Politics & Society

What Is a Business Plan? Learn How to Write a Business Plan in 8 Steps

Written by MasterClass

Jun 5, 2019 • 6 min read

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Howard Schultz Business Leadership

Business plans are the foundational document of any company, from small businesses to major corporations. Business plans help new businesses formalize their goals to internal staff and potential investors, as well as allow the business founders to keep track of their company’s progress as it grows.

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What Is a Business Plan?

A business plan is a formal, written document stating what a company does, what it wants to do, and how it plans to get there. Business plans are written in a standardized format, which allows anyone—such as potential investors or business partners—to assess how a company compares to other companies in the same industry using generally accepted standards and criteria.

3 Reasons to Write a Business Plan

A business plan helps business owners figure out three initial things: a company’s goals, the resources it needs to meet them, and the steps it needs to take to meet the goals in approximately a three-to-five-year timeframe.

A business plan is useful in further guiding business owners to do the following:

  1. Starting a business. A business plan provides the specific organizational, financial, and operational framework of a company. Business owners can use a business plan as an internal strategy document and statement of values and/or purpose. Alternatively, some business plans are used to prove competency and value to possible outside investors. Business plans can be used as tools to give potential investors an idea of a company’s core mission and future goals.
  2. Expanding a business. A business plan will tell potential investors what the current state of your company is and how you plan to expand it. In order to attract capital investment, you need to give a comprehensive summary of how your company is currently operating and a detailed plan for future growth.
  3. Forming a Business Partnership. When starting a business with a partner, a business plan will lay out a detailed financial agreement in full. This prevents confusion and disputes from occurring down the line and charts a course for how your partnership will function moving forward.

How to Write a Business Plan in 8 Steps

The traditional business plan template has a formal structure that applies to almost every type of business. It is designed to answer questions about a company and its prospects.

A good business plan is usually between 30 and 50 pages long, written in clear, simple language. Follow this step-by-step guide to writing a basic business plan.

Step 1: Executive Summary

The executive summary is the very first section of your finished business plan, but it’s often the last part that you will write. This is because the executive summary condenses the key points of the rest of your business plan into a short introductory section. Think of it like a cover letter or abstract that clues readers into the most important details of what will follow. Executive summaries vary in length, but a good rule of thumb is that they are about 5-10% the length of the rest of the business summary. The necessary parts of an executive summary include:

  • Mission statement. An expression of your company’s core values and purpose.
  • Company information. Company name, founding date, headquarters, management team, founders, or owners.
  • Highlights. Unique details and achievements your company has already accomplished. Includes patents held and awards received.
  • Products and services. What product you sell and/or what services you provide. Description of your customer base.
  • Financial data. A brief summary of any existing funding sources or investors.
  • Future projections. Concrete, data-driven projections for your company’s growth outlook and future plans.

Step 2: Overview of Business and Industry

This section should contain a more comprehensive overview of your larger industry and how your company fits into it. This section generally includes:

  • Industry description. Give a brief description of the industry as a whole, including recent sales trends and other relevant financial statistics
  • Business niche. Describe how your business will find a niche in this larger industry picture.
  • Competition overview. Give a comprehensive overview of your competition
  • Business improvements. Outline how you see your business outperforming potential rivals and how you will improve on existing services or products.

Step 3: Market Analysis

A market analysis is a more detailed look at your company’s business model and how you fit into the competitive environment in your industry and market. A market analysis should contain the following:

  • Your target market. Describe the location and demographics of your customer base and how you plan on engaging them.
  • Market research and testing. Your data on the size and activity in your market, how much money customers spend, the prospects for growth, underserved portions of the market.
  • Barriers. List any barriers to entry that might insulate your business from the competition. These might include: access to funding, regulatory hurdles, location, etc.
  • Competitive analysis. Your top competitors’ market share, strengths, weaknesses, and the obstacles they present to you. Estimate your projected sales vs. your competitors. Oftentimes this comes in the form of a table with sales figures listed for you and your competitors.

Step 4: Sales and Marketing Plan

The sales and marketing section of the business plan outlines your strategy to grow your market share and customer base. It includes information on:

  • Products and services. What you sell, your intellectual property, how your products meet your customers’ needs, your competitive advantage and the specific innovation or unique service that your company will bring to the market (also known as a value proposition).
  • Marketing strategy. This includes pricing, advertising and promotion, and sales strategy.
  • Sales and distribution. A description of your sales force and marketing team members, How your supply chain is organized and will operate.

Step 5: Ownership and Management

The fifth section of a business plan contains biographies and resumes of the company’s owners and management team, a description of their individual duties, and what each contributes to the company. This section is where you should include an organizational chart for your company.

This is also the section where you should discuss any roles that remain unfilled or any roles you foresee needing to fill according to the growth strategy you outline.

Step 6: Operating Plan

Business plans include a section that describes the physical operation of the business, like personnel, equipment, inventory, processes, organization and other elements of your core operations that are required to produce your product or service. The operating plan should include information on:

  • Production. How you make the things you sell, how long it takes, details of the development and manufacturing process.
  • Facilities. Land, offices, plants, square footage, leasing or mortgage costs, permits and licensing, maintenance, and overhead.
  • Employees. A breakdown of your key employees and team members, recruitment and training, staff and contractors (full-time, part-time, and freelancers).
  • Equipment. Costs of leasing or purchase, maintenance, and depreciation.
  • Supplies. The chain of materials and suppliers, inventory management, overseas or domestic sourcing, and fulfillment.
  • Research and development. Intellectual property, the timing of new products or services, and prospects for innovation.

Step 7: Financial Plan

Apart from the executive summary, the financial plan is the most important section of the business plan. It should contain all the relevant financial documents that describe your business and financial projections of your future revenues and income. A financial plan should include the following:

  • Income statements. Your expected revenues, expenses, and income over several quarters or years.
  • Cash flow projections. Your anticipated cash revenue and expenses.
  • Balance sheet. A summary of your assets, liabilities, and equity.
  • Accounts receivable and accounts payable. The money owed to you that hasn’t been paid yet, and the bills you still have to pay.
  • Debt obligations. The money you owe to lenders.
  • Break-even analysis. A document that shows the level of sales you need to generate to cover all of your fixed and variable costs.

Step 8: Appendix

The appendix includes all the documents that support the rest of your business plan. This can include a variety of documents that are too long to include in the main body of the report, like ancillary support documents, confidential documents, and other materials.

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