Creating a business plan is essential to mapping out your competitors, pricing, product details, and financial goals. In this article, you’ll learn what information to include in your business plan and how to order the information you present.
What is a Business Plan
A business plan is a document that defines an LLC’s goals and how they will be achieved. Think of your business plan as a roadmap that can help you structure, run, and grow a business. It’s a guidance document that lets you think through the key elements of the business and show potential investors and partners why they should work with you. It can also help you demonstrate the credibility of your business when talking with banks about getting a loan.
Why is a Business Plan Important
What makes a business plan important is that it can show how valid your product is within your target market and force you to dissect and analyze the operational and financial aspects. A good business plan can reveal important details of your business goals.
It should help you validate and examine the following:
- Discover weaknesses in your business idea, which allows you to better prepare for any barriers to entry
- Identify business opportunities you may not have considered and come up with a competitive advantage
- Analyze the target market and competition to strengthen your idea to help you get a clear picture of how to position yourself within the market
- Plan strategies for dealing with potential challenges
- Calculate when your business will make a profit and how much money you need to reach that point to help you get prepared with adequate startup capital
- Determine your target market and ways to reach it to help you better tailor your messaging to customers
- Lay out a roadmap and business framework, which will allow for easier monitoring and clarity as your business grows and will help ensure everyone understands their roles in the business and its growth
What are the Different Types of Business Plans
The three most common types of startup business plans are one-page business plans, lean business plans, and external business plans.
A one-page business plan is a concise, single-page summary of your business. It serves as a good tool to introduce the business to outsiders, for example, to potential investors. However, as your business grows, you will need to develop a more elaborate plan.
Lean business plans are management tools used to guide the growth of both startups and well-established businesses. They help business owners think through strategic decisions and measure progress towards their goals. These plans are between 5 - 10 pages long and should be revisited and reviewed at least once a month.
The external business plan is designed to be read by outsiders and provide them with information about a business venture. These full business plans are most used to support a loan application and to convince investors to invest in a business.
There are numerous business plan software solutions available, and it is important to pick which one is best for your industry.
Tip: Google Docs will also suffice for writing out your detailed business plan.
The external business plan format is the most extensive plan, so that will be covered in detail below.
How to Write an External Business Plan: A Step-by-Step Guide
Below are the main elements you need to include in a successful business plan. A business plan should cover the following:
- Your basic business concept
- Your strategy and the specific actions you plan to take to implement it
- Your products and services and their competitive advantages
- The markets you’ll pursue
- The background of your management team and key employees
- Your financing needs
An executive summary should summarize the key points of the report. It should restate the main purpose, highlight the major points, and describe any results, conclusions, or recommendations from the report. It should include enough information so the reader can understand what is discussed in the full report without having to read it.
When you start working on your executive summary, break down the information into the following sections:
Mission statement: This is the “why” of your business. Here you should explain what your business is and its overarching goals. Keep it short - no more than a paragraph.
General company information: This is where you give the facts about your business. Include information such as the state where your business was formed, the name of founders and their roles, contact information, business entity type, number of employees, and any office spaces or locations.
Highlights: Use this section to provide supporting evidence for your business's success. Make sure to include examples (with graphs and charts) of any growth you’ve seen since starting the business, such as financial market highlights or key milestones for the business. If you’re a startup, you might not have any numbers to show here. Instead, give information on your expertise and highlights from your past endeavors, experience, success, failures, as well as lessons learned.
Products and services: This is the “what” of your business. Here, describe what you sell and who your target market is. If you don’t have a product just yet, describe your plans for your product offering. Include solid information about your products or services and why customers will want to purchase yours instead of turning to competitors.
Financial information: If you’re looking for business financing, you’ll want to include your funding goals at the end of your executive summary. This means including current sales, profit, debt, and forecasts. Plus, include any banks or lenders information here as well.
Future plans: Summarize where you're planning on taking your business in the next 5 to 10 years. The more strategic you detail your operational, financial, and product goals the higher the chances you will get the needed funds or partnership support.
Depending on the intended audience reading your business plan, you will need to make some tweaks to the executive summary.
Think of the company overview as a high-level look into the structure of your business and industry. In this section, you have a chance to expand on the executive summary to better explain aspects such as company history, management team, legal structure, location, as well as industry and market.
Include the following information:
Basic company information: Give readers and investors a general sense of your business. Include details such as company name, business structure, and location(s).
Company history: Elaborate on your company’s history such as when it was founded, why, and by whom.
Industry and marketplace of your business: Explain the industry and marketplace of your business. Mention details of how your product fits within the industry and how your product or service meets an unmet need.
Legal structure of your business: Describe what kind of business entity your company is such as an LLC, partnership, or corporation. Provide an overview of your ownership structure as well.
Management team: Give some background information about your management team and their roles such as expertise, job experience, and what they will contribute to the company. Also, if you recognize the need for a missing role, mention how you plan to fill it plus the reason why there is a need.
You should invest significant effort into writing the market analysis section because this part of your business plan will reveal that you’ve done your research and that there is a need for your product or service.
Here’s what to include in your market research:
Industry description: In this part, speak about the industry size, its growth over the years, industry outlook, key trends, and other industry notes and specificities. Also, speak about the key market players and their market position.
Target market characteristics: State who the customers are in your target market as well as their needs and behaviors. These are the questions you should be answering as you give in-depth information on your target market:
- Who is trying to serve those needs?
- Where is this market located?
- What are the key demographics you’re serving?
Target market size and growth: Give as much data about your target market size. Make sure to have figures on the entire potential market, also known as total addressable market (TAM), and the reachable market, also called serviceable addressable market (SAM). Overall, the goal is to give a sense of the projected growth of your market.
Your market share potential: Here describe how much share of the market (SOM) you expect to gain in your targeted geographic area and over what period. The question to answer is whether your market niche and your market share potential can support your business growth.
Market pricing: By doing market research you can give the best estimate of pricing, distribution, and promotional strategies for your product.
Barriers: Be sure to include any barriers to entry you might come across. These can include regulations, changing technology, or high investment risks.
Competitor research: Narrow in on your top competitors. It is best practice to do a SWOT analysis (strengths, weaknesses, opportunities, and threats) for each of your top competitors. This will give you a clear picture of how to prioritize your efforts and translate your ideas into high-impact action items. There are many different SWOT analysis frameworks out there. Recommended ones for you to reference are by Wordstream and Mindtools.
Product life cycle: This should define where you are in the product life cycle and detail your strategies for each life cycle stage. These stages are the following:
- Development: Detail how you plan to create demand and need, as well as the launch strategy for your product.
- Growth: Explain how you plan to expand your market position.
- Maturity: Describe how you plan to overcome market saturation.
- Decline: Outline ideas in your retention or acquisition plan to keep customers, such as new products and more feature innovations.
In the next section, explain who does what in your business and include team members’ relevant backgrounds and what their past experiences bring to the organization.
In this section you'll include the following:
Organizational structure: Include an organizational chart showing how your business is structured. This will illustrate that you know who is managing what aspect of your business.
Ownership structure: Break down who owns which part of the company and how much they own.
Background of owners and Board of Directors: Introduce the team and describe the background and experience of managers, partners, and board members. This is your chance to show potential investors that you’ve surrounded yourself with individuals who can and will make your business a success.
Products and Services
Now is the time to go in-depth on your product and service offering.
Include the following information:
Description of your product or service: Highlight what makes your product or service desirable to the target market. Speak about how your product serves the needs of your customers and how it’s different from the competition. This is all about framing the problem as well as the solution your business is offering. Also, mention the current pricing of your product or services.
Product status: Be candid about where you are in the product launch. Tell the reader if you are in the idea stage or if you have a final product ready to go to market. Don’t forget to state what needs to be accomplished to take your product to the next stage and any obstacles that must be overcome.
Product development research: If your product is still in the ideation or creation phase, describe how you’ll bring it to a finalized product. Explain what research and development need to be done before you go to market. Also, if you have any plans for future products, note them here. Include diagrams showing your development highlights as well as rollout timelines, screenshots, mockups, or prototypes of your product.
Intellectual property: If you have intellectual property that is proprietary to your business and crucial for your success, explain it here. Mention whether you have patents or if you are in the patent application process.
Sourcing and fulfillment: If you rely on other vendors to provide your product or service, be sure to make that clear. Include information about where any inventory or materials are coming from, how you receive them, and how often you need fulfillment.
Marketing and Sales
In this section of the report, you should elaborate on your sales and marketing plans.
Your marketing plan is a blueprint for reaching your customer base. To create an effective marketing plan, you first need to determine your target customer’s pain points. Be as specific as possible because the more you know about the problems and needs of the target customer, the better you can plan to market to them. Ask yourself who your main customers are, what they are looking for, and if you are able to provide it.
Your sales plan will focus on how to meet your financial goals. A good sales plan should present your financial objectives, sales channels, and obstacles to purchase.
Your financial plan needs to create a detailed view of your business’s finances. Use financial data from past performance in this section.
Make sure to include:
Income statement: It is also called a profit and loss statement (P&L). This report shows your income and expenses over a period of time and concludes with a net income. It includes data on operating revenue (this is revenue for primary activities), operating income, operating expenses (such as payroll, rent, insurance), costs of goods sold, and other income and expenses (the ones that are not related to your business operations).
Cash flow statement: This is more complex and tells you where the money goes in your business. It reconciles the balance sheet to the income statement and shows you data such as cash at the end of the period, an increase or decrease in cash, and balance sheet activity.
Balance sheet: This tells you about your assets, liabilities, and equity. It’s called a balance sheet because the amount on the assets side needs to equal the sum of amounts on the liabilities and equity side. A balance sheet is like a snapshot of your current financial situation. It tells you how much you owe your vendors, how much your customers owe you, and how much you have in the bank.
Break-even analysis: This calculates a margin of safety where pricing and revenues can fall. It is a tool to help determine when your company, product, or service will reach profitability.
Accounts receivable statement: These are the customer payments received on credit (if applicable).
Accounts payable statement: These are the company’s obligations to pay off a short-term debt to creditors or suppliers (if applicable).
Documentation of debt obligations: This is a written promise to pay back a loan to a person or institution (if applicable).
Other: The past two years’ financials (if applicable), a 12-month financial projection as well as annual projections through year five, and cash flow projections for the current year
If you’ve just started out and have no previous financial data from your company, you need to include financial projections in this section. To create projections you can use research and analysis on the industry and your top competitors.
The last part of your financial plan should include any funding needs your business has or will have in the future. Here’s what you need to include in a funding request:
- The funding amount you need right now
- How much funding you’ll need in the future
- The purpose, allocation, and impact of the funds, for example, whether you need it for working capital, marketing, or acquiring a business - You should be transparent and specific about how you plan to use the funds.
The appendix should contain all of the supporting information you didn’t include in the main sections of the business plan. This is the place to include all additional charts, footnotes, contracts, legal documents, permits, resumes, and further explanations that are essential to creating a complete plan.
Overall, a business plan is critical to accomplish the following about your product or service:
- Determine where you are now, where you want to take your business, and how to get there
- Identify the resources you need to start and run your business
- Develop clarity and focus on what needs to be done
- Gain insights and understand your industry and market
- Calculate startup costs and what you need to charge to build a profitable business
- Analyze how your product or service is different from the competition and how it benefits your potential client/customer
- Obtain financing from investors, partners, and financial institutions
What’s Next? Get Steps to Form Your LLC
Now that you have your business plan the next step is to make it legal. Forming an LLC is the least complex business structure that has many advantages, but it is not for everyone. Follow this guide on forming an LLC to help you decide if an LLC is the right choice for your startup.