By: Jill Huettich
If you could do something to double the success of your business, would you do it? Of course you would! Happily, that’s not pie-in-the-sky kind of talk either. There is something you can do to increase your likelihood of business success by a whopping 200%. That something is business planning. Time and time again, business planning has been shown to have a huge impact on business growth.
Take, for instance, the results of a survey completed by 2,877 business owners. After analyzing respondents’ answers, the Oregon Department of Economics concluded that business planning correlates with success in multiple areas, including: obtaining a loan, getting investment capital, making a major purchase, recruiting a new team member, thinking more strategically, and growing a company.
Mind you, those results were “regardless of the type of company, the growth stage of the company, and the intent of the business plan.” Clearly, business planning works!
In this guide to business planning, we’ll cover everything you need to know about business plans, their benefits and importance, what does into one, and will provide a template for you to get started. Jump ahead using the links below.
- What is business planning?
- The importance of business planning
- How to write a business plan
- Sample business plan template
- Downloadable MindManager template
Business planning refers to the process of determining a company’s objectives, strategies, and projected actions to reach certain goals within a specific time fame. Typically, business planning focuses on two key areas: making profits and mitigating risks.
When companies engage in business planning, it’s with the objective of creating a business plan. A business plan is a written document that contains: the company’s vision, a description of the company, information about its products and services, marketing research, sales strategies, financial projections, competitor analysis, and financial records.
The purpose of a business plan is to act as a road map of sorts, providing a company with the direction, focus, and clarity it needs to achieve its goals.
Business planning vs. strategic planning
Now that you know what business planning is, you may be wondering if it’s any different from strategic planning, and if so, how? That’s what we’ll go over in this section.
As we mentioned before, business planning provides a detailed overview of a company. Usually, this is undertaken with the goal of building revenue and support for a startup. In other words, a business plan tests the proposition that a “particular undertaking—program, partnership, new venture, growth strategy, or entity as a whole—is economically or operationally viable.”
By contrast, a strategic plan is a high-level document that creates a vision for an established company. From that vision, broadly defined objectives are outlined.
Because strategic plans define companies’ most important objectives, they’re used to align department goals, build consensus among stakeholders, and prioritize company spending.
Another difference between these two types of plans is the length of time they cover. A strategic plan typically looks at a period of 3-5 years, whereas a business plan usually just looks at a year.
Additionally, business plans are primarily written to raise money, so their audience is external. Strategic plans are internal documents, created for people within the company.
The importance of business planning cannot be overstated. In particular, businesses do it for the following reasons:
1. To obtain loans or investments
It would be virtually impossible for a startup to secure capital without a business plan—they’re considered that essential.
That’s because business plans establish the viability of a business, which is something any bank or venture capitalist needs to be convinced of before funding a venture.
2. To prevent mistakes
Unfortunately, most startups don’t even last 5 years. There are a number of different reasons for this, but some of the main ones include: tough competition, low demand for what they’re selling, a poor pricing model, an inadequate team, and an inability to secure that all-important funding we just mentioned.
A good business plan helps companies anticipate these types of problems, so they can prevent them.
3. To examine viability
The idea for a startup is often met with a lot of enthusiasm. That vending machine featuring high-end desserts and pastries? Brilliant!
However, sometimes that enthusiasm needs to be tempered by reality. A business plan offers a great opportunity to do that, because it gets entrepreneurs to think through the answers to questions they may never have even considered, like “Is there a demand in this neighborhood for desserts?” and “How many businesses are already selling desserts in this location?
4. To reduce risk
Flying by the seat of your pants in the business world is not the best idea. A business plan clearly lays out a company’s objectives, as well as the landscape of the market.
As a result, business leaders know which challenges to expect. With that knowledge in hand, they can take proactive steps to mitigate their risks.
5. To accelerate growth
Quite simply, business planning works. In fact, according to one study, companies that plan grow 30% faster than those who don’t. And, interestingly enough, another study found that 71% of fast-growing companies (those defined as having 92% growth in sales from one year to the next) have business plans.
6. To identify problems with cash flow
Business plans contain 3 financial statements: a balance sheet, an income statement, and a cash flow statement. For startups, these numbers are projected.
When entrepreneurs have these numbers to refer to, they can more easily monitor cash flow, comparing reality to their projections. This gives them the opportunity to quickly deal with cash flow challenges, should any arise.
7. To make decisions
When faced with tough business decisions, it can be difficult to know which path to choose. However, with a business plan in hand, entrepreneurs can make well-thought-out decisions based on the analysis they’ve already performed.
As you can see, there are tons of great reasons to create a business plan, particularly for start-ups and other new businesses. However, even well-established businesses can benefit from a business plan.
Not only does a business plan provide a valuable overview of an entire company, but it’s also an excellent tool for pinpointing potential challenges, so they can be proactively addressed and resolved.
There may be nothing more critical to your company’s success than a business plan. That’s why it’s so important to understand how to write a business plan, and to devote time and effort to creating a solid, well-researched one.
The elements of a business plan are fairly straightforward. While no two business plans are identical, most of them rely on the following structure:
1. Executive summary
Business plans typically run dozens of pages long. While, ideally, you’d like to think that people will read your entire plan, there’s no guarantee of that—which is why the executive summary is the most important part of your business plan.
In the summary, you’ll want to provide readers with a quick synapsis that explains what your company is and why it’ll be successful.
This summary should include your company’s mission statement and a description of the product or service you provide. You’ll also want to briefly touch on the company’s founders, employees, location, and financial growth.
Aim to make your executive summary about 4 pages max, and don’t write it until you’ve completed the rest of your business plan. That’ll make it easier to summarize all the information your plan contains.
2. Company description
This detailed overview of your company includes such things as the problems your business solves, as well as the customers it serves. You should view this section as your opportunity to shine by also explaining your business’ competitive advantages.
3. Market analysis
What’s the outlook of the industry you’re in? Who’s your target market and how do you plan to reach the people in it? These are the types of questions you’ll answer in this section of your business plan.
Additionally, you’ll want to use the Market Analysis section to perform a competitor analysis, identifying who the major players are in your industry, as well as their strengths and weaknesses.
By understanding what’s working well for your competitors—and what isn’t—you’ll be better able to determine how you can grab some of their market share.
4. Organization & management
How will your business be structured—as a sole proprietorship, corporation, partnership, or LLC? Include that information in this section, as well as an organization chart showing who’s heading up your company. You may also want to include resumes or CVs for key team members here too.
5. Service or product line
This section should explain what you sell, how it helps customers, and what the product lifecycle looks like. This is where you’ll also want to mention any patents or copyrights.
6. Marketing & sales
How do you intend to attract customers? What marketing channels will you use? What’s your strategy for growth? Think carefully about your answers to these questions, because later, you’ll use this information to make your financial projections.
7. Funding request
If one of the objectives of your business plan is to obtain funding, this section should be included in your plan. When you write your funding request, you’ll want to explain what your funding requirements are over the next 5 years and how those funds will be used.
Additionally, this section should specify, “whether you want debt or equity, the terms you’d like applied, and the length of time your request will cover.”
8. Financial projections
Financial projections are a key part of your plan, particularly if you’re seeking funding. In this section, you’ll want to include financial projections for the next five years, as well as explain how you came up with those figures.
Your projections should include cash flow statements, balance sheets, income statements, and capital expenditure budgets. If your business is operational already, you’ll also want to include the past 3-5 years of those same documents.
Think of this section as your final opportunity to convince readers of your business’ success. So, this is where you can include supporting documentation, like product pictures, reference letters, permits, patents, legal documents, contracts, credit histories, etc.
And there you have it! Once you’ve finished the analysis required for each of these elements—and typed your findings into a well-formatted document–your business plan will be complete.
Understanding the business planning cycle
After you’ve completed the business planning process, your work—while not over—gets easier. Your job now is to review the business plan periodically to see how well your company is achieving its objectives.
Did you meet your financial projections? In what areas is your company doing well? How is it falling short? Are there any new opportunities for your organization?
During this period of analysis, you’ll ideally want to set 1-year and 3-year goals, as well as key performance indicators (KPIs). These will help you track on a quarterly, or even monthly, basis how well your company’s meeting its objectives.
Most businesses engage in business planning on an annual or quarterly basis. Truly, it depends on how much time your organization has to devote to the task, as well as the industry you’re in.
For smaller businesses, a good aim is to perform the business planning process once a year. For larger companies—or ones where the market changes frequently—you may want to “plan to plan” every quarter.
Generally speaking, most business plan templates will include the following key elements and information. We’ve provided a downloadable MindManager template below that you can use to create your own business plan.
Section 1: Executive summary
The executive summary is the most important part of your business plan, so you’ll really want to put time and effort into getting it just right.
Make sure to include the following elements:
- Explain the mission of your company – what is the reason for your company?
- Describe your product or service – what types of products and services will you offer customers?
- Introduce the company founders – who are your company’s founders, and what roles will they play within your organization?
- Briefly provide information about your customer base – which customers will your business target, and how will your company serve them?
- Provide an overview of your competitors – explain why your business will succeed by identifying your competitive advantage and describing how you’ll get market share.
- Summarize your financial projections – what financial growth do you expect your company to achieve over the next few years?
- Mention financing requirements – if your business is a start-up seeking financing, briefly mention those financial requirements here.
If you want a good idea of what your completed executive summary should look like, you can check out an example of one here.
Section 2: Company overview
In this section, you’ll want to go into greater detail than you did in the executive summary, explaining which problems your business solves, who its customers are, and what competitive advantages your company has.
- Provide an overview of your company – what’s its mission, vision, and purpose?
- Give background about the formation of your company – when did your company form?
- Explain who your company’s founders are – what backgrounds do they have that make them uniquely qualified to run your business successfully?
- Provide geographic information – where is your business located and in which markets do you have a presence?
- Describe your company’s competitive advantages – while this was briefly touched upon in the executive summary, you’ll want to provide more information here about why your company will be successful.
Section 3: Market analysis
In this section, you want to prove the viability of your business by providing solid market research about your industry.
To achieve this goal, you’ll want to include the following in this section:
- Identify your target market – who are you trying to sell your products and services to?
- Describe the need for your products or services – why do you anticipate demand for your company’s offerings?
- Give information about the overall market size – how big is the market? How much do you expect your company to sell? Are there any demographic or geographic factors that might impact your sales projections?
- Identify the competition – who are your company’s main competitors? What advantages and disadvantages do they have? What’s their percentage of market share? How much do they sell annually?
- Perform a SWOT analysis – identify your company’s strengths, weaknesses, opportunities, and strengths.
For help writing this section, you may find it useful to look at this marketing analysis example.
For the competitor and SWOT analyses, we recommend an information visualization software, like MindManager. View the SWOT analysis template at the end of this article.
Section 4: Organization & management
In this section, you want to give readers a solid overview of how your company will be structured. To do that, you’ll want to answer the following questions:
- Describe the legal structure of your business – is it a sole proprietorship, corporation, partnership, or LLC?
- Identify your management team – name the key roles within your organization, identify who will fulfill them, and explain how those individuals will be compensated. You may want to include an organization chart here too, as well as brief resumes or CVs for key team members.
Section 5: Service or product line
In this portion of the business plan, you’ll want to provide more information about the product or service you provide. So, make sure to include these elements here:
- Describe the product or service you sell – what are you offering and how does it help customers?
- Explain the product lifecycle – how long does it take to bring new products/services to market?
- Provide pricing information – how will you price your products or services? What will your operating costs be?
- Describe how you’ll acquire products – are you the manufacturer? If not, who is? Are you working directly with a manufacturer or are you going through a wholesaler? If product demand suddenly increases, what’s the likelihood you’ll experience supply problems?
Section 6: Sales and marketing strategy
Your customer acquisition strategy is especially important to potential investors, so you’ll definitely want to be thorough here. Plus, later you’ll be using this information to make financial projections, so take your time when writing this part of your plan.
- Describe the customer acquisition process – how will you find and attract customers? For instance, will you use salespeople, call centers, social media ads, etc.?
- Explain any promotional methods you plan on using – will you offer free samples or perform product demonstrations?
- Provide information about the marketing materials you intend to use – like brochures, flyers, trade show booths, etc.
- Estimate your advertising budget – how much will you have to spend to achieve your marketing objectives?
Section 7 – Funding request
This section is only necessary if you’re seeking business funding. If you are, you’ll want to include the following information in your business plan:
- Identify your funding requirements – how much money are you requesting and how will those funds be used?
- Describe the terms you’re seeking – do you want debt or equity? Which terms do you want applied? What length of time does your request cover?
Section 8 – Financial projections
As you might imagine, financial projections are a key part of your plan, especially if you’re seeking funding. So, in this section, you’ll want to make sure you include:
- 5 years of projected cash flow statements, balance sheets, income statements, and capital expenditure budgets – these documents should also explain how you came up with the figures you’re using.
- If your business is already up and running, you’ll also want to include the past 3-5 years of those same documents.
These forecasting software packages make it easy to create the kinds of financial statements you’ll want to include in your business plan.
Section 9 – Appendix
This is your last chance to convince readers your business will be a success. So, if you have additional information to give your business plan more weight, you’ll want to incorporate it here. Consider including the following in this section:
- Product pictures
- Reference letters
- Legal documents
- Credit histories
And that’s it! After you’ve completed these sections, just assemble them into a single document, format everything neatly, add a table of contents, and your business plan will be complete.
Afterwards, you can use it to obtain loans, determine viability, reduce risk, assess cash flow problems, make decisions, and accelerate business growth—making it well-worth the time and effort it takes to write your plan.
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Business plan template in MindManager