What Is a Business Plan?

Business Plan Explained in Less Than 5 Minutes

Young man writing a business plan in home office
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A business plan is a detailed written document that describes your business’s activities, goals, and strategy. A strong plan outlines everything from the products a company sells to the executive summary to the overall management. In essence, a business plan should guide a founder’s actions through each stage of growth. 

A business plan is crucial in identifying and executing the company’s objectives. Without one, you may face roadblocks, such as the inability to capture investor interest, receive bank loans, or grow your company. There is a science to writing a business plan. Learn what essential elements you need in a business plan to effectively obtain your goals.

Definition and Examples of a Business Plan

Think of your business plan as a road map. It documents the various stages of starting and running your business, including business activities and objectives. Business plans create the structure you need to make decisions by outlining the financial and operational goals you’re striving toward. 

One of the most common reasons for crafting a business plan is to attract investors—and, in return, receive funding. As an early stage company, for example, you may leverage your business plan to convince investors or banks that your entity is credible and worthy of funding. The business plan should prove that their money will be returned

A business plan can also be useful for when a well-developed company goes through a merger or acquisition. As outlined by the U.S. Small Business Administration (SBA), a merger creates a new entity via the combination of two businesses. An acquisition, on the other hand, is when a company is purchased and absorbed into an existing business. In either case, a business plan helps establish relationships between business entities, making a merger or acquisition more likely.

  • Alternate name: Strategic plan

How a Business Plan Works

A business plan is a formalized outline of the business operations, finances, and goals you aim to achieve to be a successful company. When designing a business plan, companies have leeway for how long, short, or detailed it can be. So long as it outlines the foundational aspects of the business, in most cases, it will be effective.

The most common type of business plan is a traditional business plan. This style tends to have the following common elements, generally in this order.

  • Executive summary: Tells your reader why your company will be successful. Includes the company’s mission statement, product information, and basics regarding the business structure. 
  • Company description: Where you brag about your entity’s strengths. Answer the question, what problem is your team solving?
  • Market analysis: A deep dive into your industry and the competition. Consider why competitors are successful. How can your offering do it better? If applicable, how can you enhance the experience for the consumer? 
  • Management plan: Outlines leadership structure of the company and may be best detailed as a chart. This way, readers can see exactly who is planning to run the company and how they will impact growth. 
  • Marketing and sales plan: Details how you’ll attract consumers with your product or service, and how you will retain those customers. All strategies outlined in this section, such as the use of digital marketing, will be referenced in your financial plan. 
  • Funding request: For those companies asking for funding, this is where you’ll detail the amount of funding you’ll need to achieve your goals. Clearly explain how much you need and what it will be used for.
  • Financial plan: Convinces the reader that your company is financially stable and can turn a profit. You will need to include a balance sheet, an income statement, and the cash flow statement (or cash flow projection, in the case of a new venture). 
  • Appendix: Where any supporting documents, such as legal documents, licenses of employees, and pictures of the product will be included. 

Your company’s business plan should fit your needs, which will often depend on what stage of growth you are in. If you are considering starting a new venture, for example, writing a detailed business plan can help prove if your concept is viable or not. 

If your business is seeking financial capital, though, you will want your business plan to be investor-ready. This will require you to have a funding request section, which would be placed right above your financial plan.

You should avoid using lofty terms or technical jargon that those outside your team won’t understand. A business plan is meant to be shared with those inside and outside your organization. Simple and effective language is best.

Types of Business Plans

Your business’s stage impacts the length and detail of a business plan. As discussed, a traditional plan follows a detailed structure, from the executive summary to the appendix. It is a lengthier document, often amounting to dozens of pages, and is often used when seeking funding to prove business viability. In most cases, crafting a traditional plan will take lots of due diligence work.

The other main type of business plan is a lean startup plan. A lean startup plan is much more high-level and shorter than the traditional version. Companies just starting development will often create a lean startup plan to help them navigate where they should start. These can be as short as one or two pages. 

A lean plan will include the following elements.

  • Key partnerships: Notes other services or businesses you will work with, such as manufacturers and suppliers. 
  • Key activities and resources: Outlines how your company will gain a competitive advantage and create value for your consumers. Resources you may leverage include capital, staff, or intellectual property.
  • Value proposition: Clearly defines the unique value your company offers.
  • Customer relationships: Details the customer experience from start to finish. 
  • Channels: How will you stay connected with your customers? Detail those methods here.
  • Cost structure and revenue streams: Details the most significant costs you will face as well as how your business will actually make money.  

Remember that business plans are meant to change as your company grows or pivots. You should actively review and edit your business plan to keep it up to date with business activities. For example, you may start with a lean plan and move to a traditional plan when you hit the fundraising stage.

Business Plan vs. Business Model

Business Plan Business Model
Describes a business’s operations and objectives, including financial goals Describes the method by which a company generates profits
Is the structure of the business Is the foundation of the business
Sections include mission statement, market analysis, and financial plan Examples include retailer, franchise, and distributor
Needs review and revisions over time Needs review and revisions over time

A business plan may often be confused with a business model, and it is easy to understand why. Simply put, a business plan is the holistic overview of the business, while a business model is a skeleton for how money will be made.

Key Takeaways

  • A business plan is a comprehensive document that outlines a business’s operations, finances, and goals. It guides the business’s day-to-day decisions.
  • A business plan is necessary for your company’s success, as it creates a path to scalability.
  • There are two main types of business plans: a traditional business plan and a lean startup plan.
  • A traditional business plan will be essential when you begin to seek debt or equity capital for your company.