How to create the perfect business plan

A great business plan can help you clarify your strategy, identify potential roadblocks, decide what you will need in the way of resources, and evaluate the viability of your idea or your growth plans before you start a business.

Not every successful business launch with a formal business plan, but many founders find value in taking time to step back, research their idea and the market they are looking to enter and understand the scope and the strategy behind their tactics.

That is where writing a business plan comes in.

What is a business plan?

A business plan is a document describing a business, its goods, or services, how it earns (or will earn) money, its leadership and staffing, its financing, its operations model, and many other details essential to its success.

Why write a business plan?

Investors rely on business plans to evaluate the feasibility of a business before funding it, which is why business plans are commonly associated with getting a loan. But there are several compelling reasons to consider writing a business plan, even if you do not need funding:

Strategic planning

Writing out your plan is an invaluable exercise for clarifying your ideas and can help you understand the scope of your business, as well as the amount of time, money, and resources you’ll need to get started.

Evaluating ideas

If you have multiple ideas in mind, a rough business plan for each can help you focus your time and energy on the ones with the highest chance of success.

Research

To write a business plan, you will need to research your ideal customer and your competitors—information that will help you make more strategic decisions.

Recruiting

Your business plan is one of the easiest ways to communicate your vision to potential new hires and can help build their confidence in the venture, especially if you are in the early stages of growth.

Partnerships

If you plan to approach other companies to collaborate, having a clear overview of your vision, your audience, and your business strategy will make it much easier for them to identify whether your business is a good fit for theirs — especially if they are further along than you in their growth trajectory.

Competitions

There are many business plan competitions offering prizes such as mentorships, grants, or investment capital.

If you are looking for a structured way to lay out your thoughts and ideas, and to share those ideas with people who can have a big impact on your success, a business plan is an excellent starting point.

Business plan formats

Business plans can span from one page to multiple pages with detailed graphs and reports. There is no one way to create a business plan. The goal is to convey the most vital information about your company for readers.

Common types of business plans we see include:

Traditional

These are the most common business plans. Traditional business plans take longer to write and can be dozens of pages long. Venture capitalist firms and lenders ask for this plan.

Lean

A lean business plan is a shorter version of a traditional business plan. It follows the same format, but only includes the most vital information. Businesses use this plan to onboard new hires or modify existing plans for a specific target market.

Non-profit

A non-profit business plan is for any entity that operates for public or social benefit. It covers everything you will find in a traditional business plan, plus a section describing the impact the company plans to make. Donors often request this plan.

9 Steps to writing a business plan:

1. Draft an executive summary

A good executive summary is one of the most crucial sections of your plan—it is also the last section you should write.

The executive summary’s purpose is to extract everything that follows and give time-crunched reviewers (e.g., potential investors and lenders) a high-level overview of your business that persuades them to read further.

Highlight the key points you’ve uncovered while writing your plan. If you’re writing for your own planning purposes, you can skip the summary altogether, although you might want to give it a try anyway, just for practice.

An executive summary shouldn’t exceed one page. Admittedly, that space constraint can make squeezing in all of the information a bit stressful, but it’s not impossible.

Here’s what your business plan’s executive summary should include:

Business concept: What does your business do?

Business goals and vision: What does your business want to do?

Product description and differentiation: What do you sell, and why is it different?

Target market: Who do you sell to?

Marketing strategy: How do you plan on reaching your customers?

Current financial state: What do you currently earn in revenue?

Projected financial state: What do you foresee earning in revenue?

The ask: How much money are you asking for?

The team: Who’s involved in the business?

2. Describe your company

This section of your business plan should answer two fundamental questions: who are you, and what do you plan to do?

Answering these questions introduces why you’re in business, why you’re different, what you have going for you, and why you’re a good investment bet.

Clarifying these details is still a useful exercise, even if you’re the only person who’s going to see them. It’s an opportunity to put to paper some of the more intangible facets of your business, like your principles, ideals, and cultural philosophies.

Here are some of the components you should include in your company overview:

• Your business structure (Are you a sole proprietorship, general partnership, limited partnership, or incorporated company?)
• Your business model
• Your industry
• Your business’s vision, mission, and value proposition
• Background information on your business or its history
• Business objectives, both short and long term
• Your team, including key personnel and their salaries

Some of these points are statements of fact, but others will require a bit more thought to define, especially when it comes to your business’ vision, mission, and values. This is where you start getting to the core of why your business exists, what you hope to accomplish, and what you stand for.

To define your values, think about all the people your company is accountable to, including owners, employees, suppliers, customers, and investors. Now consider how you’d like to conduct business with each of them. As you make a list, your core values should start to emerge.

Once you know your values, you can write a mission statement. Your statement should explain, in a convincing manner, why your business exists, and should be no longer than a single sentence.

Next, craft your vision statement: what impact do you envision your business having on the world once you’ve achieved your vision? Phrase this impact as an assertion—begin the statement with “We will” and you’ll be off to a great start. Your vision statement, unlike your mission statement, can be longer than a single sentence, but try to keep it to three at most. The best vision statements are concise.

Finally, your company overview should include both short- and long-term goals. Short-term goals, generally, should be achievable within the next year, while one to five years is a good window for long-term goals. Make sure all your goals are SMART: Specific, Measurable, Attainable, Realistic, and Time Bound.

3. Perform a market analysis

No matter what type of business you start, it’s no exaggeration to say your market can make or break it. Choose the right market for your products—one with plenty of customers who understand and need your product—and you’ll have a head start on success. If you choose the wrong market, or the right market at the wrong time, you may find yourself struggling for each sale.

Market research and analysis is a key section of your business plan, whether or not you ever intend for anyone else to read it. It should include an overview of how big you estimate the market is for your products, an analysis of your business’ position in the market, and an overview of the competitive landscape. Thorough research supporting your conclusions is important both to persuade investors and to validate your own assumptions as you work through your plan.

How big is your potential market?

The potential market is an estimate of how many people need your product. While it’s exciting to imagine sky-high sales figures, you’ll want to use as much relevant independent data as possible to validate your estimated potential market.

Here are some general tips to help you begin your research:

Understand your ideal customer profile

 If you’re targeting specific consumers in the Australia, you first can look for government data about the size of that group. You also could look at projected changes to the number of people in your target age range over the next few years.

Research relevant industry trends and trajectory

If your product serves retirees, try to find data about how many people will be retiring in the next five years, as well as any information you can find about consumption patterns among that group.

If you’re selling fitness equipment, you could look at trends in gym memberships and overall health and fitness among your target audience or the population at large. Finally, look for information on whether your general industry is projected to grow or decline over the next few years.

Make informed guesses

You’ll never have perfect, complete information about the size of your total addressable market. Your goal is to base your estimates on as many verifiable data points as necessary for a confident guess.

SWOT analysis

A SWOT analysis looks at your strengths, weaknesses, opportunities, and threats. What are the best things about your company? What are you not so good at? What market or industry shifts can you take advantage of and turn into opportunities? Are there external factors threatening your ability to succeed?

These breakdowns often are presented as a grid, with bullet points in each section breaking down the most relevant information—so you can probably skip writing full paragraphs here.

Strengths and weaknesses—both internal company factors—are listed first, with opportunities and threats following in the next row. With this visual presentation, your reader can quickly see the factors that may impact your business and determine your competitive advantage in the market.

Competitive analysis

There are three overarching factors you can use to differentiate your business in the face of competition:

Cost leadership

You have the capacity to maximize profits by offering lower prices than most of your competitors.

Differentiation

Your product or service offers something distinct from the current cost leaders in your industry and banks on standing out based on your uniqueness.

Segmentation 

You focus on a very specific, or niche, target market, and aim to build traction with a smaller audience before moving on to a broader market.

To understand which is the best fit, you’ll need to understand your business as well as the competitive landscape.

You’ll always have competition in the market, even with an innovative product, so it’s important to include a competitive overview in your business plan. If you’re entering an established market, include a list of a few companies you consider direct competitors and explain how you plan to differentiate your products and business from theirs.

If you’re entering a market where you can’t easily identify direct competitors, consider your indirect competitors—companies offering products that are substitutes for yours. 

4. Outline management and organization

The management and organization section of your business plan should tell readers about who’s running your company. Detail the legal structure of your business. Communicate your business structure.

If you have a management team, use an organizational chart to show your company’s internal structure, including the roles, responsibilities, and relationships between people in your chart.

Communicate how each person will contribute to the success of your start-up.

5. List your products and services

Your products or services will feature prominently in most areas of your business plan, but it’s important to provide a section that outlines key details about them for interested readers.

If you sell many items, you can include more general information on each of your product lines; if you only sell a few, provide additional information on each.

Describe new products you’ll soon launch and any intellectual property you own. Express how they’ll improve profitability. It’s also important to note where products are coming from.

6. Perform customer segmentation

Your target market is the foundation of your marketing plan, if not your business plan as a whole. You’ll want to keep this person in mind as you make strategic decisions, which is why an overview of who they are is important to understand and include in your plan.

To give a holistic overview of your ideal customer, describe several general and specific demographic characteristics. Customer segmentation often includes:

• Where they live
• Their age range
• Their level of education
• Some common behaviour patterns
• How they spend their free time
• Where they work
• What technology they use
• How much they earn
• Where they’re commonly employed
• Their values, beliefs, or opinions

This information will vary based on what you’re selling, but you should be specific enough that it’s unquestionably clear who you’re trying to reach—and more importantly, why you’ve made the choices you have based on who your customers are and what they value.

7. Define a marketing plan

Your marketing efforts are directly informed by your ideal customer. Your marketing plan should outline your current decisions and your future strategy, with a focus on how your ideas are a fit for that ideal customer.

If you’re planning to invest heavily in Instagram marketing, for example, it might make sense to include whether Instagram is a leading platform for your audience—if it’s not, that might be a sign to rethink your marketing plan.

Most marketing plans include information on four key subjects:

Price

How much do your products cost, and why have you made that decision?

Product

What are you selling and how do you differentiate it in the market?

Promotion

How will you get your products in front of your ideal customer?

Place

Where will you sell your products?

8. Provide a logistics and operations plan

Logistics and operations are the workflows you’ll implement to make your ideas a reality. If you’re writing a business plan for your own planning purposes, this is still an important section to consider, even though you might not need to include the same level of detail as if you were seeking investment.

Cover all parts of your planned operations, including:

Suppliers

Where do you get the raw materials you need for production, or where are your products produced?

Production

Will you make, manufacture, wholesale, or dropship your products? How long does it take to produce your products and get them shipped to you? How will you handle a busy season or an unexpected spike in demand?

Facilities

Where will you and any team members work? Do you plan to have a physical retail space? If yes, where?

Equipment

What tools and technology do you require to be up and running? This includes everything from computers to lightbulbs and everything in between.

Shipping and fulfillment

Will you be handling all the fulfillment tasks in-house, or will you use a third-party fulfillment partner?

Inventory

How much will you keep on hand, and where will it be stored? How will you ship it to partners if required, and how will you approach inventory management?

This section should signal to your reader that you’ve got a solid understanding of your supply chain and strong contingency plans in place to cover potential uncertainty. If your reader, is you, it should give you a basis to make other important decisions, like how to price your products to cover your estimated costs, and at what point you plan to break even on your initial spending.

9. Make a financial plan

No matter how great your idea is, and regardless of the effort, time, and money you invest, a business lives or dies based on its financial health. At the end of the day, people want to work with a business they expect to be viable for the foreseeable future.

The level of detail required in your financial plan will depend on your audience and goals, but typically you’ll want to include three major views of your financials:

Income statement

Your income statement is designed to give readers a look at your revenue sources and expenses over a given time period. With those two pieces of information, they can see the all-important bottom line or the profit or loss your business experienced during that time. If you haven’t launched your business yet, you can project future milestones of the same information.

Balance sheet
Your balance sheet offers a look at how much equity you have in your business. On one side, you list all your business assets (what you own), and on the other side, all your liabilities (what you owe). This provides a snapshot of your business’ shareholder equity, which is calculated as:

Assets - Liabilities = Equity

Cash flow statement

Your cash flow statement is like your income statement, with one important difference: it takes into account when revenues are collected and when expenses are paid.

When the cash you have coming in is greater than the cash you have going out, your cash flow is positive. When the opposite scenario is true, your cash flow is negative. Ideally, your cash flow statement will help you see when cash is low, when you might have a surplus, and where you might need to have a contingency plan to access funding to keep your business solvent.

It can be especially helpful to forecast your cash-flow statement to identify gaps or negative cash flow and adjust operations as required. Here’s a full guide to working through cash-flow projections for your business.

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