As a business owner, you’ve likely put together a business plan before. However, it’s important to revisit and update your business plan regularly, as it can help guide you through new business initiatives, measure business performance, and can even be a key part of any business financing application. Keep reading to learn how to write a business plan, and why you should revisit it often.
7 Key Components of a Business Plan
Here’s a guide to the components that go into writing a winning business plan so you can make your business a success.
1. Executive Summary
The first part of a business plan is an executive summary, which provides a brief snapshot of your entire business plan. Your executive summary should cover the highlights of the other sections of your business plan, which include:
- Your business description
- Your design and development plan
- Your operational and management plan
- Your competitive analysis
- Your marketing and sales strategy
- Your financial projections
- Your funding needs
An executive summary should briefly cover each of these topics, devoting one or a few sentences to each topic over the course of a page or two. Subsequent sections of your business plan will expand on each of these topics in more detail. While an executive summary is the first part of your business plan, you may find it easier to write it after you have written your other sections, or you can write an initial outline of your executive summary and then flesh it out after you complete your business plan’s individual sections.
2. Business Description
Your business description should sum up who you are, what you do, how you do it, who you do it for, and why customers will pay you to do it. It should include answers to questions such as:
- What is your company name?
- What is your business mission?
- What problem does your company solve?
- How does your product or service solve this problem?
- Who needs a solution to your problem?
- What makes your company’s solution stand out from that offered by competitors?
Answering these questions will help you clarify your company’s identity and position you in the eyes of potential investors and lenders reading your business plan. It will also provide some background for the rest of your business plan.
3. Design and Development Plan
Your design and development section should describe your product or service. It should answer questions such as:
- What do you sell?
- What are the key features of your product or service?
- What is your product lifecycle?
- What are the key benefits?
- What complementary products and services do you sell as upsells or cross-sells?
- Do your products and services require any research and development?
- Do you need any intellectual property protection such as patents or copyrights?
This section will help you clarify the key sales appeal of your product and service line, as well as identify any development that needs to be done to bring your product or service to market.
4. Operations and Management Plan
The operations and management section of your plan lays out how your company is organized. It should address:
- What legal structure does your company use?
- Who are your company’s key personnel, and what expertise do they have?
- Will you need to hire any additional personnel with specialized skills, such as sales, design or software development?
- What is the general workflow of your daily flow of operations?
This section will clarify how you plan to set up and run your company. It will also identify any hiring or outsourcing needs you have, which will be important for estimating your expenses when you do your financial projections.
5. Competitive Analysis
Your competitive analysis section sums up your market research. It should identify who is in your target market and how large your market is. It should also identify your main competitors and how you plan to compete with them to attract your target buyers. This section should answer questions such as:
- How many people buy products and services such as yours?
- How much do they spend?
- Why do they buy?
- Who are your main competitors?
- What does the market want that your competitors aren’t delivering?
- What will you offer that is different than your competitors?
Your competitive analysis will provide a basis for developing your marketing strategy. It will also help you estimate your potential revenue, which will be important for writing the financial section of your business plan.
6. Marketing and Sales Strategy
The marketing strategy section of your plan builds on your market research by identifying the specific strategies and tactics you will use to reach your target market and persuade them to buy from you. It should cover topics such as:
- What marketing channels will you use to reach prospective customers?
- What marketing themes will you use to attract prospects?
- What sales process will you use to turn prospects into buying customers?
- How will you turn customers into repeat buyers?
- What will be the average value of a sale?
- What will be the average lifetime value of a customer?
- How much revenue will you generate?
Answering these questions will help you think through your marketing and sales strategy and plan for the next few years accordingly.
7. Financial Projections
The financial projections section of your plan should estimate your company’s key financials for the next three to five years. It should include:
- Income statements
- Balance sheets
- Cash flow statements
- Break-even analysis
Your statements for your first year should be broken down by quarter or by month. This will give you a clearer idea of how much money you’ll have coming in, how much expenses you’ll need to cover, and how much additional capital you may need.
How Will I Use My Business Plan?
Once you’ve gone through the steps of learning how to write a business plan and put your plan together, you may be wondering if you’ll ever use your plan again. Here are three times to revisit your business plan.
1. Applying for Financing
Most lenders will want to see a business plan when you go to apply for financing. It can be helpful to add a section to your business plan when applying for financing that outlines why you’re looking for a loan, and how you plan to use it. Within your funding needs section, lay out your request for any financing you need to close the gap between your current capital and your projected expenses. It should clearly state:
- How much you need
- What you need it for
- What length of time you need it for
- How you plan to pay it back or otherwise compensate investors
This section is designed both to help you estimate your needs and to help you persuade investors and lenders to support your business plan.
2. Measuring Business Performance
You can also use your business plan as a way to benchmark and track your business performance. For example, use the financial projections and sales strategies you outline within your plan as a benchmark for the year. Review your plan regularly to see if you’re hitting your projections, and adjust accordingly.
3. Setting Business Goals
Your business plan outlines your company’s roadmap to success. Your plan’s executive summary provides a brief overview of your plan. The remaining sections of your plan detail who your company is, what you sell, how your business is organized, how you plan to compete, your marketing and sales strategy, your financial projections and your funding needs. Taking the time to write your business plan will improve your ability to attract funding and increase your company’s odds of financial success.
The best business plans are living, breathing documents that grow and along with your business. They are not a document you write and never look at again. Keep it handy so you can easily measure your success, and adjust it as your business goals change.