how to make chapter 3 in business plan

How to Write a Business Plan: Step-by-Step Guide + Examples

Noah Parsons

24 min. read

Updated April 17, 2024

Writing a business plan doesn’t have to be complicated. 

In this step-by-step guide, you’ll learn how to write a business plan that’s detailed enough to impress bankers and potential investors, while giving you the tools to start, run, and grow a successful business.

• The basics of business planning

If you’re reading this guide, then you already know why you need a business plan . 

You understand that planning helps you: 

• Raise money
• Grow strategically
• Keep your business on the right track 

As you start to write your plan, it’s useful to zoom out and remember what a business plan is .

At its core, a business plan is an overview of the products and services you sell, and the customers that you sell to. It explains your business strategy: how you’re going to build and grow your business, what your marketing strategy is, and who your competitors are.

Most business plans also include financial forecasts for the future. These set sales goals, budget for expenses, and predict profits and cash flow. 

A good business plan is much more than just a document that you write once and forget about. It’s also a guide that helps you outline and achieve your goals. 

After completing your plan, you can use it as a management tool to track your progress toward your goals. Updating and adjusting your forecasts and budgets as you go is one of the most important steps you can take to run a healthier, smarter business. 

We’ll dive into how to use your plan later in this article.

There are many different types of plans , but we’ll go over the most common type here, which includes everything you need for an investor-ready plan. However, if you’re just starting out and are looking for something simpler—I recommend starting with a one-page business plan . It’s faster and easier to create. 

It’s also the perfect place to start if you’re just figuring out your idea, or need a simple strategic plan to use inside your business.

Dig deeper : How to write a one-page business plan

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• What to include in your business plan

Executive summary

The executive summary is an overview of your business and your plans. It comes first in your plan and is ideally just one to two pages. Most people write it last because it’s a summary of the complete business plan.

Ideally, the executive summary can act as a stand-alone document that covers the highlights of your detailed plan. 

In fact, it’s common for investors to ask only for the executive summary when evaluating your business. If they like what they see in the executive summary, they’ll often follow up with a request for a complete plan, a pitch presentation , or more in-depth financial forecasts .

Your executive summary should include:

• A summary of the problem you are solving
• A description of your product or service
• An overview of your target market
• A brief description of your team
• A summary of your financials
• Your funding requirements (if you are raising money)

Dig Deeper: How to write an effective executive summary

Products and services description

This is where you describe exactly what you’re selling, and how it solves a problem for your target market. The best way to organize this part of your plan is to start by describing the problem that exists for your customers. After that, you can describe how you plan to solve that problem with your product or service. 

This is usually called a problem and solution statement .

To truly showcase the value of your products and services, you need to craft a compelling narrative around your offerings. How will your product or service transform your customers’ lives or jobs? A strong narrative will draw in your readers.

This is also the part of the business plan to discuss any competitive advantages you may have, like specific intellectual property or patents that protect your product. If you have any initial sales, contracts, or other evidence that your product or service is likely to sell, include that information as well. It will show that your idea has traction , which can help convince readers that your plan has a high chance of success.

Market analysis

Your target market is a description of the type of people that you plan to sell to. You might even have multiple target markets, depending on your business. 

A market analysis is the part of your plan where you bring together all of the information you know about your target market. Basically, it’s a thorough description of who your customers are and why they need what you’re selling. You’ll also include information about the growth of your market and your industry .

Try to be as specific as possible when you describe your market. 

Include information such as age, income level, and location—these are what’s called “demographics.” If you can, also describe your market’s interests and habits as they relate to your business—these are “psychographics.” 

Related: Target market examples

Essentially, you want to include any knowledge you have about your customers that is relevant to how your product or service is right for them. With a solid target market, it will be easier to create a sales and marketing plan that will reach your customers. That’s because you know who they are, what they like to do, and the best ways to reach them.

Next, provide any additional information you have about your market. 

What is the size of your market ? Is the market growing or shrinking? Ideally, you’ll want to demonstrate that your market is growing over time, and also explain how your business is positioned to take advantage of any expected changes in your industry.

Dig Deeper: Learn how to write a market analysis

Competitive analysis

Part of defining your business opportunity is determining what your competitive advantage is. To do this effectively, you need to know as much about your competitors as your target customers. 

Every business has some form of competition. If you don’t think you have competitors, then explore what alternatives there are in the market for your product or service. 

For example: In the early years of cars, their main competition was horses. For social media, the early competition was reading books, watching TV, and talking on the phone.

A good competitive analysis fully lays out the competitive landscape and then explains how your business is different. Maybe your products are better made, or cheaper, or your customer service is superior. Maybe your competitive advantage is your location – a wide variety of factors can ultimately give you an advantage.

Dig Deeper: How to write a competitive analysis for your business plan

Marketing and sales plan

The marketing and sales plan covers how you will position your product or service in the market, the marketing channels and messaging you will use, and your sales tactics. 

The best place to start with a marketing plan is with a positioning statement . 

This explains how your business fits into the overall market, and how you will explain the advantages of your product or service to customers. You’ll use the information from your competitive analysis to help you with your positioning. 

For example: You might position your company as the premium, most expensive but the highest quality option in the market. Or your positioning might focus on being locally owned and that shoppers support the local economy by buying your products.

Once you understand your positioning, you’ll bring this together with the information about your target market to create your marketing strategy . 

This is how you plan to communicate your message to potential customers. Depending on who your customers are and how they purchase products like yours, you might use many different strategies, from social media advertising to creating a podcast. Your marketing plan is all about how your customers discover who you are and why they should consider your products and services. 

While your marketing plan is about reaching your customers—your sales plan will describe the actual sales process once a customer has decided that they’re interested in what you have to offer. 

If your business requires salespeople and a long sales process, describe that in this section. If your customers can “self-serve” and just make purchases quickly on your website, describe that process. 

A good sales plan picks up where your marketing plan leaves off. The marketing plan brings customers in the door and the sales plan is how you close the deal.

Together, these specific plans paint a picture of how you will connect with your target audience, and how you will turn them into paying customers.

Dig deeper: What to include in your sales and marketing plan

Business operations

The operations section describes the necessary requirements for your business to run smoothly. It’s where you talk about how your business works and what day-to-day operations look like. 

Depending on how your business is structured, your operations plan may include elements of the business like:

• Supply chain management
• Manufacturing processes
• Equipment and technology
• Distribution

Some businesses distribute their products and reach their customers through large retailers like Amazon.com, Walmart, Target, and grocery store chains. 

These businesses should review how this part of their business works. The plan should discuss the logistics and costs of getting products onto store shelves and any potential hurdles the business may have to overcome.

If your business is much simpler than this, that’s OK. This section of your business plan can be either extremely short or more detailed, depending on the type of business you are building.

For businesses selling services, such as physical therapy or online software, you can use this section to describe the technology you’ll leverage, what goes into your service, and who you will partner with to deliver your services.

Dig Deeper: Learn how to write the operations chapter of your plan

Key milestones and metrics

Although it’s not required to complete your business plan, mapping out key business milestones and the metrics can be incredibly useful for measuring your success.

Good milestones clearly lay out the parameters of the task and set expectations for their execution. You’ll want to include:

• A description of each task
• The proposed due date
• Who is responsible for each task

If you have a budget, you can include projected costs to hit each milestone. You don’t need extensive project planning in this section—just list key milestones you want to hit and when you plan to hit them. This is your overall business roadmap. 

Possible milestones might be:

• Website launch date
• Store or office opening date
• First significant sales
• Break even date
• Business licenses and approvals

You should also discuss the key numbers you will track to determine your success. Some common metrics worth tracking include:

• Conversion rates
• Customer acquisition costs
• Profit per customer
• Repeat purchases

It’s perfectly fine to start with just a few metrics and grow the number you are tracking over time. You also may find that some metrics simply aren’t relevant to your business and can narrow down what you’re tracking.

Dig Deeper: How to use milestones in your business plan

Organization and management team

Investors don’t just look for great ideas—they want to find great teams. Use this chapter to describe your current team and who you need to hire . You should also provide a quick overview of your location and history if you’re already up and running.

Briefly highlight the relevant experiences of each key team member in the company. It’s important to make the case for why yours is the right team to turn an idea into a reality. 

Do they have the right industry experience and background? Have members of the team had entrepreneurial successes before? 

If you still need to hire key team members, that’s OK. Just note those gaps in this section.

Your company overview should also include a summary of your company’s current business structure . The most common business structures include:

• Sole proprietor
• Partnership

Be sure to provide an overview of how the business is owned as well. Does each business partner own an equal portion of the business? How is ownership divided? 

Potential lenders and investors will want to know the structure of the business before they will consider a loan or investment.

Dig Deeper: How to write about your company structure and team

Financial plan

Last, but certainly not least, is your financial plan chapter. 

Entrepreneurs often find this section the most daunting. But, business financials for most startups are less complicated than you think, and a business degree is certainly not required to build a solid financial forecast. 

A typical financial forecast in a business plan includes the following:

• Sales forecast : An estimate of the sales expected over a given period. You’ll break down your forecast into the key revenue streams that you expect to have.
• Expense budget : Your planned spending such as personnel costs , marketing expenses, and taxes.
• Profit & Loss : Brings together your sales and expenses and helps you calculate planned profits.
• Cash Flow : Shows how cash moves into and out of your business. It can predict how much cash you’ll have on hand at any given point in the future.
• Balance Sheet : A list of the assets, liabilities, and equity in your company. In short, it provides an overview of the financial health of your business. 

A strong business plan will include a description of assumptions about the future, and potential risks that could impact the financial plan. Including those will be especially important if you’re writing a business plan to pursue a loan or other investment.

Dig Deeper: How to create financial forecasts and budgets

This is the place for additional data, charts, or other information that supports your plan.

Including an appendix can significantly enhance the credibility of your plan by showing readers that you’ve thoroughly considered the details of your business idea, and are backing your ideas up with solid data.

Just remember that the information in the appendix is meant to be supplementary. Your business plan should stand on its own, even if the reader skips this section.

Dig Deeper : What to include in your business plan appendix

Optional: Business plan cover page

Adding a business plan cover page can make your plan, and by extension your business, seem more professional in the eyes of potential investors, lenders, and partners. It serves as the introduction to your document and provides necessary contact information for stakeholders to reference.

Your cover page should be simple and include:

• Company logo
• Business name
• Value proposition (optional)
• Business plan title
• Completion and/or update date
• Address and contact information
• Confidentiality statement

Just remember, the cover page is optional. If you decide to include it, keep it very simple and only spend a short amount of time putting it together.

Dig Deeper: How to create a business plan cover page

How to use AI to help write your business plan

Generative AI tools such as ChatGPT can speed up the business plan writing process and help you think through concepts like market segmentation and competition. These tools are especially useful for taking ideas that you provide and converting them into polished text for your business plan.

The best way to use AI for your business plan is to leverage it as a collaborator , not a replacement for human creative thinking and ingenuity. 

AI can come up with lots of ideas and act as a brainstorming partner. It’s up to you to filter through those ideas and figure out which ones are realistic enough to resonate with your customers. 

There are pros and cons of using AI to help with your business plan . So, spend some time understanding how it can be most helpful before just outsourcing the job to AI.

Learn more: 10 AI prompts you need to write a business plan

• Writing tips and strategies

To help streamline the business plan writing process, here are a few tips and key questions to answer to make sure you get the most out of your plan and avoid common mistakes .  

Determine why you are writing a business plan

Knowing why you are writing a business plan will determine your approach to your planning project. 

For example: If you are writing a business plan for yourself, or just to use inside your own business , you can probably skip the section about your team and organizational structure. 

If you’re raising money, you’ll want to spend more time explaining why you’re looking to raise the funds and exactly how you will use them.

Regardless of how you intend to use your business plan , think about why you are writing and what you’re trying to get out of the process before you begin.

Keep things concise

Probably the most important tip is to keep your business plan short and simple. There are no prizes for long business plans . The longer your plan is, the less likely people are to read it. 

So focus on trimming things down to the essentials your readers need to know. Skip the extended, wordy descriptions and instead focus on creating a plan that is easy to read —using bullets and short sentences whenever possible.

Have someone review your business plan

Writing a business plan in a vacuum is never a good idea. Sometimes it’s helpful to zoom out and check if your plan makes sense to someone else. You also want to make sure that it’s easy to read and understand.

Don’t wait until your plan is “done” to get a second look. Start sharing your plan early, and find out from readers what questions your plan leaves unanswered. This early review cycle will help you spot shortcomings in your plan and address them quickly, rather than finding out about them right before you present your plan to a lender or investor.

If you need a more detailed review, you may want to explore hiring a professional plan writer to thoroughly examine it.

Use a free business plan template and business plan examples to get started

Knowing what information to include in a business plan is sometimes not quite enough. If you’re struggling to get started or need additional guidance, it may be worth using a business plan template. 

There are plenty of great options available (we’ve rounded up our 8 favorites to streamline your search).

But, if you’re looking for a free downloadable business plan template , you can get one right now; download the template used by more than 1 million businesses. 

Or, if you just want to see what a completed business plan looks like, check out our library of over 550 free business plan examples . 

We even have a growing list of industry business planning guides with tips for what to focus on depending on your business type.

Common pitfalls and how to avoid them

It’s easy to make mistakes when you’re writing your business plan. Some entrepreneurs get sucked into the writing and research process, and don’t focus enough on actually getting their business started. 

Here are a few common mistakes and how to avoid them:

Not talking to your customers : This is one of the most common mistakes. It’s easy to assume that your product or service is something that people want. Before you invest too much in your business and too much in the planning process, make sure you talk to your prospective customers and have a good understanding of their needs.

• Overly optimistic sales and profit forecasts: By nature, entrepreneurs are optimistic about the future. But it’s good to temper that optimism a little when you’re planning, and make sure your forecasts are grounded in reality. 
• Spending too much time planning: Yes, planning is crucial. But you also need to get out and talk to customers, build prototypes of your product and figure out if there’s a market for your idea. Make sure to balance planning with building.
• Not revising the plan: Planning is useful, but nothing ever goes exactly as planned. As you learn more about what’s working and what’s not—revise your plan, your budgets, and your revenue forecast. Doing so will provide a more realistic picture of where your business is going, and what your financial needs will be moving forward.
• Not using the plan to manage your business: A good business plan is a management tool. Don’t just write it and put it on the shelf to collect dust – use it to track your progress and help you reach your goals.
• Presenting your business plan

The planning process forces you to think through every aspect of your business and answer questions that you may not have thought of. That’s the real benefit of writing a business plan – the knowledge you gain about your business that you may not have been able to discover otherwise.

With all of this knowledge, you’re well prepared to convert your business plan into a pitch presentation to present your ideas. 

A pitch presentation is a summary of your plan, just hitting the highlights and key points. It’s the best way to present your business plan to investors and team members.

Dig Deeper: Learn what key slides should be included in your pitch deck

Use your business plan to manage your business

One of the biggest benefits of planning is that it gives you a tool to manage your business better. With a revenue forecast, expense budget, and projected cash flow, you know your targets and where you are headed.

And yet, nothing ever goes exactly as planned – it’s the nature of business.

That’s where using your plan as a management tool comes in. The key to leveraging it for your business is to review it periodically and compare your forecasts and projections to your actual results.

Start by setting up a regular time to review the plan – a monthly review is a good starting point. During this review, answer questions like:

• Did you meet your sales goals?
• Is spending following your budget?
• Has anything gone differently than what you expected?

Now that you see whether you’re meeting your goals or are off track, you can make adjustments and set new targets. 

Maybe you’re exceeding your sales goals and should set new, more aggressive goals. In that case, maybe you should also explore more spending or hiring more employees. 

Or maybe expenses are rising faster than you projected. If that’s the case, you would need to look at where you can cut costs.

A plan, and a method for comparing your plan to your actual results , is the tool you need to steer your business toward success.

Learn More: How to run a regular plan review

Free business plan templates and examples

Kickstart your business plan writing with one of our free business plan templates or recommended tools.

Free business plan template

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How to write a business plan FAQ

What is a business plan?

A document that describes your business , the products and services you sell, and the customers that you sell to. It explains your business strategy, how you’re going to build and grow your business, what your marketing strategy is, and who your competitors are.

What are the benefits of a business plan?

A business plan helps you understand where you want to go with your business and what it will take to get there. It reduces your overall risk, helps you uncover your business’s potential, attracts investors, and identifies areas for growth.

Having a business plan ultimately makes you more confident as a business owner and more likely to succeed for a longer period of time.

What are the 7 steps of a business plan?

The seven steps to writing a business plan include:

• Write a brief executive summary
• Describe your products and services.
• Conduct market research and compile data into a cohesive market analysis.
• Describe your marketing and sales strategy.
• Outline your organizational structure and management team.
• Develop financial projections for sales, revenue, and cash flow.
• Add any additional documents to your appendix.

What are the 5 most common business plan mistakes?

There are plenty of mistakes that can be made when writing a business plan. However, these are the 5 most common that you should do your best to avoid:

• 1. Not taking the planning process seriously.
• Having unrealistic financial projections or incomplete financial information.
• Inconsistent information or simple mistakes.
• Failing to establish a sound business model.
• Not having a defined purpose for your business plan.

What questions should be answered in a business plan?

Writing a business plan is all about asking yourself questions about your business and being able to answer them through the planning process. You’ll likely be asking dozens and dozens of questions for each section of your plan.

However, these are the key questions you should ask and answer with your business plan:

• How will your business make money?
• Is there a need for your product or service?
• Who are your customers?
• How are you different from the competition?
• How will you reach your customers?
• How will you measure success?

How long should a business plan be?

The length of your business plan fully depends on what you intend to do with it. From the SBA and traditional lender point of view, a business plan needs to be whatever length necessary to fully explain your business. This means that you prove the viability of your business, show that you understand the market, and have a detailed strategy in place.

If you intend to use your business plan for internal management purposes, you don’t necessarily need a full 25-50 page business plan. Instead, you can start with a one-page plan to get all of the necessary information in place.

What are the different types of business plans?

While all business plans cover similar categories, the style and function fully depend on how you intend to use your plan. Here are a few common business plan types worth considering.

Traditional business plan: The tried-and-true traditional business plan is a formal document meant to be used when applying for funding or pitching to investors. This type of business plan follows the outline above and can be anywhere from 10-50 pages depending on the amount of detail included, the complexity of your business, and what you include in your appendix.

Business model canvas: The business model canvas is a one-page template designed to demystify the business planning process. It removes the need for a traditional, copy-heavy business plan, in favor of a single-page outline that can help you and outside parties better explore your business idea.

One-page business plan: This format is a simplified version of the traditional plan that focuses on the core aspects of your business. You’ll typically stick with bullet points and single sentences. It’s most useful for those exploring ideas, needing to validate their business model, or who need an internal plan to help them run and manage their business.

Lean Plan: The Lean Plan is less of a specific document type and more of a methodology. It takes the simplicity and styling of the one-page business plan and turns it into a process for you to continuously plan, test, review, refine, and take action based on performance. It’s faster, keeps your plan concise, and ensures that your plan is always up-to-date.

What’s the difference between a business plan and a strategic plan?

A business plan covers the “who” and “what” of your business. It explains what your business is doing right now and how it functions. The strategic plan explores long-term goals and explains “how” the business will get there. It encourages you to look more intently toward the future and how you will achieve your vision.

However, when approached correctly, your business plan can actually function as a strategic plan as well. If kept lean, you can define your business, outline strategic steps, and track ongoing operations all with a single plan.

See why 1.2 million entrepreneurs have written their business plans with LivePlan

Noah is the COO at Palo Alto Software, makers of the online business plan app LivePlan. He started his career at Yahoo! and then helped start the user review site Epinions.com. From there he started a software distribution business in the UK before coming to Palo Alto Software to run the marketing and product teams.

Table of Contents

• Use AI to help write your plan
• Common planning mistakes
• Manage with your business plan
• Templates and examples

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11.4 The Business Plan

Learning objectives.

By the end of this section, you will be able to:

• Describe the different purposes of a business plan
• Describe and develop the components of a brief business plan
• Describe and develop the components of a full business plan

Unlike the brief or lean formats introduced so far, the business plan is a formal document used for the long-range planning of a company’s operation. It typically includes background information, financial information, and a summary of the business. Investors nearly always request a formal business plan because it is an integral part of their evaluation of whether to invest in a company. Although nothing in business is permanent, a business plan typically has components that are more “set in stone” than a business model canvas , which is more commonly used as a first step in the planning process and throughout the early stages of a nascent business. A business plan is likely to describe the business and industry, market strategies, sales potential, and competitive analysis, as well as the company’s long-term goals and objectives. An in-depth formal business plan would follow at later stages after various iterations to business model canvases. The business plan usually projects financial data over a three-year period and is typically required by banks or other investors to secure funding. The business plan is a roadmap for the company to follow over multiple years.

Some entrepreneurs prefer to use the canvas process instead of the business plan, whereas others use a shorter version of the business plan, submitting it to investors after several iterations. There are also entrepreneurs who use the business plan earlier in the entrepreneurial process, either preceding or concurrently with a canvas. For instance, Chris Guillebeau has a one-page business plan template in his book The $100 Startup . 48 His version is basically an extension of a napkin sketch without the detail of a full business plan. As you progress, you can also consider a brief business plan (about two pages)—if you want to support a rapid business launch—and/or a standard business plan.

As with many aspects of entrepreneurship, there are no clear hard and fast rules to achieving entrepreneurial success. You may encounter different people who want different things (canvas, summary, full business plan), and you also have flexibility in following whatever tool works best for you. Like the canvas, the various versions of the business plan are tools that will aid you in your entrepreneurial endeavor.

Business Plan Overview

Most business plans have several distinct sections ( Figure 11.16 ). The business plan can range from a few pages to twenty-five pages or more, depending on the purpose and the intended audience. For our discussion, we’ll describe a brief business plan and a standard business plan. If you are able to successfully design a business model canvas, then you will have the structure for developing a clear business plan that you can submit for financial consideration.

Both types of business plans aim at providing a picture and roadmap to follow from conception to creation. If you opt for the brief business plan, you will focus primarily on articulating a big-picture overview of your business concept.

The full business plan is aimed at executing the vision concept, dealing with the proverbial devil in the details. Developing a full business plan will assist those of you who need a more detailed and structured roadmap, or those of you with little to no background in business. The business planning process includes the business model, a feasibility analysis, and a full business plan, which we will discuss later in this section. Next, we explore how a business plan can meet several different needs.

Purposes of a Business Plan

A business plan can serve many different purposes—some internal, others external. As we discussed previously, you can use a business plan as an internal early planning device, an extension of a napkin sketch, and as a follow-up to one of the canvas tools. A business plan can be an organizational roadmap , that is, an internal planning tool and working plan that you can apply to your business in order to reach your desired goals over the course of several years. The business plan should be written by the owners of the venture, since it forces a firsthand examination of the business operations and allows them to focus on areas that need improvement.

Refer to the business venture throughout the document. Generally speaking, a business plan should not be written in the first person.

A major external purpose for the business plan is as an investment tool that outlines financial projections, becoming a document designed to attract investors. In many instances, a business plan can complement a formal investor’s pitch. In this context, the business plan is a presentation plan, intended for an outside audience that may or may not be familiar with your industry, your business, and your competitors.

You can also use your business plan as a contingency plan by outlining some “what-if” scenarios and exploring how you might respond if these scenarios unfold. Pretty Young Professional launched in November 2010 as an online resource to guide an emerging generation of female leaders. The site focused on recent female college graduates and current students searching for professional roles and those in their first professional roles. It was founded by four friends who were coworkers at the global consultancy firm McKinsey. But after positions and equity were decided among them, fundamental differences of opinion about the direction of the business emerged between two factions, according to the cofounder and former CEO Kathryn Minshew . “I think, naively, we assumed that if we kicked the can down the road on some of those things, we’d be able to sort them out,” Minshew said. Minshew went on to found a different professional site, The Muse , and took much of the editorial team of Pretty Young Professional with her. 49 Whereas greater planning potentially could have prevented the early demise of Pretty Young Professional, a change in planning led to overnight success for Joshua Esnard and The Cut Buddy team. Esnard invented and patented the plastic hair template that he was selling online out of his Fort Lauderdale garage while working a full-time job at Broward College and running a side business. Esnard had hundreds of boxes of Cut Buddies sitting in his home when he changed his marketing plan to enlist companies specializing in making videos go viral. It worked so well that a promotional video for the product garnered 8 million views in hours. The Cut Buddy sold over 4,000 products in a few hours when Esnard only had hundreds remaining. Demand greatly exceeded his supply, so Esnard had to scramble to increase manufacturing and offered customers two-for-one deals to make up for delays. This led to selling 55,000 units, generating $700,000 in sales in 2017. 50 After appearing on Shark Tank and landing a deal with Daymond John that gave the “shark” a 20-percent equity stake in return for $300,000, The Cut Buddy has added new distribution channels to include retail sales along with online commerce. Changing one aspect of a business plan—the marketing plan—yielded success for The Cut Buddy.

Link to Learning

Watch this video of Cut Buddy’s founder, Joshua Esnard, telling his company’s story to learn more.

If you opt for the brief business plan, you will focus primarily on articulating a big-picture overview of your business concept. This version is used to interest potential investors, employees, and other stakeholders, and will include a financial summary “box,” but it must have a disclaimer, and the founder/entrepreneur may need to have the people who receive it sign a nondisclosure agreement (NDA) . The full business plan is aimed at executing the vision concept, providing supporting details, and would be required by financial institutions and others as they formally become stakeholders in the venture. Both are aimed at providing a picture and roadmap to go from conception to creation.

Types of Business Plans

The brief business plan is similar to an extended executive summary from the full business plan. This concise document provides a broad overview of your entrepreneurial concept, your team members, how and why you will execute on your plans, and why you are the ones to do so. You can think of a brief business plan as a scene setter or—since we began this chapter with a film reference—as a trailer to the full movie. The brief business plan is the commercial equivalent to a trailer for Field of Dreams , whereas the full plan is the full-length movie equivalent.

Brief Business Plan or Executive Summary

As the name implies, the brief business plan or executive summary summarizes key elements of the entire business plan, such as the business concept, financial features, and current business position. The executive summary version of the business plan is your opportunity to broadly articulate the overall concept and vision of the company for yourself, for prospective investors, and for current and future employees.

A typical executive summary is generally no longer than a page, but because the brief business plan is essentially an extended executive summary, the executive summary section is vital. This is the “ask” to an investor. You should begin by clearly stating what you are asking for in the summary.

In the business concept phase, you’ll describe the business, its product, and its markets. Describe the customer segment it serves and why your company will hold a competitive advantage. This section may align roughly with the customer segments and value-proposition segments of a canvas.

Next, highlight the important financial features, including sales, profits, cash flows, and return on investment. Like the financial portion of a feasibility analysis, the financial analysis component of a business plan may typically include items like a twelve-month profit and loss projection, a three- or four-year profit and loss projection, a cash-flow projection, a projected balance sheet, and a breakeven calculation. You can explore a feasibility study and financial projections in more depth in the formal business plan. Here, you want to focus on the big picture of your numbers and what they mean.

The current business position section can furnish relevant information about you and your team members and the company at large. This is your opportunity to tell the story of how you formed the company, to describe its legal status (form of operation), and to list the principal players. In one part of the extended executive summary, you can cover your reasons for starting the business: Here is an opportunity to clearly define the needs you think you can meet and perhaps get into the pains and gains of customers. You also can provide a summary of the overall strategic direction in which you intend to take the company. Describe the company’s mission, vision, goals and objectives, overall business model, and value proposition.

Rice University’s Student Business Plan Competition, one of the largest and overall best-regarded graduate school business-plan competitions (see Telling Your Entrepreneurial Story and Pitching the Idea ), requires an executive summary of up to five pages to apply. 51 , 52 Its suggested sections are shown in Table 11.2 .

Are You Ready?

Create a brief business plan.

Fill out a canvas of your choosing for a well-known startup: Uber, Netflix, Dropbox, Etsy, Airbnb, Bird/Lime, Warby Parker, or any of the companies featured throughout this chapter or one of your choice. Then create a brief business plan for that business. See if you can find a version of the company’s actual executive summary, business plan, or canvas. Compare and contrast your vision with what the company has articulated.

• These companies are well established but is there a component of what you charted that you would advise the company to change to ensure future viability?
• Map out a contingency plan for a “what-if” scenario if one key aspect of the company or the environment it operates in were drastically is altered?

Full Business Plan

Even full business plans can vary in length, scale, and scope. Rice University sets a ten-page cap on business plans submitted for the full competition. The IndUS Entrepreneurs , one of the largest global networks of entrepreneurs, also holds business plan competitions for students through its Tie Young Entrepreneurs program. In contrast, business plans submitted for that competition can usually be up to twenty-five pages. These are just two examples. Some components may differ slightly; common elements are typically found in a formal business plan outline. The next section will provide sample components of a full business plan for a fictional business.

Executive Summary

The executive summary should provide an overview of your business with key points and issues. Because the summary is intended to summarize the entire document, it is most helpful to write this section last, even though it comes first in sequence. The writing in this section should be especially concise. Readers should be able to understand your needs and capabilities at first glance. The section should tell the reader what you want and your “ask” should be explicitly stated in the summary.

Describe your business, its product or service, and the intended customers. Explain what will be sold, who it will be sold to, and what competitive advantages the business has. Table 11.3 shows a sample executive summary for the fictional company La Vida Lola.

Business Description

This section describes the industry, your product, and the business and success factors. It should provide a current outlook as well as future trends and developments. You also should address your company’s mission, vision, goals, and objectives. Summarize your overall strategic direction, your reasons for starting the business, a description of your products and services, your business model, and your company’s value proposition. Consider including the Standard Industrial Classification/North American Industry Classification System (SIC/NAICS) code to specify the industry and insure correct identification. The industry extends beyond where the business is located and operates, and should include national and global dynamics. Table 11.4 shows a sample business description for La Vida Lola.

Industry Analysis and Market Strategies

Here you should define your market in terms of size, structure, growth prospects, trends, and sales potential. You’ll want to include your TAM and forecast the SAM . (Both these terms are discussed in Conducting a Feasibility Analysis .) This is a place to address market segmentation strategies by geography, customer attributes, or product orientation. Describe your positioning relative to your competitors’ in terms of pricing, distribution, promotion plan, and sales potential. Table 11.5 shows an example industry analysis and market strategy for La Vida Lola.

Competitive Analysis

The competitive analysis is a statement of the business strategy as it relates to the competition. You want to be able to identify who are your major competitors and assess what are their market shares, markets served, strategies employed, and expected response to entry? You likely want to conduct a classic SWOT analysis (Strengths Weaknesses Opportunities Threats) and complete a competitive-strength grid or competitive matrix. Outline your company’s competitive strengths relative to those of the competition in regard to product, distribution, pricing, promotion, and advertising. What are your company’s competitive advantages and their likely impacts on its success? The key is to construct it properly for the relevant features/benefits (by weight, according to customers) and how the startup compares to incumbents. The competitive matrix should show clearly how and why the startup has a clear (if not currently measurable) competitive advantage. Some common features in the example include price, benefits, quality, type of features, locations, and distribution/sales. Sample templates are shown in Figure 11.17 and Figure 11.18 . A competitive analysis helps you create a marketing strategy that will identify assets or skills that your competitors are lacking so you can plan to fill those gaps, giving you a distinct competitive advantage. When creating a competitor analysis, it is important to focus on the key features and elements that matter to customers, rather than focusing too heavily on the entrepreneur’s idea and desires.

Operations and Management Plan

In this section, outline how you will manage your company. Describe its organizational structure. Here you can address the form of ownership and, if warranted, include an organizational chart/structure. Highlight the backgrounds, experiences, qualifications, areas of expertise, and roles of members of the management team. This is also the place to mention any other stakeholders, such as a board of directors or advisory board(s), and their relevant relationship to the founder, experience and value to help make the venture successful, and professional service firms providing management support, such as accounting services and legal counsel.

Table 11.6 shows a sample operations and management plan for La Vida Lola.

Marketing Plan

Here you should outline and describe an effective overall marketing strategy for your venture, providing details regarding pricing, promotion, advertising, distribution, media usage, public relations, and a digital presence. Fully describe your sales management plan and the composition of your sales force, along with a comprehensive and detailed budget for the marketing plan. Table 11.7 shows a sample marketing plan for La Vida Lola.

Financial Plan

A financial plan seeks to forecast revenue and expenses; project a financial narrative; and estimate project costs, valuations, and cash flow projections. This section should present an accurate, realistic, and achievable financial plan for your venture (see Entrepreneurial Finance and Accounting for detailed discussions about conducting these projections). Include sales forecasts and income projections, pro forma financial statements ( Building the Entrepreneurial Dream Team , a breakeven analysis, and a capital budget. Identify your possible sources of financing (discussed in Conducting a Feasibility Analysis ). Figure 11.19 shows a template of cash-flow needs for La Vida Lola.

Entrepreneur In Action

Laughing man coffee.

Hugh Jackman ( Figure 11.20 ) may best be known for portraying a comic-book superhero who used his mutant abilities to protect the world from villains. But the Wolverine actor is also working to make the planet a better place for real, not through adamantium claws but through social entrepreneurship.

A love of java jolted Jackman into action in 2009, when he traveled to Ethiopia with a Christian humanitarian group to shoot a documentary about the impact of fair-trade certification on coffee growers there. He decided to launch a business and follow in the footsteps of the late Paul Newman, another famous actor turned philanthropist via food ventures.

Jackman launched Laughing Man Coffee two years later; he sold the line to Keurig in 2015. One Laughing Man Coffee café in New York continues to operate independently, investing its proceeds into charitable programs that support better housing, health, and educational initiatives within fair-trade farming communities. 55 Although the New York location is the only café, the coffee brand is still distributed, with Keurig donating an undisclosed portion of Laughing Man proceeds to those causes (whereas Jackman donates all his profits). The company initially donated its profits to World Vision, the Christian humanitarian group Jackman accompanied in 2009. In 2017, it created the Laughing Man Foundation to be more active with its money management and distribution.

• You be the entrepreneur. If you were Jackman, would you have sold the company to Keurig? Why or why not?
• Would you have started the Laughing Man Foundation?
• What else can Jackman do to aid fair-trade practices for coffee growers?

What Can You Do?

Textbooks for change.

Founded in 2014, Textbooks for Change uses a cross-compensation model, in which one customer segment pays for a product or service, and the profit from that revenue is used to provide the same product or service to another, underserved segment. Textbooks for Change partners with student organizations to collect used college textbooks, some of which are re-sold while others are donated to students in need at underserved universities across the globe. The organization has reused or recycled 250,000 textbooks, providing 220,000 students with access through seven campus partners in East Africa. This B-corp social enterprise tackles a problem and offers a solution that is directly relevant to college students like yourself. Have you observed a problem on your college campus or other campuses that is not being served properly? Could it result in a social enterprise?

Work It Out

Franchisee set out.

A franchisee of East Coast Wings, a chain with dozens of restaurants in the United States, has decided to part ways with the chain. The new store will feature the same basic sports-bar-and-restaurant concept and serve the same basic foods: chicken wings, burgers, sandwiches, and the like. The new restaurant can’t rely on the same distributors and suppliers. A new business plan is needed.

• What steps should the new restaurant take to create a new business plan?
• Should it attempt to serve the same customers? Why or why not?

This New York Times video, “An Unlikely Business Plan,” describes entrepreneurial resurgence in Detroit, Michigan.

• 48 Chris Guillebeau. The $100 Startup: Reinvent the Way You Make a Living, Do What You Love, and Create a New Future . New York: Crown Business/Random House, 2012.
• 49 Jonathan Chan. “What These 4 Startup Case Studies Can Teach You about Failure.” Foundr.com . July 12, 2015. https://foundr.com/4-startup-case-studies-failure/
• 50 Amy Feldman. “Inventor of the Cut Buddy Paid YouTubers to Spark Sales. He Wasn’t Ready for a Video to Go Viral.” Forbes. February 15, 2017. https://www.forbes.com/sites/forbestreptalks/2017/02/15/inventor-of-the-cut-buddy-paid-youtubers-to-spark-sales-he-wasnt-ready-for-a-video-to-go-viral/#3eb540ce798a
• 51 Jennifer Post. “National Business Plan Competitions for Entrepreneurs.” Business News Daily . August 30, 2018. https://www.businessnewsdaily.com/6902-business-plan-competitions-entrepreneurs.html
• 52 “Rice Business Plan Competition, Eligibility Criteria and How to Apply.” Rice Business Plan Competition . March 2020. https://rbpc.rice.edu/sites/g/files/bxs806/f/2020%20RBPC%20Eligibility%20Criteria%20and%20How%20to%20Apply_23Oct19.pdf
• 53 “Rice Business Plan Competition, Eligibility Criteria and How to Apply.” Rice Business Plan Competition. March 2020. https://rbpc.rice.edu/sites/g/files/bxs806/f/2020%20RBPC%20Eligibility%20Criteria%20and%20How%20to%20Apply_23Oct19.pdf; Based on 2019 RBPC Competition Rules and Format April 4–6, 2019. https://rbpc.rice.edu/sites/g/files/bxs806/f/2019-RBPC-Competition-Rules%20-Format.pdf
• 54 Foodstart. http://foodstart.com
• 55 “Hugh Jackman Journey to Starting a Social Enterprise Coffee Company.” Giving Compass. April 8, 2018. https://givingcompass.org/article/hugh-jackman-journey-to-starting-a-social-enterprise-coffee-company/

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How to write a business plan

Writing a business plan will help nail down your idea and give you a blueprint for executing it.

What is a business plan?

A business plan describes your product or service, identifies who the customer is, explains why they need your product or service, and shows how you’ll make money from that opportunity.

Why write a business plan

How you write a business plan will depend on what you need it to do. There are a couple of key jobs a business plan can have. It can:

• explain a business idea
• convince lenders or investors to put money behind that business idea

It doesn’t take a book to do the first job. You can write a business plan that’s short, to the point, and easy to update. That may be all you ever need. But if you’re going for funding, your business plan will need to be a good deal longer and more comprehensive.

Why every business should start with a one-pager

Even if you will eventually write a long business plan, a one-pager is a great place to start. It could take as little as an hour to do your first draft and will make your idea stronger. Writing about customers, competitors, income and expenses will help develop your thinking.

How to write a one-page business plan

You’ll see in the example below that there are nine sections, or things to write about. So give yourself just a small space to write about each. Keeping it short will help you focus on what’s important.

Download a one-page business plan template.

When you need a longer business plan

The greater the risk you’re taking, the more comprehensive your plan should be. For instance, you’ll need to write a long-form business plan if you’re going to fund it with other people’s money. Banks and investors will expect it.

How to write a longer business plan

Long-form business plans touch on all the same things as a one-pager, but they go into more detail and contain fewer assumptions.

Back-of-the-napkin numbers are replaced by forecasts and budgets. And guesstimates for things like costs, market size, customer preferences, and competitor weaknesses need to be backed up with proof. It’s a good idea to involve an accountant or bookkeeper in developing the budgeting and finance sections.

Contents of a business plan:

• Executive summary: A short summary of the main points of your business plan. Write it last.
• Company overview: Identify your industry, what you’re selling, and how you’ll charge.
• Products or services: Include a description of the problem you’re solving for customers.
• Market analysis: Describe your target market, and examine the competition.
• Risk assessment: Flag potential hurdles (including assumptions that could be proved wrong).
• Marketing and sales plan: How will you find customers and make sales? How many sales will there be?
• Milestones: What needs to happen and when?
• Progress reporting: When and how will you report against the milestones?
• Team: Who will be involved in the business? Note their skills and responsibilities.
• Budget: Estimate your costs and income (and any debt that you plan to take on).
• Finance: Show how you’ll fund the business.

You can also add an appendix with any supporting or background documents.

Make a start by downloading our free business plan template.

How not to write a business plan

Avoid these common business planning mistakes:

• Underestimating how much money it will take to get started
• Failing to budget for the first few months of operation (before revenues start flowing)
• Expecting sales to ramp up too fast
• Relying too heavily on one or two customers (or suppliers)
• Not including contingencies for unexpected delays or costs

For more information, visit the SBA (Small Business Administration) page on writing a business plan , which comes complete with templates to help get you started.

Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.

How to start a business

Thousands of new businesses open every day. If all those people can do it, why not you? Here’s what to do, and when.

A Xero survey of 1,000 North American startups reveals why and how they started their businesses.

Your business idea is clearly inspired. But it helps to check you’re not the only one who thinks so.

It’s time to run some numbers on your business idea. Budgeting and forecasting help with that.

Your prices can influence the number of sales you make and the profit you earn on each transaction.

Your business structure can affect how much tax you pay, and how you're treated by the law.

If you’re starting a business, then you’ll need to get familiar with some accounting basics.

After all the excitement of deciding to start a business, you’ll have some paperwork to do.

Treat your website like an online version of a storefront. It’s the first impression for many customers and prospects.

Now that you’re in business, you want to stay there. Xero’s got resources and solutions to help.

Download the guide to starting a business

Learn how to start a business, from ideation to launch. Fill out the form to receive this guide as a PDF.

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QuickBooks 2016 All-in-One For Dummies by Stephen L. Nelson

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Writing a Business Plan

In This Chapter

• Defining a business plan
• Understanding strategic plans
• Writing a white paper business plan
• Writing a new venture plan

In Book VI, Chapter 2 , I describe how to create a pro forma plan of business financial forecasts by using the bizplan.xls workbook, which can be downloaded from http://www.stephenlnelson.com/10_year_bizplan.xlsx . If you do create a forecast, you probably also want to create a companion business plan. For this reason, you also need to know about writing such a plan. I don’t go into tedious detail about how to do this. I just provide you some useful information about business plans, and I give you some tips about how to more easily write a workable business plan.

What the Term “Business Plan” Means

In truth, the term business plan actually refers to three separate things:

• A strategic plan: A discussion or description of a firm’s overall strategy
• A new venture plan: The fund-raising document that entrepreneurs use to promote a new venture to investors
• A white paper plan: The 50-page or even 100-page document that a business owner uses to describe in detail a new business opportunity, including its risks, its opportunities, and anything else that’s germane

I talk a little bit about each of these plans — some more than others — in the following pages.

A Few Words about Strategic Plans

Unfortunately, I’m not really equipped to provide you detailed information about how to construct a strategic plan. Of course, ...

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5.6 The Business Plan

Learning objective.

• Discuss the importance of planning for your business, and identify the key sections of a business plan.

If you want to start a business, you must prepare a business plan. This essential document should tell the story of your business concept, provide an overview of the industry in which you will operate, describe the goods or services you will provide, identify your customers and proposed marketing activities, explain the qualifications of your management team, and state your projected income and borrowing needs.

Purpose of a Business Plan

The business plan is a plan or blueprint for the company, and it’s an indispensable tool in attracting investors, obtaining loans, or both. Remember, too, that the value of your business plan isn’t limited to the planning stages of your business and the process of finding start-up money. Once you’ve acquired start-up capital, don’t just stuff your plan in a drawer. Treat it as an ongoing guide to your business and its operations, as well as a yardstick by which you can measure your performance. Keep it handy, update it periodically, and use it to assess your progress.

In developing and writing your business plan, you must make strategic decisions in the areas of management, operations, marketing, accounting, and finance—in short, in all the functional areas of business that we described in Chapter 1 “The Foundations of Business” . Granted, preparing a business plan takes a lot of time and work, but it’s well worth the effort. A business plan forces you to think critically about your proposed business and reduces your risk of failure. It forces you to analyze your business concept and the industry in which you’ll be operating, and it helps you determine how you can grab a percentage of sales in that industry.

The most common use of a business plan is persuading investors, lenders, or both, to provide financing. These two groups look for different things. Investors are particularly interested in the quality of your business concept and the ability of management to make your venture successful. Bankers and other lenders are primarily concerned with your company’s ability to generate cash to repay loans. To persuade investors and lenders to support your business, you need a professional, well-written business plan that paints a clear picture of your proposed business.

Sections of the Business Plan

Though formats can vary, a business plan generally includes the following sections: executive summary, description of proposed business, industry analysis, mission statement and core values, management plan, goods or services and (if applicable) production processes, marketing, global issues, and financial plan. Let’s explore each of these sections in more detail. ( Note : More detailed documents and an Excel template are available for those classes in which the optional business plan project is assigned.)

Executive Summary

The executive summary is a one- to three-page overview of the business plan. It’s actually the most important part of the business plan: it’s what the reader looks at first, and if it doesn’t capture the reader’s attention, it might be the only thing that he or she looks at. It should therefore emphasize the key points of the plan and get the reader excited about the prospects of the business.

Even though the executive summary is the first thing read, it’s written after the other sections of the plan are completed. An effective approach in writing the executive summary is to paraphrase key sentences from each section of the business plan. This process will ensure that the key information of each section is included in the executive summary.

Description of Proposed Business

Here, you present a brief description of the company and tell the reader why you’re starting your business, what benefits it provides, and why it will be successful. Some of the questions to answer in this section include the following:

• What will your proposed company do? Will it be a manufacturer, a retailer, or a service provider?
• What goods or services will it provide?
• Why are your goods or services unique?
• Who will be your main customers?
• How will your goods or services be sold?
• Where will your business be located?

Because later parts of the plan will provide more detailed discussions of many of these issues, this section should provide only an overview of these topics.

Industry Analysis

This section provides a brief introduction to the industry in which you propose to operate. It describes both the current situation and the future possibilities, and it addresses such questions as the following:

• How large is the industry? What are total sales for the industry, in volume and dollars?
• Is the industry mature or are new companies successfully entering it?
• What opportunities exist in the industry? What threats exist?
• What factors will influence future expansion or contraction of the industry?
• What is the overall outlook for the industry?
• Who are your major competitors in the industry?
• How does your product differ from those of your competitors?

Mission Statement and Core Values

This portion of the business plan states the company’s mission statement and core values . The mission statement describes the purpose or mission of your organization—its reason for existence. It tells the reader what the organization is committed to doing. For example, one mission statement reads, “The mission of Southwest Airlines is dedication to the highest quality of customer service delivered with a sense of warmth, friendliness, individual pride, and company spirit” (Southwest Airline’s, 2011).

Core values are fundamental beliefs about what’s important and what is (and isn’t) appropriate in conducting company activities. Core values are not about profits, but rather about ideals. They should help guide the behavior of individuals in the organization. Coca-Cola, for example, intends that its core values—leadership, passion, integrity, collaboration, diversity, quality, and accountability—will let employees know what behaviors are (and aren’t) acceptable (The Coca-Cola Company, 2011).

Management Plan

Management makes the key decisions for the business, such as its legal form and organizational structure. This section of the business plan should outline these decisions and provide information about the qualifications of the key management personnel.

A. Legal Form of Organization

This section dentifies the chosen legal form of business ownership: sole proprietorship (personal ownership), partnership (ownership shared with one or more partners), or corporation (ownership through shares of stock).

B. Qualifications of Management Team and Compensation Package

It isn’t enough merely to have a good business idea: you need a talented management team that can turn your concept into a profitable venture. This part of the management plan section provides information about the qualifications of each member of the management team. Its purpose is to convince the reader that the company will be run by experienced, well-qualified managers. It describes each individual’s education, experience, and expertise, as well as each person’s responsibilities. It also indicates the estimated annual salary to be paid to each member of the management team.

C. Organizational Structure

This section of the management plan describes the relationships among individuals within the company, listing the major responsibilities of each member of the management team.

Goods, Services, and the Production Process

To succeed in attracting investors and lenders, you must be able to describe your goods or services clearly (and enthusiastically). Here, you describe all the goods and services that you will provide the marketplace. This section explains why your proposed offerings are better than those of competitors and indicates what market needs will be met by your goods or services. In other words, it addresses a key question: What competitive advantage will the company’s goods and services have over similar products on the market?

This section also indicates how you plan to obtain or make your products. Naturally, the write-up will vary, depending on whether you’re proposing a service company, a retailer, or a manufacturer. If it’s a service company, describe the process by which you’ll deliver your services. If it’s a retail company, tell the reader where you’ll purchase products for resale.

If you’re going to be a manufacturer, you must furnish information on product design, development, and production processes. You must address questions such as the following:

• How will products be designed?
• What technology will be needed to design and manufacture products?
• Will the company run its own production facilities, or will its products be manufactured by someone else?
• Where will production facilities be located?
• What type of equipment will be used?
• What are the design and layout of the facilities?
• How many workers will be employed in the production process?
• How many units will be produced?
• How will the company ensure that products are of high quality?

This critical section focuses on four marketing-related areas—target market, pricing, distribution, and promotion:

• Target market . Describe future customers and profile them according to age, gender, income, interests, and so forth. If your company will sell to other companies, describe your typical business customer.
• Pricing . State the proposed price for each product. Compare your pricing strategy to that of competitors.
• Distribution . Explain how your goods or services will be distributed to customers. Indicate whether they’ll be sold directly to customers or through retail outlets.
• Promotion . Explain your promotion strategy, indicating what types of advertising you’ll be using.

In addition, if you intend to use the Internet to promote or sell your products, also provide answers to these questions:

• Will your company have a Web site? Who will visit the site?
• What will the site look like? What information will it supply?
• Will you sell products over the Internet?
• How will you attract customers to your site and entice them to buy from your company?

Global Issues

In this section, indicate whether you’ll be involved in international markets, by either buying or selling in other countries. If you’re going to operate across borders, identify the challenges that you’ll face in your global environment, and explain how you’ll meet them. If you don’t plan initially to be involved in international markets, state what strategies, if any, you’ll use to move into international markets when the time comes.

Financial Plan

In preparing the financial section of your business plan, specify the company’s cash needs and explain how you’ll be able to repay debt. This information is vital in obtaining financing. It reports the amount of cash needed by the company for start-up and initial operations and provides an overview of proposed funding sources. It presents financial projections, including expected sales, costs, and profits (or losses). It refers to a set of financial statements included in an appendix to the business plan.

Here, you furnish supplemental information that may be of interest to the reader. In addition to a set of financial statements, for example, you might attach the résumés of your management team.

Key Takeaways

• A business plan tells the story of your business concept, provides an overview of the industry in which you will operate, describes the goods or services you will provide, identifies your customers and proposed marketing activities, explains the qualifications of your management team, and states your projected income and borrowing needs.
• In your business plan, you make strategic decisions in the areas of management, operations, marketing, accounting, and finance. Developing your business plan forces you to analyze your business concept and the industry in which you’ll be operating. Its most common use is persuading investors and lenders to provide financing.

A business plan generally includes the following sections:

• Executive summary . One- to three-page overview.
• Description of proposed business . Brief description of the company that answers such questions as what your proposed company will do, what goods or services it will provide, and who its main customers will be.
• Industry analysis . Short introduction to the industry in which you propose to operate.
• Mission statement and core values . Declaration of your mission statement , which are fundamental beliefs about what’s important and what is (and isn’t) appropriate in conducting company activities.
• Management plan . Information about management team qualifications and responsibilities, and designation of your proposed legal form of organization.
• Goods, services, and the production process . Description of the goods and services that you’ll provide in the marketplace; explanation of how you plan to obtain or make your products or of the process by which you’ll deliver your services.
• Marketing . Description of your plans in four marketing-related areas: target market, pricing, distribution, and promotion.
• Global issues . Description of your involvement, if any, in international markets.
• Financial plan . Report on the cash you’ll need for start-up and initial operations, proposed funding sources, and means of repaying your debt.
• Appendices . Supplemental information that may be of interest to the reader.

(AACSB) Analysis

Let’s start with three givens: (1) college students love chocolate chip cookies, (2) you have a special talent for baking cookies, and (3) you’re always broke. Given these three conditions, you’ve come up with the idea of starting an on-campus business—selling chocolate chip cookies to fellow students. As a business major, you want to do things right by preparing a business plan. First, you identified a number of specifics about your proposed business. Now, you need to put these various pieces of information into the relevant section of your business plan. Using the business plan format described in this chapter, indicate the section of the business plan into which you’d put each of the following:

• You’ll bake the cookies in the kitchen of a friend’s apartment.
• You’ll charge $1 each or $10 a dozen.
• Your purpose is to make the best cookies on campus and deliver them fresh. You value integrity, consideration of others, and quality.
• Each cookie will have ten chocolate chips and will be superior to those sold in nearby bakeries and other stores.
• You expect sales of $6,000 for the first year.
• Chocolate chip cookies are irresistible to college students. There’s a lot of competition from local bakeries, but your cookies will be superior and popular with college students. You’ll make them close to campus using only fresh ingredients and sell them for $1 each. Your management team is excellent. You expect first-year sales of $6,000 and net income of $1,500. You estimate start-up costs at $600.
• You’ll place ads for your product in the college newspaper.
• You’ll hire a vice president at a salary of $100 a week.
• You can ship cookies anywhere in the United States and in Canada.
• You need $600 in cash to start the business.
• There are six bakeries within walking distance of the college.
• You’ll bake nothing but cookies and sell them to college students. You’ll make them in an apartment near campus and deliver them fresh.

The Coca-Cola Company, “Workplace Culture,” The Coca-Cola Company, http://www.thecoca-colacompany.com/citizenship/workplace_culture.html (accessed August 31, 2011).

Southwest Airline’s company Web site, about SWA section, http://www.southwest.com/about_swa/mission.html (accessed August 31, 2011).

Exploring Business Copyright © 2016 by University of Minnesota is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

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BUS305: Small Business Management

BUS305 Study Guide

Unit 3: the business plan, 3a. explain how to write a formalized business plan.

1. The business plan should demonstrate an entrepreneur's preparedness to establish an enterprise, knowledge of the product/service and the business environment, and the ability to communicate the business opportunity to potential investors.

• What are the elements of the ten-ten approach?
• How can business plan templates be customized for your needs?
• How comfortable do you feel with the mechanics of writing a business plan?
• Can you present a business plan in the most effective way possible?

To review, see  Developing a Business Plan .

2. The physical appearance and organization of the business plan influence how readers perceive and evaluate the plan's effectiveness. In addition to a cover page and a table of contents, sections of the plan include an executive summary, company overview, industry- or market-analysis, marketing strategy, operations, financials, and implementation strategies. Not all fonts are appropriate for a professional document, and it is, of course, all too easy to mischaracterize facts and figures by presenting them in an inappropriate format.

• Why are plain fonts, plain language, and proper margin settings vital to an attractively written report?
• What are the proper charts and graphs for illustrating different kinds of facts and statistics?

To review, see  Ten Dos and Don'ts of Writing a Business Plan and  How to Write a Business Plan .

3b. Identify the information found in the business plan

1. Including the proper information in a business plan demonstrates your professionalism and commitment to your enterprise. Most importantly, however, it helps your business plan make a more persuasive case to potential investors.

The components of the SWOT analysis are strengths, weaknesses, opportunities, and threats. You may want to try performing a SWOT analysis for a real-world company to practice using this business tool.

• What information should appear in the executive summary?
• What is the market analysis section? Why does it include information about trends, consumer segments, the competition, and industry growth?
• How does the business plan attract investors in the financial analysis section?
• How does the marketing plan support the overall business plan?
• What is the purpose of the mission statement? Why should it mention the enterprise's goals and corporate philosophy?

To review, see:

• Small Business Plan Outline
• Business Plan Template
• How to Write an Executive Summary
• How to Write a Mission Statement for Your Business
• Product or Service Description
• Marketing Plan, Strategies, Distribution, and Channels

2. The management structure of an organization determines how the organization will be run and who will be responsible for management activities.

• What are the features of each of the generally-accepted management models: classic hierarchy, democratic hierarchy, collaborative management, and collective management?

To review, see Developing a Management Plan .

Unit 3 Vocabulary

This vocabulary list includes terms that might help you answer some of the review items above and some terms you should be familiar with to be successful in completing the final exam for the course.

• Business model
• Business plan
• Competition
• Demographics
• Executive Summary
• Financial analysis
• Implementation
• Management models
• Management team
• Market analysis
• Market segments
• Mission Statement
• SWOT analysis
• Ten-ten approach

Business Plan Section 1: Executive Summary

The executive summary of your business plan introduces you, describes your company, and where you’d like to take it. Discover the top 8 points to include.

The executive summary is the first thing someone will read when they start making their way through your business plan, and that makes it vitally important. Just like a great movie trailer excites you about seeing a film, or a book jacket blurb entices you to pick up a novel, the executive summary needs to engage your readers and spark their interest, making them want to continue reading more about your business.

The executive summary introduces you, describes the current state of your company, where you’d like to take it, and why you believe you’ll be successful in getting there. Interestingly, many experts suggest that even though this section comes first in the finished document, you don’t write it until last -after you’ve put the rest of your business plan together, so you can highlight your strengths and the important points you’ve made.

We’ve talked about pitching your company before. At its essence, that’s what the executive summary is: your first pitch, whether it be to a lender , an investor, or a potential employee. If you don’t write a decent executive summary, there’s a chance the rest of your plan won’t even get read. If you hit it out of the park, then you’ve gone a long way toward achieving your desired result.

What Goes Into the Executive Summary of a Business Plan?

As we mentioned in our Introduction to Business Plans , plans can serve several different purposes and be intended for different audiences. What you include in the summary will depend on where in the business cycle your company is and what the plan is for.

In every case, keep in mind that this is a summary! Make it impactful but keep it concise. The Small Business Administration recommends fitting everything on one page, and two should certainly be your limit.

Company Information

The company information to include is the name of your business, when it was formed, the names and roles of the founders, how many employees you have, and where you’re located.

The Problem Your Business Solves

Remember that if your product or service doesn’t answer a need or isn’t solving a problem, you don’t have a viable business. The problem may be as simple as: “There are no day spas within a 50 mile radius of Anytown,” but you need to identify and state the problem you’re solving.

If you have a mission statement for the company, it might fit in here, or you can include it in the company description section instead. A mission statement isn’t a required element of a business plan, but creating one could be a help in giving you direction and defining the character and culture of your company.

The Solution Your Business Provides

How will you address the existing situation you described and solve the problem? Keep in mind that this is a summary, so you don’t need to go into detail; the rest of your plan will cover that. Describe the way your business is the solution in a few sentences or bullet points.

The Concept

Explain who you’re marketing to and how your concept fits what they’re looking for. Going back to our fictitious day spa, describe the environment you’ll create; for example, whether you’re targeting a clientele that will appreciate a peaceful environment, an upscale luxury market, or something more mass appeal, and how your concept fits that. Writing the summary last, you’re able to pull info from the market research and strategy sections and point to the research that backs up your idea.

How You Compare to Your Competition

Even if there are no day spas in your area, there may be gyms that offer massages, beauty salons that do facials, etc. Discuss how your business will solve the problem better and more successfully. Why would a potential customer choose you?

You’ll introduce them extensively later on, but part of exciting readers is letting them know who’s on your team, and why you’re uniquely qualified to be successful. If you don’t have everyone on board yet, that’s okay. Talk about the positions you intend to fill and how you plan to do that.

Your Current Situation

Describe where you are now with the business and what you’ve already accomplished. It’s okay to be just starting out, but talk about the progress you’ve already made. If you’ve found the perfect spot for that day spa we’ve been talking about, mention it here. Perhaps you have an interior design already. You should include the drawing later in the plan, but mention it here.

Where would you like to see your business headed? What are you trying to achieve? If you’re writing a business plan to help you secure a loan or investor, how will that infusion of money help you get there?

If you’re writing your business plan because you’re seeking funding, there are certain pieces of information you need to include, such as information about your current bank and investors, if any. If you’re running an established business, you’ll need to outline your current revenue and expenses, although save the nitty-gritty details for the financial section of the business plan.

The executive summary section of a business plan for a new business can offer information about its business model and how you plan to earn revenue. You should also share financial projections and your anticipated expenses.

If your business plan is for your own use as an operational tool, you can be a little less formal with what you include in the executive summary. Concentrate on the problem-solving and conceptual details of the business. It’s okay to skip the company information, your team’s biographies, and other operational and logistical details.

How to Format the Executive Summary

Start with a paragraph that grabs the reader’s attention. If you have a compelling anecdote about the company, an interesting fact, or relevant statistic, that could be one way to go. Some summaries open with a statement about the purpose of the company or its mission statement.

After the opening paragraph, you can follow the order of the following sections of the plan. Each topic belongs in its own paragraph. And because this is a summary, cover them in just two or three sentences each.

In your final paragraph, tell the reader the purpose of the plan. If you want a loan, how much and for how long? If it’s an investment, are you looking for a percentage or specific amount? And what are you offering in exchange?

You want to create excitement and interest in your business, so use positive and compelling language. While to you, it may be entirely obvious that the universe has been waiting for just your product or service, but that’s probably not the case for the people reading your business plan. Balance your enthusiasm with sincerity, don’t exaggerate, and persuade with facts. Be simple and clear so that even someone who is totally unfamiliar with your industry will understand what you’re saying.

Next Article: Business Plan Section 2 – Company Description

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Technology Ventures

From Idea to Enterprise

Chapter 7: The Business Plan

How are ventures actually formed and what is the role of the business plan?

Entrepreneurs respond to attractive opportunities by forming new ventures. In this chapter, we consider the five-step process for establishing a new enterprise. One particularly noteworthy step in the process is the development of a story and business plan. The story is a compelling synopsis of why this venture is needed at this moment of time and how it can achieve success. We then detail the task of writing a business plan, which is a significant and challenging effort for entrepreneurs.

To see these talks in their entirety or to access related materials, go to Stanford Entrepreneurship Corner

Other Materials

Business Plans that Work - Timmons, Zacharakis, & Spinelli Plans That Work arms entrepreneurs and small business owners with an easy-to-follow template for writing persuasive business plans, along with proven models that can be used to analyze potential business opportunities from initial idea to viable venture. This value-packed book will show both entrepreneurs and current business owners how to:

• Determine what to include in each plan, why, and for whom
• Recognize and avoid common pitfalls in the process
• Use the renowned "Timmons Model" to analyze potential business opportunities

How to Write a Great Business Plan A great business plan is one that focuses on a series of questions which relate to the four critical factors critical to the success of every new venture: the people, the opportunity, the context, and the possibilities for both risk and reward. This is a condensed version of Sahlman's longer article in book 'The Entrepreneurial Venture'

Frank Moyes - Colorado Leeds School of Business Professor Frank Moyes has a number of useful business plans templates and references available on his web site. There also many complete business plans from a breadth of different industries that can be leveraged as additional examples or case readings.

Financial Modeling for Startup Companies

Peter Kent of Insight Business Tools provides a slide deck on how and why financial models can help entrepreneurs in the business planning process.

Introduction

Book contents.

• Table of Contents
• ...................................
• Part I: Venture Opportunity, Concept, and Strategy
• Ch 6: Risk and Return
• Ch 7: The Business Plan
• Ch 8: Types of Ventures
• Ch 9: Knowledge, Learning, and Design
• Ch 10: Legal Formation and Intellectual Property
• Part III: Detailed Functional Planning for the Venture
• Part IV: Financing and Building the Venture
• Chapter Video Clips

Additional Resources

• Sample Syllabi
• Authors Blog
• Entrepreneurship Blogs
• Testimonials
• Schools Using this Textbook
• Entrepreneurship Corner

3. Creating a Business Plan

It all starts with an idea. You decide to open an online shop, with a particular idea in mind. However, to make this idea concrete, to turn it into a business which will eventually bring profit, you will need to organize it properly. Even if you are completely new to the digital world, it is essential that your catch up with the trends and practices that will enable you to run your business successfully. If the assets are limited, and you are unlikely to afford an expert to help you with setting up, you should explore a DIY method, where you would study and explore each aspect of running an e-commerce website. 

To make sure you keep your ideas and thoughts organized, start creating a business plan.

Image: https://pixabay.com/en/plan-objective-strategy-goal-2372176/

What is a business plan?

A business plan is a document which highlights business goals and strategies on how to reach those goals. It also defines the key aspects of starting and running a business. Essentially, it is a roadmap that will include where you want to go and how to get there. It is a way to describe where you see your business with details about the actions that are needed to reach that destination.

There is no need for a business plan to be long or exhaustive. With this DIY method, you will be creating this plan for yourself, and you need the essentials to keep everything organized. It is likely that no one will analyze that plan, except for you and people you get involved in the project, so make it concrete and spot on. Focus only on those segments that will help you with defining your vision and determining a set of actions you will take.

Try to group your ideas into these three groups.

This part of a business plan should contain basic information about your business. These include:

Business name

The business name is the name you choose for your business. It is the name that should eventually become recognizable, distinctive and associated with your business. It will become a part of your brand. This is why determining a business name is a crucial decision in the business plan. It requires a lot of thinking, piling up the ideas and eventually choosing the right one.

When it comes to making a decision on which business name to choose, it is helpful to know characteristics of a good business name. A good business name should:

• Be easy to spell
• Be relevant and associated with your products
• Trigger emotions
• Contain keywords
• Be clear and professional
• Be powerful and have deeper meaning

A good business name should not:

• Overuse keywords
• Have irrelevant keywords
• Have negative connotations
• Infringe upon anyone’s rights
• Be offensive
• Be difficult to spell

Make sure you choose a perfect name by following these steps:

• Know the characteristics of a good business name
• Create a list of names/keywords that can be associated with your business
• Expand the list by adding synonyms or related phrases
• Combine the words and phrases
• Start narrowing down the list
• Check the domain name availability
• Request feedback from employees, business partners or analyze the results of A/B testing

The final step is when you choose among the selected few. You might want to consider the opinion of the people who are directly related to your business. Alternatively, you could use A/B testing where you would create two identical landing pages. You could use a tool such as LeadPages or Unbounce for this purpose. You would then share the page, gain traffic and examine the performance of two or three name variations.

Your website

Ideally, your business name should match your website name. Use a tool, such as this business name generator , and check if a particular website domain name is available. The tool will also show plenty of alternatives, so even if the name is not available, you will get suggestions on which modifications of that name are available.

Image: https://www.shopify.com/tools/business-name-generator

The main reasons why the website domain should match your business name are the users and the search engines. Firstly, users will expect to see your site once they type your company name into the search bar. In case a website with a different name comes up, as a result, they might not consider it to be related. You should be aware of this expectation when making a decision on choosing a business name and registering a website. And secondly, this will also be good for SEO because your business name will be a part of each URL created on your website.

Depending on the scale of your business and the budget you have, you could hire a professional designer who would design a logo once you have a business name. Apart from a business name, it is helpful to share some keywords and topics that are associated with the brand, the story behind the name, etc. This helps with the process of creating a logo.

If you prefer DIY method, there are tools to help you out:

Logomakr – The tool offers low quality + CC license with free logo, while you will need to pay for high-resolution photo.

LogoShuffle – Provide your business name, slogan, and keywords, select the icons, font categories and change colors to get logo mockups. Shuffle the ready-made designs, and once you find the one, you can buy it.

Tailor Brands – You will provide a logo name and a short description after which you will be offered a series of example pairs where you will choose the one your prefer. This will enable the tool to create a logo tailored to you, after which you can purchase the logo.

Online LogoMaker – Add text, choose symbols or upload an image, and get started creating your logo. A free logo includes a low-resolution image, while payment is required to download a full resolution logo.

Other business details can include:

• Social media profiles
• Blogs you can cooperate
• List of competitors
• List of keywords you want to associate with your business

Product information

The next part of the business plan is focused on your products. Start with defining what you are selling and how you are going to sell.

Product to sell

When you start with developing this business plan, you already have in mind the exact product you are selling. However, what you need to define here are the following things:

Produced product or sourced externally

If you are creating products, you will need to provide information about the supplies needed, the way you will obtain supplies and the time required for making those products. On the other hand, if you are going to buy products to sell them in your store, you will need to focus on choosing suppliers. The goal is to get the best product for the best possible price. Planning these activities in advance helps you stay organized and prepare everything to quickly implement the plan.

Digital or physical products

In most cases, you will either sell digital or physical products. However, when it comes to books or music, you can choose which one to sell, a digital format which is downloadable and instantly available, or a physical product. You can always offer both formats.

Place to sell

Since e-commerce is focused on sales that are conducted online, the primary place to sell products is the internet. However, this does not stop you from selling off-line as well. Choosing between a physical or a virtual store is simply a matter of how you want to run your business. The main difference is that virtual store usually requires less paperwork and administration. This is why it is easier to set up an online store.

The main convenience an online store offers is that it can be accessed anytime anywhere. There are no limitations regarding space which means that the customer base is much wider than when it comes to a physical store. For customers, this means an enormous amount of time saved they would otherwise need to spend looking for items and exploring different shops all across town. Searching for the desired product has never been easier, with the use of search option offered by every virtual store, allowing a quick and easy way to look for an item based on the keywords, product name, etc.

In terms of business owners, a virtual store primarily represents a smaller investment. It is much cheaper to run a virtual shop because there are no rent costs, no utility bills, etc. The only costs involve web hosting and technical support if you need it. With virtual stores, you can do most of the work related to management and handle the sales, which means that the costs of hiring employees can also be avoided.

You can always opt for an option to run both virtual and physical store. Since there is a huge number of consumers who still prefer that old-school method and are in fact willing to pay more if they are able to feel the actual product before buying, you could open a physical store alongside a virtual one. Being aware of additional costs that a physical store can impose is a good start to evaluate if you want to run this kind of business as well.

When we focus on the virtual realm, there are a couple of ways you can sell online. Firstly, you can have your own website. Alternatively, you could join marketplaces and sell through their website. This choice is also something to include in the business plan. If you are planning on using several marketplaces, provide all of this information in the business plan, to help you further along with the planning and promoting products.

Opening any business requires an investment. Even though running an e-commerce business does offer this advantage of being the one that needs a small investment, you will still need a certain amount of assets to open and start running a virtual store. It is helpful to determine the assets you can invest, and then compare those to the actual costs you will have when opening up an e-commerce business.

To help you with calculating the investment needed, let us focus on the costs you will have when opening this kind of business.

The domain is the first thing you will have to purchase when setting up a business. The actual costs may vary depending on the provider, as well as on the type of domain extension you choose (.com, .net, .shop, etc.). The domain is bought yearly, but you can choose between one year, two year or even five-year period. Domain name is sometimes free with a hosting plan, or it can start from $1 for a yearly plan (usually for first-time customers only). The regular price is usually between $10 and $15 per year. If a domain name is not available, sometimes it might be offered for an auction, which means that the price can be much higher. This is usually what happens with popular domain names.

Hosting is an online storage for your website, and it is the place where your website will be built on. There are many hosting providers on the market, offering hosting packages anywhere from $1 to $3 per month for first-time customers and basic plans. For e-commerce, you will need a hosting that is flexible and can grow as your business grows. When starting your business, you might be prone to choosing a simpler solution and a plan with some limitations. These plans are usually cheaper, which is great if you are in the phase where you are still testing the market and exploring the potential of your business. However, the plan you choose has to be easy to upgrade as soon as you recognize that your business needs a more powerful solution, in terms of performance, bandwidth, storage, etc. The average hosting package is between $10 and $20 per month, depending on the type of plan and hosting provider you choose. More advanced solutions such as a virtual private server, a dedicated server, etc. are more costly and will require greater investment, but surely are something to think about if you are thinking about a big online business.

Technical support

Although running an online store is a more convenient method of commerce in general, it still requires a bit of know-how, especially when it comes to setting up a website, online payments, etc. The costs here can range a lot, depending on how simple or complex the system is, as well as on what kind of help you will need.

You might be able to handle some portion of the tasks, such as setting up and optimizing a website, but you might want to hire a professional to handle sections with online payments (credit card payment, PayPal integration, etc.). In case you are not able to set up a website yourself, the costs here will be greater. Additional costs can include:

• Website optimization expert to improve performance of your website
• Photographer for product photos
• Content writer for product description/blog content
• Administrator for handling management and customer support
• Marketing expert to work on promoting your products

In case you opt for a marketplace instead of your own website, you will obviously avoid a part of these costs, such as the domain and hosting. Still, selling through marketplace usually requires a certain fee, that is often calculated as the percentage deducted from the sales.

Product related costs

This section of the investment can vary hugely from business to business. For starters, you might sell products by acquiring them directly from the manufacturer. In this case, you usually do not have to buy the actual products, but instead, you will simply purchase them once you receive an order.

On the other hand, if you make your own products, you will probably need some kind of materials to make them. These costs should all be included in the calculation of your business investment.

When it comes to offering services, you will think about the following:

• Who will be handling the service (this person’s time should be paid accordingly)
• Costs related to providing the service (if you need to drive yourself to a location to provide the service, the costs of transport should be included in the price of the service)

Create a business plan that features all these fields and then fill in the expenses you expect to have. Sometimes it is not possible to predict the exact costs but an approximate value. Then it is always better to calculate a higher value, just in case. Once you have all the values, the sum of those is the investment you will need to start your business.

These three elements make up a core of the business plan. These are the base from which you will form a strategy later on. For example, having determined a business name, you can then work on social media marketing strategy, by creating online profiles with this name. While a lot of information is included in these three parts, there are still more aspects of e-commerce website you should have in mind.

Other things in the business plan

Predicting profit.

Each e-commerce has a goal of acquiring profit through sales. This is the primary goal you want to achieve, and we will focus on different methods for achieving this goal later on, but when setting up a business and defining a business plan, it is helpful to try to predict the profit over a given period.

Since each business requires an investment, the first income you acquire from sales will be enough to cover this investment, and it might be a while before you start gaining profit.

Here is how to predict the profit:

• Choose a period you want to focus on
• Predict the number of sales you can expect (based on the market research, previous experience, etc.)
• Multiply the predicted number of sales with the product price
• Predict the recurring purchase trend, and add this to the previous sum
• Subtract the investment needed for the same period from the total predicted revenue

Another part of the business plan you will work on is pricing for the products or services that you offer. Since the price essentially should cover the costs needed for that product or service to be provided, plus some profit for you, a good starting point is predicting the costs to make (or buy) an individual product or to provide a particular service. It is how you get an estimate on how much to charge. For example, if the product costs $10 to make, and you want to earn $5 from each sale, the product price could be$15. However, you will also need to consider other costs as well. Even though the cost of website hosting is not directly part of the product cost, it is an expense you will have to pay from the revenue you obtain. Thinking about overall predicted costs might give deeper insights into how to form the product selling price. So, you might want to go up from $15 to $18.

The second thing you should consider when determining the pricing is the situation on the market. Make sure you explore the internet and look up businesses that offer the same products or services. Take a look at their pricing, and check out if there is a space to modify your price further. For example, if you explore the same product category and the cheapest product you were able to find is sold for $25, you might want to increase the price from $18 to $23 or even $25 to match your competitors.

• Special offers

With pricing, you determine the regular prices you will feature in your e-commerce. Still, special offers are usually a part of the company strategy, which is why you could plan and predict those offers with the initial business plan. Here are a couple of options:

• First-time offer – Offering a special discount to first-time customers only
• Newsletter discount – Sending out discount codes to your subscribers
• Bundles – When selling product, you might want to provide a special (discounted) price for buying a bundle of products
• Seasonal offers – Holiday seasons are popular times to offer discounts and special offers, so you might want to plan this for Christmas, Easter, etc.

Plan for promotion

So far, the business plan was focused on what to sell, where to sell and how to determine costs and pricing. Finally, the business plan should also include a section on how you are going to promote the products. Since promotion includes an important part of your strategy and it helps with estimating profit, it is very helpful to plan online promotion in advance.

Channels for promotion

Channels for promotion include the platforms you will use to advertise your products and try to reach the online customers. Unlike traditional marketing channels used for reaching customers, e-commerce is focused on the online media, and the usage of the following channels:

• Third-party websites (gaining inbound links)
• Social media
• Paid advertising

There are numerous opportunities within these channels. For instance, you can advertise products on your site; you could pay to have banners on other sites, etc. Regarding social media, you can choose a format (text post, image, video) and then promote it through different social networks such as Facebook, YouTube, Twitter, etc.

A good thing with planning channels for promotion is that this helps you determine online media you want to focus on. If you plan on using Facebook ads to promote your business, you will need to have a Facebook profile and a Facebook page first. The same goes for all other channels for promotion. Planning also gives you estimates on the budget you will need for this type of promotion. Let us say you plan to use paid advertising with Google AdWords. These campaigns require a budget, and you will be able to plan it within the business plan.

Promotional activities

Besides a direct promotion, which can range from promoted posts to paid video adverts, other promotional activities that are not as direct when it comes to promoting the actual product, but still are efficient at raising awareness of your brand. Those include promotional activities such as:

• Loyalty club
• Collaboration with other brands

With these activities, you award your online followers, regardless if those are your subscribers, your previous customers or perhaps even your social media followers. Your goal is to organize an activity that will increase engagement of those interested in your brand while awarding one (or several) of those based on certain criteria (randomly chosen winner, the one who gets most votes, the most active contributor, etc.)

Despite the fact that the promotion of the actual product is not a direct goal, these activities are still called promotional because they help with:

• Placing your brand on the market
• Raising awareness of what you do
• Increasing interest in your brand
• Engaging those interested in your brand
• Improving the level of loyalty with rewards, benefits, etc.

Since promotional activities improve your online influence, try planning them in advance inside a business plan. The main reason why it is good to prepare them in advance is the fact that you will be able to define the budget for each of these activities. Furthermore, you will be able to plan the exact period when you will be organizing each activity. You do not want to host several of those at the time, nor do you want to overlap with other activities you plan for your business. For example, when introducing a new product in your store, you might not want to offer a discount for that product, but instead, you could host a contest or a giveaway.

To successfully plan promotional activities, think about these:

• Type of the activity you want to organize
• Goals you want to achieve (promotion of the products, introducing new products, engaging previous customers, etc.)
• Period during which the promotion is going to be active
• Terms and conditions for participation
• Cost related to organization

Determining goals

The sale is the most obvious and the most common goal of each e-commerce website. However, this does not have to be the only goal. Here are some example goals you could have in mind:

• Sell 50 products during the first month of running the business
• Increase the number of sales by 10% each month
• Gain 10 recurring customers
• Work with affiliates to increase the number of new customers

These are only some ideas, and the numbers are used just as an example. You should define a goal based on your own business and based on the predictions related to the business success. If possible, always add a quantifier (such as 50, 10%, etc.) to make those goals easily comparable to the results. This also makes goals more specific, allowing you to plan actions that will lead you towards achieving those goals.

Your business plan should contain several goals that you want to achieve. Once you have those goals, try to predict actions that will help you achieve them, as well as the time interval need for that. For example, if you set up a goal to increase the sales for 10% each month, you obviously need to work on promoting your product and reaching new customers. You will plan actions such as social media promotion, search engine ads, organizing a giveaway in collaboration with a blogger or influencer, etc. As you can see, different segments of online marketing will directly affect the ability to achieve e-commerce goals.

Benefits of having a business plan

Having a plan of action for any business is always recommended. Here is why:

Organization

A business plan helps you stay organized. When you have a business plan as a reference, you will always know what your next steps are and what you need to complete preparation. Being organized helps you save time and effort by determining a roadmap you will follow.

Time management

We all know that time is of crucial importance, especially when starting up a business as you will soon become overwhelmed with the number of tasks you will face with. However, if you have a business plan, you will be able to organize your time much more efficiently.

Asset distribution

Since a business plan has the information about the estimated costs, this is an excellent reference when thinking about your available assets and how you are going to distribute those.

Unified approach

Finally, a major benefit you will see with the business plan is the fact that you will recognize activities that will require different departments to work together. For example, collaborating with social media department on a promotional activity can yield great results for your business. Smaller companies might not have departments, but different persons being in charge of those tasks, or even perhaps one person in charge of various sectors. This is simply a matter of organizing and distributing work, but the point is that e-commerce is and should be seen as a part of global business running. Combining the power of sectors such as online marketing brings more benefits for your business by joining the forces to work on achieving the common goal.

How to use a business plan?

Once you finish the plan of activities, once all of the fields are filled in, you will have a very valuable document about your business and its future. All of these ideas gathered together represent a roadmap that will show you the way through many different situations that might shake your confidence and make you doubt your idea.

You will use the plan as a reference. It will be your guide and a resource you will turn to when you want to plan the next action. Check your business plan to explore other options you can grow your business.

And as your business grows, so should the business plan. Apart from that initial information gathered inside the plan, think of this document as something that will evolve and change as your business takes new turns.

Allow the opportunity for this plan to be flexible and to adapt as you change your business strategy based on the market situation. Update the plan with new trends, ideas and practice and how these can reflect your business approach. This way, you can create a document that follows your vision but still keeps the pace with the opportunities your company might be facing as the situation on the market changes.

The purpose of designing a business plan is to provide insights into how you will organize different aspects of your business. It is not necessary to go too deep into the matter and be too elaborate and thorough. For example, rather than planning a promotional activity for Christmas with all the details, a business plan could only acknowledge the fact that you will organize one and perhaps the budget you can allocate to this activity. The idea is only to plan the methods and activities you will use, as well as to predict the budget you will need for conducting those.

A good business plan is supposed to keep you organized and help you stay on track. The descriptions and details about each segment can be quite scarce, but enough for you to make sense of those. This will help you to stay focused and never lose track of what you want to do with your business and what kind of strategy you will use to achieve your goals. It will also help with setting up a time reference because some segments of the business plan are crucial before being able to proceed to the next phase. For example, planning and predicting the time needed to develop a website has an impact on when your online store will be up and running.

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9.3: The Business Plan

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LEARNING OBJECTIVES

By the end of this section, you will be able to:

• Describe the different purposes of a business plan
• Describe and develop the components of a brief business plan
• Describe and develop the components of a full business plan

Unlike the brief or lean formats introduced so far, the business plan is a formal document used for the long-range planning of a company’s operation. It typically includes background information, financial information, and a summary of the business. Investors nearly always request a formal business plan because it is an integral part of their evaluation of whether to invest in a company. Although nothing in business is permanent, a business plan typically has components that are more “set in stone” than a business model canvas, which is more commonly used as a first step in the planning process and throughout the early stages of a nascent business. A business plan is likely to describe the business and industry, market strategies, sales potential, and competitive analysis, as well as the company’s long-term goals and objectives. An in-depth formal business plan would follow at later stages after various iterations to business model canvases. The business plan usually projects financial data over a three-year period and is typically required by banks or other investors to secure funding. The business plan is a roadmap for the company to follow over multiple years.

Some entrepreneurs prefer to use the canvas process instead of the business plan, whereas others use a shorter version of the business plan, submitting it to investors after several iterations. There are also entrepreneurs who use the business plan earlier in the entrepreneurial process, either preceding or concurrently with a canvas. For instance, Chris Guillebeau has a one-page business plan template in his book The $100 Startup . 49 His version is basically an extension of a napkin sketch, without the detail of a full business plan. As you progress, you can also consider a brief business plan (about two pages)—if you want to support a rapid business launch—and/or a standard business plan.

As with many aspects of entrepreneurship, there are no clear hard and fast rules to achieving entrepreneurial success. You may encounter different people who want different things (canvas, summary, full business plan), and you also have flexibility in following whatever tool works best for you. Like the canvas, the various versions of the business plan are tools that will aid you in your entrepreneurial endeavor.

Business Plan Overview

Most business plans have several distinct sections (Figure 9.3.1). The business plan can range from a few pages to twenty-five pages or more, depending on the purpose and the intended audience. For our discussion, we’ll describe a brief business plan and a standard business plan. If you are able to successfully design a business model canvas, then you will have the structure for developing a clear business plan that you can submit for financial consideration.

Both types of business plans aim at providing a picture and roadmap to follow from conception to creation. If you opt for the brief business plan, you will focus primarily on articulating a big-picture overview of your business concept.

The full business plan is aimed at executing the vision concept, dealing with the proverbial devil in the details. Developing a full business plan will assist those of you who need a more detailed and structured roadmap, or those of you with little to no background in business. The business planning process includes the business model, a feasibility analysis, and a full business plan, which we will discuss later in this section. Next, we explore how a business plan can meet several different needs.

Purposes of a Business Plan

A business plan can serve many different purposes—some internal, others external. As we discussed previously, you can use a business plan as an internal early planning device, an extension of a napkin sketch, and as a follow-up to one of the canvas tools. A business plan can be an organizational roadmap, that is, an internal planning tool and working plan that you can apply to your business in order to reach your desired goals over the course of several years. The business plan should be written by the owners of the venture, since it forces a firsthand examination of the business operations and allows them to focus on areas that need improvement.

Refer to the business venture throughout the document. Generally speaking, a business plan should not be written in the first person.

A major external purpose for the business plan is as an investment tool that outlines financial projections, becoming a document designed to attract investors. In many instances, a business plan can complement a formal investor’s pitch. In this context, the business plan is a presentation plan, intended for an outside audience that may or may not be familiar with your industry, your business, and your competitors.

You can also use your business plan as a contingency plan by outlining some “what-if” scenarios and exploring how you might respond if these scenarios unfold. Pretty Young Professional launched in November 2010 as an online resource to guide an emerging generation of female leaders. The site focused on recent female college graduates and current students searching for professional roles and those in their first professional roles. It was founded by four friends who were coworkers at the global consultancy firm McKinsey. But after positions and equity were decided among them, fundamental differences of opinion about the direction of the business emerged between two factions, according to the co-founder and former CEO Kathryn Minshew. “I think, naively, we assumed that if we kicked the can down the road on some of those things, we’d be able to sort them out,” Minshew said. Minshew went on to found a different professional site, The Muse, and took much of the editorial team of Pretty Young Professional with her. 50 Whereas greater planning potentially could have prevented the early demise of Pretty Young Professional, a change in planning led to overnight success for Joshua Esnard and The Cut Buddy team. Esnard invented and patented the plastic hair template that he was selling online out of his Fort Lauderdale garage while working a full-time job at Broward College and running a side business. Esnard had hundreds of boxes of Cut Buddies sitting in his home when he changed his marketing plan to enlist companies specializing in making videos go viral. It worked so well that a promotional video for the product garnered 8 million views in hours. The Cut Buddy sold over 4,000 products in a few hours when Esnard only had hundreds remaining. Demand greatly exceeded his supply, so Esnard had to scramble to increase manufacturing and offered customers two-for-one deals to make up for delays. This led to selling 55,000 units, generating $700,000 in sales in 2017. 51 After appearing on Shark Tank and landing a deal with Daymond John that gave the “shark” a 20-percent equity stake in return for $300,000, The Cut Buddy has added new distribution channels to include retail sales along with online commerce. Changing one aspect of a business plan—the marketing plan—yielded success for The Cut Buddy.

LINK TO LEARNING

Watch this video of Cut Buddy’s founder, Joshua Esnard, telling his company’s story to learn more.

If you opt for the brief business plan, you will focus primarily on articulating a big-picture overview of your business concept. This version is used to interest potential investors, employees, and other stakeholders, and will include a financial summary “box,” but it must have a disclaimer, and the founder/entrepreneur may need to have the people who receive it sign a nondisclosure agreement (NDA). The full business plan is aimed at executing the vision concept, providing supporting details, and would be required by financial institutions and others as they formally become stakeholders in the venture. Both are aimed at providing a picture and roadmap to go from conception to creation.

Types of Business Plans

The brief business plan is similar to an extended executive summary from the full business plan. This concise document provides a broad overview of your entrepreneurial concept, your team members, how and why you will execute on your plans, and why you are the ones to do so. You can think of a brief business plan as a scene setter or—since we began this chapter with a film reference—as a trailer to the full movie. The brief business plan is the commercial equivalent to a trailer for Field of Dreams , whereas the full plan is the full-length movie equivalent.

Brief Business Plan

As the name implies, the executive summary summarizes key elements of the entire business plan, such as the business concept, financial features, and current business position. The executive summary version of the business plan is your opportunity to broadly articulate the overall concept and vision of the company for yourself, for prospective investors, and for current and future employees.

A typical executive summary is generally no longer than a page, but because the brief business plan is essentially an extended executive summary, the executive summary section is vital. This is the “ask” to an investor. You should begin by clearly stating what you are asking for in the summary.

In the business concept phase, you’ll describe the business, its product, and its markets. Describe the customer segment it serves and why your company will hold a competitive advantage. This section may align roughly with the customer segments and value-proposition segments of a canvas.

Next, highlight the important financial features, including sales, profits, cash flows, and return on investment. Like the financial portion of a feasibility analysis, the financial analysis component of a business plan may typically include items like a twelve-month profit and loss projection, a three- or four-year profit and loss projection, a cash-flow projection, a projected balance sheet, and a breakeven calculation. You can explore a feasibility study and financial projections in more depth in the formal business plan. Here, you want to focus on the big picture of your numbers and what they mean.

The current business position section can furnish relevant information about you and your team members and the company at large. This is your opportunity to tell the story of how you formed the company, to describe its legal status (form of operation), and to list the principal players. In one part of the extended executive summary, you can cover your reasons for starting the business: Here is an opportunity to clearly define the needs you think you can meet and perhaps get into the pains and gains of customers. You also can provide a summary of the overall strategic direction in which you intend to take the company. Describe the company’s mission, vision, goals and objectives, overall business model, and value proposition.

Rice University’s Student Business Plan Competition, one of the largest and overall best-regarded graduate school business-plan competitions, requires an executive summary of up to five pages to apply. 52 , 53 Its suggested sections are shown in Table 9.3.1.

ARE YOU READY?

Create a Brief Business Plan

Fill out a canvas of your choosing for a well-known startup: Uber, Netflix, Dropbox, Etsy, Airbnb, Bird/Lime, Warby Parker, or any of the companies featured throughout this chapter or one of your choice. Then create a brief business plan for that business. See if you can find a version of the company’s actual executive summary, business plan, or canvas. Compare and contrast your vision with what the company has articulated.

• These companies are well established but is there a component of what you charted that you would advise the company to change to ensure future viability?
• Map out a contingency plan for a “what-if” scenario if one key aspect of the company or the environment it operates in were drastically is altered?

Full Business Plan

Even full business plans can vary in length, scale, and scope. Rice University sets a ten-page cap on business plans submitted for the full competition. The IndUS Entrepreneurs, one of the largest global networks of entrepreneurs, also holds business plan competitions for students through its Tie Young Entrepreneurs program. In contrast, business plans submitted for that competition can usually be up to twenty-five pages. These are just two examples. Some components may differ slightly; common elements are typically found in a formal business plan outline. The next section will provide sample components of a full business plan for a fictional business.

Executive Summary

The executive summary should provide an overview of your business with key points and issues. Because the summary is intended to summarize the entire document, it is most helpful to write this section last, even though it comes first in sequence. The writing in this section should be especially concise. Readers should be able to understand your needs and capabilities at first glance. The section should tell the reader what you want and your “ask” should be explicitly stated in the summary.

Describe your business, its product or service, and the intended customers. Explain what will be sold, who it will be sold to, and what competitive advantages the business has. Table 9.3.2 shows a sample executive summary for the fictional company La Vida Lola.

Business Description

This section describes the industry, your product, and the business and success factors. It should provide a current outlook as well as future trends and developments. You also should address your company’s mission, vision, goals, and objectives. Summarize your overall strategic direction, your reasons for starting the business, a description of your products and services, your business model, and your company’s value proposition. Consider including the Standard Industrial Classification/North American Industry Classification System (SIC/NAICS) code to specify the industry and ensure correct identification. The industry extends beyond where the business is located and operates, and should include national and global dynamics. Table 9.3.3 shows a sample business description for La Vida Lola.

Industry Analysis and Market Strategies

Here you should define your market in terms of size, structure, growth prospects, trends, and sales potential. You’ll want to include your TAM and forecast the SAM. This is a place to address market segmentation strategies by geography, customer attributes, or product orientation. Describe your positioning relative to your competitors’ in terms of pricing, distribution, promotion plan, and sales potential. Table 9.3.4 shows an example industry analysis and market strategy for La Vida Lola.

Competitive Analysis

The competitive analysis is a statement of the business strategy as it relates to the competition. You want to be able to identify who are your major competitors and assess what are their market shares, markets served, strategies employed, and expected response to entry? You likely want to conduct a classic SWOT analysis (Strengths Weaknesses Opportunities Threats) and complete a competitive-strength grid or competitive matrix. Outline your company’s competitive strengths relative to those of the competition in regard to product, distribution, pricing, promotion, and advertising. What are your company’s competitive advantages and their likely impacts on its success? The key is to construct it properly for the relevant features/benefits (by weight, according to customers) and how the startup compares to incumbents. The competitive matrix should show clearly how and why the startup has a clear (if not currently measurable) competitive advantage. Some common features in the example include price, benefits, quality, type of features, locations, and distribution/sales. Sample templates are shown in Figure 9.3.2 and Figure 9.3.3. A competitive analysis helps you create a marketing strategy that will identify assets or skills that your competitors are lacking so you can plan to fill those gaps, giving you a distinct competitive advantage. When creating a competitor analysis, it is important to focus on the key features and elements that matter to customers, rather than focusing too heavily on the entrepreneur’s idea and desires.

Operations and Management Plan

In this section, outline how you will manage your company. Describe its organizational structure. Here you can address the form of ownership and, if warranted, include an organizational chart/structure. Highlight the backgrounds, experiences, qualifications, areas of expertise, and roles of members of the management team. This is also the place to mention any other stakeholders, such as a board of directors or advisory board(s), and their relevant relationship to the founder, experience and value to help make the venture successful, and professional service firms providing management support, such as accounting services and legal counsel.

Table 9.3.5 shows a sample operations and management plan for La Vida Lola.

Marketing Plan

Here you should outline and describe an effective overall marketing strategy for your venture, providing details regarding pricing, promotion, advertising, distribution, media usage, public relations, and a digital presence. Fully describe your sales management plan and the composition of your sales force, along with a comprehensive and detailed budget for the marketing plan. Table 9.3.6 shows a sample marketing plan for La Vida Lola.

Financial Plan

A financial plan seeks to forecast revenue and expenses; project a financial narrative; and estimate project costs, valuations, and cash flow projections. This section should present an accurate, realistic, and achievable financial plan for your venture. Include sales forecasts and income projections, pro forma financial statements, a breakeven analysis, and a capital budget. Identify your possible sources of financing. Figure 9.3.4 shows a template of cash-flow needs for La Vida Lola.

ENTREPRENEUR IN ACTION

Laughing Man Coffee

Hugh Jackman (Figure 9.3.5) may best be known for portraying a comic-book superhero who used his mutant abilities to protect the world from villains. But the Wolverine actor is also working to make the planet a better place for real, not through adamantium claws but through social entrepreneurship.

A love of java jolted Jackman into action in 2009, when he traveled to Ethiopia with a Christian humanitarian group to shoot a documentary about the impact of fair-trade certification on coffee growers there. He decided to launch a business and follow in the footsteps of the late Paul Newman, another famous actor turned philanthropist via food ventures.

Jackman launched Laughing Man Coffee two years later; he sold the line to Keurig in 2015. One Laughing Man Coffee café in New York continues to operate independently, investing its proceeds into charitable programs that support better housing, health, and educational initiatives within fair-trade farming communities. 56 Although the New York location is the only café, the coffee brand is still distributed, with Keurig donating an undisclosed portion of Laughing Man proceeds to those causes (whereas Jackman donates all his profits). The company initially donated its profits to World Vision, the Christian humanitarian group Jackman accompanied in 2009. In 2017, it created the Laughing Man Foundation to be more active with its money management and distribution.

• You be the entrepreneur. If you were Jackman, would you have sold the company to Keurig? Why or why not?
• Would you have started the Laughing Man Foundation?
• What else can Jackman do to aid fair-trade practices for coffee growers?

WHAT CAN YOU DO?

Textbooks for Change

Founded in 2014, Textbooks for Change uses a cross-compensation model, in which one customer segment pays for a product or service, and the profit from that revenue is used to provide the same product or service to another, underserved segment. Textbooks for Change partners with student organizations to collect used college textbooks, some of which are re-sold while others are donated to students in need at underserved universities across the globe. The organization has reused or recycled 250,000 textbooks, providing 220,000 students with access through seven campus partners in East Africa. This B-corp social enterprise tackles a problem and offers a solution that is directly relevant to college students like yourself. Have you observed a problem on your college campus or other campuses that is not being served properly? Could it result in a social enterprise?

WORK IT OUT

Franchisee Set Out

A franchisee of East Coast Wings, a chain with dozens of restaurants in the United States, has decided to part ways with the chain. The new store will feature the same basic sports-bar-and-restaurant concept and serve the same basic foods: chicken wings, burgers, sandwiches, and the like. The new restaurant can’t rely on the same distributors and suppliers. A new business plan is needed.

• What steps should the new restaurant take to create a new business plan?
• Should it attempt to serve the same customers? Why or why not?

This New York Times video, “An Unlikely Business Plan,” describes entrepreneurial resurgence in Detroit, Michigan.