Before any business started, grew, became profitable or franchised, the founding members likely wrote a business plan. They did this to have clear alignment about what their company was, what it offered and how they would operate, among other things, so they’d know what they had to do to become profitable.
And the same is with your business. To be successful, you need to have a clear business plan in place to lay the groundwork for how things will operate. However, for a plan to work, it has to have all the right elements to create a transparent structure so everyone involved is on the same page at all times.
What is a business plan?
Investopedia describes a business plan as a detailed, written document (usually 15 – 20 pages long) that lays out a company's core business activities, objectives and the ways it plans to achieve its goals. Business plans usually apply to startups (though some companies add new ones with new ventures) and create a roadmap for a company’s marketing, financial and operational standpoints.
Types of business plans
Business plans also attract investors and potential partners. They usually break down into two categories:
Traditional business plans
Focused on developing products and hoping that demand will emerge
Lean startup plans
Used to found a new company or introduce a new product on behalf of an existing company
Good companies will regularly review their business plan to see if goals have been met or if they’ve changed or evolved. Sometimes, a new business plan is created for an established business that has decided to move in a new direction.
Traditional business plans
Traditional business plans are used when a company is creating a new product or service and trying to create demand. The audience for this type of plan is mainly made up of investors. These plans are often very detailed and usually include the following:
The summary includes a company’s outline, mission statement and information about the company's leadership, employees, operations and location(s).
This usually includes what industry a company works within.
A market analysis shows the different demographics in the target market that the company will focus on and talks about how the company can gain some of this market share.
Organizational structure and management
A look at who’s in charge of what areas and how the corporate ladder is structured gives investors confidence and builds credibility for a business.
Service or product line
It’s important to describe all the products and services of the company and share how something goes from raw material to a completed item ready to be sold.
Marketing and sales
Often, a traditional business plan details how a company will attract and keep a customer base. It also outlines a distribution channel and shows what advertising and marketing campaigns will be used.
Funding requirements (optional)
A clear assessment of how much money is needed from both founders and investors to get everything off of the ground demonstrates that a business has done its due diligence.
Of course, particularly for investors, a projection of sales, profits, costs and loss is an important element of a traditional business plan.
Any additional documentation that leadership thinks is necessary or helpful can be included in an appendix for later reference.
Lean startup business plans
Lean startup plans, also known as the “Business Model Canvas,” are written when an existing company either creates a new subsidiary to get into a new business space or just introduces a new product to gain a share of the market.
These business plans are comprised of these elements:
Showing any partnerships both inside and outside of the organization that make the new business venture(s) possible instills confidence and connection.
It’s important to illustrate the steps that are being taken to launch/operate the business.
Key resources like capital as well as materials used to operate or maintain the company and its products are critical to identify early on.
What is the key offering of the business and how does this business do it better than the competition? This will help carve out the new business’s target position in the market.
Demonstrate an understanding of how the company will convert current customers who purchase other products into loyal buyers of the new items.
Detail either current or new customer demographics that will be targeted for the new product(s)/service(s).
Show all of the different communication methods that will be used to reach customers.
Explain what costs are associated with the new product or service.
Show how the new product or service will generate revenue as compared to the company’s other portfolio of items.
Why create a business plan?
We already mentioned a few reasons to create a business plan, but business plans are smart foundational tools with other valuable benefits. We already mentioned a few reasons to create a business plan, but business plans are smart foundational tools with other valuable benefits.
Estimates start-up costs
A business plan gives you a clear picture of how much money from both internal and external sources you’ll need to get a company up and running.
There’s always someone looking to invest in a good idea—and eventually profit from it. A good business plan will convince investors to open their wallets and give you the money you need to get going.
Studies the marketplace
A business plan also typically includes a look at your market, giving you an understanding of how saturated it is for your product(s) or service(s). It will then give you a clearer plan of attack for when you launch.
Defines the customer base
Not everyone is going to benefit from your company. But, if you know which demographic will be most interested—and you can show that to potential investors—it only strengthens your chances of success.
You’re probably not the only one trying to sell your product(s) or service(s). But, if you understand your competition, you’ll be able to study them and see what areas you can improve in your industry.
Anticipates potential risks/issues before they arise
This could be anything from a disruption in supply chains to the safety of your employees and customers. The last thing you need is a lawsuit claiming you didn’t do your best to prevent problems/accidents. A business plan helps you get ahead of any challenges.
Analyzes the breakeven analysis and potential profits
A business plan demonstrates how many units of a product must be sold to cover the fixed and variable costs of production. The breakeven point is also considered a measure of the margin of safety.
Are you ready to write your business plan?
Although a business plan is an upfront time investment, it has many benefits for long-term growth and future risk mitigation. And while every business activity comes with risk, it’s important to have small business insurance in place so you’re prepared for everything. To learn more about business plans and to see other resources we have that can help you, check out our Nationwide Business Solutions Center.