Business Plans 101

This beginner-level introduction covers everything you need to know about building an effective business plan—and why it’s such an important piece of your company’s future.

So what exactly is a business plan? For new business owners—or for entrepreneurial spirits who dream of one day starting their own business—creating this document may seem like a complicated, intimidating task. Simply put, a business plan is a written description of where you want your business to be in the future and how you plan to get there, and it plays an integral role in the day-to-day operations of your company. It also serves several other purposes: You can use it to attract new investors, employees, business prospects, vendors and more. Without one, your organization will lack purpose and direction, so creating a business plan today will help secure the success of your company tomorrow.

If your need a business plan for your new venture and you’re not sure where to begin, the following beginner’s FAQ will give you the tools and information you need to start mapping out the bright future of your business.

What does a business plan include?
There are several different puzzle pieces of information that fit together to create a complete business plan:

  • Your business goals

  • The strategies you plan to use to achieve those goals

  • Any potential problems your business may face

  • Your suggested solutions to those potential problems

  • The organizational structure of your company (i.e., titles and responsibilities)

  • The total amount of capital you will need to finance your company at the outset

Now that we have identified what the puzzle pieces are, we need to put them together properly. There are a few general guidelines for form that every good business plan should follow, and each plan should consist of these three main parts:

  • Business concept:

    This is where you describe the industry that your company is playing in, the structure of your business, the product or service you’re offering, and your strategies for success.

  • Marketplace:

    Here, you take an in-depth look at your target customers as well as your competition, describing who your customers are, what their motivation is to buy, and how you will position yourself to beat out the competition.

  • Financial:

    In this section you provide your income, cash flow statement, balance sheet, break-even analyses and other financial ratios. This is where you could greatly benefit from the help of your accountant and a business-grade spreadsheet software program.

Those three main sections are broken down even further into seven key topic categories, which include:

  • Executive summary

  • Business description

  • Market strategies

  • Competitive analysis

  • Design and development plan

  • Operations and management plan

  • Financial factors

Once these details are flushed out, your business plan will need just a few finishing touches: a cover, title page and table of contents.

How many pages should a business plan be?

There is no hard-and-fast rule about how many pages a business plan should be. It can range anywhere from several pages to 100 or more, depending on the complexity and nature of your business and the amount of detail you include. Simple business models may need no more than a handful of pages to get their message across. A new, innovative business model, however, may need a lot more explanation. The length of the business plan can also depend on the plan’s overall purpose. If it’s going to primarily serve as an internal document, your business plan will most likely be on the shorter side. If you plan on using it to pursue millions of dollars in investments, the information in the document should be a lot more thorough. On average, business plans are anywhere between 15 and 20 pages long. But, again, there is no magic number; there is plenty of room for modification.

Who needs a business plan?

If you own a business, you need a business plan. The only exception is if you consider your business to be a hobby or side-job that you dabble in outside of your full-time work. But if your venture requires a substantial amount of money, time and energy—and if you need it to return a considerable profit for your livelihood—then a well-thought-out business plan is a must. Fairly inexperienced entrepreneurs who are new to writing a business plan and who are seeking funding for their startups are, of course, the first people who come to mind when you hear the question, “Who needs a business plan?” But the truth is that well-established companies need a written business plan just as much as the new guy does. Successful companies still need a business plan to help manage their maturing organization, continue its growth and obtain even greater funding.

Why and when should a business plan be updated?

If you answer “yes” to any of the following questions, then it is most likely time to update your business plan:

  • Is a new financial period about to begin? Depending on how rapidly your industry changes, you should update your business plan annually, quarterly or even monthly.

  • Do you need financing or additional financing? You will need to provide your lender or financier with an updated version of your plan so they can make sound financial decisions for your business.

  • Has a significant market change occurred? If industry regulations, market trends, or your customers’ tastes or needs have shifted, your plan needs to be updated as soon as possible.

  • Has your company developed—or is it planning to develop—a new product or service? Businesses change as they grow, and so your business plan needs to follow suit.

  • Have you made a change in management? A new manager should be provided with the latest and most up-to-date information about your company and its goals.

  • Has your company reached an important milestone in its history? Whether you just hit a monumental sales goal, hired a specific number of employees or upgraded to a new facility, your business plan should be tweaked to reflect those changes.

  • Is your old business plan no longer relevant? If it seems like your original business plan just wasn’t good enough or if your company has transformed so drastically that the information in the old plan isn’t accurate anymore, it will be in your best interests to redo your plan.

What are the different types of business plans?

Even though they may share some similar elements—such as objectives, marketing plans and cash flow projections—no two business plans are the same. Different businesses need different business plans, based on each company’s individual needs and goals. Plans vary in length, appearance and detail; therefore, the type of business plan you select for your company has a big impact on the effectiveness of your plan. It is imperative that your plan clearly and accurately represents your business and highlights its best features, no matter what the plan’s intended use is.

There are four different types of business plans, and each one entails a different amount of effort. But just because one type of plan may require more labor, it doesn’t necessarily mean that it is better than another type. It’s all about how the plan is being used for your particular business, so keep that in mind as you consider these four types:

  • The Mini Plan: About one to 10 pages long, the mini plan only briefly addresses the various essential elements of a business plan. This is a great option for entrepreneurs who want to test out a business concept or pique the interest of a minor investor. It can also be shown as a quick preview of your full-length business plan. Remember that a mini plan should not be used in place of a full-length plan, but rather as an accessory to one. Do not make the mistake of sending a mini plan to someone such as an investor who requires a comprehensive, detailed look at your business—you may risk losing that investor.

  • The Working Plan: Used mainly for helping you operate your business internally on a daily basis, this business plan doesn’t need a lot of formal presentation, but it does require a lot of detail. Because it is for internal use only, the working plan may also omit some business plan components, such as product images, that are typically necessary only for people outside the company. Typos are not an issue in a working plan; however, you should ensure that the facts and figures that are presented in your working plan are consistent with those presented in the plan you show to people outside your business.

A working plan also doesn’t have to look or feel as formal as other full-length plans. You don’t have to print it on high-quality paper or present it in an elaborate binder. Since it’s only going to be seen by you and your employees, any form of legible presentation is acceptable. Like a trusty pair of casual jeans, this plan is meant to withstand the wear and tear of everyday use.

  • The Presentation Plan: If the working plan is the laid-back pair of jeans, then the presentation plan can be considered the high-end designer suit. This is the plan that you show to bankers, investors and anyone else you want to introduce your company to, so it must be polished in every way. The presentation plan has all the same information as the working plan, but has a completely different look and feel. It should only include business vocabulary—no slang or shorthand—and should not contain any spelling or grammatical mistakes. Unlike the working plan, this plan does have to be printed on high-quality paper, in color, and nicely bound with a sturdy and attractive cover. Attention-grabbing photos, charts, tables and illustrations that make it easier to view information are also an important element of presentation plans.
    Aside from its physical appearance, the presentation plan must also contain information that is completely accurate and consistent with internal documents. Mistakes or misrepresentations can be costly for your business.

  • The Electronic Plan: In today’s digital age, more and more businesses are transferring information electronically. Although most business owners still prefer to print hard copies of their business plans, some are now opting to have an electronic version of their plans available upon request. An electronic plan shouldn’t entirely replace the hard copy, but it is a wonderful way to enhance group presentations with an overhead projector or provide investors with a little something extra.