What’s a business plan?

A business plan is a document or documents that detail what a business does, who its customers are, and how it plans to make money. To get started, download our FREE business plan template.

Why write a business plan?

What’s a business without a business plan? Answer: an unorganized one! It is not a surprise that planning a complete business model with projections, customer acquisition costs, and identifying your target market is nearly impossible when you are just starting out. But, sometimes in order to receive a bank loan or even a private loan from a family member or angel investor, you need to have a plan in place.

Before moving forward with your business idea, it is important to complete basic research. Make sure you have a good understanding of your total market. Many times this preliminary research is essential to obtain funding. There are four main areas that you should research thoroughly before starting your business. You will also want to incorporate much of this research into your business plan.

SBDC Quick Tip: Not all business plans are created equal.  If your business plan is for a lender, write for an audience that doesn’t know you, your business or your industry. If you’re writing a plan for your use – mapping out your intentions and goals for your business – use whatever format is comfortable and will be useful to you as a guide.

Lean Startup Plan

A lean startup business plan focuses primarily on quickly writing out your hypothesis for your overall business plan in order to better prepare for customer discovery interviews and research. Before you write out an entire business plan, you should consider filling out something like a Business Model Canvas (BMC). A BMC will likely not be considered a completed business plan, rather, a BMC will help you make adjustments as you learn more from your target market, create new partnerships and hone in on what your value proposition(s) are.

Here are the main sections you will find inside of the Business Model Canvas:

• Key Partnerships – Who do you work with? What’s their skillset? 

• Key Activities – What does your business do? What does your business sell/offer?

• Key Resources – Do you have any proprietary / unique tools you use to operate your business?

• Value Proposition – What kind of value do you bring your customers? Why is it worth money?

• Customer Relationships – How will you connect with customers? Do they know you already?

• Customer Segments – Who is your target market? What do they do? Problems they have?

• Channels – How do you talk to your customers? Where do you sell to your customers?

• Cost Structure – How did you arrive at your final product / service price? What are the costs associated with running your business?
• Revenue Streams – Where does your revenue come from? Is there room for growth?

After you have filled out your BMC, it may be a good idea to spend some time creating a complete business plan. Your business plan should include details such as your target market, how/where/when you are planning to make money, how much potential debt you may need to take on to get started, and other related documents to support your research or financial request(s).

How to write a business plan

Traditional Format

Traditional business plans are multiple pages and include an executive summary. A lot of bank loans and SBA loans may require this format as it includes a lot of information into a condensed document. Every section is purposeful and explains different parts about a business. Here is the basic breakdown of a traditional business plan:

Executive Summary

An executive summary is an overview that highlights all of the key information found within your business plan. In essence, it allows the reader to have a basic understanding of what your business is all about in a few paragraphs. The executive summary might be the only part of your plan that a busy investor will read, so it is extremely important that you spend a lot of time getting this section “right”. Typically, the executive summary is written last as you will pull information from the other sections to include in your summary.

Business Description

Describing your business should become second nature to you. If you can’t explain your business to a five year old, it’s too complicated for most people to understand. In this section, it is important to focus on the key elements of your business operations, a brief overview of who your customers are, what kind of product or service you are offering, and the price of said products and/or services.

Market Analysis

Theoretically, a business partner or investor will have some experience with your industry. However, this isn’t always the case. This is why it is extremely important to explain who your market is (your customers), their pain points, differences locally and nationally between your customers, how much your customers spend currently to solve their problems, etc. Here are some things to ask yourself when writing your market analysis:

• Who is your customer?

• • An investor wants to know if you know your customers. Who are they? How old are they? Where do they live? What kind of things do they like? What kind of history do they have? What do they do for work? Are they a business? What kind of offerings do they have? What does their customer look like? Details here will go a long way not only for a potential investment, but also for you to better understand who your customer is and how to best serve them.

• How big is your Total Addressable Market (TAM)?

• • In all, how many customers do you have? If your solution is only fit for your town, then think locally. If you can take your solution nationally, how many customers are there across the United States? Not every person and not every business can be a customer, so really think hard about how many customers you could possibly obtain with little to no competition.

• How big is your Serviceable Addressable Market (SAM)?

• • A SAM is a sub-market formed by things like, but not limited to, geography, regulation, and pricing. It represents the portion of the market you are potentially able to capture with your current product(s) and/or service(s), business model, and sales and distribution channels.

• How big is your Serviceable Obtainable Market (SOM)?

• • The SOM is a niche market, most likely the market you are just starting out with. These are the customers you can realistically obtain due to your limitations of resources, presence of competition, and overall lack of market awareness. When you are just starting out, it isn’t likely you will obtain every customer in an entire market from the start, so a SOM is a great starting place.

• How much does your market currently spend to solve their problem(s)?

• • If there isn’t an obvious solution available, it doesn’t mean that your market isn’t spending anything to solve their problem(s). A customer, whether it is a business or individual, could be paying another business (direct competition) to solve certain aspects of their problem(s), or they could be paying for another ‘workaround’ solution (indirect competition).

Organization and Management

How is your business structured? Is it an LLC? Sole Proprietorship? Do you have partners already? For all of those who work with you on the business, who is in a managerial role? What are the typical tasks of your management team?

Service or Product Line

What products or services are you offering to your customers? What do they look like? Why do they look the way they do? How are they created? How simple or how complex is it to bring this solution to your customers? Do you have a product line (different variations of the same product or service)? What new products or services will you offer in the future? Something to keep in mind when building your product line is your pricing strategy. Check out this helpful article HubSpot has written that describes various pricing strategies and factors to consider. 

Marketing and Sales

The whole point of a for-profit business is to make money, right? This is why you need to break down your marketing and sales process within your business plan. What kind of marketing channels will you use to get the word out about your product or service? Are you strictly online or will you depend on traditional media? Word of mouth? When it comes to sales, what does that process look like? Do you know what your customer or buyer journey looks like? 

Financial Projections

Just like the marketing and sales section, your financial projections section is a way to show potential investors that you have a plan to make money. This section will show them what kind of money will be coming in, and what kind of money will be going out. What will their buy in consist of, how long will it take to break even, and so on. The financial section can be a little tricky because when you are just starting out, you think your plan is fool-proof. However, that isn’t always the case, and you will have to change and pivot your plans to get those first couple of sales. At this stage of planning, it’s best to have conservative sales projections, and cost estimates which are on the high side. By creating a “worst case” plan, you demonstrate the likelihood the business will succeed even in tough circumstances.

Funding Request

What kind of funding are you looking for? A loan? Equity investment? Check out our Fund My Business Guide which details 10 different strategies to obtain funds to get your business started.

Appendix

At the end of it all, including a section where you provide supporting documentation to back up your claims in the plan itself. This can include but is not limited to financial statements, market research, charts, and tables. It can also be a place to include proof of licensure, patent information and other industry or project specific data.

SBDC Quick Tip: If you include something in your business plan narrative, the costs/revenues associated should be included in your financial projections.  If something is in the financials be sure it’s supported by the business plan narrative as well.