How to Write a Business Plan: A Step-by-Step Guide

A strong, well-thought-out business plan is crucial for a business's success. Without one, it's tough to maintain a vision of the future and what the next steps for your business should be. Think of it as a litmus test to prove that every step taken is part of a larger calculated effort.

Business plans are also crucial for external affairs. If you want to want to take out a loan, bring on a business partner, or more you'll need a solid plan in order. Your plan should be your pitch.

However, writing a business plan isn't easy and not everyone knows exactly what the business plan should outline. What's even more confusing is that no two business plans should look the same. We wrote a complete guide to show what your business plan should detail and how to write it.

Things to Know Before You Begin Writing

Know your audience. For example, if your business operates in a very niche space, you don't want to use niche and complex language that no one will understand if your plan will be reviewed by lenders or investors who don't have much knowledge of your space.

Also, keep the length of your plan in mind when it comes to your reader. We would always recommend keeping your plan as short as possible, but certain readers might want to see more details while others might want only the high level information. For example, a potential business partner will likely want to see a bit more details than an underwriter evaluating your business. However, don't go overboard with this and write a 50-page plan, as no one will read that.

Pick Your Format (traditional vs. lean startup)

There are now two ways you can write your business plan. The traditional route, and the most common, is likely what you'll be using. The traditional plan contains far more details and should be used for most scenarios. Alternatively, you can explore a lean startup plan, which are onepagers and detail your business only at the highest level. This is most appropriate for businesses that are likely to change quickly or are on a very, very short timeline.

How to Write a Traditional Business Plan

A traditional plan is typically comprised of seven sections that are each crucial for explaining a different angle of your business. The length and detail of your plan will vary with the audience of the plan and how mature your business is. You'll use a business plan to sell your business to investors, qualify your business with for a loan with lenders, and more. Having a solid plan is always useful and can also help keep your actions as a business owner on track.

Step 1: Write an Executive Summary

As with any other piece of writing, this introduction to your plan is the hook. Why should the reader believe in your business? Sell your business and explain why it matters. Additionally, supplement your sell with a high level summary of your plan and operating model. However, don't go over one or two pages.

Feel free to include the following as well:

Step 2: Write a Business Description

This is your first opportunity to really go into detail about your business. What's the opportunity that your business is capitalizing on? What's the target market? How are you standing out from competitors? Highlight how your business is differentiated.

Step 3: Market and Competitive Analysis

Any good business will have done comprehensive analyses of the market that its entering. This doesn't just apply to large corporations, and your reader will likely want to see evidence of this. Here, you can describe the industry and market your business will operate in and highlight the opportunities your business will take advantage of. Did your market research reveal any unique trends? If so, this is the place to show it.

Illustrate the competitive landscape as well. What are your competitors doing well and not so well? Why are you moving into this space, and what's the weakness to be exploited in the industry? How will competitors logically react? Are you going to take competitors' customers? How?

Step 4: Operational Structure

This now gets into the tangible details of your business. How will your business operate on a day-to-day basis? Your plan should really detail this out.

What's your business's legal structure? Is it a sole proprietorship? Include this as well. We'd recommend putting together an organizational chart if there are multiple stakeholders to not only show who's involved but to also show how everyone brings something to the table.

Step 5: Product Description

Now, you finally get to discuss in detail what you'll be selling or offering. What's your good or service that's for sale? This section will likely be a bit longer than the others because of its importance.

Be sure to describe your product and how it is differentiated from similar ones. How will it be priced, and how does that play in the market compared to competitors?

Also include a marketing or promotions plan here. You could have the best product in the world but it won't matter if no one knows about it. Identify your target market and really detail out how you'll make that market aware of your product. What's the message you want to promote and why does that resonate with your specific product and the target audience? How will you build awareness and retain loyalty?

Step 6: Raise Capital

If you intend for a prospective investor or lender to read this, you'll want to include a section here on your funding request. Be clear with how much you're asking for and why. You don't want to ask for a $100,000 loan or investment without a clear plan as to what exactly that money would be used for. On top of explaining what the funds would be used for, also clearly state the projected ROI.

Step 7: Financial Analysis and Projections

It doesn't matter if you include a request for funding in your plan, you will want to include a financial analysis here. You'll want to do two things here: Paint a picture of your business's performance in the past and show it will grow in the future. Use charts and images to help make the experience easier.

If your business has already been operating for a few years, demonstrate stability through your finances. But if your business is newer and not yet profitable, be clear and realistic with your projections. For example, if your sales have been increasing at a steady 5% every quarter, you don't want to suddenly assume 50% sales growth per quarter for no reason.

Research industry norms and look up how comparable businesses have performed. Include income statements, balance sheets and cash flow statements for multiple years if possible. When showing your financial outlook, project your vision out over at least five years. Clearly state the logic behind your projections, and you can also tie this section back to your previous section on raising capital if applicable.

Step 8: Appendix

If you have any remaining pieces of information such as relevant patents, licenses, charts or anything else that wasn't able to fit in organically in the plan elsewhere, feel free to include those here. Don't use this as a space as a document dump. Instead, be absolutely sure that every piece of information that goes here goes toward supporting your business plan.

How to Write a Lean Startup Business Plan

The logic behind lean startup plans is that every business plan can be divided into nine segments. Without going into detail, you can describe each of those segments at a high enough level where they can be listed out on a single page. Compared to the traditional business plan, this allows for far more flexibility in case your business drastically changes quickly. There are dozens of templates to choose from but the most common is listed here.

Here are the basic components you'll need in a lean startup plan:

Customer Segments. Describe your target audience(s) that your business will appeal to. Most businesses will have multiple segments listed here and it's imperative that you properly identify them.

Value Proposition. Your business will potentially appeal to different customer segments in different ways. If that's the case, you should list out the different value propositions for each segment clearly and succinctly. If that isn't the case, you can list out the single value proposition your company will have. If you can't figure out what your value proposition is, that means you don't know what your business's value add is.

Channels. How is your value proposition going to be communicated to your customers? Detail out brand awareness as well as ongoing communication channels with your customers.

Customer Relationships. After you've explained how you'll be communicating to your customers, think about the kind of relationship you'll want to maintain with them. Will communication be ongoing? Will you personally be contacting them or sending automated emails?

Revenue Streams. How will your business make money? At what point in the relationship with your customers do you start to recognize revenue? Most companies will have multiple streams although if your business is just starting out, you may only have one. That's OK, but just be sure to demonstrate you know exactly where your revenue will come from.

Key Resources. You've described how you'll be capturing revenue from your customers, but what will the infrastructure look like that will support it? Supporting resources may include but aren't limited to staff or capital.

Key Activities. What are the absolute necessary activities in your plan for your business to be successful? Detail them out here and show why they're important.

Key Partnerships. As a new business, you likely won't own all of your key resources and won't be able to do all of the key activities yourself. What other entities are you working with? Consider suppliers, vendors and anyone else you're planning on doing business with.

Cost Structure. Now that you understand your business's infrastructure and needs, you can detail out the total projected costs of your business or at least identify the biggest costs you have in your plan right now. What is your plan to ensure you're maximizing the value out of those costs?

Additional Tips

Be efficient with your plan: Be sure every single word and image in your plan serves a purpose. You don't want window dressing for the sake of window dressing here. Being concise and getting straight to the point will help make your plan more digestible and easier to understand.

If your plan starts to exceed 20 pages, really proofread tosee if anything should be cut out. Also, follow the advice we mentioned above and be aware of your audience. Don't write a plan that will confuse or bore the reader.

Keep yourself honest: Don't assume a fantasy world when writing your plan. Be honest and realistic. Use industry or sector benchmarks to determine what those realistic measures are, and be wary of inflating projections. This is a very common problem and it doesn't help anyone out.

Accept help: There are so many free resources both online and in person to help with all small-business affairs. Nonprofit organizations like SCORE offer things like free mentoring and can help you write your business plan. If you're a woman or a minority, there are many government sponsored resources like the National Women's Business Council that also provide free consulting.

FAQ

What needs to be in a business plan?

The exact contents of a business plan will differ plan by plan, but in general, the typical plan should include an executive summary, a business description, a market or competitive analysis, a description of the proposed operational structure, a product description, and a pitch to raise capital if applicable.

Why is a business plan important?

Business plans are efficient ways to explain your business in a comprehensive and broad manner. Lenders may make decisions to lend to you based on your business plan. Investors may decide whether they want to invest in your business based on your plan.

Not only are plans useful to externally communicate details about your business, they're also useful as an internal reference. Plans will help keep your business on track and help align your strategic goals with actions that you make on a daily basis.

How do I write a business plan for a loan?

Most lenders will require a business plan from applicants. A business plan should always take the audience into account and in this case, you'll want to emphasize how your business stands out in the market, why it's likely to be a success, and how your plan involves paying off your loan quickly and on time. As long as a lender is confident that you'd be able to meet your loan repayments, your business plan did its job.

What's the difference between a traditional and a lean plan?

A traditional plan is far more common and will carry a lot more detail than a lean plan. While the two are relatively similar in content and structure, a lean plan only contains the bare minimum level of detail. A lean plan is usually a one-pager and only has the minimum amount of detail to be able to describe the business at the highest level and should only be used when the company is both very new and time is scarce.