This article is part of our “Business Planning Guide“—a curated list of our articles that will help you with the planning process!
What is a business plan? In its simplest form, a business plan is a guide—a roadmap for your business that outlines goals and details how you plan to achieve those goals.
In this article, I’ll explore the sections of a business plan, as well as:
To start, don’t swallow the obsolete idea that the business plan must be a long, formal document as if it were some term paper you have to write. That’s not true anymore. While every business has huge benefits to gain from going through the business planning process, only a small subset needs the formal business plan document required for seeking investors or supporting a commercial loan.
Most of us need just a Lean Business Plan,for internal use, with just bullet point lists and important projections. Good businesses always keep their Lean Plan up to date.
The lean business plan is great news because it makes the planning process much less daunting. You start simple and grow it organically. You don’t do anything that doesn’t have a business purpose, so you don’t describe your management team (to name one example) unless you need that section for outsiders. More on that in the section on the Lean Plan.
And furthermore, even for those of you who do need to produce a business plan document, the task of writing a formal business plan today is much less daunting than it used to be. These days, business plans are simpler, shorter, and easier to produce than they have ever been. Gone are the days of 30- and 40-page business plans—modern business plans are shorter, easier to write, and—thankfully—easier to read (and you could always have our MBA business plan consulting experts write a business plan for you if you so choose).
Let’s start with the basics.
What is a business plan?
If you’ve ever jotted down a business idea on a napkin with a few tasks you need to accomplish, you’ve written a business plan—or at least the very basic components of one. At its heart, a business plan is just a plan for how your business is going to work, and how you’re going to make it succeed.
How long should your plan be?
Typically, a business plan is longer than a list on a napkin (although, as you’ll see below, it is possible—and sometimes ideal—to write your entire business plan on one page). For me in practice, and for most real businesses, it can be as simple as the Lean Plan that has a few bullet points to focus strategy, tactics, milestones to track tasks and responsibilities, and the basic financial projections you need to plan: cash flow, budget, expenses.
How should you present your business plan?
A note on format: business plans should only become printed documents on select occasions, like when you need to share information with outsiders or team members. Otherwise, they should be dynamic documents that you maintain on your computer.
The plan goes on forever, meaning that you’re constantly tweaking it, because you’re regularly evaluating your business health, so the printed version is like a snapshot of what the plan was on the day that it was printed.
What does a formal plan include?
If you do need a formal business plan document, then that includes elements like:
Some information about your products and/or services
Your marketing plan
A list of major company milestones
Some information about each member of the management team and their role in the company
Details of your company’s financial plan
These are often called the “sections” or “chapters” of the business plan, and I’ll go into much greater depth about each of them below.
How often should you revise your business plan?
In all cases, the most important element of business planning is the review schedule—set specific times to review your progress toward your goals. That’s as simple as “the third Thursday of every month” to cite one obvious example.
Specifically, it’s the time to review your progress on milestones and to compare your actuals against your financial projections. A real business plan is always wrong—hence the regular review and revisions—and never done, because the process of review and revising is vital.
Who needs a business plan?
If you’re just planning on picking up some freelance work to supplement your income, you can skip the business plan. But, if you’re embarking on a more significant endeavor that’s likely to consume a significant amount of time, money, and resources, then you need a business plan.
If you’re serious about business, taking planning seriously is critical to your success.
Unfortunately, many people think of business plans only for starting a new business or applying for business loans. But business plans are also vital for running a business—strategic planning—whether or not it needs new loans or new investments. Existing businesses should have business plans that they maintain and update as market conditions change and as new opportunities arise.
Every business has long-term and short-term goals, sales targets, and expense budgets—a business plan encompasses all of those things and is as useful to a startup trying to raise funds as it is to a 10-year-old business that’s looking to grow.
1. Startup businesses
The most classic business planning scenario is for a startup, for which the plan helps the founders break uncertainty down into meaningful pieces, like the sales projection, expense budget, milestones, and tasks.
The need becomes obvious as soon as you recognize that you don’t know how much money you need, and when you need it, without laying out projected sales, costs, expenses, and timing of payments. And that’s for all startups, whether or not they need to convince investors, banks, or friends and family to part with their money and fund the new venture.
In this case, the business plan is focused on explaining what the new company is going to do, how it is going to accomplish its goals, and—most importantly—why the founders are the right people to do the job. A startup business plan also details the amount of money needed to get the business off the ground, and through the initial growth phases that will lead (hopefully!) to profitability.
2. Existing businesses
Not all business plans are for startups that are launching the next big thing. Existing businesses use business plans to strategically manage and steer the business, not just to address changes in their markets and to take advantage of new opportunities. They use a plan to reinforce strategy, establish metrics, manage responsibilities and goals, track results, and manage and plan resources including critical cash flow. And of course, they use a plan to set the schedule for regular review and revision.
Business plans can be a critical driver of growth for existing businesses. Did you know that businesses that write plans and use them to manage their business grow 30 percent faster than businesses that take a “seat of the pants” approach? A study by Professor Andrew Burke, the founding Director of the Bettany Centre for Entrepreneurial Performance and Economics at Cranfield School of Management, discovered exactly this.
For existing businesses, a robust business planning process can be a competitive advantage that drives faster growth and greater innovation. Instead of a static document, business plans in existing businesses become dynamic tools that are used to track growth and spot potential problems before they derail the business.
Choosing the right kind of business plan for your business
Considering that business plans serve many different purposes, it’s no surprise that they come in many different forms.
Before you even start writing your business plan, you need to think about who the audience is and what the goals of your plan are. While there are common components that are found in almost every business plan, such as sales forecasts and marketing strategy, business plan formats can be very different depending on the audience and the type of business.
For example, if you’re building a plan for a biotech firm, your plan will go into details about government approval processes. If you are writing a plan for a restaurant, details about location and renovations might be critical factors. And, the language you’d use in the biotech firm’s business plan would be much more technical than the language you’d use in the plan for the restaurant.
Plans can also differ greatly in length, detail, and presentation. Plans that never leave the office and are used exclusively for internal strategic planning and management might use more casual language and might not have much visual polish.
On the other end of the spectrum, a plan that is destined for the desk of a top venture capitalist will have a high degree of polish and will focus on the high-growth aspects of the business and the experienced team that is going to deliver stunning results.
Here is a quick overview of three common types of plans:
A one-page business plan is exactly what it sounds like: a quick summary of your business delivered on a single page. No, this doesn’t mean a very small font size and cramming tons of information onto a single page—it means that the business is described in very concise language that is direct and to-the-point.
A one-page business plan can serve two purposes. First, it can be a great tool to introduce the business to outsiders, such as potential investors. Since investors have very little time to read detailed business plans, a simple one-page plan is often a better approach to get that first meeting. Later in the process, a more detailed plan will be needed, but the one-page plan is great for getting in the door.
This simple plan format is also great for early-stage companies that just want to sketch out their idea in broad strokes. Think of the one-page business plan as an expanded version of jotting your idea down on a napkin. Keeping the business idea on one page makes it easy to see the entire concept at a glance and quickly refine concepts as new ideas come up. Learn more about how to create a one-page business plan.
A Lean Plan is more detailed than a one-page plan and includes more financial information, but it’s not as long as a traditional business plan. Lean Plans are more likely to be used internally as tools for strategic planning and growth.
The Lean Business Plan dispenses with the formalities that are needed when presenting a plan externally for a loan or investment and focuses almost exclusively on business strategy, tactics, milestones, metrics, budgets, and forecasts.
These lean business plans skip sections like company history and management team since everyone in the company almost certainly knows this information. You don’t do an exit strategy section of your business plan if you’re not writing for investors and therefore you aren’t concerned with an exit.
The simplest lean business plan uses bullet points to define strategy, tactics, concrete specific dates and tasks, and essential numbers including projected sales, spending, and cash flow. It’s just five to 10 pages when printed. And few Lean Plans need printing. Leave them on the computer. Review and revise them at least once a month. The first Lean Plan takes just a few hours to do (or less), and a monthly review and revision can take only an hour or two per month.
Lean business plans are management tools used to guide the growth of both startups and existing businesses. They help business owners think through strategic decisions and measure progress towards goals.
External business plan (a.k.a the standard business plan document)
External business plans, the formal business plan documents, are designed to be read by outsiders to provide information about a business. The most common use of a full business plan is to convince investors to fund a business, and the second most common is to support a loan application. Occasionally this type of business plan is also used to recruit or train or absorb key employees, but that is much less common.
A formal business plan document is an extension of the internal business plan or the Lean Plan. It’s mostly a snapshot of the internal plan as it existed at a certain time. But while an internal plan is short on polish and formality, a formal business plan document should be very well-presented, with more attention to detail in the language and format. See example business plans in our sample plan library to give you an idea of what the finished product might look like.
In addition, an external plan details how potential funds are going to be used. Investors don’t just hand over cash with no strings attached—they want to understand how their funds will be used and what the expected return on their investment is.
Finally, external plans put a strong emphasis on the team that is building the company. Investors invest in people rather than ideas, so it’s critical to include biographies of key team members and how their background and experience is going to help grow the company.