Construct a Business Plan

A well-crafted business plan is one of the most important tools for the success of your small business. In the context of small business ownership, business plans have several useful functions:

Communicate important information to lenders and investors, including business growth strategy and mission, organizational structure, market suitability, funding need, and financial forecasts.
Provide direction for the business through the establishment of short- and long-term goals, with a feasible business strategy to support these goals.
Establish a clear operational plan, which can be used as a reference during employee training.
Identify risks and develop mitigation strategies- this is one of the most overlooked uses of business plans. Almost everyone has an idea for a business, but it is much rarer to find someone who understands the problems their business will face and has a plan to address those problems.

This article will walk you through the components of a business plan and provide practical information to help you create a document that works for your business.

What is a Business Plan?

A business plan is a formal document that outlines the key elements of your new business. Primarily, its purpose is to detail the mission and goals of your business, as well as the operational and financial strategy that will allow your business to achieve these goals. This not only helps you stay focused and organized, but it also helps you attract the right employees, investors, partners, and lenders.

When the term “business plan” is used, it usually refers to a traditional business plan, which uses a standardized structure and provides intricate details about the business. Traditional business plans may be used as supporting documentation for potential lenders and investors.

However, there are other types of business plans that may suit your needs more neatly. The most common alternative to the traditional business plan is the lean business plan. As the name suggests, it is a simplified version of the traditional business plan and requires considerably less time to construct. The lean business plan contains all the key information surrounding your business strategy and goals, without the level of detail provided by the traditional plan. Due to its lack of specificity, potential lenders and investors may not accept lean business plans as formal supporting documentation.

So, which one should you construct? It depends on your situation! Generally, professionals recommend developing a traditional business plan if you are trying to attract funding or talent from outside of your business (lenders, investors, potential partners and employees). However, if this is not the case, they generally recommend opting for a lean business plan. I will begin by discussing the structure of the traditional business plan and then proceed with the lean business plan, providing a rough template for both.

The Traditional Business Plan Structure and Template

The following is a comprehensive list of sections that may be included in the traditional business plan. However, business plans are fluid and may change over time depending on the direction you want to take your business. Do not hesitate to exclude sections which are not applicable to your business or situation.

Here is a link to the business plan template, which you may find helpful as you follow along. I do hope this template proves useful, but do not rely on the content that is presented. It is purely intended as a time-saving tool for formatting.

1. Executive Summary

The executive summary is the first section of your business plan. It provides a high-level overview of your business, summarizing the key points from each section of the plan. You might think of it as the thesis of your business plan. Similar to actual theses, experts recommend writing your executive summary last, after you have detailed each section fully and identified the most critical information to include.

The executive summary includes the following information:

Business mission statement: a concise, impactful statement about your business, what it hopes to achieve, and how it will achieve it.
Business name, location, and structure
Brief description of products or services: this is simply an outline of what the business actually does on a daily business. Do you sell coffee? Repair cars? Offer advisory services?
Summary of financial projections and funding requirements

Remember, this is intended to be a brief summary. Most executive summaries are one page.

2. Business Description

This section provides a detailed look at your business. Explain what your business does, who it serves, and what sets it apart.

The business description section includes:

Business name, location, and legal structure (e.g., sole proprietorship, LLC, partnership, S Corp, etc.)
Any business operating history (ignore this part if this is a new business)
Industry overview and market trends- what industry do you operate in? Is it growing or declining? Keep this section fairly brief, as you will discuss your target market later. Use reliable data to support this section.
Your competitive advantage or unique selling proposition (USP)- what is it that will cause consumers to choose you over your competitors? Is it your location? Product quality? Excellent customer service? This is where you emphasize (but not exaggerate) your business’ strengths.

3. Operations and Management

This section outlines your business’s structure and leadership. Highlight the people (including yourself!) who will drive your business to success.

The operations and management section includes:

Organizational structure (chart or hierarchy)
Leadership team (brief biographies and relevant experience)- discussing relevant experience and credentials will be of special importance if you operate a professional services business.
Roles and responsibilities of team members- it is unnecessary to go into extensive detail about each employee’s role. Just give enough detail to show readers how your employees’ work contributes to the business strategy. It may also be necessary to include employee growth estimates in this section if you anticipate a meaningful increase in employees over the next few years.
Ownership structure

Also, if applicable, include information about advisors, mentors, or consultants who support your business.

4. Target Market Analysis

Understanding your market is critical for success. The market analysis section demonstrates your knowledge of the industry and your target audience.

The target market analysis section includes:

Target market demographics (age, gender, income level, etc.)- some people feel like target market analysis is unnecessary because they do not want to “limit their business” to a certain demographic. You have to understand that identifying a target market allows you to curate an effective marketing mix, optimize product development, and deliver value to the right audience. It doesn’t limit your business; instead, it ensures you focus your resources where they will have the greatest impact.
Competitive analysis and risk assessment- identify key competitors and their strengths/weaknesses, as well as potential risks your business may face. These may be risks inherent to the industry you operate in, or they may be risks borne from other aspects of your business (location, ownership, employee expertise, product quality, seasonal demand, etc.). Include a plan for how you plan to mitigate these risks; that is, how do you plan to prevent these adverse events from happening, or if they do happen, how will you address them?
Market size and growth potential- use data from government websites or trusted private sites like Statista to analyze the market you operate in. Are there signs of growth? If so, discuss how you plan to capitalize on this growth.
Customer needs and buying behavior- how does your identified target demographic spend their money, and what main needs do they have?

5. Products or Services

Explain what you sell and how it addresses your customers’ needs. You should give more detail to the USP you described in the executive summary.

The products or services section includes:

Description of products or services- this will be a more detailed section if you have complicated business operations. For most businesses, this is a simple paragraph that outlines your product offerings, how your products work (unless it is plainly obvious, like coffee), and how your product fulfills consumer needs.
Pricing strategy- if you do not have a set product line or service rate, or you have an extremely wide product selection, you do not need to provide actual prices in this section. Even if you do, the intent here is not to create a database of prices. The intent is to create a specific pricing strategy that will align with your mission statement and core business values while maximizing value for you and your stakeholders.
Lifecycle of the product or service- is your product/service available seasonal or year-round? Does it depend on customer need, or is it fixed? How long does your product last? You may merge this with your “description of product or services” section or exclude it entirely. This section mainly exists for more unique products or services.
Future offerings- if you have future offerings that you are excited about, explain these offerings as you did in the first section, and mention how these future offerings align with your business strategy. This shows excellent planning and foresight on your behalf, which will please any outside reader. Exclude this section if not applicable.

As you discuss your products and services, try to illustrate how your specific offerings align best with your mission statement and overall strategy. Because this can be difficult to do, I will briefly provide an example.

Example: If your mission and USP revolves around improving community access to clean water through inexpensive filtration systems, develop and outline a pricing strategy section that aligns with this idea. Emphasize how you will gradually reduce prices as you build economies of scale. And when you describe the product, highlight materials that will allow you to create relatively inexpensive systems. You may also emphasize the extraordinarily long life cycles of your filtration systems, and how this contributes to long-term clean water access. Avoid labeling your product as “premium” or “state-of-the-art”, because this contradicts the idea of the systems being inexpensive. Too many business owners attach a surplus of “positive” labels to their products without considering how they might contradict, thereby creating doubt. Your product cannot possibly be perfect in every conceivable measure. Optimize your product for your mission, not for perfection.

6. Marketing and Sales Strategy

This section outlines how you plan to attract and retain customers. Be specific about your tactics and channels.

The marketing and sales strategy section includes:

Marketing strategy (online, print, social media, search engine optimization (SEO), etc.)
Sales strategy (direct sales, e-commerce, partnerships, etc.)
Advertising budget- you will outline your overall advertising costs in the financial plan, but if you have multiple marketing channels, this would be an appropriate place to itemize these costs. This itemization also reveals which strategy you are investing in the most.
Customer retention plans- how do you plan to keep your customers coming back? Is it through wide product offerings? Excellent customer service? Customer loyalty programs?

See my article on investing in marketing for more details about how to create a successful marketing campaign.

7. Goals

Your goals section outlines the short-term milestones and long-term vision for your business. It functions as a roadmap, reminding you to remain focused on the critical activities your business must perform to achieve them. Your goals might be financial, operational, or customer-focused and should align strongly with the company’s mission and values.

For example, you might set a financial goal for your business to increase revenue by 20% within the first year, an operational goal to launch three new product lines, or a customer-focused goal to expand to a new geographic market. Goals should be specific, measurable, achievable, relevant, and time-bound (SMART). This idea is expounded more in my previously linked marketing article.

Including a goals section motivates stakeholders and provides a framework for evaluating progress and adapting strategies as needed. This section shows that the business has a clear direction and is prepared to measure its success systematically.

8. Financial Plan

Your financial plan is one of the most critical parts of your business plan and perhaps one of the most time-intensive sections, too. It gives potential lenders and investors a snapshot of your business’s projected financial health, which allows them to evaluate your creditworthiness (lenders) and return on equity (investors).

In the financial plan, include:

Income statements- shows your profitability over a given operating cycle.
Cash flow statements- measures the amount of cash leaving and entering your business over a given operating cycle.
Balance sheets- details your assets, liabilities, and stockholders’ equity at a fixed point in time, usually the end of an operating cycle.
Break-even analysis (optional)- shows how long your business will take to become profitable.

I will create a separate article on creating financial forecasts due to the complexity of this step.

9. Funding Request

If you’re seeking funding from a bank or investor, explain how much money you need and how you plan to use it. Be specific and transparent.

For your funding request, include:

Amount requested- if you are seeking an investment, include how much equity you will grant to investors.
Use of funds (e.g., inventory, equipment, marketing)- how will you plan to use these funds, and why is this the best use of these funds? Give lenders/investors confidence that their money is being used appropriately.
Repayment plan- most loans already have set repayment plans, so this might not be necessary if you are seeking an SBA-backed loan from a bank.

For clarity’s sake, it is important that you make sure your funding request aligns with your financial projections. You do not want to confuse readers by creating contradicting sections.

10. Appendix

The appendix is the final section of your business plan. View it as the final touch of professionalism and transparency on a complete report. The appendix should be used to provide raw data from research, legal documents, and supporting information. The reader should be able to gain a complete understanding of your business without ever referencing the appendix.

An appendix should include:

Resumes of key team members
Legal documents (e.g., business license, permits)- be very careful with these documents. If this business plan is being freely distributed, you do not want sensitive information like your SSN to be featured in plain sight. Either remove sensitive documents from public copies or use an editing tool to create a copy of the document, black out sensitive information, have a trusted person review your work, and then add the document.
Detailed market research data- these may be graphs, tables, or numbers that support your claims, but which would be cumbersome to include in the main report.
Product images or prototypes
Letters of reference- for example, if you started a software engineering consulting agency, a letter of reference from a prior colleague or manager would add to your credibility as a professional in that industry.
Works cited/references- you want to show that you are a true professional who pays attention, even to the small details. A works cited page for any sources you used shows that you are considerate of legal guidelines, appreciate the fine details, and provides a great wrap-up for your business plan. Use a citing software like “MyBib” to complete these citations easily.

The presentation of your business plan is produced by clever formatting, careful proofreading, and detail. The more formal, professional, and put-together your plan appears, the more people and institutions will be willing to listen to what you have to say. This is not to say content does not matter, but if you want to leave an indelible mark on your reader, do not underestimate the importance of presentation.

Lean Business Plan Structure and Template

Because the lean business plan is not designed for outside stakeholders, it follows a more fluid structure. I will provide the structure recommended by the Small Business Administration (SBA), but feel free to add/remove sections to reflect the most important aspects of your business. Here is the link to the lean start up plan.

Key partnerships

Outline other businesses or partners that you intend to collaborate with. This will help you determine what kind of business relationships you need to establish in order to be successful. You might include potential suppliers who provide raw materials, manufacturers who make your products for you, or independent contractors that provide specialized services.

It is important that you only list relationships that provide significant value or are vital to your business’s operations. For example, suppliers of proprietary or hard-to-source materials, or subcontractors performing niche services, are worth including in your plan. However, avoid listing generic or replaceable providers, such as the company that manufactured your work laptop or produces your notebook paper. These businesses:

a) Bring minimal strategic value to your operations and have easily replaceable products.
b) Pose little risk of partnership breakdown since there is no formal relationship, and the exchange of goods is relatively small.

Remember, the point of the lean business plan is not to outline every conceivable detail of your business. Identifying just a few key partnerships will allow you to plan operations and anticipate long-term risk.

Key activities

Define the critical activities that your business must perform to fulfill its mission statement and uphold its competitive advantage.

Example: Suppose you start an e-commerce clothing brand, and your mission statement is, “To create the most affordable and colorful clothing the internet has to offer.” In order to fulfill this mission statement, there are some activities that are more critical than others. For instance, hiring the right designers, developing an efficient e-commerce system, and establishing strong relationships with shipping companies are all activities that significantly contribute to lowering your prices and creating colorful clothing. These activities drive the most value for your company. In contrast, while undoubtedly important, activities like scheduling team lunches, launching PR campaigns, etc. are “secondary activities” that do not directly help your business achieve your mission statement. One missed lunch will not directly impact your mission, but having an unskilled designer will.

Key resources

Here, you should describe the main resources you will use to both fulfill your mission statement and remain profitable. These resources may be physical (tangible) or not physical (intangible). Different businesses require different resources. An accounting firm relies heavily on the expert knowledge of its staff (knowledge is intangible), while a retail store relies immensely on its inventory (tangible). List the main tangible and intangible resources you intend to rely on, and then sure you acquire and take care of these resources. For instance, regularly repair machines that your manufacturing business relies on, or properly train associates in your law firm. Filling out this section will help you understand how where and how much to invest (both in time and money) in various resources to help your business grow quickly.

Value proposition

This section is arguably the most important, and you might even consider putting it first to remind yourself what exactly it is that your business does. Your value proposition is what sets your business apart. What is your business particularly good at? How does your business bring value to the market? You could think of your value proposition as the justification for why your business exists. You are saying, “We deserve a place in this market because we excel in this area and provide unmatched value to our target audience.” Please note what a value proposition is NOT. A value proposition is NOT a statement that your business excels only in one area while neglecting other essential functions. It doesn’t mean you focus exclusively on your core strength at the expense of all else. Instead, it proposes the unique reason customers should choose your business over others.

Customer relationships

Your customers are essential to your business’s health. Having happy customers is invaluable in any business. In this section, detail how you plan to interact with your customers to ensure maximum customer satisfaction. This is different across businesses. When you walk into a bank, you expect (or at least hope for) a professional greeting, personalized service, and time-intensive solutions. On the other hand, when you shop online, you expect a seamless and intuitive website experience, fast response times for questions, and easy merchandise returns. The issue of customer returns is not present in a bank, whereas the time spent on each customer is largely reduced for websites. So, each business is expected to interact with customers differently based on their respective industry, and each should plan how to initiate and maintain positive customer relationships.

Customer segments

This is where you identify your target market- the people most likely to buy your product or service. As I stated earlier, identifying the right customer segment will allow you to focus your resources where they generate the most value for your customers and business. You can add graphs and charts if you think they will help you in the future, but do not feel the need to provide lengthy data analysis. Simply include what demographic and psychographic (buying behavior, lifestyle, values, etc.) traits you are targeting.

Channels

Outline how you plan to communicate with and deliver value to your customers. This could include a combination of online platforms (social media, email marketing, e-commerce sites), offline channels (retail stores, trade shows), or a mix of both. Try to identify the channels that will attract the most customers, give you the most information (without intruding on customer privacy), and make the most sales transactions.

Cost structure

The term “cost structure” here does not refer to managerial cost behavior and structures. It refers to how you plan to deliver value to your customers. There are two main roads to take. One is to try drive down costs as much as possible to offer competitive prices. The other is to increase your product quality and branding to justify more premium price tags. Neither strategy is inherently “better.” Each has its own strengths and weaknesses, so determine which one you are better equipped to pursue.

Revenue streams

The last section explains what exactly your company generates its revenue from. It could be product sales, billable hours of legal advice, or tire repair services. If you have more than one revenue stream, you should identify each separately and explain their respective roles in your business model. For instance, you might have monthly subscription fees for your bookkeeping services, but you also do consulting services during the month, which are billed as they occur. This improves your business model by filling in the gaps between monthly collections of subscription fees.

While I know constructing a business plan, whichever you choose, may seem daunting, it will prove well worth it in the long run. Each section of the business plan has been interpreted and written in countless different ways, so feel free to conduct additional research, modify the business plan structure, and have fun bringing your creative ideas to life!