Four components to include in your business plan
Create your business plan with help from this step-by-step guide.
A business plan is a roadmap for your business. It lays out the key milestones and routes to grow your business. Taking the time to chart a clear sense of direction will improve your prospects for success.
"We're human, and one way we do better at complicated things like running a business is by writing things down, which helps us break complex tasks into multiple steps and components that we can track and manage," says Tim Berry, author of Lean Business Planning: Get What You Want from Your Business. "Just like a GPS, it helps you keep track of your destination and adjust your route if you run into traffic on the way."
Berry likens a business plan to a roadmap that helps you keep track of your destination.
These four components are crucial to development of a business plan:
Section #1: Company operations
Think of the company operations section as the abbreviated version of your business plan. Encompassing the past, present, and future — where you are, where you've been, and where you want to go — it includes an executive summary of your company, including who's running it, what you sell, and who you sell to. It includes strategic and financial highlights, such as growth history, revenue projections, and key differentiators.
This section of your business plan should answer the questions, "Who are you?" and "Why do you exist?" Important components include your company's history, mission and vision, legal structure, leadership, and products or services. These latter two pieces are the most important and typically constitute their own sections in business plans targeting investors.
"Investors want to know who's in charge, so the backgrounds of the management team and the founders are really important," Berry says. "In terms of products, they want to know what you sell, how it's sourced, what technology it uses, and who owns any associated patents."
Section #2: Market analysis
The second section should comprise a market analysis, key components of which are:
A description and outlook outlining the size and growth rate of your industry
Information about your target market, such as its size and composition, including customer demographics and psychographics
A summary of your market share and geographic reach
A traditional SWOT analysis breaking down your strengths, weaknesses, opportunities, and threats
Section #3: Marketing plan
This section is where the rubber meets the road. Use it to present specific sales and marketing plans and strategies. A good place to start is your plans for advertising, digital marketing, and grass-roots marketing, including how you're going to promote your business to prospects and customers. From there, detail your market penetration, pricing, growth, sales, and distribution strategies.
Section #4: Financials
A business plan is as much a health check as it is a growth plan, so a section dedicated to finances is critical. If you own an existing business, include three to five years worth of historical financial data, including income statements, balance sheets, and cash flow statements.
No matter how established your business, provide a five-year forecast that includes projected income statements, balance sheets, cash flow statements, and capital expenditure budgets. For the first year, projections should be monthly or quarterly. For years two through five, they can be quarterly or annual. Either way, charts and graphs can be stronger than words and phrases.
Don't avoid creating a business plan because it seems like busy work. Treat it like a tool instead of a term paper, and you'll find that it's worth the effort.
"A business plan helps people who are starting or running a business focus on what they're going to do and when they're going to do it," Berry says. "It helps you run your business better."