How to Write a Business Plan

Whether you want to launch a startup, seek capital to expand your enterprise, or borrow funds to purchase an existing business, you’ll need a business plan. This summary of your objectives – and the strategies you’ll use to implement them – is what prospective investors, business partners, and lenders use to determine if your business is worth the risk, so you’ll want to put time and energy into writing a great one. 

In fact, writing a business plan can help you understand your values and goals as a business owner and have a better idea of how to operate your business. Thus, it is a valuable exercise even if you don’t need outside funding.

Read on to learn the basics you need.

Business Plan 101

Business plans are designed to accomplish several things:

• Provide prospective lenders and partners with detailed financial information.
• Explain the organization and daily operations of your business.
• Make financial growth projections.
• Show how your product or service fits into the market share.
• Demonstrate your business ethos, including vision, branding, and mission.

There are two main business plan formats, traditional and lean startup. Each with a different method of conveying information to investors and other interested parties.

Traditional business plans containing detailed elements like business structure and financial projections require scrupulous research and might be dozens of pages long. A traditional business plan is presented in titled sections and tells the fact-based story of how your company is positioned for growth.

Lean startup business plans, on the other hand, are shorter and more aspirational. Named after Eric Ries’s best-selling book, The Lean Startup, they focus on revealing the most important information about your business at a glance, ideally on a single page. They aim to showcase a company’s vision rather than use data to prove its viability. The underlying assumption is that startups can quickly pivot and are better served by not investing much energy in commitments that may only be discarded once the founders determine a better way forward. 

For a small businessperson, either format can be useful, especially if your primary purpose in writing one is to identify how goals square with values and determine organizational structures – i.e., you are using the business plan as a personal guideline to move forward. 

However, if you use the lean startup business plan format to attract investors, be aware that you will most likely be asked to provide additional financial information.

Traditional Business Plan Format

According to the Small Business Administration (SBA), traditional business plans contain some combination of the following nine categories. As a small businessperson, you don’t need to include each category; it’s okay to pick and choose as you put your plan together.

Executive Summary

An executive summary is a brief and concise overview of your business plan. In this section, you want to summarize the plan's key points and provide readers with an understanding of the main objectives, conclusions, and recommendations. Executive summaries are crucial for decision-makers who need to quickly grasp the essential details of a complex report or proposal without reading the entire document. They help busy executives and stakeholders save time and make informed decisions based on the critical information presented in the summary. 

Often, busy investors won't read beyond the executive summary unless they are intrigued and believe the business model has merit. For this reason, a well-written executive summary should be clear, concise, and focused on essential points. An executive summary should be easy to understand, even for readers who are not experts in the subject matter. It should also be compelling and engaging, highlighting your business's mission and vision before introducing:

• The leadership structure
• The problem your business solves or the gap it fills
• The target market for the product or service
• The most significant benefits, risks, and opportunities associated with your business

Company Description

This is where you will provide detailed information about your company’s unique strengths. What problems does your product or service alleviate? Who is your customer base? What are the competitive advantages that will make your business successful?

Market Analysis

Market analysis is different from market research. The latter is where you discover how prospective consumers feel about your branded products or services. In this section, you want to dive into your industry as a whole and use competitive research to show that you understand current themes and trends and how your company plans to capture the market share. 

Organization and Management

In this section, you explain how your business will be structured, including the hierarchy of leadership and the legal structure. Will you incorporate? Are you a nonprofit, sole proprietor, or LLC? An organizational chart can help prospective lenders see who the principal players are and what unique experiences and talents they bring to your business.

Service or Product Line

Here’s where you discuss what you’re selling in detail, including why it benefits customers. If your product is in the research and development stage, describe that process. This section will also show how you plan to handle intellectual property, such as patents and trademarks.

Marketing and Sales

The purpose of this section is to explain both how you intend to attract customers and, once you have their attention, how to retain them. You’ll also explain the exact process by which customers can purchase your service or product. This will be more straightforward if you sell wooden spoons at the local farmer’s market than if you sell subscriptions to an online professional community.

Funding Request

Use this section to outline your funding requirements over the next five years. You will state exactly how much money you need and the terms under which you’d like to acquire the funds. Be specific about what you intend to use the money for – salaries, temporary cash flow, to purchase equipment or materials. You’ll also want to outline future strategic financial plans – for instance, your timeline to pay off debt.

Financial Projections

This final section will convince would-be investors that your business is stable now and will be a financial success in the future. Thus, if you are purchasing or expanding an established business, you should include balance sheets, income statements, and cash flow statements going back three to five years. You also want to describe any collateral you can put up against a loan. 

The main purpose of this section, however, is to provide a projection of the financial outlook for your business for the next five years. Graphs and charts are an effective way of representing this information. You should also include forecasted balance sheets, cash flow statements, income statements, and capital expenditure budgets. It’s important to make sure you understand these projections so that you can explain them to investors.

Appendix

The title may sound daunting, but the appendix is simply where you put documents that corroborate statements made earlier in the business plan. For instance, if you mentioned holding patents, they should be included in this section. In the appendix, you would also put documents requested explicitly by would-be investors.

Lean Startup Business Plan Format

While you can find many lean business plan templates online, the overarching goal is to provide a succinct way of organizing the most important information about your business. Remember, this type of business plan is only one page long!

Lean startup business plans seek to answer some of the following questions:

• Who are your competitors?
• What unique proposition do you bring to the market share? (How will you solve problems better than your competitors?)
• Who is your management team?
• What are your key business expenses?
• How will you market your product or service to customers?
• What is your pricing structure?
• Will you need to rely on other organizations to survive as a business?

This format is less formulaic than traditional business plans. However, the SBA recommends addressing the following nine areas when you draft your lean startup plan:

Key Partnerships - Will you work with suppliers, subcontractors, or software solution companies?

Key Activities - How will your business compete within the market share?

Key Resources - Does your staff have special talents or a proven reputation? Can you tap into unique business resources, like those available to veterans and women? Do you have access to intellectual property?

Value Proposition - What unique value does your business bring? (What problem does it solve better than competitors?)

Customer Relationships - How do customers interact with your business from start to finish (do they receive personalized service or click some buttons online)?

Customer Segments - Who is your product or service targeted for?

Channels - How do you plan to communicate with customers?

Cost Structure - Strategically speaking, will your business focus on cost reduction or maximizing value? 

Revenue Streams - How do you plan to make money? For instance, are you selling subscriptions to a service or selling directly to your customers from a storefront? 

Because lean startup business plans are, well, lean, it’s a good idea to look over several examples for inspiration before you get started writing yours. You’ll also want some people to read your completed draft to make sure that you are addressing important points and representing your business effectively.  

Key Takeaways

Drafting a business plan – even if you don’t need to present one to investors – is an important way to learn about your priorities, strengths, and values as a business owner. 

Traditional business plans require research and documentation. If you are requesting funds, you should include financial projections for the next five years of your business’s operation.

A small or startup business may not need a detailed business plan. A one-page, or “lean startup” plan, may be enough. Be aware that if you submit a lean startup format to prospective lenders, they will likely ask for additional details.