result.

Here is a quick overview of three common types of plans: 

One-Page business plan :

A one page business plan is exactly what it sounds like: a quick summary of your business delivered on a single page no this doesn't mean very small font size and cramming tons of information onto single page it means that the business is described in very concise language that is direct and to the point.

A one page business plan can serve two purposes. first it can be a great tool to introduce the business to outsiders such as potential investors since investors have very little time to read detailed business plan a simple one page pan is often a better approach to get the first meeting later in the process a more detailed plan will be needed but one page plan is great for getting in the door.

this simple plan format is also great to early stage companies that just want to sketch out their idea in broad strokes. think of of the one page business plan as an expended version of jotting your idea down on napkin.  keeping the business idea on one page makes it easy to see the entire concept a glance and quickly refine concepts a new ideas come up. Learn about how to create one page business plan.

The Lean Business Plan 

A Lean plan is more detailed than one page plan and includes more financial information, but it's not as long as a traditional business plan Lean plan are more likely to be used internally as tools for strategic planning and growth.

The Lean business plan dispenses with the formalities that are needed when presenting a plan externally for a loan or investment and focuses almost exclusively on business strategy tactics milestones metrics budget and forecasts.

These lean business plan skip sections like company history and management term since everyone in the company almost certainly knows this information you don't do an exit strategy section of your business plan if you're not writing for investors and therefore you aren't connected with an exit.

the simplest lean business plan use bullet points to define strategy. tactics concrete specific dates and task and essential number including projected sales spending and cash flow. it's just five to 10 pages when printed. and few lean plans need printing leave them on the computer. review and revise them at least once a month. the first lean plan takes just few hours to do and a monthly review and revision can take only an hour or two per month.

Lean business plan are management tools used to guide the growth of both startup and existing businesses. they help business owner think through strategic decisions and measure progress towards goals.

External business plan (A.K.A the standard business plan document).

External business plans the formal business plan documents are designed to be read by outsiders to provide information about a business. the most common use of a full business. plan is to convince investors to fund a business and the second most common is to support a loan application. occasionally this type of business plan is also used to recruit on train or absorb key employees but that is much less common 

A formal business plan document is an extension of the internal business plan or Lean plan it's mostly a snapshot of the internal plan is it existed at a certain tome but while an internal plan is short on polish and formality, a formal business plan documents should be very well presented with more attention to detail in the language and format. see example business plan in our simple plan library to give you an idea of what the finished produced might look like.

in addition an external plan details how potential  funds are going to be used investors don't just hand over cash with no strings attached they want to understand how their funds will be used and what the expected return on their investment is.

Finally external plans but a strong emphasis on the team that is building the company investors invest in the people rather than ideas so its critical to include biographs of key team members and how their background and experience is going to help  grow the company.

What to include in your formal business plan 

While we just discussed several different types of business plans, there are key elements that appear in virtually all business plans. these components include the review schedule strategy summary milestones responsibility metrics numerical goals that can be tracked and basic projections the projections includes sales costs expenses and cash flow.

These core elements grow organically as needed by the business for the actual business purpose.

the order doesn't matter a whole lot , so don't sweat having the "right" outline as  long as you have on outline that works here's what they normally include:

Executive Summary

just like the old that you never get a second chance to make a first impression the executive summary is your business calling card. it needs to be succinct and hit he key highlights of the plan. many potential investors will never make it beyond the executive summary, so it needs to be compelling and intriguing.

The executive summary should provide a  quick overview of  the problem your business solves your solution to the problem the business's target market key financial highlights and a summary of who does what on the management team.

While it's difficult to convey everything you might want to convey in the executive summary keeping it short is critical. if you hook your reader, they all find more detail in the body of the plan as they continue reading. you could consider using your one page business plan as your executive summary and Live plan offers an excellent alternative with what it calls the pitch page a standard summary.

The opportunity   

one often useful section of a formal plan describes the market including market analysis data projections descriptions and competition.

Target Market 

As critical as it is that your company solving a real- world problem that people or other business have it's equally important to detail who you are selling to understanding you target market will define how your company grows.

Market Trends

describe the most important change happening in your target market right now. are the needs demographics or preferences of potential customers changing in a notable way. ideally explain how those trends will favor your products or service over those of your competitors.

For example if people in your market are increasingly use their smartphones for task that they used to do on a computer perhaps the mobile app you are developing is well positioned to capture a bigger part of the market.

Market Growth

Explain how your target has been growing or shrinking in their recent years research is key here obviously. you can use internet searches trade association market research firms. journalist who cover your market or other credible sources to gauge market growth. A growing market is encouraging since it suggest a stronger demand for you solution in the years to come. that said you can still be successful in a weak or contracting market. it's just important to acknowledge that you are swimming against the ride.

Competition

what other option do your customer have to address their needs and what makes your solution better for them?

Execution 

products and services

the products and service section of your business plan delves into the core of what you are trying to achieve. in this section you will detail the problem you are solving how you are solving it the competitive edge.

Depending on the type of company you are starting this section may also detail the technologies you are using, intellectual property that you own, and other key factors about the product that you are building now and plan on building in the future.

Marketing and sales

The marketing and sales plan details the strategies that you will use to reach your target market. this portion of your business plan provides an overview of how you will position your company in the market how you will promote your offerings and any sales processes you need to have in place.

Operations

Depending on the specifies of your business, include plans related to location and facilities technologies and regulatory issues.

Milestones and metrics

plans are nothing without solid implementation. the milestones and metrics chapter of your business plan lays out concrete tasks that you plan to accomplish complete with due dates and the names of the people to be held responsible.

this chapter should also detail the key metrics that you plan to use to track the growth of your business. this could include the number of sales leads generated the number of page views to your website or any other critical metrics that helps determine the health of your business.

Company overview

For external plans the company overview is a brief summary of the company's legal structure, ownership history and location. it's common to include a mission statement in the company overview, but that's certainly not a critical component of all business plan.

The company overview is often omitted from internal plans.

Team

The management team chapter of a business plan is critical for entrepreneurs seeking investment but can be omitted for virtually any other type of plan 

The management team section should include relevant team bios that explain why your management personnel is made up of the right people for the roles after all good ideas are a dime a dozen it's a talented entrepreneur who can take those ideas and turn them into thriving business.

business plan should help identify not only the strengths of a business but areas that need improvement and gaps that need to be filled identifying gaps in the management team shows knowledge and foresight, not a lack of ability to build the business.

Financial plan

the financial plan is a critical component of nearly all business plan. Running a successful business means paying close attention to how much money you are bringing in and how much money you are spending. A good financial plan goes a long way to help determine when to hire new employees or buy a new piece of equipment.

if you are startup and/or are seeking a solid financial plan helps you figure out how much capital your business needs to get started or to grow so you know how much money to ask from the bank or from investors.

A typical financial plan includes:

• sales forecast 
• Personnel plan
• Profit and loss statement
• cash flow statement
• Balance sheet

for more details on to include in your business plan check out our detailed business plan outline download a business plan a template in word format, or read through our library of simple business plans so you can see how other business have structured their plans and how they describes their business strategy.

Using your business plan to get ahead

I mentioned earlier in this article that business that write business plans grow 30 percent faster then businesses that don't plan taking the simple step forward to do any planning at all will certainly put your business at a a significant advantage over businesses that just drive forward with no specific plans.

but just writing a business plan does not guarantee your success.

the best way to extract value from your business plan is to use it is an ongoing management tool. to do this your business plan must be constantly revisited and revised to reflect current condition and the new information that you've collected as you run your business.

when you're running a business you are learning new things every day what your customers like what they don't like which marketing tactics which ones don't your business plan should be a reflection of those learning to guide your future strategy. this all sound like a lot of work but it doesn't have to be.

Tips to extract the most value from your plan in the least amount of time

1. use your one page business plan to quickly outline your strategy. use this document to periodically review your high level strategy. are you still solving the same problems for your customers has your target market changed.

2. use a Lean plan to document process that work. share this document with new employees to give them a clear picture of your overall strategy.

3. set milestones for what you plan to accomplish in the next 30 days. Assign these tasks to team member set dates and allocate part of your budget if necessary.

4. keeps your sales forecast and expense budget current. as you learn more about customer buying patterns revise your forecast.

5.compare your planned budgets and forecasts with your actual result at least money. make adjustments to your plan based on the result.

6. the final most important aspect of leveraging your business plan as a growth engine is to schedule a monthly review the review doesn't have to take longer than an hour but it needs to be a regular recurring meeting on your calendar. in your monthly review go over your key numbers compared to your plan review the milestones you planned to accomplish set new milestones and do a quick review of your overall strategy.

it's easier than it students and can put you in that "30 percent growth" club faster than.