What Is a Business Plan?

A good entrepreneur knows they need a business plan, but a great entrepreneur understands that creating one takes considerable time and effort. It’s an operations plan, marketing plan, and business model all rolled into one document.

This FindLaw article describes what a business plan is, your timeline for creating one, and why it matters for financing and investors.

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• Business Plan Benefits

  Your business plan is a roadmap for your company’s success. It lists your business goals and forms a strategic plan to achieve them. Advantages of having an effective business plan include:

  • Allows business owners to decide whether to proceed or cut their losses: A business plan may determine that the risks outweigh the rewards. This allows you to stop your venture before losing your startup costs.

  • Analyzes the market to determine success: A good business plan includes a market analysis to assess the demand for your business’s product or service in its target market. This examination considers social media, U.S. Census Bureau data, and target demographics. Most business plans contain a competitive analysis. This breaks down the strengths and weaknesses of competitors in your target market. Your plan lists the strategies you believe will give you a competitive advantage.

  • Helps secure financing: A startup‘s business plan helps banks and other potential investors determine whether to agree to a funding request. Your business plan should include an overview of your current business’s financials and growth projections.

  Now that it’s clear why a small business needs a plan, let’s examine the different types of business plans.

  Understanding Types of Business Plans

  A business plan provides an overview of your business and guidance on managing each milestone. The milestones include starting, structuring, and growing your operations.

  In general, there are four types of business plans:

  • Acquisition plans explain why you want to acquire an existing business and how you intend to operate it

  • Expansion plans explain why your business wants to open in new locations, show how you’ll enter new markets, and detail how you will go about the expansion

  • Repositioning plans explain why companies seek to change their existing products or services to meet evolving customer needs

  • Startup plans , which are a common choice for most entrepreneurs , detail your business ideas , explain why they will succeed, and often use a lean plan of a few pages to sell the concept

  No standard business plan template is used for every business. The plan is tailored to the business model, financial situation, and legal structure of the business.

  What Is the Business Plan Format ?

  While there’s no one-size-fits-all plan, most experts agree that good business plans should contain sections that provide the following:

  • Executive summary and overview: This contains the critical sales pitches for investors. It should provide the business’s basic information, company description , and strongest rationale.

  • Market analysis : This section should focus on showing a demand for your product or service in your business’s target market. In addition, it should lay out a marketing strategy and cite the potential for developing new products with your intellectual property.

  • Mission statement : This does more than detail what your business is about. It’s where you can express your hopes and dreams for what it can become.

  • Competitive analysis: This part shows how your business’s product line and pricing compare to others in the field, if applicable. Entrepreneurs use this to show how they will distinguish themselves from competitors already in the market.

  • Financial plan : Money talks, and so should your plans on how to earn it by using financial statements, cash-flow statements, records, and projections for future revenue growth. A startup business without a financial track record should include realistic estimates of its future profitability. Existing businesses should include balance sheets and income statements.

  • Operating budget: Show your investors that you know what your expenses and costs are likely to be. This includes projected costs concerning staffing, overhead, marketing, production, and other business-related expenses.

  • Management plan: You’re probably not going to run the business by yourself. This plan alerts investors with an organizational chart, a description of the management team, and your business’s staffing requirements.

  • Appendices: Putting background documentation in an accessible collection at the back of your plan makes reference easier. This includes supporting documents like spreadsheets, resumes, and any intellectual property your business owns.

  You can review a free business plan template from the U.S. Small Business Administration (SBA).

  Length of a Traditional Business Plan

  A business plan’s length can vary. It depends on the complexity of the business idea and how in-depth you want to go with your SWOT analysis (strengths, weaknesses, opportunities, and threats). However, each plan should contain a shorter executive summary with a concise overview.

  When To Use a Start-Up Business Plan

  A start-up plan includes the sections listed above, but gives more focus to specific areas. Here are a few instances when this type of plan is most effective:

  • A start-up business plan describes the business idea and explains why it should succeed, despite not yet having a track record

  • This plan is helpful when the service, product, or idea is new and innovative

  • Because the start-up company has yet to establish a track record of success, it focuses more on the management team ‘s skills and experience

  • The plan projects financials because there is no actual data

  • A start-up company has different milestones to achieve when compared to other new businesses

  • The key audience for the start-up business plan is lenders, investors, or banks

  • When an entrepreneur needs to recruit business partners and key staff to join their sole proprietorship

  If your business start-up plan brings a new product or service to market, provide information about that and its benefits. Be aware that investors typically don’t invest in products; they invest in businesses. It’s more important for them to see that the business owners know what they are doing and have a good viability plan than to be dazzled by a fancy new bauble.

  When To Use an Acquisition Business Plan

  Acquisition business plans are used when you want to buy an existing business. These plans explain:

  • Why you want to acquire a business

  • How the new business fits with or enhances your existing business

  • How you intend to run the new business

  The business is already in operation, so you will likely have access to financial data and tax returns. You can also assess its marketing and pricing strategies. All of this information builds the case for an acquisition in your favor.

  While it will share many of the same components of a start-up plan , an acquisition plan will have some additional sections. New sections include a target description and transition plan.

  Target Description

  If you know the company you want to acquire, this section will focus on it. It will detail its products, customers, market share, and the risks and opportunities it offers for growth. If you have not identified a target yet, you can specify the kind of company you want to acquire and the ideal conditions for such an acquisition. It may locate several potential companies for acquisition, identifying their strengths and weaknesses.

  Transition Plan

  Merging two businesses requires a transition plan. This portion of the business plan is implemented upon purchase. It guides the transfer of contracts, business relationships, and intellectual property rights.

  Two aspects to include in your transition plan within your overall acquisition business plan are:

  • Purchase Structure: Explain how you plan to finance the acquisition. Is it owner-financed, debt equity-financed, equity financed, or a leveraged buyout?

  • Appendices: This is information that will be frequently consulted. Include available documentation like tax returns, licenses, and legal documents.

  This plan determines how staff from both companies work together and where redundancies exist. The goal of the transition plan is to minimize disruption to business operations.

  When To Use a Repositioning Business Plan

  When COVID struck in 2020, forcing many businesses to close, some companies took this opportunity to reposition themselves. It became a chance to produce a different product line or use their resources to provide a new service.

  Before pivoting their company, they wrote repositioning business plans. These plans are for existing companies. A repositioning business plan explains why the company seeks to change its existing products or services. Marketing expert Jack Trout identified three opportunities for companies to reposition:

  • Crisis

  • Changing with the times

  • Beating the competition

  Some repositioning plans focus on switching up the marketing approach. Others may choose a change in products. Regardless, all parts of the standard business plan apply. These plans go further in-depth for their marketing and competitor analysis sections than other plans.

  When To Use an Expansion Business Plan

  Expansion business plans explain and guide the direction of business expansion. Use these plans when:

  • Adding new products and services

  • Entering new geographic markets

  • Opening new stores in your current locations

  • Reaching a new customer segment

  An expansion business plan relies on marketing research, a competitive analysis that breaks down competitors’ strengths and weaknesses, a strong marketing strategy, and financial projections.

  Sources of Assistance With a Business Plan

  Free resources are available from the SBA. These include Small Business Development Centers with free business consultants. An accountant can help with your financial projections and financing requests. A local business lawyer with experience drafting business plans and forming or expanding businesses can aid in creating your business plan.

  Need Help With a Business Plan? Speak With an Attorney

  A local business lawyer with experience drafting business plans can help you develop a business plan. This gives you an appropriate assessment of your business’s legal and financial risks to minimize them.