The business plan is undeniably critical to getting any company off the ground. It’s key to securing financing, documenting your business model, outlining your financial projections, and turning that nugget of a business idea into a reality.
Business plans are required for all entrepreneurs, business owners, business acquirers, and even business school students. But … what exactly is a business plan?
In this post, we’ll explain what a business plan is, the reasons why you’d need one, identify different types of business plans, and what you should include in yours.
What is a business plan?
A business plan is a comprehensive road map for your small business’s growth and development. It communicates who you are, what you plan to do, and how you plan to do it. It also helps you attract talent and investors.
But remember that a business idea or business concept is not a plan.
Investors want to know you have:
- Product-market fit: Have you researched to determine the demand for your product or service?
- A solid team in place: Do you have the people you need to support your goals and objectives?
- Scalability: Can you grow sales volume without proportional growth in headcount and fixed costs?
A templated business plan gives investors a blueprint of what to expect from your company and tells them about you as an entrepreneur.
Understanding Business Plans
A business plan is a fundamental document that any new business should have before beginning operations. Indeed, banks and venture capital firms often require a viable business plan before considering whether they’ll provide capital to new companies.
Operating without an enterprise plan usually is not a good idea. Very few companies can last very long without one. There are benefits to creating (and sticking to) a good business plan. These include being able to think through ideas before investing too much money in them and working through potential obstacles to success.
A good enterprise plan should outline all the projected costs and possible pitfalls of each company’s decision. Even among competitors in the same industry, business plans are rarely identical. However, they can have the same essential elements, such as an executive summary of the business, detailed descriptions of its operations, products, and services, and financial projections. A plan also states how the company intends to achieve its goals.
Why do you need a business plan?
It would help if you had an enterprise plan because most venture capitalists (VCs) and all banking institutions will not invest in a startup or small business without a solid, written plan. Not only does a business plan help you focus on concrete objectives, but it gives outside parties reassurance that you’ve thought ahead.
In 2018, entrepreneurial resource center Bplans worked with the University of Oregon to compile and analyze research around the benefits of business planning. Here’s what they found:
- Businesses with a business plan grow 30% faster than those without.
- Owners with business plans are twice as likely to increase, get investments, or secure loans than those without.
- Entrepreneurs with a business plan have a 129% increased likelihood of growing beyond the startup phase and a 260% likelihood of developing from “idea” to “new business.”
Perhaps the most robust evidence comes from the Journal of Business Venturing’s 2010 meta-analysis of 46 separate studies on 11,046 organizations: Its findings confirm that “business planning increases the performance of both new and established small firms.”
What does a business plan need to include?
1. Business Plan Subtitle
Every great business plan starts with a captivating title and subtitle. You’ll want to make it clear that the document is, in fact, a business plan, but the subtitle can help tell the story of your business in just a short sentence.
2. Executive Summary
Although this is the last part of the enterprise plan that you’ll write, it’s the first section (and maybe the only section) that stakeholders will read. The executive summary of a business plan sets the stage for the rest of the document. It includes your company’s mission or vision statement, value proposition, and long-term goals.
3. Company Description
This brief part of your enterprise plan will detail your business name, years in operation, key offerings, and positioning statement. You might even add core values or a short history of the company. The company description’s role in a business plan is to introduce your business to the reader compellingly and concisely.
4. The Business Opportunity
The business opportunity should convince investors that your organization meets the market’s needs as no other company can. This section explains the specific problem your business solves within the marketplace and how it solves them. It will include your value proposition and high-level information about your target market.
5. Competitive Analysis
Just about every industry has more than one player in the market. Even if your business owns most of the market share in your industry or your business concept is the first of its kind, you still have competition. In the competitive analysis section, you’ll look objectively at the industry landscape to determine where your business fits. A SWOT analysis is an organized way to format this section.
6. Target Market
Who are the core customers of your business, and why? The target market portion of your business plan outlines this in detail. The target market should explain the ideal customer’s demographics, psychographics, behavioristics, and geography.
7. Marketing Plan
Marketing is expansive, and it’ll be tempting to cover every type of possible marketing. Still, a brief overview of how you’ll market your unique value proposition to your target audience, followed by a tactical plan, will suffice. Think broadly and narrow down: Will you focus on a slow-and-steady play where you make an upfront investment in organic customer acquisition? Or will you generate lots of quick customers using a pay-to-play advertising strategy? This kind of information should guide the marketing plan section of your business plan.
8. Financial Summary
Money doesn’t grow on trees; even the most digital, sustainable businesses have expenses. Outlining a financial summary of your business and where you’d like it to be in the future will substantiate this section. Consider including any financial information that will give potential investors a glimpse into the financial health of your business. Assets, liabilities, expenses, debt, investments, revenue, and more are all fair game here.
9. Team
So, you’ve outlined some great goals, the business opportunity is valid, and the industry is ready for what you offer. Who’s responsible for turning all this high-level talk into results? The “team” section of your business plan answers that question by providing an overview of the roles accountable for each goal. Don’t worry if you don’t have every team member on board yet; knowing what parts to hire is helpful as you seek funding from investors.
10. Funding Requirements
Remember that one of the goals of an enterprise plan is to secure funding from investors, so you’ll need to include funding requirements you’d like them to fulfill. The amount your business needs, for what reasons, and for how long will meet the requirement for this section.
Types of Business Plans
There are no one-size fits all enterprise plan as there are several types of businesses in the market today. From startups with just one founder to historic household names that need to stay competitive, every kind of business needs a business plan that’s tailored to its needs. Below are a few of the most common types of enterprise plans. For even more examples, check out these 11 sample business plans to help you write your own.
- Startup Business Plan
As one of the most common business plans, a startup enterprise plan is used for brand new business ideas. This plan is used to lay the foundation for the eventual success of a business.
The biggest challenge with the startup enterprise plan is written entirely from scratch. Startup business plans reference industry data and explain unique business strategies and go-to-market techniques.
- Business Acquisition Plan
Believe it or not, investors use enterprise plans to acquire existing businesses, too — not just new businesses.
A business plan for an existing company will explain how an acquisition will change its operating model, what will stay the same under new ownership, and why things will change or stay the same. Additionally, the business plan should speak to the current state of the business and why it’s up for sale.
For example, suppose someone is purchasing a failing business. In that case, the enterprise plan should explain why the company is being bought and what the new owner will do to turn the business around, referencing previous business metrics, sales projections after the acquisition, and a justification for those projections.
- Business Repositioning Plan
When a business wants to avoid acquisition, reposition its brand, or try something new, CEOs or owners will develop a business repositioning plan.
This plan will:
- Acknowledge the current state of the company.
- State a vision for the future of the company.
- Explain why the business should (or must) be repositioned.
- Outline a process for how the company will adjust.
Companies planning for a business reposition do so – proactively or retroactively – due to a shift in market trends and customer needs. For example, Pizza Hut announced a plan to overhaul its brand drastically, as it sees the need to shift from dine-in to delivery – a decision resulting from observing years of industry and company trends and acknowledging the need to reposition itself for the future of its sector.
- Expansion Business Plan
Expanding a successful business venture into another location typically requires an enterprise plan, as the project may focus on a new target market and demand more capital.
Fortunately, an expansion enterprise plan isn’t like a startup business plan because it starts from scratch—instead, this type of plan references sales, revenue, and successes from existing locations. However, as great as a reference as these points can be, it’s essential not to be too reliant on them since it’s still a new business that could succeed or fail for many reasons.
Conclusion
A business plan explains a business idea and why it will be successful. The more detail and thought you put into it, the more successful your project – and the business it outlines – will be.
When writing your business plan, you’ll benefit from extensive research, feedback from your team or board of directors, and a solid template to organize your thoughts. If you need one of these, download HubSpot’s Free Business Plan Template below to get started.