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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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6 Reasons You Really Need to Write A Business Plan

Published: October 14, 2020

Starting a busine ss can be a daunting task, especially if you’re starting from square one.

It’s easy to feel stuck in the whirlwind of things you’ll need to do, like registering your company, building a team, advertising, the list goes on. Not to mention, a business idea with no foundation can make the process seem incredibly intimidating.

Thankfully, business plans are an antidote for the new business woes that many entrepreneurs feel. Some may shy away from the idea, as they are lengthy documents that require a significant amount of attention and care.

However, there’s a reason why those who take the time to write out a business plan are 16% more likely to be successful than those who don’t. In other words, business plans work.

What is a business plan, and why does it matter?

In brief, a business plan is a roadmap to success. It's a blueprint for entrepreneurs to follow that helps them outline, understand, and cohesively achieve their goals.

Writing a business plan involves defining critical aspects of your business, like brand messaging, conducting market research, and creating pricing strategies — all before starting the company.

A business plan can also increase your confidence. You’ll get a holistic view of your idea and understand whether it's worth pursuing.

So, why not take the time to create a blueprint that will make your job easier? Let’s take a look at six reasons why you should write a business plan before doing anything else.

Six Reasons You Really Need To Write a Business Plan

• Legitimize your business idea.
• Give your business a foundation for success.
• Obtain funding and investments.
• Hire the right people.
• Communicate your needs.
• It makes it easier to sell your business.

1. Legitimize your business idea.

Pursuing business ideas that stem from passions you’ve had for years can be exciting, but that doesn’t necessarily mean it’s a sound venture.

One of the first things a business plan requires you to do is research your target market. You’ll gain a nuanced understanding of industry trends and what your competitors have done, or not, to succeed. You may find that the idea you have when you start is not likely to be successful.

That may feel disheartening, but you can always modify your original idea to better fit market needs. The more you understand about the industry, your future competitors, and your prospective customers, the greater the likelihood of success. If you identify issues early on, you can develop strategies to deal with them rather than troubleshooting as they happen.

It’s better to know sooner rather than later if your business will be successful before investing time and money.

2. Give your business a foundation for success.

Let's say you’re looking to start a clean beauty company. There are thousands of directions you can go in, so just saying, “I’m starting a clean beauty company!” isn’t enough.

You need to know what specific products you want to make, and why you’re deciding to create them. The Pricing and Product Line style="color: #33475b;"> section of a business plan requires you to identify these elements, making it easier to plan for other components of your business strategy.

You’ll also use your initial market research to outline financial projections, goals, objectives, and operational needs. Identifying these factors ahead of time creates a strong foundation, as you’ll be making critical business decisions early on.

You can refer back to the goals you’ve set within your business plan to track your progress over time and prioritize areas that need extra attention.

All in all, every section of your business plan requires you to go in-depth into your future business strategy before even acting on any of those plans. Having a plan at the ready gives your business a solid foundation for growth.

When you start your company, and your product reaches the market, you’ll spend less time troubleshooting and more time focusing on your target audiences and generating revenue.

3. Obtain funding and investments.

Every new business needs capital to get off the ground. Although it would be nice, banks won’t finance loans just because you request one. They want to know what the money is for, where it’s going, and if you’ll eventually be able to pay it back.

If you want investors to be part of your financing plan, they’ll have questions about your business’ pricing strategies and revenue models. Investors can also back out if they feel like their money isn’t put to fair use. They’ll want something to refer back to track your progress over time and understand if you’re meeting the goals you told them you’d meet. They want to know if their investment was worthwhile.

The Financial Considerations section of a business plan will prompt you to estimate costs ahead of time and establish revenue objectives before applying for loans or speaking to investors.

You’ll secure and finalize your strategy in advance to avoid showing up unprepared for meetings with potential investors.

4. Hire the right people.

After you’ve completed your business plan and you have a clear view of your strategies, goals, and financial needs, there may be milestones you need to meet that require skills you don’t yet have. You may need to hire new people to fill in the gaps.

Having a strategic plan to share with prospective partners and employees can prove that they aren’t signing on to a sinking ship.

If your plans are summarized and feasible, they’ll understand why you want them on your team, and why they should agree to work with you.

5. Communicate your needs.

If you don’t understand how your business will run, it’ll be hard to communicate your business’s legitimacy to all involved parties.

Your plan will give you a well-rounded view of how your business will work, and make it easier for you to communicate this to others.

You may have already secured financing from banks and made deals with investors, but a business’ needs are always changing. While your business grows, you’ll likely need more financial support, more partners, or just expand your services and product offers. Using your business plan as a measure of how you’ve met your goals can make it easier to bring people onto your team at all stages of the process.

6. It makes it easier to sell your business.

A buyer won’t want to purchase a business that will run into the ground after signing the papers. They want a successful, established company.

A business plan that details milestones you can prove you’ve already met can be used to show prospective buyers how you’ve generated success within your market. You can use your accomplishments to negotiate higher price points aligned with your business’ value.

A Business Plan Is Essential

Ultimately, having a business plan can increase your confidence in your new venture. You’ll understand what your business needs to succeed, and outline the tactics you’ll use to achieve those goals.

Some people have a lifetime goal of turning their passions into successful business ventures, and a well-crafted business plan can make those dreams come true.

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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.

14 Reasons Why You Need a Business Plan

10 min. read

Updated May 10, 2024

There’s no question that starting and running a business is hard work. But it’s also incredibly rewarding. And, one of the most important things you can do to increase your chances of success is to have a business plan.

A business plan is a foundational document that is essential for any company, no matter the size or age. From attracting potential investors to keeping your business on track—a business plan helps you achieve important milestones and grow in the right direction.

A business plan isn’t just a document you put together once when starting your business. It’s a living, breathing guide for existing businesses – one that business owners should revisit and update regularly.

Unfortunately, writing a business plan is often a daunting task for potential entrepreneurs. So, do you really need a business plan? Is it really worth the investment of time and resources? Can’t you just wing it and skip the whole planning process?

Good questions. Here’s every reason why you need a business plan.

• 1. Business planning is proven to help you grow 30 percent faster

Writing a business plan isn’t about producing a document that accurately predicts the future of your company. The  process  of writing your plan is what’s important. Writing your plan and reviewing it regularly gives you a better window into what you need to do to achieve your goals and succeed. 

You don’t have to just take our word for it. Studies have  proven that companies that plan  and review their results regularly grow 30 percent faster. Beyond faster growth, research also shows that companies that plan actually perform better. They’re less likely to become one of those woeful failure statistics, or experience  cash flow crises  that threaten to close them down. 

• 2. Planning is a necessary part of the fundraising process

One of the top reasons to have a business plan is to make it easier to raise money for your business. Without a business plan, it’s difficult to know how much money you need to raise, how you will spend the money once you raise it, and what your budget should be.

Investors want to know that you have a solid plan in place – that your business is headed in the right direction and that there is long-term potential in your venture. 

A business plan shows that your business is serious and that there are clearly defined steps on how it aims to become successful. It also demonstrates that you have the necessary competence to make that vision a reality. 

Investors, partners, and creditors will want to see detailed financial forecasts for your business that shows how you plan to grow and how you plan on spending their money. 

• 3. Having a business plan minimizes your risk

When you’re just starting out, there’s so much you don’t know—about your customers, your competition, and even about operations. 

As a business owner, you signed up for some of that uncertainty when you started your business, but there’s a lot you can  do to reduce your risk . Creating and reviewing your business plan regularly is a great way to uncover your weak spots—the flaws, gaps, and assumptions you’ve made—and develop contingency plans. 

Your business plan will also help you define budgets and revenue goals. And, if you’re not meeting your goals, you can quickly adjust spending plans and create more realistic budgets to keep your business healthy.

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• 4. Crafts a roadmap to achieve important milestones

A business plan is like a roadmap for your business. It helps you set, track and reach business milestones. 

For your plan to function in this way, your business plan should first outline your company’s short- and long-term goals. You can then fill in the specific steps necessary to reach those goals. This ensures that you measure your progress (or lack thereof) and make necessary adjustments along the way to stay on track while avoiding costly detours.

In fact, one of the top reasons why new businesses fail is due to bad business planning. Combine this with inflexibility and you have a recipe for disaster.

And planning is not just for startups. Established businesses benefit greatly from revisiting their business plan. It keeps them on track, even when the global market rapidly shifts as we’ve seen in recent years.

• 5. A plan helps you figure out if your idea can become a business

To turn your idea into reality, you need to accurately assess the feasibility of your business idea.

You need to verify:

• If there is a market for your product or service
• Who your target audience is
• How you will gain an edge over the current competition
• If your business can run profitably

A business plan forces you to take a step back and look at your business objectively, which makes it far easier to make tough decisions down the road. Additionally, a business plan helps you to identify risks and opportunities early on, providing you with the necessary time to come up with strategies to address them properly.

Finally, a business plan helps you work through the nuts and bolts of how your business will work financially and if it can become sustainable over time.

6. You’ll make big spending decisions with confidence

As your business grows, you’ll have to figure out when to hire new employees, when to expand to a new location, or whether you can afford a major purchase. 

These are always major spending decisions, and if you’re regularly reviewing the forecasts you mapped out in your business plan, you’re going to have better information to use to make your decisions.

7. You’re more likely to catch critical cash flow challenges early

The other side of those major spending decisions is understanding and monitoring your business’s cash flow. Your  cash flow statement  is one of the three key financial statements you’ll put together for your business plan. (The other two are your  balance sheet  and your  income statement  (P&L). 

Reviewing your cash flow statement regularly as part of your regular business plan review will help you see potential cash flow challenges earlier so you can take action to avoid a cash crisis where you can’t pay your bills. 

• 8. Position your brand against the competition

Competitors are one of the factors that you need to take into account when starting a business. Luckily, competitive research is an integral part of writing a business plan. It encourages you to ask questions like:

• What is your competition doing well? What are they doing poorly?
• What can you do to set yourself apart?
• What can you learn from them?
• How can you make your business stand out?
• What key business areas can you outcompete?
• How can you identify your target market?

Finding answers to these questions helps you solidify a strategic market position and identify ways to differentiate yourself. It also proves to potential investors that you’ve done your homework and understand how to compete. 

• 9. Determines financial needs and revenue models

A vital part of starting a business is understanding what your expenses will be and how you will generate revenue to cover those expenses. Creating a business plan helps you do just that while also defining ongoing financial needs to keep in mind. 

Without a business model, it’s difficult to know whether your business idea will generate revenue. By detailing how you plan to make money, you can effectively assess the viability and scalability of your business. 

Understanding this early on can help you avoid unnecessary risks and start with the confidence that your business is set up to succeed.

• 10. Helps you think through your marketing strategy

A business plan is a great way to document your marketing plan. This will ensure that all of your marketing activities are aligned with your overall goals. After all, a business can’t grow without customers and you’ll need a strategy for acquiring those customers. 

Your business plan should include information about your target market, your marketing strategy, and your marketing budget. Detail things like how you plan to attract and retain customers, acquire new leads, how the digital marketing funnel will work, etc. 

Having a documented marketing plan will help you to automate business operations, stay on track and ensure that you’re making the most of your marketing dollars.

• 11. Clarifies your vision and ensures everyone is on the same page

In order to create a successful business, you need a clear vision and a plan for how you’re going to achieve it. This is all detailed with your mission statement, which defines the purpose of your business, and your personnel plan, which outlines the roles and responsibilities of current and future employees. Together, they establish the long-term vision you have in mind and who will need to be involved to get there. 

Additionally, your business plan is a great tool for getting your team in sync. Through consistent plan reviews, you can easily get everyone in your company on the same page and direct your workforce toward tasks that truly move the needle.

• 12. Future-proof your business

A business plan helps you to evaluate your current situation and make realistic projections for the future.

This is an essential step in growing your business, and it’s one that’s often overlooked. When you have a business plan in place, it’s easier to identify opportunities and make informed decisions based on data.

Therefore, it requires you to outline goals, strategies, and tactics to help the organization stay focused on what’s important.

By regularly revisiting your business plan, especially when the global market changes, you’ll be better equipped to handle whatever challenges come your way, and pivot faster.

You’ll also be in a better position to seize opportunities as they arise.

Further Reading: 5 fundamental principles of business planning

• 13. Tracks your progress and measures success

An often overlooked purpose of a business plan is as a tool to define success metrics. A key part of writing your plan involves pulling together a viable financial plan. This includes financial statements such as your profit and loss, cash flow, balance sheet, and sales forecast.

By housing these financial metrics within your business plan, you suddenly have an easy way to relate your strategy to actual performance. You can track progress, measure results, and follow up on how the company is progressing. Without a plan, it’s almost impossible to gauge whether you’re on track or not.  

Additionally, by evaluating your successes and failures, you learn what works and what doesn’t and you can make necessary changes to your plan. In short, having a business plan gives you a framework for measuring your success. It also helps with building up a “lessons learned” knowledge database to avoid costly mistakes in the future.

• 14. Your business plan is an asset if you ever want to sell

Down the road, you might decide that you want to sell your business or position yourself for acquisition. Having a solid business plan is going to help you make the case for a higher valuation. Your business is likely to be worth more to a buyer if it’s easy for them to understand your business model, your target market, and your overall potential to grow and scale. 

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• Writing your business plan

By taking the time to create a business plan, you ensure that your business is heading in the right direction and that you have a roadmap to get there. We hope that this post has shown you just how important and valuable a business plan can be. While it may still seem daunting, the benefits far outweigh the time investment and learning curve for writing one. 

Luckily, you can write a plan in as little as 30 minutes. And there are plenty of excellent planning tools and business plan templates out there if you’re looking for more step-by-step guidance. Whatever it takes, write your plan and you’ll quickly see how useful it can be.

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

• 6. You’ll make big spending decisions with confidence
• 7. You’re more likely to catch critical cash flow challenges early

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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.

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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.

• BusinessPlan

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Business Plan

Published on :

21 Aug, 2024

Blog Author :

Wallstreetmojo Team

Edited by :

Reviewed by :

Dheeraj Vaidya

What Is A Business Plan?

A business plan is an executive document that acts as a blueprint or roadmap for a business. It is quite necessary for new ventures seeking capital, expansion activities, or projects requiring additional capital. It is also important to remind the management, employees, and partners of what they represent. 

Creating a business plan is an indispensable part of any business. The main purpose of creating such a document is to attract prospective investors to provide capital to the enterprise. Therefore, the plan should cover all the important perspectives of a business - financial, operational, personnel, competition, etc. 

Table of contents

Business plan explained, business plan vs business model, frequently asked questions (faqs), recommended articles.

• A business plan is a critical document for any business – whether a start-up or a well-established one. It can be considered a self-written bible for the company.
• The purpose of this plan should not just be restricted to convincing investors, but it should also extend to the company's morals and ethics, and every stakeholder should be aware of it. 
• It can communicate the business idea's viability and, most importantly, the entrepreneurs' dedication to the business. As this dedication keeps them going, the investors are generally motivated to approve a venture when it is evident from the plan.

Business plan writers are responsible for crafting the face of a business organization they hope to build. It cannot be easy because a business plan should be a versatile document that covers various perspectives and aspects of the business that the readers might expect.

The business plan objective is to talk about the company's unique selling proposition ( USP ), business culture, and what the company is. Finally, and most importantly, it is not a static document. With the company's growth, it needs to change by incorporating more relevant information and goals. 

The outline of a business plan should be prepared from three perspectives - first, the market; second, the investors; and finally, the company. However, most plans tend to become business-oriented rather than focusing on the market and the investors. This might create a negative impression on the investors.

First, the entrepreneurs must understand a demand-supply gap from the market's perspective. This gap can be the perfect opportunity for the company. Or maybe the company has an innovative product or service idea, which they believe will have a high demand. Either way, the market should accept the product. 

According to the Massachusetts Institute of Technology (MIT) Enterprise Forum, 1978, investors are more likely to approve market-driven businesses rather than technology or service-driven ones.

Also, the plan should address the investors' needs. What is in it for the investor? Since they invest a lot of money, they expect higher returns. Of course, no investor would demand profits upfront. But it's important to tell them when they can expect returns and how much. So the business should provide them with the data on the estimated payback period .

There are many types of business plans based on the size of the document and its scope.

#1 - Size-based plans

First, depending on the size of the plan, there are traditional and lean start-up plans. The traditional plan is a lengthy document with more than 20 pages. It covers various facets of the business in such a way as to answer the different questions that may arise in the readers' minds. But the disadvantage of this plan is that it might hold the readers' concentration only for a limited time.

The lean start-up plan is a concise and brief version of an actual plan, usually consisting of a single page. The demerit of this plan is that it might be too small and not include all the important and relevant information. But the entrepreneurs must be ready to provide the investors with a detailed document if required. 

#2 - Scope-based plans

The second classification is based on the scope of the plan. It can be a start-up plan for new businesses seeking capital or an internal plan to communicate with different departments on a new project. Other types based on scope include strategic, feasibility, operations, and growth. 

A strategic plan can communicate how the business will achieve its goal, while a feasibility plan can focus on the feasibility of the company's offerings. For example, the operations plan focuses on production and supply operations. In contrast, a business prepares the growth plan for its aspiring expansion projects, focusing on additional investments and financial projections .

The outline of a business plan should be carefully designed to incorporate all the focus points deemed essential by the audience. The following are the elements of any business plan sample:

• Executive summary  – Also known as the elevator pitch , the business plan executive summary is the most important element of any business plan, best fitted in a page or two. A business should draw its plan from the mission and vision, which are the founding principles of any business. Next, it provides an idea and an overview of the company. It also introduces the product or service the company aims to offer. Finally, it is a summary of the plan.
• Business description  – This is an elaboration of the company goals and objectives. It includes the market or industry the business belongs to, its target audience, etc. It can also provide information on the company structure and how it operates.
• Market research and analysis  – Market research is the concrete floor on which the business plan stands. It should include facts and figures and give the readers an understanding of the market, its preferences, classifications, and the number and size of competitors. Analyzing the market lets businesses identify a gap and fill it. The plan should also inform the market's acceptance of the product or service.
• Competitive analysis  – Competitors can make or break any business. Therefore, before entering the market, the businesses must evaluate how the competitors operate, their profits and costs, their offerings, etc. This will give the enterprise an idea of what it can do differently from the competitors to have the edge over them. This should be effectively communicated to the investors, as it might convince them of the venture's success.
• Marketing and sales plan  – The whole point of any business is to make sales. For this, they need marketing campaigns and strategies targeting the right audience with minimal cost but maximum returns. For example, a firm selling study tools and materials will target students, especially through social media. Like this, businesses should plan their campaigns and decide their advertising channels.
• Operating plan  – As the term implies, it talks about how the business is operated. The manufacturing and supply patterns, strategies like agile or lean, inventory approach, etc., decided by the management come under this. In addition, the expected quantity to be produced and supplied in a given period and the reverse logistics plan are good additions to the operating plan .
• Organization description  – This gives information on the total employees, departments, management qualifications, job description, and total skill set of the organization's human resources. The decided salary and wages, HR policies, etc., are also part of an organization's description.
• SWOT analysis  – SWOT analysis helps the business identify its strengths, weaknesses, opportunities, and threats, which will help them choose the critical approach. The business should take advantage of its strengths and opportunities while simultaneously working on the weaknesses and finding the best strategy to deal with the threats. This will balance the company and its internal and external environment.
• Financials  – These refer to the financial projections, including the budget , estimated costs , payments, expected break-even point, payback period, etc. Forecasts on expected revenue and costs for at least one year or until the business breaks will be necessary. Also, the net capital requirements with proper accounting calculations must be part of the plan.
• Appendices  – This can include other important or relevant documents to prepare the plan. For example, financial documents, proof of people's acceptance of products, resumes of the management, study on competition, etc.

Presentation is as important as the content when firms draft the business plan. Therefore, it is best to add graphs, pie charts, 3D models, and other visuals, which will enhance the presentation and understandability of the plan. In addition, factual data and simple statistical tools can make the plan look genuine and instill investor confidence. 

Let us consider the following instances to understand the concept better:

Jack wants to establish a toy manufacturing business for which he requires considerable funding. However, to make sure the business idea is convincing enough for investors for them to take interest in the project, he designs a business plan. In the plan, he includes everything from the requirements to the sales promotion measures he would be using to make people, especially parents and kids, be aware of the products.

As a special mention, he specified that the material that would be used for manufacturing the toys will be kids-friendly and will have no chemical included that could harm kids even in a minute way. Given the features of the business, Jack tries to mention the strongest points that could help him get the funding from investors.

Sixteen experts from Forbes Business Council collectively listed a few ways in which entrepreneurs can leverage their business plans for making expansion decisions. The main components of preparing such plans range from conducting thorough research to setting realistic standard and ensuring regular reviews to check the progress status from time to time.

This example guides the entrepreneurs with no prior experience of how to write a business plan to understand the basics and accordingly present their ideas to the authorities/investors.

Creating a business plan is more important due to the negative impression its absence can cause rather than the benefits it might provide. The impression is what matters when it comes to a plan. So, let's understand the importance of making a good impression.

Perhaps the reason why most businesses make a plan is for the investors. These investors can be venture capitalists or financial institutions . For these investors, new ventures are like investments. Hence, before putting in money, they want to be sure if the investment will be worth it. 

Therefore, presenting all the important details in an understandable format helps them realize the clarity and the level of commitment the entrepreneurs have towards their business. The business plan writer should also give due to the executive summary and financials while creating the plan.

Secondly, every business needs a blueprint based on which it operates. It should govern the functions of a business and especially in decision-making. Usually, when a plan is created before the enterprise starts functioning, it speaks about the business and what it stands for. Even after the business takes off and expands, it should stick to its roots, which would evolve with the company's growth.

Making every stakeholder – employees, partners, suppliers, investors, etc. - aware of the plan would increase commitment and sense of belonging to the enterprise. This, too, is important to improve the productivity and contribution of everyone.

Business plan and business model are terms that are considered to be similar, but then, they differ in various aspects from what the emphasis is on to who they target.

Let us have a look at the differences between the two below:

• While a business plan is the document that details every aspect of the business to give investors or readers a complete and clear picture of what the business is or would be all about, a business model defines and describes the channel to be adopted to deliver products and services to consumers.
• The focus of the former is to cover information about every department, section, and services of the business and specify the functions, including sales and marketing, advertising, revenue predictions, etc. On the contrary, the business model emphasize sales funnels, marketing approach to be used, etc.
• Business plans are formulated for investors and other stakeholders of the business, while business models are created for the internal members of the business who have to take care of the distribution of products and services to customers.
• The plans of a business focus on defining and describing the products and services that a company is aiming to produce. On the other hand, the models discuss the ways in which the products and services can be delivered to consumers.

The elements of a business plan comprise an executive summary, company description, market research, competitive analysis, SWOT analysis, marketing strategy, operating plan, financial projections, etc.

Businesses create plans on their own by putting relevant content on paper and using their basic computer skills to make it look attractive. Ideally, plans are not expenses. Instead, they are created from the effort of the entrepreneurs.

All plans need not be highly visual. However, adequate data charts, graphs, 3-D models, etc., can make the document look attractive and creates an impression about the effort that has gone into furnishing the plan. It also increases the understandability of the document.

Businesses can draft plans for any period - maybe a year, three years, or just three months. Some plans are also created until the payback period. But it doesn't mean that the plan is rendered useless after the expiry of the period. On the contrary, a company should always have a constantly updated plan better suited to evolving needs.

This article is a guide to what is a Business Plan. Here, we explain the concept along with examples, components, importance, types, and vs business model. You can also go through our recommended articles on corporate finance –

• Business Strategy
• Business Plan Template
• Business Continuity Planning

How to write a business plan: Advice and templates (2024)

Posted: Mon 12th Aug 2024

The purpose of a business plan is to explain what you want to achieve and how you're going to make it happen.

This guide will walk you through how to create your own business plan and includes a detailed business plan outline for you to follow, which you can find at the link below.

Download your free business plan template

In the following webinar, marketer Sophie Eglin explains which key elements you should include in your business plan, and shares practical tips for developing a plan that works for your unique business needs.

What is a business plan?

A business plan provides a roadmap for the work you need to do, and gives you a chance to flesh out key areas before you start building your new business.

It also helps test your idea and gives you a clearer understanding of what needs to happen to make it a reality.

Why is a business plan important?

Completing the different sections of a business plan makes sure you've thought about all the different aspects of running a business.

It's a great motivational tool, too. When you've written down the steps you need to take, you know how to start moving forward and therefore hold yourself accountable.

Keep in mind that most finance lenders will want to see a business plan before they give you money. If you're writing a business plan for a particular organisation, make sure you've checked what they want you to include.

VIDEO: Perfecting your business plan In this webinar, HSBC's Carrie Taylor-Mell and Stefan Johnson explore what makes a good business plan, what to include and avoid when you’re writing one, and what banks look for when assessing a business plan.

Business plans also provide accountability. They allow you to sense-check what you're doing and why. And they provide an opportunity to get ideas out of your head and start working on them.

Jonathan Bareham , co-founder of accountancy firm Raeden, says:

"Not having to report to anyone is attractive when you start up. As you grow, it can be tricky not to have a sounding board. A business plan can be useful for that."

He highlights the role of goal-setting in the planning process . Why are you starting a business?

Is it because you want a good work-life balance ?

Do you want to make an environmental impact?

It's likely a combination of factors. Writing down your motivation provides a reference for big decisions and makes sure you don't lose focus.

Business plans help explain what you're doing to other people. The process of writing everything down makes sure you can answer key questions about what you're doing.

Hiring people , opening premises or buying equipment requires significant investment. Planning and justifying what you're going to spend is important. Sharing them externally helps reassure partners, whether you're looking to borrow money or win over a mentor.

What types of business plan are there?

The main type of business plan is a written document, which is what we cover in this guide. You can use a template or follow a business plan outline to know what to include (more on that in a moment).

Download Enterprise Nation's free business plan template

It's important to pick the format that's right for you, so consider what you know so far and how you're going to use the plan.

If the plan is for your own benefit, you need to think about how much you can know at this point. There are lots of assumptions around sales and costs that you won't know until they're tested. This will limit the level of detail you can include.

The audience is important too. You could write a five-page summary if the business plan is just for you. If it's for raising investment or applying for a loan, it's going to require more detail and might be 15 to 20 pages long.

Organisations like the Prince's Trust and Start Up Loans , which offer start-up funding, have templates that they prefer or require applicants to fill out.

David Abrahamovitch, founder and CEO of London café-bar and restaurant company GRIND, says his founding team didn't create a business plan until they needed to borrow money. He believes a formal business plan doesn't provide much value at the concept stage.

"Business plans absolutely have their place but I see people who are spending months writing one. They're worried about who's going to copy their idea about trademarks. "All of these things are important, but at the moment you don't have a business. You don't have a brand to protect. You're worried about the wrong things. "You have to get to the minimum viable form of that business as quickly as possible and just test it."

In the video below, David talks more about his company's business planning process:

The Lean Canvas model

The length of traditional business plans can be intimidating. You may also lack the information to put one together if you haven't started trading yet.

The Lean Canvas model allows you to create a business plan on a single page (usually A3 size). Each section covers a topic that's important to building a business.

The structure examines whether a business idea is viable . The nine boxes capture some key assumptions, covering topics like the following:

Problem: What customer challenge does your product solve?

Solution: What does your business do?

Key metrics: How will you measure success?

Unique value proposition: What makes your business stand out ?

Unfair advantage: What do you have that your competitors don't?

Channels: How will you market your product?

Customer segments: Who are you selling to?

Cost structure: What expenses will you have?

Revenue streams: How will you generate sales?

The Lean Canvas is designed to provide a snapshot of your idea and challenge the assumptions you've made. It's not meant to be perfect, and takes about 30 minutes to complete.

It's a great way to quickly test a business idea or potential new product. Do a Google Images search for 'Lean Canvas' to find examples.

Testing your assumptions through research

Launching and growing a small business is really exciting because you don't know what's going to happen. However, writing a business plan can be daunting as there are so many things you don't know yet.

Make phone calls and search the internet to strengthen your assumptions. It's possible to find information on standard services like accountants, renting desks or buying raw materials.

There are other aspects that are more difficult to predict. Projecting sales, for example, is one of the trickiest parts of forecasting. You love your product but will customers flock to the business?

Test trading

One opportunity to solve this problem is to do a small amount of test trading. Paying for a market stall may cost you a thousand pounds after you pay for the stock and a location.

But the investment may pay dividends if it gives you a reality check on what customers are willing to pay and how popular your offering is. What's the least you can spend to learn the most?

Research what competitors are offering too. What are people paying for related products?

If you're a service-based business, you might be able to trial your offering part-time. Perhaps you can take on a client while still working your day job.

Make sure you justify any forecasts in your business plan and provide a logical explanation of how you came to your conclusions.

What should I include in a business plan?

The aim of a business plan is to understand how you'll implement an idea. That means it's important to cover the different elements involved in starting and running a business.

The following sections explain what to include in each part of your business plan.

Start with an executive summary

What's your business idea ? It's important to be able to explain your business in a succinct way. The executive summary should do exactly that.

Start with a summary of your business and the product or service it's going to sell.

Include short summaries of the other sections of your business plan – particularly how you're going to generate income and make a profit.

Identify the key people involved, emphasising their strengths (this can include advisers and partners).

Highlights from your progress and upcoming milestones.

A page or two should be enough to convey all the information that's needed.

If you struggle to explain your business to people you meet, or to write it down in an executive summary, invest more time in trying to break down the concept. Having a solid 'elevator pitch' helps with sales and marketing.

Lay out your vision and objectives

Why are you starting a business and what do you want to achieve? You're likely to have a mix of financial and non-financial goals – for example:

acquiring five clients in your first six months of trading

generating enough profit to go full-time on the business in year two

growing traffic on your e-commerce site to 5,000 monthly users

It can be helpful to split these into short (12 months), medium (one to two years) and long-term goals (three years and longer).

Make sure goals are S-M-A-R-T: Specific, measurable, achievable, realistic and timely.

Example of a business vision and objectives: A small tech business might have a vision to revolutionise the way people communicate by creating innovative and user-friendly communication tools. Its objectives could include: developing a messaging app that allows seamless integration across different devices and has very strong privacy and security features continuously improving user experience through regular updates and customer feedback The company's vision and objectives are in line with its core values of always being innovative, satisfying the customer, and taking advantage of advances in technology. It aims to become a market leader in the communication industry and provide solutions that simplify the way people connect with each other.

Analyse the opportunities

Your executive summary, vision and objectives have helped set the scene. But what kind of opportunity is there? This section includes your target customers and your competition .

Start by describing the types of people you'll be selling to. Useful information includes age, gender, income and location.

Try to be specific. Saying you'll target "other business owners", for example, doesn't help you understand how to market to them or how much they're likely to spend.

Instead, go into detail about the sector and size of businesses, the challenges they face and how you're going to help them.

Example: A social media agency might start this section by saying:

"We will primarily help restaurants in Manchester and the surrounding area with their social media marketing. The owners are responsible for marketing and use social media, but are time-poor and aren't getting enough value from these marketing channels."

Think about buying triggers, too. A café might target commuters walking to a local office complex first thing in the morning and be pushchair-friendly for new parents arriving mid-morning.

Creating customer personas is a useful way to better understand your target market if you're struggling with this section.

What's the size of the opportunity?

Understanding the potential of the business is important for financial planning and goal-setting – and getting motivated!

Once you know your target market, you can start to think about the size of the opportunity.

Estimating the size of the market and how much you can capture is difficult. Start by looking for statistics that relate to your target customers, such as the number of independent restaurants in Manchester, and any information on how much small restaurants spend on marketing.

Doing original market research is really useful. Draw up a questionnaire and start talking to potential customers. Most people want to help, particularly if you start by talking about the challenge you're solving.

Opportunity analysis: The key questions

The opportunity analysis section should answer these questions:

What evidence do you have that customers will buy from you?

Who are your competitors?

Do you know enough about the opportunity to build a marketing plan ?

What changing economic or market factors will affect your business?

Assess the competition

Now you've thought about who within your market you're competing with, you need to evaluate them. Don't fall into the trap of thinking you don't have any competition!

Try to find three or four businesses offering similar services and write a short section detailing:

the company

its unique selling point and differentiation

its strengths and weaknesses

If you're offering something completely new, there's likely a reason it doesn't exist already, so understanding your customers' challenges is doubly important. And, you're still competing for your target audience's time and money.

Throughout this process, you should be thinking about this from your customers' point of view – why will they choose you over your competitors?

Segment your customer base

To drill down deeper into who exactly your business is targeting, divide your audience into segments. You should base these segments on certain criteria, such as:

level of education

This is crucial, if, for example, your product or service is for a specific age group or people living in a particular location.

Describe your operations

It's important to understand what suppliers and partners you need to make your business a success. Your business plan should include details of what type of partners you need and any current relationships.

Include any equipment, the workspace you need and the costs involved, too. That will help you understand the costs to get up and running.

This operations section of your business plan should ideally provide details on the following (some may not apply to your type of business!):

The product or service you offer

Your production process or delivery process

Any tools, plant, machinery or equipment you use

Any technology (computers, software, devices and so on) you use

Your suppliers and main materials

Any relevant licences you hold, regulations you must comply with etc.

Your plans and pledges to reduce your environmental and carbon footprint

Describe your people

Anyone reading your business plan will want to know who the main players are within your business and who you have working for you. Write it all down in this section, and include the following:

Who manages the business, and their level of experience

Who makes up your team (if you're a solopreneur, give details of anyone to whom you outsource work)

Anyone else you seek outside help from (technical, professional, financial, legal and so on)

Who's responsible for selling your product or service, and their qualities and experience

How you network, both face-to-face and on social media

Your processes for onboarding staff and looking after their wellbeing

How your business serves the local community and wider society

Your pledges for transparency and good governance

Develop a sales and marketing plan

When you understand the opportunity, you can start thinking about how to sell your products.

You can't take an "if you build it, they will come" approach to starting a business. You need to clearly define how you're going to reach potential customers. That includes the time and money that you need to invest into different marketing channels.

Write down your key marketing channels and how you plan to use them. This should be heavily influenced by conversations with potential customers – where do they find information about products? – and will evolve over time.

Potential sales and marketing channels include:

social media

email marketing

partnerships

cold-calling

Detail is key in promotional campaigns

It's helpful to go into detail about two to five key marketing campaigns. Include the cost, timing and what you hope to achieve.

For example, you might have a launch event at a newly opened shop or promote a partnership with a related product.

Make a financial plan

The final section covers finance . Your vision, customers, the opportunity and your route to market all influence costs and income, so it makes sense to do this last.

That said, it may lead you to revise other areas of your plan – treat writing a business plan as a learning process.

You need to understand your costs to start up and trade. Every business is different, but key areas to consider are:

stock or raw materials

Thinking about fixed and variable costs helps make sure you've identified everything. Fixed costs have to be paid no matter how many sales you make (for example, rent, wages or an accountant ). Variable costs depend on the volume of sales you make (for example, stock and shipping).

Look for opportunities to beg, barter and borrow! Partners may be able to help get you access to workspaces or other support.

You can present costs as a simple list that shows how much you'll need to get started or you can create cash-flow forecasts and profit and loss reports that go into much more detail.

Cash-flow forecast : Shows the money going in and out of the business every month, with costs assigned to different expense types such as 'advertising' and 'rent'

Profit and loss forecast : Shows how much money the business makes each month

If you need funding to get started, include details in this section. You should also look to incorporate the following:

A detailed breakdown of your business finances

Your pricing against the costs of the product or service

How you deal with your debtors and creditors

Your business's legal structure (for example, do you operate as a limited company or a sole trader ?)

Where you're trading from (i.e. is it a physical location or online only)?

As business owner, your personal financial statement or survival budget, if your business is a start-up or at an earlier stage of development

Top tips on writing a business plan

Granulate your plan into actionable and bitesize goals. And remember: make them SMART! (That's specific, measurable, achievable, realistic and timely.)

Be clear and use plain English. It's essential to avoid jargon, and explain any technical terms clearly. We all use acronyms at work, but don't overdo them. If you do use them, write what they stand for in brackets.

First impressions count! Don't forget to make your business plan look professional. When you build your plan, include a contents page, headers and section numbering. Put a cover on it if you'll be distributing hard copies.

Provide supporting documents. Include an appendix with products/services, expanded financial information and any literature on the business. You can also include bios for key personnel, such as the business owner and directors.

Include as much detail as you can but be succinct. Some people are visual readers. Use visuals such as infographics to illustrate key data and essential points. This is your opportunity to tell the story of your business , so use images and text to get your points across and connect with your target audience.

Show that you care about your business. That way others reading your business plan will care too!

Business plan templates

A business plan template provides structure when you're putting all this information together.

Enterprise Nation has created a start-up business plan template you can use, which includes a series of questions to ask yourself about starting a business.

Download Enterprise Nation's business plan template

Get feedback on your business plan

It's unlikely you'll have a complete understanding of the opportunity when you sit down to write your business plan, so go out and do research when it's needed.

This means speaking to customers, analysing competitors (try their products!) and speaking to suppliers.

Once you have a draft, show it to people in your network or other business owners who can provide feedback.

If you'd prefer to speak to a business expert, here are some advisers on Enterprise Nation who will help you write a business plan .

Will a business plan guarantee success?

No. But it'll help crystallise your goals and test your assumptions. The framework is really useful to develop ideas, particularly if they've been rattling around in your head for some time.

Make sure you return to your business plan regularly. Reinforcing your original goals will help keep you on track. Forecasting is a skill. Check your projections against performance and try to figure out what assumptions were correct and where there were issues.

The way you use business plans will evolve over time. Filling in a Lean Canvas might work if you have an idea and haven't started working on it yet. Eventually, you might need to create a business plan to land investment or it can provide an opportunity to reassess what you do.

Relevant resources

Lunch and Learn: Create a business plan

How to write the operational section of your business plan

How to set effective goals for your small business

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20 Essential Reasons Why You Need a Business Plan?

Free Business Planning E-Book

• December 18, 2023

11 Min Read

When Meta was initially planning to go mass scale, founder Zuckerberg had a plan for the next three, five, and ten years.

As reported by Business Insider , they knew their expenses would increase by a whopping 70%, but they were confident because they had a foolproof business plan at their disposal.

Fast forward to today, we all know where they stand—neither Facebook nor Mark needs an introduction.

Well, if that is not a compelling reason as to why you need a business plan , we have 20 straightforward reasons to convince you.

But before we get there, let’s have a quick rundown of the benefits of having a business plan.

Key benefits of having a business plan

A meticulously crafted business plan holds significant value, offering operational, financial, as well as strategic benefits to emerging as well as existing businesses.

A quick rundown of these key benefits will help you get a more enhanced understanding.

• Helps evaluate the feasibility and viability of your business idea.
• Identifies potential business challenges and creates strategies to mitigate them efficiently.
• Offers a strategic and operational roadmap to attain your business goals.
• Develop strategies to attract your target audience and retain your existing customers.
• Attract investors to raise funding.
• Define resources and SOPs to operate the business efficiently.

That being the benefits, a well-drafted business plan is indeed an asset for your business.

20 Reasons Why You Need a Business Plan

• To test the viability of your business idea
• To reduce potential risks
• To determine your funding needs
• To outline a perfect marketing strategy
• To better understand your competition
• To help you grow 30% faster
• To secure funding
• To attract investors
• To set goals for everyone
• To make sound decisions
• Catch critical cash-flow problems early
• To position your brand in the market
• To better understand your customer
• To build the team
• Future-proof your business
• Tracks Your Progress
• To sell your business
• To allot resources
• To increase the odds of succeeding
• To make An exit plan

Let us now understand the sure-shot reasons why you need a business plan.

1. To test the viability of your business idea

Think about this—you have a couple of business ideas. However, can you start working on both of them at once? Of course not. You need to see which idea can gain you profitability and which needs to be chucked off permanently.

A business plan forces you to think of everything about your business as:

• What is the market demand?
• Which market segment will you cater to?
• What is the expected profitability of a particular business idea in the local market?
• Who are the competitors and what is your competitive advantage?
• What entry barriers do you have to go through?
• How much capital will you require to start a particular business?
• What is the financial forecasting of the business?

This way you will get a chance to question everything that takes to start a successful business, which will ultimately help you decide the viability of your business idea.

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2. To reduce potential risks

Every business contains risks, and a solid plan is like taking some of that risk out of the business.

It not only helps you to know the viability of your business but also other aspects like:

• Are your operational costs manageable?
• Will your proposed model generate sales or do you need to switch to another?
• What will be the break-even point and when will your business achieve it according to the financial projections?
• How will you manage if the demand for your product or service decreases?
• What will be your exit strategy?

These are all risk-related questions you will get answers to while creating a business plan.

For those who already have a business and are working on expanding it, a business plan will help you understand the associated potential risks and challenges and strategies to mitigate them.

Hence, knowing potential risks beforehand will help you solve them smoothly without a big fuss.

3. To determine your funding needs

A business plan helps evaluate the funding essential for your business. It tells you exactly how much money you need to raise and what funding sources you should opt for.

A business plan includes detailed financial projections and a plan explaining how the funding will be utilized in different business ventures. This makes it easier for you to make realistic funding demands essential to grow your business.

4. To outline a perfect marketing strategy

When you sit to write a business plan , you will be required to dive deep into the study of the target market and competitors.

Such a nuanced understanding of your customers, strengths, and business environment will help you create a marketing plan that’s in line with your objectives and reality.

A solid plan outlines your marketing objectives, brand position, and marketing budget, and describes the marketing strategies to attain your desired market position.

Not only is this plan essential from an investor’s point of view. But it will also serve as a guide for your marketing team to streamline the marketing activities.

5. To better understand your competition

You have to first understand and describe who are your competitors, what is their price point, what is their USP, what is their market positioning, and what products or services they provide.

This stage helps you know the competitors , their working styles, target customers, and everything about them. It forces you to do 360° research about your competitors to know the exact brand positioning of your business.

6. To help you grow 30% faster

Creating a plan goes beyond trying to foresee the future of your company. The significance lies in the process itself. The business plan is a living document; you can revisit your plan and alter it according to the market situation to reach your goals and ensure success.

Studies confirm that companies engaging in regular planning experience a 30% faster growth rate.

It’s proven that businesses that plan are less prone to facing unfortunate failure or cash flow crisis that could jeopardize their existence.

7. To secure funding

Traditional banks and investors ask for a well-detailed business plan to consider your funding request. While their focus would be on the financial aspects of the plan, they would also like to understand your industry and market before making any decision.

A well-detailed plan wins the trust of potential investors in your business idea and your ability to turn it successful by helping you secure essential funds.

8. To attract investors

A business plan is the basis for investors ’ decisions. It demonstrates your market understanding, offers a realistic sense of finances, and answers important questions an investor might have.

This may include questions like,

• Is there any market demand for your products and services?
• What are the financial forecasts?
• When will the company turn profitable?
• What is the company’s exit strategy?

An investor will analyze and evaluate your business on all fronts before entertaining the idea of investing in your business.

9. To set goals for everyone

Setting goals and deadlines for everyone from the management team to other employees will make everyone’s task clear. This way everyone can make their mini-plan and organize things according to the priority.

Business planning makes everything clear in your head before you communicate it with your team and makes sure that you all are on the same page.

10. To make sound decisions

A well-detailed plan acts as a reference point for any kind of decision-making. Think of it as your business guide, which will eventually bring everything into place.

11. Catch critical cash-flow problems early

Smooth cash flow is one of the main bricks of any business. It is one of the key financial statements your investors will review.

A part of preparing a business plan includes creating detailed cash-flow projections for the next 3-5 years. With projections at hand, it gets easier to track your performance and take timely action to avoid extreme cash-flow disturbance.

In short, having a financial plan will ensure that there aren’t any cash-related crises where you can’t pay your bills timely.

12. To position your brand in the market

Writing a business plan helps you to thoroughly understand the industry, competitive, and customer landscape of your business. It defines your company’s role in the marketplace and thereby helps you position your brand in the right place.

13. To better understand your customer

Preparing a business plan helps you understand your target audience and their behavior patterns in great detail. It offers insight into the pain points, needs, wants, and purchasing patterns of your potential customers and shows the best possible way to reach them.

Such an in-depth understanding of customers helps you to optimize your product offerings and marketing strategies.

14. To build the team

One of the main overlooked sides of a business plan is the success metric it provides. An integral part of creating a plan involves mentioning all your goals and predictions.

By regularly reviewing that, you will be able to know which business milestones you have reached and what is the next one. Furthermore, you can even know about the setbacks of your business and then re-edit your business plan according to the market analysis and situation.

15. Future-proof your business

Whether yours is a new business or an existing one—the readers will be interested in getting a future overview of your business.

While writing a business plan , you work on practical assumptions and test various unlikely scenarios to understand the position of your business under different circumstances.

By preparing for different challenging situations, a business plan equips you to promptly face any expected challenges that may arise in the future.

16. Track your progress

17. to sell your business.

Down the road, if you ever decide to merge your business with someone else or want to sell it, a business plan will be an asset that will support you in selling your business.

It will help protect your brand and financial position from any third party. From portraying your brand’s milestones to business experience— one can get all the essential business information from your business plan.

18. To allot resources

As a business owner, you know there are many investments and expenses you need to make before & after starting a business. Thus, allocating those resources to different segments of the business is necessary.

A business plan provides an exact idea of your investments and resources needed in each segment of the business.

19. To increase the odds of succeeding

A well-written business plan increases your chance of building a successful business.

According to research, entrepreneurs with a written plan are 16% more likely to attain business viability than those who don’t.

A business plan helps anticipate the challenges, prepares you to face them strategically, and increases your odds of succeeding in the competitive environment.

20. To sell your business

Beyond guiding day-to-day operations, your business plan is a valuable tool for planning your exit strategy . While many entrepreneurs focus extensively on launching their businesses, not as many plan for the eventual need to liquidate or transfer ownership.

Your chosen exit strategy could be driven by various factors, such as achieving your business goals and shifting focus or selling to an acquirer. Therefore, even for partnership or dissolvation, an exit strategy is necessary.

Start Writing your Business Plan with Upmetrics

Told you, there are various reasons why you should not skip writing a business plan. Besides, why should you, especially when you have resourceful business plan software like Upmetrics to help you out?

It offers an extensive collection of highly customizable business plan examples along with step-by-step instructions to help you write a detailed and actionable plan for your business.

Simply choose a sample relevant to your business and get started.

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Frequently Asked Questions

What is the purpose of a business plan.

There are three main purposes of a business plan:

• Secure funding
• Guiding operations
• Evaluating the progress of your business

How long should a business plan be?

Generally, the length of a business plan depends on the niche of the business and the purpose of the business plan. Ideally, a business plan should be 15-35 pages.

What resources are available to help write a business plan?

To secure funding and impress potential investors, an engaging business plan is necessary. Here are some resources from where you can find business plans:

• Business plan Samples from SBA , Upmetrics , SCORE
• AI business plan generator
• Business plan writer

Should you write a business plan even if you don't need funding?

A business plan will help you detect the problems beforehand. It also helps you in creating marketing & operational strategy. A business plan also guides you as a roadmap. Thus, even if you don’t need funding for your small business, a business plan is necessary.

When should you write a business plan—before or after starting a business?

If you need funding, you have to write a business plan before you start any business. But if you are expanding an existing business or writing a business plan as a guide for your new business, then anytime is okay. Note: Sooner is always better in this case.

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What is a business plan

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it's a plan that you would like to achieve later with the objective and strategic of business

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Final answer:

A business plan is a document that outlines the goals, strategies, and financial projections of a business. It helps guide the future of the business and is important for attracting investors and securing loans.

Explanation:

A business plan is a formal document that outlines the goals, objectives, strategies, and financial projections of a business. It provides a roadmap for the future of the business and helps the entrepreneur or management team to understand how the business will be structured, operated, and grow over time.

For example, a business plan might include details about the product or service the business will offer, the target market, the competitive landscape, marketing and sales strategies, operational plans, and financial projections.

Having a well-prepared business plan is important for attracting investors, securing loans, and guiding the success of the business.

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