reasons why a business plan is important to an entrepreneur

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The importance of a business plan

Business plans are like road maps: it’s possible to travel without one, but that will only increase the odds of getting lost along the way.

Owners with a business plan see growth 30% faster than those without one, and 71% of the fast-growing companies have business plans . Before we get into the thick of it, let’s define and go over what a business plan actually is.

What is a business plan?

A business plan is a 15-20 page document that outlines how you will achieve your business objectives and includes information about your product, marketing strategies, and finances. You should create one when you’re starting a new business and keep updating it as your business grows.

Rather than putting yourself in a position where you may have to stop and ask for directions or even circle back and start over, small business owners often use business plans to help guide them. That’s because they help them see the bigger picture, plan ahead, make important decisions, and improve the overall likelihood of success. ‍

Why is a business plan important?

A well-written business plan is an important tool because it gives entrepreneurs and small business owners, as well as their employees, the ability to lay out their goals and track their progress as their business begins to grow. Business planning should be the first thing done when starting a new business. Business plans are also important for attracting investors so they can determine if your business is on the right path and worth putting money into.

Business plans typically include detailed information that can help improve your business’s chances of success, like:

• A market analysis : gathering information about factors and conditions that affect your industry
• Competitive analysis : evaluating the strengths and weaknesses of your competitors
• Customer segmentation : divide your customers into different groups based on specific characteristics to improve your marketing
• Marketing: using your research to advertise your business
• Logistics and operations plans : planning and executing the most efficient production process
• Cash flow projection : being prepared for how much money is going into and out of your business
• An overall path to long-term growth

What is the purpose of a business plan?

A business plan is like a map for small business owners, showing them where to go and how to get there. Its main purposes are to help you avoid risks, keep everyone on the same page, plan finances, check if your business idea is good, make operations smoother, and adapt to changes. It's a way for small business owners to plan, communicate, and stay on track toward their goals.

10 reasons why you need a business plan

I know what you’re thinking: “Do I really need a business plan? It sounds like a lot of work, plus I heard they’re outdated and I like figuring things out as I go...”.

The answer is: yes, you really do need a business plan! As entrepreneur Kevin J. Donaldson said, “Going into business without a business plan is like going on a mountain trek without a map or GPS support—you’ll eventually get lost and starve! Though it may sound tedious and time-consuming, business plans are critical to starting your business and setting yourself up for success.

To outline the importance of business plans and make the process sound less daunting, here are 10 reasons why you need one for your small business.

1. To help you with critical decisions

The primary importance of a business plan is that they help you make better decisions. Entrepreneurship is often an endless exercise in decision making and crisis management. Sitting down and considering all the ramifications of any given decision is a luxury that small businesses can’t always afford. That’s where a business plan comes in.

Building a business plan allows you to determine the answer to some of the most critical business decisions ahead of time.

Creating a robust business plan is a forcing function—you have to sit down and think about major components of your business before you get started, like your marketing strategy and what products you’ll sell. You answer many tough questions before they arise. And thinking deeply about your core strategies can also help you understand how those decisions will impact your broader strategy.

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2. To iron out the kinks

Putting together a business plan requires entrepreneurs to ask themselves a lot of hard questions and take the time to come up with well-researched and insightful answers. Even if the document itself were to disappear as soon as it’s completed, the practice of writing it helps to articulate your vision in realistic terms and better determine if there are any gaps in your strategy.

3. To avoid the big mistakes

Only about half of small businesses are still around to celebrate their fifth birthday . While there are many reasons why small businesses fail, many of the most common are purposefully addressed in business plans.

According to data from CB Insights , some of the most common reasons businesses fail include:

• No market need : No one wants what you’re selling.
• Lack of capital : Cash flow issues or businesses simply run out of money.
• Inadequate team : This underscores the importance of hiring the right people to help you run your business.
• Stiff competition : It’s tough to generate a steady profit when you have a lot of competitors in your space.
• Pricing : Some entrepreneurs price their products or services too high or too low—both scenarios can be a recipe for disaster.

The exercise of creating a business plan can help you avoid these major mistakes. Whether it’s cash flow forecasts or a product-market fit analysis , every piece of a business plan can help spot some of those potentially critical mistakes before they arise. For example, don’t be afraid to scrap an idea you really loved if it turns out there’s no market need. Be honest with yourself!

Get a jumpstart on your business plan by creating your own cash flow projection .

4. To prove the viability of the business

Many businesses are created out of passion, and while passion can be a great motivator, it’s not a great proof point.

Planning out exactly how you’re going to turn that vision into a successful business is perhaps the most important step between concept and reality. Business plans can help you confirm that your grand idea makes sound business sense.

A critical component of your business plan is the market research section. Market research can offer deep insight into your customers, your competitors, and your chosen industry. Not only can it enlighten entrepreneurs who are starting up a new business, but it can also better inform existing businesses on activities like marketing, advertising, and releasing new products or services.

Want to prove there’s a market gap? Here’s how you can get started with market research.

5. To set better objectives and benchmarks

Without a business plan, objectives often become arbitrary, without much rhyme or reason behind them. Having a business plan can help make those benchmarks more intentional and consequential. They can also help keep you accountable to your long-term vision and strategy, and gain insights into how your strategy is (or isn’t) coming together over time.

6. To communicate objectives and benchmarks

Whether you’re managing a team of 100 or a team of two, you can’t always be there to make every decision yourself. Think of the business plan like a substitute teacher, ready to answer questions any time there’s an absence. Let your staff know that when in doubt, they can always consult the business plan to understand the next steps in the event that they can’t get an answer from you directly.

Sharing your business plan with team members also helps ensure that all members are aligned with what you’re doing, why, and share the same understanding of long-term objectives.

7. To provide a guide for service providers

Small businesses typically employ contractors , freelancers, and other professionals to help them with tasks like accounting , marketing, legal assistance, and as consultants. Having a business plan in place allows you to easily share relevant sections with those you rely on to support the organization, while ensuring everyone is on the same page.

8. To secure financing

Did you know you’re 2.5x more likely to get funded if you have a business plan?If you’re planning on pitching to venture capitalists, borrowing from a bank, or are considering selling your company in the future, you’re likely going to need a business plan. After all, anyone that’s interested in putting money into your company is going to want to know it’s in good hands and that it’s viable in the long run. Business plans are the most effective ways of proving that and are typically a requirement for anyone seeking outside financing.

Learn what you need to get a small business loan.

9. To better understand the broader landscape

No business is an island, and while you might have a strong handle on everything happening under your own roof, it’s equally important to understand the market terrain as well. Writing a business plan can go a long way in helping you better understand your competition and the market you’re operating in more broadly, illuminate consumer trends and preferences, potential disruptions and other insights that aren’t always plainly visible.

10. To reduce risk

Entrepreneurship is a risky business, but that risk becomes significantly more manageable once tested against a well-crafted business plan. Drawing up revenue and expense projections, devising logistics and operational plans, and understanding the market and competitive landscape can all help reduce the risk factor from an inherently precarious way to make a living. Having a business plan allows you to leave less up to chance, make better decisions, and enjoy the clearest possible view of the future of your company.

Business plan FAQs

How does having a business plan help small business owners make better decisions.

Having a business plan supports small business owners in making smarter decisions by providing a structured framework to assess all parts of their businesses. It helps you foresee potential challenges, identify opportunities, and set clear objectives. Business plans help you make decisions across the board, including market strategies, financial management, resource allocation, and growth planning.

What industry-specific issues can business plans help tackle?

Business plans can address industry-specific challenges like regulatory compliance, technological advancements, market trends, and competitive landscape. For instance, in highly regulated industries like healthcare or finance, a comprehensive business plan can outline compliance measures and risk management strategies.

How can small business owners use their business plans to pitch investors or apply for loans?

In addition to attracting investors and securing financing, small business owners can leverage their business plans during pitches or loan applications by focusing on key elements that resonate with potential stakeholders. This includes highlighting market analysis, competitive advantages, revenue projections, and scalability plans. Presenting a well-researched and data-driven business plan demonstrates credibility and makes investors or lenders feel confident about your business’s potential health and growth.

Understanding the importance of a business plan

Now that you have a solid grasp on the “why” behind business plans, you can confidently move forward with creating your own.

Remember that a business plan will grow and evolve along with your business, so it’s an important part of your whole journey—not just the beginning.

Related Posts

Now that you’ve read up on the purpose of a business plan, check out our guide to help you get started.

The information and tips shared on this blog are meant to be used as learning and personal development tools as you launch, run and grow your business. While a good place to start, these articles should not take the place of personalized advice from professionals. As our lawyers would say: “All content on Wave’s blog is intended for informational purposes only. It should not be considered legal or financial advice.” Additionally, Wave is the legal copyright holder of all materials on the blog, and others cannot re-use or publish it without our written consent.

Importance of Business Plan to an Entrepreneur: Guide to Implement

Importance of Business Plan to an Entrepreneur – A business plan is an essential road map that entrepreneurs use to navigate the difficult process of starting and expanding a profitable firm. It performs as a strategic instrument for outlining the goals. Also, serve as a financial prediction of a company.

Importance of a Business Plan to an Entrepreneurs

A strong business plan’s importance cannot be overstated since it provides entrepreneurs with a comprehensive framework for making decisions, attracting investors , securing funding, and navigating the dynamic business world. This article will cover the significance of a business plan. Also, offer practical guidance on how entrepreneurs can utilize it to advance their ventures. Let’s discuss what are the importance of a business plan to an entrepreneur.

A Business Plan Provides a Roadmap for a Business

Picture you are going on a road trip to a dream destination. Before setting off, you would carefully plan your route, mark critical milestones, estimate travel time, and consider alternative paths in case of detours. Similarly, a business plan helps entrepreneurs chart their course by defining their vision, identifying target markets, assessing competition, setting financial goals, and mapping out strategies to overcome challenges.

Read – Can Anyone Be an Entrepreneur

Helps Entrepreneurs to Define Their Objectives

Imagine that an entrepreneur wishes to launch a sustainable clothing line. They would specify their goals through the business planning process, such as advancing ethical fashion, minimizing environmental effects, and making a good social impact. The business plan would outline these objectives and establish strategies and action steps to align the business activities with these goals.

Defined objectives in a business plan help entrepreneurs think critically, establish purpose, and guide decision-making. By setting SMART objectives, entrepreneurs can track performance, evaluate strategies, and make necessary adjustments to achieve desired outcomes. For example, an e-commerce business can increase online sales by 50% within a year, allowing regular monitoring, analysis, and adjustments to achieve its target.

Importance of Entrepreneurs to Identifying Their Target Market

When determining the target market for their goods or services, businesses place a lot of weight on their business plans. A business plan aids entrepreneurs in comprehending their potential clients, their demands, and their preferences by doing in-depth market research and analysis. This knowledge is essential for creating efficient marketing plans and modifying the company’s product offerings to satisfy the needs of the target market.

Let’s use the example of an entrepreneur who wants to launch a line of fitness clothes to demonstrate the significance of this. They would do market research as part of the process of writing a business plan to pinpoint their target consumers, such as fitness fanatics, gym visitors, or athletes. The business plan would include insightful information on the target market’s demographics, hobbies, and purchase patterns. With this knowledge, the business owner may carefully coordinate their product offering, price, and marketing messaging to appeal to the determined target demographic.

Entrepreneurs may focus on the appropriate audience, avoid one-size-fits-all techniques, and customize their products, services, and marketing strategies to their consumers’ needs by determining their target market. This aids in comprehending the competitive landscape, spotting gaps, and creating distinctive value propositions that appeal to the target market.

Helps Entrepreneurs to Assesses Competition

A business plan is a valuable tool that helps entrepreneurs assess their competition and gain a deeper understanding of the market landscape in which they operate. By following a structured approach, a business plan guides entrepreneurs on how to effectively analyze and evaluate their competitors.

A business plan helps entrepreneurs identify their key competitors by conducting research and gathering information about their products or services, pricing strategies, target market, marketing tactics, distribution channels, and customer reviews. This helps entrepreneurs understand their unique selling points and position themselves in the market. Entrepreneurs can compare their strengths and weaknesses to those of their competitors, identifying areas for differentiation. They also analyze market demand and customer preferences to identify gaps or underserved segments, tailoring their products or services to cater to these needs. A business plan guides entrepreneurs in positioning themselves against their competition, developing a unique value proposition that resonates with the target market. This roadmap helps entrepreneurs stay agile and adapt their strategies accordingly.

Importance to Evaluate Feasibility

Read – Benefits of Being an Entrepreneur

Importance of Entrepreneurs to Attract Investors

A business plan holds immense importance for entrepreneurs when it comes to attracting investors to support their venture. A well-crafted business plan serves as a persuasive tool that demonstrates the potential of the business and convinces investors to provide financial backing.

Helps Entrepreneurs to Secures Their Funding

A business plan is essential for assisting entrepreneurs in obtaining finance for their projects. It acts as a roadmap that details the company’s potential, financial estimates, and growth plans. Entrepreneurs should write a succinct executive summary, thorough business description, market and competitive analysis, financial projections, funding requirements, marketing and sales strategy, management team, risk assessment, and mitigation, and supporting documents to obtain funding through a business plan.

These elements help investors and lenders understand the business’s unique value proposition, target market, revenue potential, and funding requirements. By presenting realistic financial projections, well-supported financial projections, and a well-thought-out marketing and sales strategy, entrepreneurs can secure funding and attract investors and lenders.

Read – Common Myths about Entrepreneurs

Business Plan Guides Entrepreneurs to Resource Allocation

A business plan serves as a valuable tool that guides entrepreneurs in allocating their resources effectively. It provides a clear roadmap for resource allocation by outlining the key areas of the business that require attention and investment.

Importance to Facilitate Decision-Making

A business plan holds great importance for entrepreneurs in facilitating effective decision-making throughout their entrepreneurial journey. It provides a framework that helps entrepreneurs make informed decisions by considering various factors and evaluating potential outcomes.

To effectively use a business plan for decision-making, entrepreneurs should define goals and objectives, gather relevant information, evaluate alternatives, consider financial implications, analyze risks and mitigation strategies, seek input from experts, regularly review and update the plan, and trust intuition and vision. This balances analytical thinking with an entrepreneurial instinct, ensuring long-term sustainability and informed decisions.

Identifies Risks and Mitigation Strategies

To identify risks and develop mitigation strategies in a business plan, conduct a comprehensive risk assessment, analyze the impact and likelihood of risks, and develop specific strategies. Allocate resources, including financial, personnel, and time, to support the implementation of these strategies. Regularly monitor and update the business plan, seeking external expertise or consulting with industry professionals to gain insights. Communicate the identified risks and mitigation strategies clearly to stakeholders, including investors, lenders, and partners, to demonstrate professionalism and confidence in the business.

Importance of Entrepreneurs to Assists in Team Building

Read – Entrepreneurship Books for Students

Business Plan Supports Marketing and Sales Efforts

A business plan holds significant importance in supporting marketing and sales efforts for entrepreneurs. It provides a strategic roadmap for effectively promoting products or services and attracting customers. A business plan helps understand the target market, define the unique selling proposition (USP), develop marketing strategies, allocate budgets, monitor and measure results, and adapt and evolve.

Guides Product or Service Development

A business plan is essential for directing entrepreneurs as they create their goods or services. It offers a methodical way to determine consumer demands, specify product characteristics, and create a schedule for product development.

A business plan can guide product or service development by identifying customer needs, defining product or service features, setting development milestones, determining resource requirements, conducting testing and iteration, and integrating marketing and launch strategies. This helps entrepreneurs stay focused, track progress, and ensure the timely completion of activities. The plan should also outline the necessary funding, collaborations, and resources needed for the development process. By incorporating continuous improvement and iterative development, entrepreneurs can create a high-quality offering that meets or exceeds customer expectations.

Importance of Entrepreneurs to Manage Finances Effectively

A business plan holds great importance for entrepreneurs when it comes to managing finances effectively. It offers a thorough foundation for comprehending the financial facets of the firm and aids business owners in making defensible choices to maximize financial resources.

Business Plan Measures Progress and Success

A business plan holds significant importance for entrepreneurs in measuring their progress and success. They may compare their accomplishments to it as a standard to see if they are progressing in the correct path.

Establish Key Performance Indicators (KPIs) that are in line with the goals of the business’s plan to successfully measure the growth and success of entrepreneurs. Regularly track and monitor KPIs to assess progress and make informed decisions. Conduct periodic reviews to evaluate progress against the plan, identify areas for adjustments or course corrections, and celebrate milestones and successes. Continuously update and evolve the business plan to reflect evolving goals, strategies, and market conditions.

Business Plan Importance to Enhance Credibility

To enhance entrepreneurs’ credibility, a well-presented business plan should present a professional image, conduct thorough market research, highlight the unique selling proposition, provide detailed financial projections, incorporate risk analysis and mitigation strategies, seek third-party validation, and regularly update and refine the plan. This shows credibility and commitment to continuous improvement, demonstrating the business’s ability to adapt and thrive in the ever-changing landscape.

Business Plan Provides a Basis for Partnerships

Read – Imitative Entrepreneurship

Importance of Entrepreneurs to Do Business Expansion

A business plan plays a crucial role for entrepreneurs when it comes to business expansion. It provides a strategic framework and guidance for expanding operations, entering new markets, or launching new products or services.

Guides Entrepreneurs to Succession Planning

A business plan is of significant importance when it comes to guiding entrepreneurs in succession planning, which involves preparing for the future transition of leadership and ownership within a business.

To effectively use a business plan for succession planning, assess current leadership and ownership, identify potential successors, define succession goals and timeline, develop a succession plan, communicate with stakeholders, and regularly review and update the plan. This process ensures alignment with the long-term vision and aspirations of the business and its stakeholders. Regularly assess the progress of potential successors and provide development opportunities to enhance their skills and knowledge.

Importance to Increases Self-Awareness

Entrepreneurs should consider their objectives and values, perform a SWOT analysis, create reasonable company goals, ask for criticism and mentoring, constantly evaluate their success, and change to improve their self-awareness. By identifying strengths, weaknesses, opportunities, and threats, entrepreneurs can create a clear vision and align their business plans with their values. By seeking feedback and mentoring, entrepreneurs can develop a stronger self-awareness and improve their business strategies.

An effective business plan is a crucial tool for entrepreneurs . It gives them a path to success. A successful business plan may help entrepreneurs define clear goals. Also, identify their target market, analyze the competition, determine whether their idea is feasible, draw in investors, manage funds, and track their progress. It functions as a manual to assist business owners make wise decisions, manage resources effectively, and adjust to changing conditions.

A solid business plan is crucial for entrepreneurs to navigate the complex commercial world, guiding their companies toward expansion, profitability, and long-term success. It should be evaluated and revised regularly to reflect company demands, serving as a compass for entrepreneurs.

FAQ about the Importance of Business Plans to Entrepreneurs

Why is a business plan important, when is the best time to write a business plan.

Typically, before launching a new firm. It is the ideal time to draft a business plan. Likewise, when a current firm is expected to undergo significant adjustments. Be sure you have a solid strategy in place before approaching investors, looking for finance. Especially, starting a business. Making a business plan, though, is never too late, and you can always change it as your company grows.

What is a Business Plan’s Main Objective?

A business plan’s main objective is to outline an organization’s goals, strategies, and financial predictions. It helps business owners communicate their vision, pinpoint their target market, assess the profitability of their endeavor, entice investors, and allocate their resources effectively. It serves as a compass for monitoring growth and making adjustments as needed.

What are the Typical Challenges of Writing a Business Plan?

What is a Business Plan? Definition, Tips, and Templates

Published: June 28, 2024

Years ago, I had an idea to launch a line of region-specific board games. I knew there was a market for games that celebrated local culture and heritage. I was so excited about the concept and couldn't wait to get started.

But my idea never took off. Why? Because I didn‘t have a plan. I lacked direction, missed opportunities, and ultimately, the venture never got off the ground.

And that’s exactly why a business plan is important. It cements your vision, gives you clarity, and outlines your next step.

In this post, I‘ll explain what a business plan is, the reasons why you’d need one, identify different types of business plans, and what you should include in yours.

Table of Contents

What is a business plan?

What is a business plan used for.

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Purposes of a Business Plan

What does a business plan need to include, types of business plans.

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A business plan is a comprehensive document that outlines a company's goals, strategies, and financial projections. It provides a detailed description of the business, including its products or services, target market, competitive landscape, and marketing and sales strategies. The plan also includes a financial section that forecasts revenue, expenses, and cash flow, as well as a funding request if the business is seeking investment.

The business plan is an undeniably critical component to getting any company off the ground. It's key to securing financing, documenting your business model, outlining your financial projections, and turning that nugget of a business idea into a reality.

The purpose of a business plan is three-fold: It summarizes the organization’s strategy in order to execute it long term, secures financing from investors, and helps forecast future business demands.

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What is a Business Plan? Definition and Resources

9 min. read

Updated July 29, 2024

If you’ve ever jotted down a business idea on a napkin with a few tasks you need to accomplish, you’ve written a business plan — or at least the very basic components of one.

The origin of formal business plans is murky. But they certainly go back centuries. And when you consider that 20% of new businesses fail in year 1 , and half fail within 5 years, the importance of thorough planning and research should be clear.

But just what is a business plan? And what’s required to move from a series of ideas to a formal plan? Here we’ll answer that question and explain why you need one to be a successful business owner.

• What is a business plan?

A business plan lays out a strategic roadmap for any new or growing business.

Any entrepreneur with a great idea for a business needs to conduct market research , analyze their competitors , validate their idea by talking to potential customers, and define their unique value proposition .

The business plan captures that opportunity you see for your company: it describes your product or service and business model , and the target market you’ll serve. 

It also includes details on how you’ll execute your plan: how you’ll price and market your solution and your financial projections .

Reasons for writing a business plan

If you’re asking yourself, ‘Do I really need to write a business plan?’ consider this fact: 

Companies that commit to planning grow 30% faster than those that don’t.

Creating a business plan is crucial for businesses of any size or stage. It helps you develop a working business and avoid consequences that could stop you before you ever start.

If you plan to raise funds for your business through a traditional bank loan or SBA loan , none of them will want to move forward without seeing your business plan. Venture capital firms may or may not ask for one, but you’ll still need to do thorough planning to create a pitch that makes them want to invest.

But it’s more than just a means of getting your business funded . The plan is also your roadmap to identify and address potential risks. 

It’s not a one-time document. Your business plan is a living guide to ensure your business stays on course.

Related: 14 of the top reasons why you need a business plan

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What research shows about business plans

Numerous studies have established that planning improves business performance:

• 71% of fast-growing companies have business plans that include budgets, sales goals, and marketing and sales strategies.
• Companies that clearly define their value proposition are more successful than those that can’t.
• Companies or startups with a business plan are more likely to get funding than those without one.
• Starting the business planning process before investing in marketing reduces the likelihood of business failure.

The planning process significantly impacts business growth for existing companies and startups alike.

Read More: Research-backed reasons why writing a business plan matters

When should you write a business plan?

No two business plans are alike. 

Yet there are similar questions for anyone considering writing a plan to answer. One basic but important question is when to start writing it.

A Harvard Business Review study found that the ideal time to write a business plan is between 6 and 12 months after deciding to start a business. 

But the reality can be more nuanced – it depends on the stage a business is in, or the type of business plan being written.

Ideal times to write a business plan include:

• When you have an idea for a business
• When you’re starting a business
• When you’re preparing to buy (or sell)
• When you’re trying to get funding
• When business conditions change
• When you’re growing or scaling your business

Read More: The best times to write or update your business plan

How often should you update your business plan?

As is often the case, how often a business plan should be updated depends on your circumstances.

A business plan isn’t a homework assignment to complete and forget about. At the same time, no one wants to get so bogged down in the details that they lose sight of day-to-day goals. 

But it should cover new opportunities and threats that a business owner surfaces, and incorporate feedback they get from customers. So it can’t be a static document.

Related Reading: 5 fundamental principles of business planning

For an entrepreneur at the ideation stage, writing and checking back on their business plan will help them determine if they can turn that idea into a profitable business .

And for owners of up-and-running businesses, updating the plan (or rewriting it) will help them respond to market shifts they wouldn’t be prepared for otherwise. 

It also lets them compare their forecasts and budgets to actual financial results. This invaluable process surfaces where a business might be out-performing expectations and where weak performance may require a prompt strategy change. 

The planning process is what uncovers those insights.

Related Reading: 10 prompts to help you write a business plan with AI

• How long should your business plan be?

Thinking about a business plan strictly in terms of page length can risk overlooking more important factors, like the level of detail or clarity in the plan. 

Not all of the plan consists of writing – there are also financial tables, graphs, and product illustrations to include.

But there are a few general rules to consider about a plan’s length:

• Your business plan shouldn’t take more than 15 minutes to skim.
• Business plans for internal use (not for a bank loan or outside investment) can be as short as 5 to 10 pages.

A good practice is to write your business plan to match the expectations of your audience. 

If you’re walking into a bank looking for a loan, your plan should match the formal, professional style that a loan officer would expect . But if you’re writing it for stakeholders on your own team—shorter and less formal (even just a few pages) could be the better way to go.

The length of your plan may also depend on the stage your business is in. 

For instance, a startup plan won’t have nearly as much financial information to include as a plan written for an established company will.

Read More: How long should your business plan be?  

What information is included in a business plan?

The contents of a plan business plan will vary depending on the industry the business is in. 

After all, someone opening a new restaurant will have different customers, inventory needs, and marketing tactics to consider than someone bringing a new medical device to the market. 

But there are some common elements that most business plans include:

• Executive summary: An overview of the business operation, strategy, and goals. The executive summary should be written last, despite being the first thing anyone will read.
• Products and services: A description of the solution that a business is bringing to the market, emphasizing how it solves the problem customers are facing.
• Market analysis: An examination of the demographic and psychographic attributes of likely customers, resulting in the profile of an ideal customer for the business.
• Competitive analysis: Documenting the competitors a business will face in the market, and their strengths and weaknesses relative to those competitors.
• Marketing and sales plan: Summarizing a business’s tactics to position their product or service favorably in the market, attract customers, and generate revenue.
• Operational plan: Detailing the requirements to run the business day-to-day, including staffing, equipment, inventory, and facility needs.
• Organization and management structure: A listing of the departments and position breakdown of the business, as well as descriptions of the backgrounds and qualifications of the leadership team.
• Key milestones: Laying out the key dates that a business is projected to reach certain milestones , such as revenue, break-even, or customer acquisition goals.
• Financial plan: Balance sheets, cash flow forecast , and sales and expense forecasts with forward-looking financial projections, listing assumptions and potential risks that could affect the accuracy of the plan.
• Appendix: All of the supporting information that doesn’t fit into specific sections of the business plan, such as data and charts.

Read More: Use this business plan outline to organize your plan

• Different types of business plans

A business plan isn’t a one-size-fits-all document. There are numerous ways to create an effective business plan that fits entrepreneurs’ or established business owners’ needs. 

Here are a few of the most common types of business plans for small businesses:

• One-page plan : Outlining all of the most important information about a business into an adaptable one-page plan.
• Growth plan : An ongoing business management plan that ensures business tactics and strategies are aligned as a business scales up.
• Internal plan : A shorter version of a full business plan to be shared with internal stakeholders – ideal for established companies considering strategic shifts.

Business plan vs. operational plan vs. strategic plan

• What questions are you trying to answer? 
• Are you trying to lay out a plan for the actual running of your business?
• Is your focus on how you will meet short or long-term goals? 

Since your objective will ultimately inform your plan, you need to know what you’re trying to accomplish before you start writing.

While a business plan provides the foundation for a business, other types of plans support this guiding document.

An operational plan sets short-term goals for the business by laying out where it plans to focus energy and investments and when it plans to hit key milestones.

Then there is the strategic plan , which examines longer-range opportunities for the business, and how to meet those larger goals over time.

Read More: How to use a business plan for strategic development and operations

• Business plan vs. business model

If a business plan describes the tactics an entrepreneur will use to succeed in the market, then the business model represents how they will make money. 

The difference may seem subtle, but it’s important. 

Think of a business plan as the roadmap for how to exploit market opportunities and reach a state of sustainable growth. By contrast, the business model lays out how a business will operate and what it will look like once it has reached that growth phase.

Learn More: The differences between a business model and business plan

• Moving from idea to business plan

Now that you understand what a business plan is, the next step is to start writing your business plan . 

The best way to start is by reviewing examples and downloading a business plan template . These resources will provide you with guidance and inspiration to help you write a plan.

We recommend starting with a simple one-page plan ; it streamlines the planning process and helps you organize your ideas. However, if one page doesn’t fit your needs, there are plenty of other great templates available that will put you well on your way to writing a useful business plan.

Tim Berry is the founder and chairman of Palo Alto Software , a co-founder of Borland International, and a recognized expert in business planning. He has an MBA from Stanford and degrees with honors from the University of Oregon and the University of Notre Dame. Today, Tim dedicates most of his time to blogging, teaching and evangelizing for business planning.

Table of Contents

• Reasons to write a business plan
• Business planning research
• When to write a business plan
• When to update a business plan
• Information to include
• Business vs. operational vs. strategic plans

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The Undeniable Importance of a Business Plan

We often hear about business plans in the context of early-stage companies; however, constructing excellent business plans is difficult and time-consuming, so many entrepreneurs avoid them. But, is this a mistake?

While most people may be aware of the “soft” arguments for and against writing a business plan, in this article, a Toptal Finance Expert takes a data-driven approach to addressing the debate. In it, he finds strong evidence to support the notion that writing an excellent business plan is time well spent.

By Sean Heberling

Sean has analyzed 10,000+ companies, built complex models, and helped facilitate $1+ billion in investment transactions.

PREVIOUSLY AT

Executive Summary

• Individuals who write business plans are 2.5x as likely to start businesses.
• Business planning improves corporate executive satisfaction with corporate strategy development.
• Angels and venture capitalists value business plans and their [financial models](https://www.toptal.com/finance/tutorials/what-is-a-financial-model).
• Companies who complete business plans are 2.5x as likely to get funded.
• Even if a small-scale early-stage venture seeking just $250,000 in capital spent almost $40,000 on business planning and another almost $40,000 on capital raising, it should still expect to "break even" on a probability-weighted basis.
• Larger early-stage ventures enjoy extraordinary probability-weighted returns on investment from business planning. Because the target net capital so greatly exceeds the money spent on business planning, the prospective ROI is huge.
• Company Overview: An explanation of why your company is relevant and the need you are addressing.
• Market Overview: A description of the state of your market and its important trends, a detailed description of your customers, and a description of your current competitors and their advantages.
• Product/Service Overview: A description of your product(s), how they compete with other brands, why they are needed, and why customers will pay a fair economic value for it.
• Financial Projections: Three thorough financial plans with conservative, moderate, and optimistic assumptions.
• The process of writing forces the author to ask introspectively how they reached their conclusions and each of the sub-conclusions along the way because they must explain their logic to a cynical reader.
• The written author needs to support all conclusions with facts and logic to prove that they are not "making it up" or relying upon popular "myths."
• Outlined reports and outlined business plans are not generally subject to the same level of reader scrutiny.

We often hear about business plans in the context of early-stage companies , but constructing excellent business plans is difficult and time-consuming, so many entrepreneurs avoid them. That’s a mistake, as there is strong evidence demonstrating that business plans generate positive returns on time and money invested .

The business world has long debated the importance of business plans, and most involved understand the “soft” arguments. However, this article delves into the data to conclude that writing an excellent business plan is time well spent. I developed a similar view over my 20+ year financial career , during which I have analyzed well over 10,000 different types of companies. I have noticed that while a business plan may not be required for a venture to become successful, having one does seem to greatly improve the probability of successful outcomes.

Expert Opinions Support the Value of Business Planning

Expert opinions support the four following conclusions:

• Angels and venture capitalists value business plans and their financial models.

Individuals Who Write Business Plans Are 2.5x More Likely to Become Entrepreneurs

Many people have business ideas over the course of their careers, but often, these ideas never come to fruition, or they get lost amidst our daily obligations. Interestingly, studies support the notion that those who write business plans are far more likely to launch their companies. Data from the Panal Study of Entrepreneurial Dynamics in fact suggests that business planners were 2.5x as likely to get into business . The study, which surveyed more than 800 people across the United States who were in the process of starting businesses, therefore concluded that “writing a plan greatly increased the chances that a person would actually go into business.”

Of course, causation of this phenomenon is hard to pin down. There are several different possible reasons why this correlation between writing business plans and actually starting a business may exist. But William Gartner, Clemson University Entrepreneurship Professor and author of the Panal Study, believes that “‘research shows that business plans are all about walking the walk. People who write business plans also do more stuff.’ And doing more stuff, such as researching markets and preparing projections, increases the chances an entrepreneur will follow through.”

Research shows that business plans are all about walking the walk. People who write business plans also do more stuff. And doing more stuff, such as researching markets and preparing projections, increases the chances an entrepreneur will follow through.

William Bygrave, a professor emeritus at Babson College, reached a similar conclusion despite having previously shown “that entrepreneurs who began with formal plans had no greater success than those who started without them.” Bygrave does admit, however, that “40% of Babson students who have taken the college’s business plan writing course go on to start businesses after graduation, twice the rate of those who didn’t study plan writing.”

Business Planning Improves Corporate Executive Satisfaction

Another important way in which business plans can provide tangible help is by aligning everyone in an organization with the vision and strategy going forward. And this, in turn, has important ramifications on corporate executive satisfaction. A study by McKinsey & Company which surveyed nearly 800 corporate executives across a range of industries confirms this conclusion. In it, McKinsey found that “formal strategic-planning processes play an important role in improving overall satisfaction with strategy development. That role can be seen in the responses of the 79 percent of managers who claimed that the formal planning process played a significant role in developing strategies and were satisfied with the approach of their companies, compared with only 21 percent of the respondents who felt that the process did not play a significant role. Looked at another way, 51% of the respondents whose companies had no formal process were dissatisfied with their approach to the development of strategy, against only 20% of those at companies with a formal process.”

Of course, not all planning is equal. Planning just for the sake of planning doesn’t have the desired effects. As McKinsey itself noted in their study, “Just 45% of the respondents said they were satisfied with the strategic planning process. Moreover, only 23% indicated that major strategic decisions were made within its confines. Given these results, managers might well be tempted to jettison the planning process altogether.” As such, entrepreneurs and business managers should take the time and effort required to put together a well-written and well-researched business plan. Later in the article, I outline some of the elements of a well-written plan.

Business Plans and Their Financial Models Are Valuable to Angels and Venture Capitalists

Many entrepreneurs will eventually need to raise outside capital to grow and develop their businesses. In my experience, a business plan is a crucial tool in maximizing the chances of raising money from external investors. A well-written plan not only helps investors understand your business and your vision, but also shows them that you’ve taken the time to carefully assess and think through the issues your business will face, as well as the more detailed questions surrounding the economics and fundamentals of your business model.

Nathan Beckford, CFA, is the CEO of FounderSuite, the funding stack used by startups in Y Combinator, TechStars, 500s, and more to raise over $750 million. Nathan illustrates the above point nicely in an email he wrote to me recently: “Prior to starting Foundersuite.com, I ran a startup consulting business called VentureArchetypes.com. For the first few years, our primary business was cranking out bold, bullish, beautifully-written business plans for startups to present to investors. Around the mid-2000s, business plans started to go out of favor as the ‘Lean Startup’ methodology became popular. Instead of a written plan, we saw a huge uptick in demand for detailed financial models. Bottom line, I still see value in taking time to be contemplative and strategic before launching a startup. Does that need to be in the form of a 40-page written document? No. But if that’s the format that best works for you, and it can help you model scenarios and ‘see around the corner’ then that’s valuable.”

Nathan and I have frequently interacted, as I maintain a subscription to FounderSuite, software I use when running capital campaigns for early-stage companies on whose boards I sit, or when raising capital for my own firm’s investment projects. Nathan’s feedback is helpful, as he frequently interacts with thousands of entrepreneurs simultaneously running capital campaigns, providing him with a great perspective on which approaches work and which don’t. Clearly, he sees that financial models and business plans in some form help entrepreneurs raise capital.

Companies Who Complete Business Plans Are 2.5x as Likely to Get Funded

Following the section above, naturally, if business plans are useful to outside investors, these are therefore likely to also increase one’s chances of successfully raising capital. A study by Palo Alto Software confirms this hypothesis. The study showed that although 65% of entrepreneurs had NOT completed business plans, the ones who had were twice as likely to have secured funding for their businesses.

This study surveyed 2,877 entrepreneurs. Of those, 995 had completed business plans, with 297 of them (30%) having secured loans, 280 of them (28%) having secured investment capital, and 499 of them (50%) having grown their businesses. Contrast these percentages with the results for the 1,882 entrepreneurs who had not completed business plans, where just 222 of them (12%) had secured loans, 219 of them (12%) had secured investment capital, and 501 of them (27%) had grown their businesses. (Note that the percentages among the business plan population sum to over 100% because of some overlap between each of the sub-categories.) These results led the study authors to conclude that “Except in a small number of cases, business planning appeared to be positively correlated with business success as measured by our variables. While our analysis cannot say that completing a business plan will lead to success, it does indicate that the type of entrepreneur who completes a business plan is also more likely to run a successful business.”

Calculating the Return on Investment for Business Planning

The data and studies outlined above all serve to prove something that I have come to understand very clearly throughout my career. Nevertheless, I still often find that startups struggle with the idea of having to put together a business plan, and in particular with the option of hiring an outside professional to help them do that. As such, I quantified the ROI of such an activity, using data and numbers based on my many years of business consulting. The results of the exercise are summarized in the table at the end of the section, but there are two overarching conclusions:

• Even a small-scale early-stage company can “afford” to pay a finance expert $191 per hour both to create a business plan and to guide the capital raising process, at worst “breaking even” on the investment.
• Larger early-stage companies can expect significant returns on investments in business planning, perhaps as much as 6,700% (67x the amount of money invested).

Diving into the analysis, my inputs included:

• My professional experience with writing business plans. I have spent 25 - 200 hours apiece creating business plans I feel comfortable sharing with founders, advisors, and investors.
• Data from the Palo Alto study discussed earlier in this article. This study showed that 30% of early-stage ventures with business plans had secured funding, 2.5x as great as the 12% of early-stage ventures without business plans who managed to secure funding despite the absence of such plans.
• The hourly rate for a finance expert x (150 to 200 hours) for one round of financing, OR
• 10% of the amount of capital targeted

My analysis illustrates the following:

• Early-stage companies should expect to spend $4,000 - $40,000 on business planning, including the financial modeling associated with it.
• Early-stage companies should expect to spend $30,000 - $200,000 for an initial round of financing between $250,000 and $2 million in size, resulting in net financing of $200,000 - $1.8 million.
• Even if a small-scale early-stage venture seeking just $250,000 in capital spent almost $40,000 on business planning and another almost $40,000 on capital raising, it should still expect to “break even” on a probability-weighted basis. In other words, because the odds of success with a professional business plan are 2.5x greater than without one, small-scale early-stage ventures can justify such a significant investment. This also assumes NO additional odds for success from engaging a professional to coordinate the fundraising effort. I suspect that doing so may push the odds of success from 12% without a business plan and 30% with a business plan to above 50%. It is also likely that a smaller-scale venture may require significantly fewer hours for business planning and capital raising that what is outlined in the “worst case” below.
• Larger early-stage ventures enjoy extraordinary probability-weighted returns on investment from business planning. Because the target net capital so greatly exceeds the money spent on business planning, the prospective ROI is huge, and this analysis just assumes ONE round of equity financing. Most successful startups will experience several rounds of financing.

Thoughts on Writing an Excellent Business Plan

An extensive overview of how to write an excellent business plan is beyond the scope of this article. However, here are two key thoughts that have emerged from my years of experience with startups.

First, there are four common elements to an excellent business plan. In Alan Hall’s Forbes article, “ How to Build a Billion Dollar Business Plan: 10 Top Points ,” he interviews Thomas Harrison, Chairman of Diversified Agency Services, an Omnicom division that has purchased “a vast number of firms,” to share his views on the key elements of a great business plan. Although each of these ten elements is essential, I reorganized the list into four broad categories:

1. Company Overview

• An explanation of why your company is relevant and the need are you addressing
• A description of corporate priorities and the processes to achieve them.
• An overview of the various resources, including the people that will be needed, to deliver what’s expected by the customer.

2. Market Overview

• A description of the state of your market and its important trends.
• A detailed description of your customers.
• A description of your current competitors and their advantages. Which ones will you displace?

3. Product/Service Overview

• A description of your products, how they compete with other brands, and why they are needed.
• An explanation of why customers will pay a fair economic value for your product or service. This element is conspicuously absent from some of today’s most expensive unicorns. Companies such as Uber and Tesla are losing massive amounts of money on rapidly growing sales because these companies may not be selling their services/products for fair economic value. Of course, sales grow rapidly when customers can buy your services/products for far less than their fair economic values!

4. Financial Projections

• Conservative
• Each scenario should have realistic and achievable sales, margins, expenses, and profits on monthly, quarterly, and annual bases. Again, these elements appear to be conspicuously absent from some of today’s most expensive unicorns.

Second, written business plans are superior to those just “outlined.” As an adjunct professor of finance for Villanova University, I require my students to write research reports prior to developing slide decks to present their findings from a full semester of industry research. The process of writing forces the authors to ask themselves how they reached their conclusions and each of the sub-conclusions along the way because they must explain their logic to cynical readers. The written authors need to support their conclusions with facts and logic to prove that they are not “making it up” or relying upon popular “myths.” Outlined reports and outlined business plans are not generally subject to the same level of reader scrutiny. Therefore, written business plans are superior to those just “outlined.” Outlined plans are often kept on 10-12 slide decks, and the slide deck is an important tool in the capital raising process, but the written business plan that stands behind it will differentiate an entrepreneur from their seemingly infinite competition.

Parting Thoughts

Some argue that many public multi-billion-dollar companies such as Apple or Google never had formal business plans before they started, but this argument is flawed because most of these companies likely developed business plans either during the solicitation of venture capital or during the process of going public. Apple and Google were both funded with venture capital, and soliciting venture capital involves business planning. The founders of Apple and Google likely created financial projections and outlined strategic paths.

Moreover, Apple and Google are both public companies, and going public involves business planning. Underwriters employ research analysts creating financial forecasts based on business plans projected by management at the companies going public. Buy-side firms purchasing and holding shares in newly public companies create forecasts based upon the business plans projected by public company management teams.

Admittedly, you don’t need a written business plan to have a successful company. You may not even need a business plan at all to have a successful company. However, the probability of success without a business plan is much lower. Angels and venture capitalists like to know about your business plan, and public companies need to project business plans to persuade underwriters and investors to purchase their securities.

Further Reading on the Toptal Blog:

• Creating a Narrative from Numbers
• Business Plan Consultants: Who They Are and How They Create Value
• Building a Business Continuity Plan
• Building the Next Big Thing: A Guide to Business Idea Development
• Mission Statements: How Effectively Used Intangible Assets Create Corporate Value

Understanding the basics

Why it is important to have a business plan.

Expert opinions and numerous studies show that business plans improve corporate satisfaction, are useful for angel investors and venture capitalists, and increase a company’s chances of raising capital by 2.5x.

What are the benefits of a business plan?

Individuals who write business plans are 2.5x as likely to start businesses. Moreover, business planning improves corporate executive satisfaction with corporate strategy development. Finally, investors value business plans, making the chances of raising capital 2.5x greater.

What does an investor look for in a business plan?

The four key sections of a business plan are: the company overview, a market overview, your product/service overview, and the financial projections.

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Nine reasons why you need a business plan

Building a great business plan helps you plan, strategize and succeed. Presented by Chase for Business .

Making the decision to create a new business is an exciting yet stressful experience. Starting a business involves many tasks and obstacles, so it’s important to focus before you take action. A solid business plan can provide direction, help you attract investors and ensure you maintain momentum.

No matter what industry you plan on going into, a business plan is the first step for any successful enterprise. Building your business plan helps you figure out where you want your business to go and identify the necessary steps to get you there. This is a key document for your company to both guide your actions and track your progress.

What is the purpose of a business plan?

Think of a business plan like a roadmap. It enables you to solve problems and make key business decisions, such as marketing and competitive analysis, customer and market analysis and logistics and operations plans.

It can also help you organize your thoughts and goals, as well as give you a better idea of how your company will work. Good planning is often the difference between success and failure.

Here are nine reasons your company needs a business plan.

1. Prove your idea is viable

Through the process of writing a business plan, you can assess whether your company will be successful. Understanding market dynamics, as well as competitors, will help determine if your idea is viable.

This is also the time to develop financial projections for your business plan, like estimated startup costs, a profit and loss forecast, a break-even analysis and a cash flow statement . By taking time to investigate the viability of your idea, you can build goals and strategies to support your path to success.

A proper business plan proves to all interested parties—including potential investors, customers, employees, partners and most importantly yourself — that you are serious about your business.

2. Set important goals

As a business owner, the bulk of your time will mostly likely be spent managing day-to-day tasks. As a result, it might be hard to find time after you launch your business to set goals and milestones. Writing a business plan allows you to lay out significant goals for yourself ahead of time for three or even five years down the road. Create both short- and long-term business goals. 

3. Reduce potential risks

Prevent your business from falling victim to unexpected dangers by researching before you break ground. A business plan opens your eyes to potential risks that your business could face. Don’t be afraid to ask yourself the hard questions that may need research and analysis to answer. This is also good practice in how your business would actually manage issues when they arise. Incorporate a contingency plan that identifies risks and how you would respond to them effectively.

The most common reasons businesses fail include:

• Lack of capital
• Lack of market impact or need
• Unresearched pricing (too high or low)
• Explosive growth that drains all your capital
• Stiff competition

Lack of capital is the most prevalent reason why businesses fail. To best alleviate this problem, take time to determine how your business will generate revenue. Build a comprehensive model to help mitigate future risks and long-term pain points. This can be turned into a tool to manage growth and expansion.

4. Secure investments

Whether you’re planning to apply for an SBA loan , build a relationship with angel investors or seek venture capital funding, you need more than just an elevator pitch to get funding. All credible investors will want to review your business plan. Although investors will focus on the financial aspects of the plan, they will also want to see if you’ve spent time researching your industry, developed a viable product or service and created a strong marketing strategy.

While building your business plan, think about how much raised capital you need to get your idea off the ground. Determine exactly how much funding you’ll need and what you will use it for. This is essential for raising and employing capital.

5. Allot resources and plan purchases

You will have many investments to make at the launch of your business, such as product and services development, new technology, hiring, operations, sales and marketing. Resource planning is an important part of your business plan. It gives you an idea of how much you’ll need to spend on resources and it ensures your business will manage those resources effectively.  

A business plan provides clarity about necessary assets and investment for each item. A good business plan can also determine when it is feasible to expand to a larger store or workspace.

In your plan, include research on new products and services, where you can buy reliable equipment and what technologies you may need. Allocate capital and plan how you’ll fund major purchases, such as with a Chase small business checking account or business credit card .

6. Build your team

From seasoned executives to skilled labor, a compelling business plan can help you attract top-tier talent, ideally inspiring management and employees long after hiring. Business plans include an overview of your executive team as well as the different roles you need filled immediately and further down the line.

Small businesses often employ specialized consultants, contractors and freelancers for individual tasks such as marketing, accounting and legal assistance. Sharing a business plan helps the larger team work collectively in the same direction. 

This will also come into play when you begin working with any new partners. As a new business, a potential partner may ask to see your business plan. Building partnerships takes time and money, and with a solid business plan you have the opportunity to attract and work with the type of partners your new business needs.

7. Share your vision 

When you start a business, it's easy to assume you'll be available to guide your team. A business plan helps your team and investors understand your vision for the company. Your plan will outline your goals and can help your team make decisions or take action on your behalf. Share your business plan with employees to align your full staff toward a collective goal or objective for the company.  Consider employee and stakeholder ownership as a compelling and motivating force. 

8. Develop a marketing strategy

A marketing strategy details how you will reach your customers and build brand awareness. The clearer your brand positioning is to investors, customers, partners and employees, the more successful your business will be.

Important questions to consider as you build your marketing strategy include:

• What industry segments are we pursuing?
• What is the value proposition of the products or services we plan to offer?
• Who are our customers?
• How will we retain our customers and keep them engaged with our products or services and marketing?
• What is our advertising budget?
• What price will we charge?
• What is the overall look and feel of our brand? What are our brand guidelines?
• Will we need to hire marketing experts to help us create our brand?
• Who are our competitors? What marketing strategies have worked (or not worked) for them?

With a thoughtful marketing strategy integrated into your business plan, your company goals are significantly more in reach.

9. Focus your energy

Your business plan determines which areas of your business to focus on while also avoiding possible distractions. It provides a roadmap for critical tradeoffs and resource allocation.

As a business owner, you will feel the urge to solve all of your internal and customers’ problems, but it is important to maintain focus. Keep your priorities at the top of your mind as you set off to build your company.

As a small business owner, writing a business plan should be one of your first priorities. Read our checklist for starting a business, and learn how to take your business from a plan to reality. When you’re ready to get started, talk with a Chase business banker to open a Chase business checking or savings account today.

For Informational/Educational Purposes Only: The views expressed in this article may differ from other employees and departments of JPMorgan Chase & Co. Views and strategies described may not be appropriate for everyone and are not intended as specific advice/recommendation for any individual. You should carefully consider your needs and objectives before making any decisions and consult the appropriate professional(s). Outlooks and past performance are not guarantees of future results.

JPMorgan Chase Bank, N.A. Member FDIC. Equal Opportunity Lender, ©2023 JPMorgan Chase & Co

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The importance of business plan: 5 key reasons.

A key part of any business is its business plan. They can help define the goals of your business and help it reach success. A good business plan can also help you develop an adequate marketing strategy. There are a number of reasons all business owners need business plans, keep reading to learn more!

Here’s What We’ll Cover:

What Is a Business Plan?

5 reasons you need a well-written business plan, how do i make a business plan, key takeaways.

A business plan contains detailed information that can help determine its success. Some of this information can include the following:

• Market analysis
• Cash flow projection
• Competitive analysis
• Financial statements and financial projections
• An operating plan

A solid business plan is a good way to attract potential investors. It can also help you display to business partners that you have a successful business growing. In a competitive landscape, a formal business plan is your key to success.

Check out all of the biggest reasons you need a good business plan below.

1. To Secure Funding

Whether you’re seeking funding from a venture capitalist or a bank, you’ll need a business plan. Business plans are the foundation of a business. They tell the parties that you’re seeking funding from whether or not you’re worth investing in. If you need any sort of outside financing, you’ll need a good business plan to secure it.

2. Set and Communicate Goals

A business plan gives you a tangible way of reviewing your business goals. Business plans revolve around the present and the future. When you establish your goals and put them in writing, you’re more likely to reach them. A strong business plan includes these goals, and allows you to communicate them to investors and employees alike.

3. Prove Viability in the Market

While many businesses are born from passion, not many will last without an effective business plan. While a business concept may seem sound, things may change once the specifics are written down. Often, people who attempt to start a business without a plan will fail. This is because they don’t take into account all of the planning and funds needed to get a business off of the ground.

Market research is a large part of the business planning process. It lets you review your potential customers, as well as the competition, in your field. By understanding both you can set price points for products or services. Sometimes, it may not make sense to start a business based on the existing competition. Other times, market research can guide you to effective marketing strategies that others lack. To have a successful business, it has to be viable. A business plan will help you determine that.

4. They Help Owners Avoid Failure

Far too often, small businesses fail. Many times, this is due to the lack of a strong business plan. There are many reasons that small businesses fail, most of which can be avoided by developing a business plan. Some of them are listed below, which can be avoided by having a business plan:

• The market doesn’t need the business’s product or service
• The business didn’t take into account the amount of capital needed
• The market is oversaturated
• The prices set by the business are too high, pushing potential customers away

Any good business plan includes information to help business owners avoid these issues.

5. Business Plans Reduce Risk

Related to the last reason, business plans help reduce risk. A well-thought-out business plan helps reduce risky decisions. They help business owners make informed decisions based on the research they conduct. Any business owner can tell you that the most important part of their job is making critical decisions. A business plan that factors in all possible situations helps make those decisions.

Luckily, there are plenty of tools available to help you create a business plan. A simple search can lead you to helpful tools, like a business plan template . These are helpful, as they let you fill in the information as you go. Many of them provide basic instructions on how to create the business plan, as well.

If you plan on starting a business, you’ll need a business plan. They’re good for a vast number of things. Business plans help owners make informed decisions, as well as set goals and secure funding. Don’t put off putting together your business plan!

If you’re in the planning stages of your business, be sure to check out our resource hub . We have plenty of valuable resources and articles for you when you’re just getting started. Check it out today!

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Reasons Why a Business Plan Is Important for Entrepreneurs

Editor's Note: This post was originally published in September 2018 and has been updated with new content that highlights the importance of proper business planning in 2021's economy.

What is a business plan? For people who are just starting out and forming their own company, whether it's a small freelance business at home or a new venture with an office and a starting pool of employees, there's a lot of importance to a business plan. It is a road map, an outline, a document that explains what your business is, what the goals of the enterprise are, and how exactly it will set about achieving those goals. So beyond being a document that identifies your business, what else does such a plan do for you?

1. Target Your Problems

2. Get Better Advice

The importance of a business plan to entrepreneurship can also be in the way it crystallizes just what kind of help you need. Merely telling a friend or potential business mentor you're aiming to start with ten employees, for example, is not an exceptionally detailed statement. Showing a business plan that outlines the exact duties, salaries, and expectations you have for employees gives far more information for people to provide advice about.

3. Organize Your Resources

A business plan is also essential as the primary guide for how you will structure and allocate your resources. It's here that you will see just how feasible it is to open an office, hire employees, and look at operating costs. The business plan can quickly show you whether you will be making a profit or running at a loss, and it shows how much those losses may be every month.

4. Approach Investors

For some, this may be critical. Investors want to know that you know what you’re doing. A business plan can often be the single most important document you can present to your investors that will provide the structure and confidence that they need to make decisions about funding and supporting your company.

5. Create Milestones

A business plan is also a plan of action. By laying out milestones, you now have targets to shoot for in the short, mid and long term. These goals also mean that you can "course correct" with greater agility if you have targets and realize that you may need to make some changes in order to meet them.

The importance of a business plan can be critical for entrepreneurs. Business may have some artistry to it, but real success comes from having a vision and being organized in the way you strive towards that vision. A business plan will help you immensely and in so many ways!

Template for a Business Plan for Entrepreneurs

To determine whether you have a solid business idea, you will need to do thorough research and create a business plan to see if your idea is feasible. Here is a simple business plan template that is broken into sections that include the key elements for what goes into each step of the process to help get you started.

Section 1: Executive Summary

Write an executive summary. The purpose of the executive summary is to give readers a high-level view of the company and the market before delving into the details. It appears first but is written last and provides a snapshot of your company explaining who you are, what you do, and why. The executive summary provides a short, concise, and optimistic overview of your business to capture the reader's attention and create a need to learn more.

Section 2: Business/Industry Overview

Describe your company and business model by summarizing what your company does, your mission statement, location details, business structure and business owner details, the marketplace needs that your business is trying to meet, and how your products/services meet those needs. Define your business's purpose (mission) and a statement based on your perception of the company's growth potential (vision). Include specific business goals and objectives. Provide background information about the company, including a brief history of the business and a list of fundamental company principles.

Section 3: Market Analysis and Competition

Analyze your market's conditions. The market will ultimately determine how successful your business will be. You will need to demonstrate that you have thoroughly analyzed your target market and have a high-enough demand for your products/services to make your business viable. The competitive analysis should include a comprehensive assessment of your competition and how your business will compete in the sector. Describe the industry within which your business will operate, identify and provide a general profile of your target market, and describe what share of the market you currently have or anticipate. Include both an analysis of research done by others, along with primary research you have collected yourself — whether via customer surveys, interviews, or other methods. Outline the strengths and weaknesses of potential competitors and strategies that will give you a competitive advantage.

Section 4: Sales and Marketing Plan

Design a marketing and sales strategy. Here is where you can plan out your comprehensive marketing and sales strategies to cover how you plan on selling your product. Before working on your marketing and sales plan, you will need to have your market analysis completely fleshed out and choose your target client personas, i.e., your ideal customers. Talk about the competitive landscape. Describe how you intend to entice customers to buy your products or services, including advertising and promotion, sales and distribution, pricing strategy, and post-sales support.

Section 5: Ownership and Management Plan

Outline all operations and management roles. This section describes the ownership, legal structure, and your business's management and staffing requirements. Use this section to outline your company's unique organizational and management structure. Describe how your company is organized, including its legal structure (sole proprietorship, partnership, corporation); identify any special licenses or permits your business operates with; provide a brief bio of key managers within your company; include an organization chart.

Section 6: Operating Plan

The operating plan outlines your business's physical requirements, such as office, warehouse, retail space, equipment, inventory and supplies, and labor. For a one-person, home-based consulting firm, the operating plan may be short and straightforward. However, for businesses such as restaurants or manufacturers that require custom facilities, supply chains, multiple employees, and specialized equipment, the operating plan may need to be very detailed.

Section 7: Financial Plan

This section is the most crucial part of the business plan, especially if you need debt financing or want to attract investors. The financial plan must demonstrate your business' growth and profitability potential. To do this, you will need to provide projected income statements, cash flow statements, and balance sheets. For new businesses, these are forecasts. A golden rule of thumb is to underestimate revenues and overestimate expenses. Outline your financial model, including your business costs, revenue projections, and a funding request if you pitch to investors. Your start-up cost refers to the resources you will need to get your business up and running — and an estimate of how much each of those resources will cost.

Section 8: Appendices and Exhibits

Summarize the above with an appendix. The appendices and exhibits section should contain any detailed information needed to support other areas of the plan, including company brochures, resumes of key employees, a list of business equipment, copies of press articles and advertisements, pictures of your business location and products, any applicable information about your industry or products, key business agreements such as lease, and contracts.

Who Needs a Business Plan?

Start-up Businesses : The most classic business planning scenario is for a start-up, for which the plan helps the founders break down uncertainty into meaningful pieces, like the sales projection, expense budget, milestones, and tasks. When you realize you do not know how much money you need or when you need it without first laying out projected sales, costs, expenses, and payment timing, the need becomes apparent. And that is for all start-ups, whether they need to convince investors, banks, or family and friends to part with their money and fund the new venture. Existing Businesses : Established businesses use business plans to manage and steer their business strategies to address changes in their markets and take advantage of new opportunities. They often use plans to reinforce strategy, establish metrics, track results, manage responsibilities and goals, plan and manage critical resources such as cash flow, and set regular review and revision schedules. Business plans can be a powerful driver of growth for existing businesses.

Finding the Right Plan for You

Considering that business plans serve diverse purposes, it is no surprise that they come in various forms. But before you even start writing your business plan, you need to think about who the audience is and your plan's goals. While there are standard components found in almost every business plan, such as sales forecasts and marketing strategy, business plan formats can differ depending on the audience and business type. For example, if you are building a biotech firm plan, your plan will detail government approval processes. If you are writing a restaurant plan, details about location and renovations might be critical factors. The language you would use in the biotech firm's business plan would be much more technical than the language you would use in the restaurant plan. Plans can also differ significantly in length, detail, and presentation. Those that never leave the office and are used only for internal strategic planning and management may often use more casual language and might not have much visual polish. On the other end of the spectrum, a plan destined for a top venture capitalist's desk will have a high polish and focus on the business' high-growth aspects and the experienced team to deliver desirable results.

Elements of a Business Plan

While the plans may vary by type, certain key elements appear in virtually all business plans. These components include the review schedule, strategy summary, milestones, responsibilities, metrics (numerical goals that can be tracked), and basic projections. The projections include sales, costs, expenses, and cash flow. These core elements grow organically for the actual purpose needed for the business.

Developing a High Power Business Plan

The business plan development process described here can provide the guidance entrepreneurs require for developing a business plan best suited for their needs; a high power business plan.

The Stages of Development

There are six stages involved in developing a high-power business plan.

Essential Initial Research

This stage requires you to analyze the environment in which you anticipate operating at each of the societal, market, industry, and firm levels of analysis. In this planning stage, the essential initial research is a necessary first step for better understanding the trends that affect their business and their decisions to lay the groundwork for and improve their potential for success.

Business Model

Inherent to any business plan is a description of the entrepreneur's chosen business model that will best ensure success. Based upon your essential initial research of the setting in which you anticipate starting your business (your analysis from stage one), you should determine how each element of your business model might fit together to improve the potential success of your business venture. These elements include their revenue streams, cost structure, customer segments, value propositions, key activities, and key partners.

Initial Business Plan Draft

This stage involves taking the knowledge and ideas developed during the first two stages and integrating them into a business plan format. A suggested approach is to create a complete draft of the business plan with all the sections, including the front part with the business description, values, vision, mission, value proposition statement, a preliminary set of goals, table of contents, and lists of tables and figures set up using the software features enabling their automatic generation. Writing all the operations, human resources, marketing, and financial plans as part of the first draft ensures that all these necessary parts can be appropriately integrated. The business plan should tell the story of a planned business start-up in two ways: using primarily words, along with charts and graphs in the operations, human resources, and marketing plans, and through the financial plan. Both approaches must tell the same story.

Making Business Plan Realistic

The first draft of a business plan will seldom be realistic. As you write the plan, it will naturally change as new information is gathered. Another factor that commonly renders the first draft unrealistic is the difficulty in ensuring that the written section—in the front part of the plan and the operations, human resources, and marketing plans—tells the same story as the financial part does. This working stage involves making the necessary adjustments to the plan to make it as realistic as possible.

Making Plan Appeal to Stakeholders and Desirable to the Entrepreneur

A business plan can be realistic without appealing to potential investors or other external stakeholders, such as suppliers, employees, and needed business partners. It may also be realistic and possibly appealing to stakeholders without necessarily being desirable to the entrepreneur. During this stage, try to keep it as realistic as possible when adjusting the plan to appeal to potential investors and yourself.

Finishing the Business Plan

The final stage involves putting all the essential finishing touches on the business plan so it will present well to potential investors and alike. This step involves ensuring that the math and links between the written and financial sections are accurate. It also involves ensuring that all the needed corrections are made to the formatting, spelling, and grammar. The ultimate set of goals should be written to appeal to targeted readers and reflect what the business plan specifies. An executive summary should be written and included as the final step.

FAQs about Business Plans

What are the 4 types of business plans.

1. Mini-plan : A mini-plan may comprise one to 10 pages and include at least cursory attention to such critical matters as business concepts, financing needs, marketing plans, and financial statements, especially cash flow, balance sheet, and income projections. It is a great way to quickly test a business concept or measure the interest of a potential partner or minor investor. It could also serve as a valuable prelude to a full-length plan later on.

2. Working Plan : A working plan is a tool to operate your business. It should be lengthy in detail but may be short on presentation. As with a mini-plan, you can probably afford a somewhat higher degree of candor and informality when preparing a working plan.

3. Presentation Plan : If you take a working plan, with its low stress on cosmetic appeal and impression, and twist the lever to boost the amount of attention paid to its visual appearance, you will end up with a presentation plan. This plan is suitable for showing to financiers, investors, stakeholders, and others outside the company.

4. Electronic Plan : Most business plans are composed on a computer, then printed out and presented in hard copy. However, more and more business information transferred between parties only on paper can now be sent electronically, so you may find it convenient to have an electronic version of your plan available. An electronic plan can be useful for presentations to groups using a computer-driven overhead projector, for instance, or for satisfying the demands of discriminating investors who want to delve deeply into the underpinnings of complex spreadsheets.

What are the 3 main purposes of a business plan?

1. Establish a business focus : The primary purpose of a business plan is to establish your plans for your business's future. These plans should include goals and milestones alongside detailed steps on how the business will reach each step. Creating a roadmap to your goals will help determine your business focus and pursue growth.

2. Secure funding : One of the first things private investors, banks, and other lenders look for before investing in your business is a well-researched business plan. Investors and stakeholders want to know how you operate your business, revenue and expense projections, and how they will receive a return on their investment.

3. Attract executives : As your business grows, you will likely need to add executives to your team. The business plan helps you attract executive talent and determine whether they are a good fit for your company.

What are the 5 elements of a business plan?

1. Business concept : Describes the business, its products/services, and the market it will serve. It should point out exactly what will be sold, to whom, and why your business will hold a competitive advantage.

2. Financial features : Highlights the important financial points of the company, including sales, cash flows, profits, and return on investment.

3. Financial requirements : Clearly state the capital needed to start the business and expand. It should detail how capital will be used and the equity that will be provided for funding. If the loan for initial capital is based on security instead of equity, also specify the source of collateral.

4. Current business position : Furnishes relevant information about the business, its legal form of operation, the principal owners, when it was formed, and key personnel.

5. Major achievements : Details of any developments within the company essential to the business's success. Major achievements include patents, prototypes, location of a facility, any binding contracts that need to be in place for product development, or any test marketing results.

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About The Author

Daniel plays a fundamental role in WSI’s global franchise expansion and development. He has since overseen WSI’s franchise development process, and he is personally associated with the recruitment of 600+ global franchisees.

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Why do you need a business plan? Here are the reasons

Every year, thousands of new businesses see the light of the day across the world. However, only a tiny percentage of them survive in the long run. Talking about the United States, according to the Bureau of Labour Statistics, about 20% of small businesses fail in their first year, and about 50% in their fifth year.

Research from the University of Tennessee found that 44% of businesses fail within the first three years. Among those that operate within specific sectors, like information (mostly tech firms), 63% shut shop within three years. Why so? Most studies mention “lack of business planning” as one of the reasons.

“Running a business without a plan is like riding a motorcycle up a craggy cliff blindfolded. Yet, way too many firms (a whopping 67%) don’t have a formal business plan in place. It doesn’t matter if you’re a start-up with a great idea or a business with an excellent product. You can only go so far without a roadmap, or a business plan. Only, a business plan is so much more than just a roadmap. A solid plan allows a business to weather market challenges and pivots quickly in the face of crisis, like the one global businesses are struggling with right now, in the post-pandemic world,” said Simplilearn.

What Business Plan Is All About?

A business plan is a document in writing that outlines the goals, objectives, and purpose of a venture while laying out the blueprint for its daily operations and key functions such as marketing, finance, and expansion.

A good business plan, for example, can be a game-changer for start-ups that are looking to raise funds to grow and scale. It convinces prospective investors that the venture will be profitable and provides a realistic outlook on how much profit is on the cards and by when it will be attained.

When it comes to well-established companies and large conglomerates, they also need to tweak their business plans to adapt to new operational environments and unpredictable market changes. A detailed business plan offers a birds-eye view of the entire framework of an establishment; it has several benefits that make it an important part of any organisation.

An effective business plan offers a significant competitive edge like setting realistic objectives and assigning stipulated time for those goals to be met, thereby ensuring long-term profitability. It also lets a company set benchmarks and Key Performance Indicators (KPIs) necessary to reach its goals.

A good business plan also helps to effectively organise and allocate the company’s resources, providing an understanding of the result (including financial impacts) of actions like opening new offices, recruiting staff, production change, and so on.

Though business plans vary from company to company, the blueprints of successful companies often serve as an excellent guide for start-ups and new entrepreneurs . The same roadmap also helps existing firms to market, advertise, and promote new products and services in the market. A well-thought-out business plan provides an organisation with the ability to anticipate the curveballs that the future could throw at them, thereby preparing answers and solutions well in advance.

Why You Need to Craft Business Plans?

Doing a little homework now and crafting a business plan will make your life much easier and save you tons of time later on. Here are five good reasons why every entrepreneur needs a business plan:

Need Of Thinking Through The Aspects

As entrepreneurs, we need to focus on the excitement of doing something new. For start-ups, for example, it’s all about setting the nuts and bolts together, such as setting up an accounting system or dealing with employee law.

“To write a good business plan, you have to think about how you’ll handle every aspect of your business—marketing, managing, financing, and more. You’re forced to focus on the very areas you’re tempted to skim over (which are usually the places where you need to really drill down). When your business plan is done, you’ll have a blueprint for success,” says Rieva Lesonsky, who creates content focusing on small business and entrepreneurship.

Entrepreneurship is often an endless exercise in decision-making and crisis management. Sitting down and considering all the ramifications of any given decision is a luxury that small businesses (even start-ups), especially, can’t always afford. That’s where a business plan becomes crucial.

Spotting Problems Ahead Of Time

“Would you rather uncover problems with your business concept during the planning stage—or wait until you’ve already spent money on a location, inventory, or employees? By identifying possible obstacles, your business plan will help you plan how to avoid them,” Lesonsky comments.

There are many reasons why small businesses fail, According to data from CB Insights, some of the most common reasons businesses fail include: lack of market need of the product you are trying to sell, lack of capital, inadequate team (maybe the right people haven’t been hired for the job), stiff market competition (posing a challenge towards steady profit flow) and pricing (pricing products/services too high or too low).

“The exercise of creating a business plan can help you avoid these major mistakes. Whether its cash flow forecasts or a product-market fit analysis, every piece of a business plan can help spot some of those potentially critical mistakes before they arise,” says Jared Lindzon, public speaker and Fast Company contributor.

Helps To Become Good Communicator

An entrepreneur needs to look out for business partners, vendors, or even first employees. It can be hard to convince people of the merits of a business that doesn’t yet exist. A business plan can, if communicated well, show people what you’re planning to do so they will have a better idea of whether they want to be involved.

“Planning out exactly how you’re going to turn that vision into a successful business is perhaps the most important step between concept and reality. Business plans can help you confirm that your grand idea makes sound business sense,” Lindzon said.

Whether an entrepreneur is managing a team of 100 or a team of two, he/she can’t always be there to make every decision yourself. Think of the business plan like a substitute teacher, ready to answer questions any time there’s an absence. Let your staff know that when in doubt, they can always consult the business plan to understand the next steps if they can’t get an answer from you directly.

Sharing your business plan with team members also helps ensure that all members are aligned with what you’re doing, why, and share the same understanding of long-term objectives.

To Prove The Business’ Viability

Many businesses are created out of passion, and from there onwards, they get guided by reasoning. All entrepreneurs come with visions, but they need to sell those visions, prove them viable and convince the investors that they are pumping their money into the right places.

“Planning out exactly how you’re going to turn that vision into a successful business is perhaps the most important step between concept and reality. Business plans can help you confirm that your grand idea makes sound business sense,” explains Lindzon.

Take market research for example. It is a critical component of any business plan, which helps entrepreneurs to have deep insight into their customers, competitors, and the chosen industry. Not only can it enlighten the founders starting up a new business, but can also better inform existing businesses on activities like marketing, advertising, and releasing new products/services.

Entrepreneurship is a risky business, but the risk becomes significantly more manageable once tested against a well-crafted business plan. Drawing up revenue and expense projections, devising logistics and operational plans, and understanding the market and competitive landscape can all be game changers for a company’s prospects.

To Secure Financing

“Did you know you’re 2.5x more likely to get funded if you have a business plan? If you’re planning on pitching to venture capitalists, borrowing from a bank, or considering selling your company in the future, you’re likely going to need a business plan. After all, anyone who’s interested in putting money into your company is going to want to know it’s in good hands and that it’s viable in the long run. Business plans are the most effective ways of proving that and are typically a requirement for anyone seeking outside financing,” Lindzon summed up things beautifully through these words.

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Do You Really Need a Business Plan?

The art of storytelling, from net margin to sales.

Why is a business plan important?

• Who will the reader be?
• What do you want their response to be?

Four Reasons to Write a Business Plan

1. To raise money for your business

2. To make sound decisions

3. To help you identify any potential weaknesses

4. To communicate your ideas with stakeholders

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How to Write a Business Plan for Your Small Business

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Why You Must Have a Business Plan It's more than a tool for getting funding. Think of it as the road map to your business's future.

By Stever Robbins

Opinions expressed by Entrepreneur contributors are their own.

Recently someone asked me why they needed a business plan if they were getting all the funding they needed from friends and relatives. It sounded to me as if they were thinking of a business plan as just a fund-raising tool. In fact, a business plan is much more than that: It's a tool for understanding how your business is put together. You can use it to monitor progress, hold yourself accountable and control the business's fate. And of course, it's a sales and recruiting tool for courting key employees or future investors.

Writing out your business plan forces you to review everything at once: your value proposition, marketing assumptions, operations plan, financial plan and staffing plan. You'll end up spotting connections you otherwise would have missed. For example, if your marketing plan projects 10,000 customers by year two and your staffing plan provides for two salespeople, that forces you to ask: How can two salespeople generate 10,000 customers? The answer might lead you to conclude that forming partnerships, targeting distributors and concentrating on bulk sales to large companies would be your best tactics.

As part of your operational plan, you'll lay out major marketing and operational milestones. When you're the founder, the only person holding you accountable to those results on a daily basis is you. So your plan becomes a baseline for monitoring your progress. If your prototype was to be complete by February 1, and it gets done early-on January 10, for example-you can ask yourself why. Was there an unexpected breakthrough? Did someone put in a heroic effort? Or did you just overestimate? What you learn will help you do an even better job next time.

But even more than a tool for after-the-fact learning, a plan is how you drive the future. When you write, "We expect 100 customers by the end of year one," it's not a passive prediction-you don't just wait for the customers to show up. It becomes your sales force's goal. The plan lays out targets in all major areas: sales, expense items, hiring positions and financing goals. Once laid out, the targets become performance goals.

And of course, a well-written plan is great for attracting talent. When a prospect asks to understand your business, you can hand them a plan that gives them an entire overview. Their reactions tell you something about how quickly and thoroughly they can think through your business's key issues. Plus, the written record of your goals coupled with a track record of delivering against those goals sends a message loud and clear: You understand your business and can deliver the results you promise. Great employees will respond to that message-as will banks and investors the next time you need to raise money.

So viewing your plan as a fund-raising tool is just the beginning of the story. You'll use the plan for so much more-for managing yourself, for operating the business and for recruiting. Before deciding to skip your planning phase, consider all the implications and what they mean for your future success.

Stever Robbins is a venture coach, helping entrepreneurs and early-stage companies develop the attitudes, skills and capabilities needed to succeed. He brings to bear skills as an entrepreneur, teacher and technologist in helping others create successful ventures.

The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.

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Why You Should Write a Business Plan

Susan Ward wrote about small businesses for The Balance for 18 years. She has run an IT consulting firm and designed and presented courses on how to promote small businesses.

To Test the Feasibility of Your Business Idea

To give your new business the best chance of success, to secure funding, to make business planning manageable and effective, to attract investors, frequently asked questions (faqs).

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A business plan  is the blueprint for your business. Starting a business without a business plan is like building a house without a blueprint. Yet, unlike a house, a business isn't static. We often make the mistake of thinking of a business plan as a single document that you put together once when you're starting out and never touch again. But as the business develops, so should its business plan. In fact, any particular business may have multiple business plans as its objectives change.

Writing a business plan is time-consuming, but it's essential if you want to have a successful business that's going to survive the startup phase.

Key Takeaways

• Writing a business plan reveals how tenable your idea is.
• Updating and amending a business plan as the business develops and its goals change is vital to your success.
• A good business plan helps you define your target market, competitive advantage, optimum pricing strategies, and better prepares the business for upcoming challenges.
• A business plan helps you secure funding and attract new investors.

Writing a business plan is the best way—other than going out and doing it—to test whether an idea for starting a business is feasible. In this sense, the business plan is your safety net. If working through a business plan reveals that your business idea is untenable, it will save you a great deal of time and money.

Often, an idea for starting a business is discarded at the marketing analysis or competitive analysis stage , freeing you to move on to a new (and better) idea.

Unfortunately, many prospective business owners are so convinced that their idea for a product or service is a can't-miss proposition, that they don't take the time to do the necessary research and work through a proper business plan. The more you know about your industry, your prospective customers, and the competition, the greater the likelihood that your business will succeed.

Writing a business plan will ensure that you pay attention to the broad operational and financial objectives of your new business and the small details, such as budgeting and market planning. The process will ultimately make for a smoother startup period and fewer unforeseen problems as your business gets up and running.

The exercise of budgeting and market planning will help you define your  target market , your unique selling proposition, optimum pricing strategies, and outline how you intend to sell and deliver your products to customers. In addition, developing a budget for implementation will assist with determining your startup and operating capital requirements.

According to the Small Business Administration, one of the most-cited reasons why businesses fail is inadequate planning. By starting too soon and without a sufficient plan, your business is setting itself up for failure.

Most new businesses need startup and operating capital to get off the ground. Without a well-developed business plan, there is no chance of getting  debt financing from established financial institutions such as banks or  equity financing  from angel investors.

Established businesses often need money, too, to buy new equipment or property, or because of market downturns. Having an up-to-date business plan gives you a much better chance of getting the money you need to keep operating or expand.

Even an angel investor will want to ensure their money is going to a business that knows what it's doing. The easiest way to prove this is via a well-developed business plan.

Investors and financiers are always looking at the risk of default, and word of mouth is no substitute for written facts and figures in a properly prepared business plan.

A business plan is essential if you're thinking of starting a business, but it's also an important tool for established businesses. Viable businesses are dynamic; they change and grow. Your company's original business plan needs to be revised as you set new goals .

Reviewing the business plan can also help you see what goals have been accomplished, what changes need to be made, or what new directions your company's growth should take.

Whether you want to shop your business to venture capitalists or attract angel investors , you need to have a solid business plan. A presentation may pique their interest, but they'll need a well-written document they can study before they'll be prepared to make any investment commitment.​​​

Be prepared to have your business plan scrutinized. Both venture capitalists and angel investors will want to conduct extensive background checks and competitive analyses to be certain that what's written in your business plan is indeed the case.

What are the sections of a business plan?

A comprehensive business plan should include the following sections:

• Executive summary
• Company description
• Competitor analysis
• Industry analysis
• Product and services description
• Financial data

What is the purpose of a business plan?

A business plan has four main purposes:

• Tests the feasibility and model of your business idea
• Attracts investors
• Sets a plan for growth
• Identifies capital needs

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So You Want to Be an Entrepreneur?

• Emily Heyward

One founder’s advice on what you should know before you quit your day job.

Starting a business is not easy, and scaling it is even harder. You may think you’re sitting on a completely original idea, but chances are the same cultural forces that led you to your business plan are also influencing someone else. That doesn’t mean you should give up, or that you should rush to market before you’re ready. It’s not about who’s first, it’s about who does it best, and best these days is the business that delivers the most value to the consumer. Consumers have more power and choice than ever before, and they’re going to choose and stick with the companies who are clearly on their side. How will you make their lives easier, more pleasant, more meaningful? How will you go out of your way for them at every turn? When considering your competitive advantage, start with the needs of the people you’re ultimately there to serve. If you have a genuine connection to your idea, and you’re solving a real problem in a way that adds more value to people’s lives, you’re well on your way.

When I graduated from college in 2001, I didn’t have a single friend whose plan was to start his or her own business. Med school, law school, finance, consulting: these were the coveted jobs, the clear paths laid out before us. I took a job in advertising, which was seen as much more rebellious than the reality. I worked in advertising for a few years, and learned an incredible amount about how brands get built and communicated. But I grew restless and bored, tasked with coming up with new campaigns for old and broken products that lacked relevance, unable to influence the products themselves. During that time, I was lucky to have an amazing boss who explained a simple principle that fundamentally altered my path. What she told me was that stress is not about how much you have on your plate; it’s about how much control you have over the outcomes. Suddenly I realized why every Sunday night I was overcome with a feeling of dread. It wasn’t because I had too much going on at work. It was because I had too little power to effect change.

• EH Emily Heyward is the author of Obsessed: Building a Brand People Love from Day One (Portfolio; June 9, 2020). She is the co-founder and chief brand officer at Red Antler, a full-service brand company based in Brooklyn. Emily was named among the Most Important Entrepreneurs of the Decade by Inc.  magazine, and has also been recognized as a Top Female Founder by Inc. and one of Entrepreneur’s Most Powerful Women of 2019.

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7 Real Reasons Why Entrepreneurs Start Their Own Business

Posted april 5, 2022 by kody wirth.

Why do people want to start their own business? What drives them to strike out on their own?

If you’re considering becoming an entrepreneur , understanding your answer to this question is critical. Honestly, assessing your motivations can tell you a lot about your likelihood of success. Will you be able to navigate a financial crisis? Invest the extra hours to rework your strategy even when you’d rather go home? 

If you don’t have an answer to that question, it may be helpful to explore why you want to be an entrepreneur further. Let’s take a look at some of the most common reasons why entrepreneurs start their own businesses—which are probably leading you to do the same.

1. Freedom to pursue your passion

You’ve had this talent, skill, or hobby for years, maybe even since childhood. Now, you see a potential opportunity to develop a business structure and monetize it. So you decide to use your passion to start a business. 

However, you may want to take a moment to assess the potential of your passion. Yes, it makes you happy, but can it pay the bills?

When you set aside emotion and focus strictly on dollars and common sense, does your passion-fueled business idea truly have the potential to be financially successful? Don’t forget, with ongoing record inflation, you’ll need continuously increasing income to support yourself and your business. Can your passion keep you afloat? 

If the answer is yes, start writing a business plan and go for it. If not, then you should likely rethink using your passion and explore other small business ideas. Consider another talent or hobby that can bring emotional fulfillment, as well as a tangible financial reward. 

Or, do further market research into other opportunities outside of your core interests. You may find that there is another reason for being an entrepreneur is really what’s driving you.

Recommended Reading: 12 Types of Entrepreneurs Explained

2. Create generational wealth

Many people are fixated on the idea of creating wealth that can be enjoyed by their families. For some, it’s an ambitious financial planning goal derived from witnessing living examples of absurdly wealthy families. People who’ve been able to pass down highly successful businesses from generation to generation. Others simply want their kids and grandkids to be spared from the financial hardships they were forced to overcome. 

Yet, only a handful of businesses are able to survive the passage of time. Yes, building a prosperous foundation for your descendants is a worthy cause. However, there is no guarantee that they’ll have the work ethic or discipline necessary to maintain an existing business. Much less position it to remain competitive in an ever-evolving global marketplace.  

Therefore, your focus has to be on how this endeavor will improve your life right now. Yes, your hard work could benefit your great-great grandkids, and you can teach your children to appreciate your business. You can’t force them to have the same passion you do. You can only set them up for success and hope for the best.  

3. Support community, non-profits, and other social efforts

Many new entrepreneurs have a deep desire to use their businesses as vehicles to help the less fortunate. These noble souls see starting a small business as a means to effect change.

Social entrepreneurs aren’t driven by money but rather by a desire to create a better world. In our 2021 State of Small Business Study , we found that 12 percent of respondents identified giving back to their community as the primary reason for starting a business. 

If you’re one of these generous individuals, you must never forget that business remains business. Even though you have the best intentions, this doesn’t remove the responsibility to serve the needs of your target market. To provide competitively viable products and services for your customers. Failure to do so will result in your customer base taking their hard-earned money elsewhere, leaving you and your cause, out in the cold.

4. Turn a side-project into something more

Many successful businesses were once the side-gigs of nine to five employees who were simply trying to earn extra money. One thing led to another, word got around, and after a while, that side-project earned enough to replace the nine to five job, and boom: A business was born. 

As of 2022, we found that 23 percent of entrepreneurs were either starting a side gig or trying to turn a side gig into a full business. In fact, for most people, having a side gig is just a necessary part of survival. 

Yes, it is possible to turn your side project into a full-fledged business that becomes your primary source of income. However, it’s often difficult to know when it’s the right time to step away from your full-time position. 

When should you begin to promote your business? Should you invest in business insurance? Get the necessary licenses and permits to become a sole proprietorship?

These are just some of the questions you’ll need to answer when turning a side gig into your full-time pursuit. You don’t need to immediately make it your primary work; just take steps in that direction to see how viable it can be.

Remember, this can take months or years to gain traction. Just like a seed that you plant, you need to water it to see growth. With enough time and “watering,” that little side-gig seed can become a huge tree that becomes a profitable business. 

5. Challenge the status quo

Have you ever felt like there’s a better way to do something? This is a sentiment often held by game-changers. The employees and dreamers who feel the job or industry they’re in isn’t doing something right, and it’s up to them to change the status quo. 

Disrupting current norms can be a powerful incentive for new entrepreneurs. It can also be extremely beneficial for consumers wanting higher quality products or more efficient service. Nevertheless, disruption shouldn’t be based on personal feelings or experience. Instead, it must be centered solely on customer wants and expectations. 

Will consumers actually be interested in the innovation you provide? If you truly want to shake up the status quo, it’s up to you to find out if the solution you see truly benefits others.

6. Flexibility and balance

Having more personal and family time is one of the most powerful motivations for many new and prospective entrepreneurs. Nothing beats working on your own time and not having to worry about someone else’s standards. 

It’s time to make your own clock and choose your own hours. The harsh reality, as many new small business owners discover, is that work hours tend to increase, not decrease, after launching your own business. 

This is your project, your idea, and your customers, so it’s your responsibility. Reasoning such as “I’m not feeling well” or “that’s not in my job description” no longer applies to you. When you’re an entrepreneur, you’re always on duty.

Sure, you have “absentee owners” who simply hire people and leave them to run a business. But take a look at the most successful entrepreneurs. There is one common thread—they are hands-on. Oftentimes, their level of micromanagement is borderline psychotic. 

No, you don’t have to follow in the footsteps of Steve Jobs to be a successful entrepreneur. You don’t have to spend every waking hour to ensure your business succeeds. But you must care deeply about your business and, yes, sacrifice a great deal of time to make it a success.

7. Being the boss

One of the greatest driving forces for people starting a business is taking on the title of “Boss.” 47% of new entrepreneurs surveyed said that their main reason for starting a small business involved wanting to be their own boss. 

There’s a certain aura, a distinctive swagger, that many entrepreneurs have. Unlike top-level executives or even appointed CEOs, entrepreneurs garner a great deal of respect for being the ones who took the initial risk . They’re the ones whose vision enabled them to see an opportunity and whose determination made it happen. 

Entrepreneurship is a medal worn with pride, which most onlookers cannot ignore. Why do people start their own businesses? Because many want the respect and admiration that comes with starting a business. 

If that’s your main reason, make sure you’re totally prepared for the responsibility that comes your way. You owe it to yourself, your employees, and your customers. 

Recommended Reading: 6 Requirements of Successful Entrepreneurs

How to successfully start your own business

Whatever your reason, there is one thing you absolutely must do in order to be successful—plan. This is especially true when starting and attempting to grow a business. For an entrepreneur, being prepared is often the difference between success and failure. 

If you’re seriously considering starting your own business, you can’t afford to leave anything to chance. Consider investing in a business plan builder software and performance dashboard solution like LivePlan to stay on top of your business and avoid unnecessary issues.

Confirm and test your reason for starting  

Effective planning not only helps you identify the reasons you want to start a business but also allows you to assess if your business truly has the potential to be sustainable. There’s no need to waste precious time or money pursuing an idea that won’t work. By taking the time to plan properly, you’ll be able to see clearly if your business idea is worthwhile and figure out the necessary steps you’ll need to take to bring it to fruition. 

Turn hard work into strategic work

After you have developed a plan, it’s time to act. That means dedication, hard work, and the willingness to plan. Make no mistake, if you’re not prepared to put in the hours toward your entrepreneurial dream, then you should reexamine if starting a business makes sense. 

Nothing in entrepreneurship is guaranteed, and it’s driven by strategic risk. This is why effective planning, reviews, and revisions are so vital for business owners. It can help streamline time-consuming work, eliminate unnecessary risk, and ultimately help you know more about your business.

Gain the confidence of a successful entrepreneur

Now that you’ve been reminded of just how difficult starting a business can be, there is one more requirement necessary for you to succeed—self-confidence. No one is going to fully

believe you can do it until you actually turn your idea into a successful business. First and foremost, you must believe in yourself. Without this critical element, your new business is almost certain to fail.

Why would anyone support a business whose owner doesn’t believe in its future? People are attracted to winners who showcase the capability to maintain that success. Possessing this attitude, combined with thorough, objective planning , will empower you to aggressively pursue your goal and find success as an entrepreneur. 

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More From Forbes

Entrepreneurs: why planning matters and how to do it better.

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While many argue that business plans are no longer needed to start up a company, the very exercise of trying to foresee the future five years from now can be extremely helpful for entrepreneurs. Indeed, research published in the  International Small Business Journal demonstrates that engaging in planning activities is associated with better chances of success and greater accuracy.

The study's authors, Govert Vroom of IESE Business School and Brian McCann of Vanderbilt Univeristy worked with the Panel Study of Entrepreneurial Dynamics (PSED), a large scale survey of entrepreneurs in the process of starting a business in the U.S. There findings are not only a reminder of the power of processes to help entrepreneurs learn and profit from knowledge, it also provides some pointers on how to get the most from planning:

Take A Wider View Of Planning

Many enthusiastic entrepreneurs get extremely bored detailing business plans and financial projections, often seeing them as obligations imposed by banks or investors. but planning can not only help you attract funding, it also helps you develop your skills as an entrepreneur, giving you a better shot at success.

Previous studies on budding entrepreneurs have tended to concentrate on how the planning process helps them gain legitimacy or gather external resources. But McCann and Vroom's study looks at how entrepreneurs make ongoing assessments of their fledgling businesses throughout the planning process -- transforming their internal views in the process.

• Instead of seeing planning largely as an obligation imposed by external parties, focus instead on how it can help you generate new information and insights into your business

• It can also help challenge and change your own views and biases (not only of your prospective business but also of your own skills and competence), which will ultimately help the development of your business idea.

Allow Proper Time To Plan

The study found that engaging in planning activities over a period of 12 months led to significant changes in perceptions in three areas:

• How much uncertainty did respondents perceive in their business environment in terms of how markets would develop, the competition and how key stakeholders would react to the start-up?

• Self-efficacy. How confident did they feel about their abilities to effectively run their businesses?

• Expectations of financial performance. How well did they feel their business would perform in financial terms? Did expectations grow or fall over time?

Even experienced entrepreneurs seemed to learn and change their beliefs through planning activities. In fact, serial entrepreneurs' beliefs changed to a similar extent as novice entrepreneurs throughout the study.

Taking Action

Planning may include actions such as defining potential markets and drawing up business plans with projections. Entrepreneurs who take more actions during the planning stage of a business help reduce the uncertainty surrounding their project associated with financial and competitive factors - namely, attracting funding, attracting customers, competing with other firms, complying with regulations, and keeping up with technological advances.

Team Up

There was also evidence to suggest that entrepreneurs who were part of larger teams saw more positive results, perhaps due to their pooled knowledge and experiences.

Planning may not make perfect, but budding entrepreneurs should ignore it at their peril.

A version of this article first appeared on IESE Insight .

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Five important business lessons all product entrepreneurs must know

(Left) Krystal Rand, founder of Kove and Co. with her daughter. Source: Supplied.

When you land on an amazing business idea, it’s easy to get carried away, romanticising the future and over-simplifying the path to get there — especially if you have no prior business experience. 

When I first came up with the idea for Kove and Co’s signature Tribe Bag in 2021, I naively thought it would be a relatively simple and straightforward process; sketch it, pick a colour, have it designed and manufactured, and watch the money roll in. It took 18 months from ideation to get the Kove and Co bag into the hands of customers, proving that launching a physical product is far more complex than I anticipated.

There’s an array of areas all small business owners need to upskill in – marketing and sales, accounting, branding and customer experience — but others are more unique to product businesses. I’ve learnt a lot the hard way and, while I’m proud to have overcome these challenges, there’s five crucial lessons that could benefit other product entrepreneurs.

Test before production

I underestimated how critical it is to test a prototype before mass production. Who knew there was such a polarising difference between moss and sage green? And how a soft caramel on a colour swatch can look like baby poo in the flesh – not really the optimal hue for a nappy wallet. 

Differences in colour and material can be stark between a digital render and the final product. A minor design change, like altering a button, can also affect usability significantly.

It can be tempting to skip this step, saving precious revenue by going straight to a full product run, but failing to first develop a pre-production sample prototype can be costly. Hands-on testing to make last-minute tweaks ensures the final product meets expectations and reduces the risk of unsellable stock.

Engage with customers to build brand advocacy

Customer feedback is invaluable. When a Facebook comment revealed that the logo on our strap buttons was scratching off, I realised the importance of staying connected with our customers. It was the first I became aware of the issue and I was alarmed. We quickly addressed it by replacing defective buttons and updating our stock which was an arduous manual process. This proactive approach helped maintain our brand’s reputation for premium quality. 

Keeping your ear to the ground and providing avenues for customers to easily give feedback helps identify and resolve issues before they escalate.

Plan logistics early 

Effective logistics planning is crucial for product businesses as storage, packing, transport and shipping become your whole world. 

I store my bags at a warehouse 10kms from home and transport them in my car every few days to pack them from home. I have a tiny car and limited storage at home leading to frequent trips. Additionally, when determining which boxes to buy to ship the individual bags out to customers, I calculated the measurements slightly wrong as I hadn’t considered the cardboard width itself, this small mistake unnecessarily cost me $5 per box. 

Proper logistics planning saves time and money, enhancing overall efficiency. Try to choose a warehouse close to your packing area, ensure you have a suitable vehicle and home storage at home, and triple-check if your packaging dimensions are accurate. 

Anticipate criticism 

It’s essential to critically evaluate your ideas from all angles. Sometimes business owners can be so laser-focused that they forget to stress test ideas and consider how they could be misconstrued. 

I nearly launched an interactive social media campaign that requested people send videos of others with our bag in public for the chance to win a bag. I figured this would drive user-generated content I could then re-share and would showcase all the use cases of the bag – as an esky, carrying a puppy, grocery shopping, at the beach and pool. 

Although well-intentioned, I had not thought it through and considered how the idea could have been perceived as intrusive, particularly as it involved filming strangers and children. Considering how your ideas might be received, especially by sceptics, helps avoid potential reputational damage.

Monitor financial timing

Successful sales don’t always equate to financial health. I thought as long as bags are selling then the business is going in the right direction. It sounds obvious, but the timeframes of money from sales coming in, in context with the overheads and expenses going out, determines whether you are slowly going backwards or getting ahead. 

Understanding the timing of cash flow relative to expenses is vital. Product business owners need to grasp financial metrics and their implications. Regularly reviewing financials to evaluate what needs to change will ensure profitability.

I gained immense respect for other product entrepreneurs through these experiences and appreciate the resilience and conviction you need to overcome the inevitable unpredicted curve balls that get thrown your way.

I hope these insights help others embarking on their product journey, saving them tears and stress and supporting them to achieve success in their product ventures.

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