What is a Business Plan?

It’s a map of what you will sell and to whom, how you will run your business, whom you will rely on,
and where you will be located.

Primary Purposes of a Business Plan

1. Establish a business focus. The primary purpose of a business plan is to establish your plans for the
future. These plans should include goals or milestones alongside detailed steps of how the business will
reach each step. The process of creating a roadmap to your goals will help you determine your business
focus and pursue growth.
2. Secure funding. One of the first things private investors, banks or other lenders look for before
investing in your business is a well-researched business plan. Investors want to know how you operate
your business, what your revenue and expense projections are and, most importantly, how they will
receive a return on their investment.
3. Attract executives. As your business grows, you'll likely need to add executives to your team. A
business plan helps you attract executive talent and determine whether or not they are a good fit for
your company.

Basic Parts of a Business Plan

(1. Executive Summary, 2. Company description, 3. Market Analysis, 4. Organization and Management,
5. Service or Product line, 6. Marketing and Sales, 7. Funding Request, 8. Financial Projections, 9.
Appendix)

Different parts of a business plan as they appear in a business plan.

1. Executive Summary - considered the most important section of a business plan. This section
briefly tells your reader where your company is, where you want to take it, and why your
business idea will be successful. This the first opportunity to grab a potential investor’s interest.
The executive summary should highlight the strengths of your overall plan and therefore be the
last section you write.
Key points to include in executive summary based on the stage of your business
If You Are an Established Business
If you are an established business, be sure to include the following information:
 The mission statement: This explains what your business is all about. It should be between several
sentences and a paragraph.
 Company information: Include a short statement that covers when your business was formed, the
names of the founders and their roles, your number of employees, and your business location(s).
 Growth highlights: Include examples of company growth, such as financial or market highlights (for
example, “XYZ Firm increased profit margins and market share year-over-year since its foundation).
Graphs and charts can be helpful in this section.
 Your products/services: Briefly describe the products or services you provide.
 Financial information: If you are seeking financing, include any information about your current bank
and investors.
 Summarize future plans: Explain where you would like to take your business.
With the exception of the mission statement, all of the information in the executive summary should be
covered in a concise fashion and kept to one page. The executive summary is the first part of your business
plan many people will see, so each word should count.
If You Are a Start-up or New Business
If you are just starting a business, you won’t have as much information as an established company. Instead,
focus on your experience and background as well as the decisions that led you to start this particular
enterprise.
Demonstrate that you have done thorough market analysis. Convince the reader that you can succeed in your
target market; then address your future plans.
2. Company Description - This section of your business plan provides a high-level overview of the
different elements of your business. The goal is to help readers and potential investors quickly
understand the goal of your business and its unique proposition.
What to Include in Your Company Description
 Describe the nature of your business and list the marketplace needs that you are trying to satisfy.
 Explain how your products and services meet these needs.
 List the specific consumers, organizations, or businesses that your company serves or will serve.
 Explain the competitive advantages that you believe will make your business a success such as your
location, expert personnel, efficient operations, or ability to bring value to your customers.
3. Market Analysis - The market analysis section of your business plan should illustrate your
industry and market knowledge as well as any of your research findings and conclusions.
What to Include in Your Market Analysis
 Industry description and outlook: Describe your industry, including its current size and historic growth
rate as well as other trends and characteristics (e.g., life cycle stage, projected growth rate). Next, list
the major customer groups within your industry.
 Information about your target market: One of the first steps in the process is determining your target
market and why they would want to buy from you. Narrow your target market to a manageable size.
Many businesses make the mistake of trying to appeal to too many target markets. Research and
include the following information about your market:
 Distinguishing characteristics: What are the critical needs of your potential customers? Are those
needs being met? What are the demographics of the group and where are they located? Are there any
seasonal or cyclical purchasing trends that may impact your business?
 Size of the primary target market: In addition to the size of your market, what data can you include
about the annual purchases your market makes in your industry? What is the forecasted market growth
for this group?
 How much market share can you gain?: What is the market share percentage and number of
customers you expect to obtain in a defined geographic area? Explain the logic behind your calculation.
 Pricing and gross margin targets: Define your pricing structure, gross margin levels, and any discount
that you plan to use.
 Competitive analysis: Ask which areas are being ignored by your competitors. Creating a niche for your
business is essential. Your competitive analysis should identify your competition by product line or
service and market segment. Assess the characteristics of the competitive landscape (e.g., market
share, strengths and weaknesses, barriers to market entry, etc.). Don’t Become a jack-of-all-trades.
Learn to strategize.
 Regulatory restrictions: Include any customer or governmental regulatory requirements affecting your
business, and how you’ll comply.
Once you’ve completed this section, you can move on to the Organization and Management section of your
business plan.
4. Organization and Management - This section should include your company’s organizational
structure, details about the ownership of your company, profiles of your management team,
and the qualifications of your board of directors. Who does what in your business? What is their
background and why are you bringing them into the business as board members or employees?
What are they responsible for? The people reading your business plan want to know who’s in
charge, so tell them. Give a detailed description of each division or department and its function.
5. Service or Product Line - Once you’ve completed the Organizational and Management section
of your plan, the next part of your business plan is where you describe your service or product,
emphasizing the benefits to potential and current customers. Focus on why your particular
product will fill a need for your target customers.
What to Include in Your Service or Product Line Section
 A description of your product/service: Include information about the specific benefits of your product
or service – from your customers’ perspective. You should also talk about your product or service’s
ability to meet consumer needs, any advantages your product has over that of the competition, and the
current development stage your product is in (e.g., idea, prototype).
 Details about your product’s life cycle: Be sure to include information about where your product or
service is in its life cycle, as well as any factors that may influence its cycle in the future.
 Intellectual property: If you have any existing, pending, or any anticipated copyright or patent
filings, list them here. Also disclose whether any key aspects of a product may be classified as trade
secrets. Last, include any information pertaining to existing legal agreements, such as nondisclosure or
non-compete agreements.
 Research and development (R&D) activities: Outline any R&D activities that you are involved in or are
planning. What results of future R&D activities do you expect? Be sure to analyze the R&D efforts of not
only your own business, but also of others in your industry.
6. Marketing and Sales - Once you’ve completed the Service or Product Line section of your plan,
the next part of your business plan should focus on your marketing and sales management
strategy for your business. Marketing is the process of creating customers, and customers are
the lifeblood of your business. In this section, the first thing you want to do is define your
marketing strategy. You’ll learn more about this in the Marketing chapter of this course. After
you have developed a comprehensive marketing strategy, you can then define your sales
strategy. This covers how you plan to actually sell your product. Sales is also covered later in the
course.
7. Funding Request - If you are seeking funding for your business venture, use this section to
outline your requirements, including the following:
 Your current funding requirement
 Any future funding requirements during the next five years
 How you intend to use the funds you receive: Is the funding request for capital expenditures? Working
capital? Debt retirement? Acquisitions? Whatever it is, be sure to list it in this section.
 Any strategic financial situational plans for the future, such as: a buyout, being acquired, debt
repayment plan, or selling your business.
When you are outlining your funding requirements, include the amount you want now and the amount you
want in the future. Also include the time period that each request will cover, the type of funding you would like
to have (e.g., equity, debt), and the terms that you would like to have applied.
 8. Financial Projections - You should develop the Financial Projections section after you’ve
analyzed the market and set clear objectives. That’s when you can allocate resources efficiently.
The following is a list of the critical financial statements to include in your business plan packet.
Historical Financial Data
If you own an established business, you will be requested to supply historical data related to your company’s
performance. Most creditors request data for the last three to five years, depending on the length of time you
have been in business. Typical financial data to include are your company’s income statements, balance sheets,
and cash flow statements for each year you have been in business. Often, creditors are also interested in any
collateral that you may have that could be used to ensure your loan, regardless of the stage of your business.
Prospective Financial Data
All businesses, whether start-up or growing, will be required to supply prospective financial data. Most of the
time, creditors will want to see what you expect your company to be able to do within the next five years. Each
year’s documents should include forecasted income statements, balance sheets, cash flow statements, and
capital expenditure budgets. Make sure that your projections match your funding requests; creditors will be
on the lookout for inconsistencies.
9. Appendix - The Appendix should be provided to readers on an as-needed basis and should not
be included with the main body of your business plan. Specific individuals (such as creditors)
may want access to this information to make lending decisions. The appendix can include items
such as your credit history, résumés, letters of reference, and any additional information that a
lender may request. Therefore, it is important to have the appendix within easy reach.
Any copies of your business plan should be controlled; keep a distribution record. This will allow
you to update and maintain your business plan on an as-needed basis.