What Is a Solid Business Plan?
All Strong Businesses Start With a Solid Business Plan
A business plan is a document that summarizes the operational and financial objectives of a business and contains the detailed plans and budgets showing how the objectives are to be realized. It is the road map to the success of your business. For anyone starting a business, it's a vital first step.
What Are the Components of a Business Plan?
The formal, traditional business plan has the following sections:
See the Business Plan Outline for a further description of each section of the plan.
Why Does Every Start-Up Need a Business Plan?
If you have an idea for starting a new venture, a business plan is essential to determine if your business model is viable. If start-up financing is required, you must have an investor-ready business plan that demonstrates how the proposed business will be profitable.
For example, the market analysis will reveal whether there is sufficient demand for your product or service in your target market - if the market is already saturated your business model will need to be changed (or scrapped).
The competitive analysis will examine the strengths and weaknesses of the competition and help direct your strategy for garnering a share of the market in your marketing plan.
For example, if the existing market is dominated by established competitors you will have to come up with a marketing plan to lure customers from the competition (lower prices, better service, etc.)
The management plan outlines your business structure, management, and staffing requirements. If you business requires specific employee and management expertise you will need a strategy for finding and hiring qualified staff and retaining them.
The operating plan describes your facilities, equipment, inventory, and supply requirements. Business location and accessibility is critical for many businesses - if this is the case you will need to scout potential sites. If your proposed business requires parts or raw materials to produce goods to be sold to customers you will need to investigate potential supply chains.
The financial plan is the determining factor as to whether your proposed business model is likely to be a success and (if financing is required) whether you are likely to obtain start-up funding in the form of equity or debt financing from banks, angel investors, or venture capitalists. You can have a great idea for a business and excellent marketing, management, and operational plans but if the financial plan shows that the business will not make enough income after expenses to be profitable then the business model is not viable.
Still have doubts? See 5 Reasons a Business Plan Is Key to Success.
The Business Plan Is a Living Document
Because the business plan contains detailed financial projections, forecasts about your business's performance, and a marketing plan, it's an incredibly useful tool for everyday business planning, and as such should be reviewed regularly and updated as required.
How to Write a Business Plan
My Writing A Business Plan series provides detailed instructions for working through each section of the business plan. The Business Plan Outline is the starting page; it includes a brief explanation of the contents of each section of the plan.
Note that the above is a detailed explanation of how to write a formal, full-fledged business plan; there are different business plans for different purposes.
How Does the Business Plan Differ from the Investment Proposal?
Not much. They both have the same contents. You can think of an investment proposal as a business plan with a different audience. The business plan is considered an internal document, unlike the investment proposal, which is designed to be presented to external agencies. For more about business plans crafted for investors, see Prepare an Investor Ready Business Plan.
See also: The 7 Most Common Business Plan Mistakes.
Examples: JoAnn spent months researching and writing a business plan for her new business.
Business Plan Basics
Business planning is about results. You need to make the contents of your plan match your purpose. Don’t accept a standard outline just because it’s there.
What is a business plan?
A business plan is any plan that works for a business to look ahead, allocate resources, focus on key points, and prepare for problems and opportunities. Unfortunately, many people think of business plans only for starting a new business or applying for business loans. But they are also vital for running a business, whether or not the business needs new loans or new investments. Businesses need plans to optimise growth and development according to priorities.
What’s a start-up plan?
A simple start-up plan includes a summary, mission statement, keys to success, market analysis, and break-even analysis. This kind of plan is good for deciding whether or not to proceed with a plan, to tell if there is a business worth pursuing, but it is not enough to run a business with.
Is there a standard business plan?
A normal business plan (one that follows the advice of business experts) includes a standard set of elements. Business plan layouts and outlines vary, but generally a plan will include components such as descriptions of the company, product or service, market, forecasts, management team, and financial analysis.
Your plan will depend on your specific situation. For example, description of the management team is very important for investors while financial history is most important for banks. However, if you’re developing a plan for internal use only, you may not need to include all the background details that you already know. Make your plan match its purpose.
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What is most important in a plan?
It depends on the case, but usually it’s the cash flow analysis and specific implementation details.
- Cash flow is both vital to a company and hard to follow. Cash is usually misunderstood as profits, and they are different. Profits don’t guarantee cash in the bank. Lots of profitable companies go under because of cash flow problems. It just isn’t intuitive.
- Implementation details are what make things happen. Your brilliant strategies and beautifully formatted planning documents are just theory unless you assign responsibilities, with dates and budgets, follow up with those responsible, and track results. Business plans are really about getting results and improving your company.
Can you suggest a standard business plan outline?
If you have the main components, the order doesn’t matter that much, but here’s the outline order we suggest in Business Plan Pro software:
- Executive Summary: Write this last. It’s just a page or two of highlights.
- Company Description: Legal establishment, history, start-up plans, etc.
- Product or Service: Describe what you’re selling. Focus on customer benefits.
- Market Analysis: You need to know your market, customer needs, where they are, how to reach them, etc.
- Strategy and Implementation: Be specific. Include management responsibilities with dates and budget.
- Management Team: Include backgrounds of key members of the team, personnel strategy, and details.
- Financial Plan: Include profit and loss, cash flow, balance sheet, break-even analysis, assumptions, business ratios, etc.
An expanded plan outline
We don’t recommend developing the plan in the same order you present it as a finished document. For example, although the Executive Summary comes as the first section of a business plan, we recommend writing it after everything else is done.
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