How to Write a Business Plan (2020)

There are two types of business plans: a traditional business plan and a lean business plan (also called a one page business plan).

A traditional business plans has an agreed structure and typically will be a couple dozen pages in length.

A lean business plan is typically a 1 page document that aims to succinctly articulate the problem your business solves, your competitive advantage and the high level details of starting and growing your business.

Banks and most investors typically require that you have a traditional business plan. They do this because they are risk averse and want to evaluate your business based on a standardized template that has lots of supporting detail.

One-page business plans are great for self-funded companies to gain clarity on the problem their company solves type and their competitive advantage.

We will examine in detail what goes into a traditional business plan and also what you need to include in a one page business plan.

With this comprehensive and frustration-free step-by-step guide and our actionable insights for how to write a business plan, you’ll have everything you need to know to write a thorough business plan that will help you start, fund, and launch a successful, profitable business.

We’ve covered each of the required steps in great detail, with insights, tips, free actionable resources and templates, and step-by-step guides.

Business owners make many mistakes when they have a business idea, start a new business, and rush into things before considering the important aspects of their business. A good business plan can help you plan so that you can anticipate important issues and possible challenges before you start your business.

A business plan a vital part of any new venture. Your business plan doesn’t need to be 100 pages long. Keep it short and concise and focus on the key details.

Studies show that entrepreneurs who take the time to write a business plan are 2.5 times more likely to follow through and get their business off the ground. The work that goes into creating a good business plan also helps new entrepreneurs build skills that will be invaluable later.

There are 9 simple questions business owners should answer in a lean business plan:

1. Problem. What problem are you going to solve? What solution do you offer?


2. Competitors. What are the primary and secondary ways to solve this problem?


3. Value proposition. How are you different from your competitors? This becomes the core of your brand.


4. Target market. Be as specific as possible in your market analysis, including demographic and behavioral information.


5. Expenses. What start-up costs are needed? What will your recurring expenses be?


6. Sources of revenue. How many sources of revenue will you have? What are they?
7. Marketing activities. How will people learn about your business?


8. Potential partners. How can you add value to someone else’s target market?


9. Executive Summary


10. Timeline and new product roadmap. What new products and services will you create?

1. Executive Summary


2. The opportunity


3. Marketing and sales plan


4. The management team and company


5. Financial plan


6. Appendix

Below, we’ll examine in detail what goes into each of these sections.

The executive summary of a business plan is designed to capture the reader’s attention and briefly explain your business, the problem you are solving, the target market and key financial projections. You can also include a brief mission statement in the summary.

If the executive summary lacks specific information or does not capture the attention of the reader the rest of the plan might not be read.

Pro tips:

• Write the executive summary after you have written the rest of the business plan. This will allow you to easily summarize the larger details.


• Keep it short. Include the essential steps with as little extra language as possible. Your goal is to get the reader excited to read all the specific details found in your business plan.


• Organize the executive summary based on the strongest points.


• Don’t talk about your management team’s passion for hard work. These qualities are the minimum shared by all entrepreneurs.


• Don’t say you will be the next Facebook, Uber or Amazon. Amateurs make this comparison to try and show how valuable their company could be. Instead focus on providing the actual facts that you believe prove you have a strong company. It’s better if the investor gives you this accolade because they see the opportunity.

An executive summary in a business plan should be as short as possible to grab the reader’s attention and explain what your company does, your strategic advantage and your financial request. This should be no more than 1-2 pages.

A business plan executive summary for a bank loan differs slightly from a typical executive summary in a business plan. Where investors want to see opportunity banks want to minimize risk.

Banks don’t take risks when it comes to new business funding.

It’s against banking regulation to loan money to a business that does not have the capital to cover the cost of the loan.

An executive summary given to a bank should reduce risk by focusing on 3 key areas:

• The assets of the owner and company. Show the bank that you have the ability to pay the loan in full.


• The financial history of the owner and company. Show the bank you have a strong history creating wealth and repaying debts.


• A financial forecast (financial projections) that shows a stable business model. When looking at business plans, banks want to see that you can be a long term customer with future borrowing after this loan. Provide a forecast that illustrates your cash flow over the next couple of years.

In your market analysis, you should first explain the problem your target market is experiencing today.

People only pay for solutions to problems. And the amount you can charge is directly related to the size of the problem and lack of available solutions.

If you’re not solving a problem you are just requesting a donation, not running a business.

Next, explain how your target market is currently solving this problem.

If you can’t clearly identify the problem and how users are solving it you might not have a strong business concept and should give this more thought.

Before you launch is a perfect time to talk with potential customers and ask how they are solving the problem you have identified.

This part of the business plan is a great place to share interviews you’ve had with potential customers to emphasize the strengths and weaknesses of your idea. This shows you did the research and are solving a real problem.

After identifying the problem and current solutions you should now explain how your product or service solves the identified problem and why it is a better option for clients.

TAM, SAM, and SOM help to understand a different part of the opportunity.

SOM shows your short term sales opportunity.

SOM and SAM show that target market size.

TAM shows the opportunity at scale.

In your market analysis, you want to understand your potential for growth but you want to target your marketing at your SOM. Otherwise, targeting everyone would be a waste of resources and will reflect a poorly constructed marketing plan.

Every business has competitors and it’s important to assess your competition in your business plan. What are the current options for your target market and how do those options not solve the problem you identified?

Think about competitors in two categories.

1. Direct or Primary competitors. These are businesses who solve the problem in a very similar way. For example, McDonald’s and Burger King both sell similar styles of food fast and cheap.

2. Secondary competitors. These are competitors who solve the problem but in a different way. For example, Pizza Hut and Mcdonald’s both solve the customer’s hunger. But one does it with pizza and the other with burgers.

Investors will want to know what competitive advantage you have with your new products and services over these existing ways of solving the customer’s needs.

You can easily show this information in a competitor matrix where you list out multiple competitors on one side of the graph and then each column becomes a separate feature or distinguishing way of doing business. Now make a check mark in each intersecting box for each company that incorporates that option.

Or use a 2x2 square grid where you plot competitors on an X and Y axis to show the whitespace your company is operating in.

Here are examples of each:

Strengths:

• Your personal network


• A proven and repeatable process for creating sales


• Intellectual property


• Exclusive partnerships


• Physical assets and equipment


• A high barrier of entry to new companies


• A strong reputation


• A recognizable brand


• A clear and tested value proposition

Opportunities:

• Underserved markets


• Regulatory changes that will increase the popularity of your product/service


• Increased referrals from clients


• Media coverage of your company


• A lack of competitors in your area

A product or company roadmap details the priority and timeline of new products and services that will help you attract a larger market share.

As an entrepreneur at the beginning of a new business you have a lot of excitement and ideas. Communicate your vision for how the company will grow and what additional opportunity this growth will allow your company to achieve.

Amazon did not start as 'the everything store' they started with a single product, books. But their product roadmap has grown to include many new products and services, including: produce, web infrastructure services, 2 day shipping, original video entertainment and smart home devices.

Since these new products and services might be months or years away, a high level detail in the business plan is ok. The point of this section in business plans is to convey that you’ve thought about additional ways to grow the business beyond the core product.

What assumptions are you making in your business plan, including your market analysis, that you have not been able to prove yet? For example is the demand for your products and services untested?

What risks are known such as relying on a single traffic channel or expecting favorable legislation and PR to continue in this industry.

You should be able to articulate in the business plan why you are moving forward knowing these assumptions and risks exist. The risks might seem worthwhile if the current timing suggests it is a great opportunity. Or perhaps you are very early in the business and you are trying to prove these assumptions.

Your positioning statement is a simple one to two sentence reason why your target market should choose your company instead of the competition.

This statement makes it clear you have identified a core problem your company is built around and you understand your competitive advantage that makes you a better fit for this audience compared to your competitors. Don't forget to include strengths and weaknesses of your positioning statement.

New businesses are missing an established audience which can make it difficult to grow sales.

What problem does your product solve for another company’s core product?

A lawn sprinkler company is the perfect partner for a lawn care company because the companies are uncompetitive but serve the same need, beautiful stress-free landscaping.

This section of the business plan describes how your business works. This will be different depending on the type of business you operate. So some of this may not apply to you.

Sourcing and fulfillment. If you are purchasing products and services from suppliers include details about the process for obtaining these products and services and the supply chain.

What progress have you made working with these suppliers? What is the process for fulfilling customer’s orders?

Technology. What technology do you use that helps you run your business. In an older industry adopting technology could give you a competitive advantage by providing the customer a better product and price because you leverage the right technology your competitors refuse to use.

Distribution. Distribution is about getting the product you make into the hands of the consumer. If you are a service based business you can skip this section.

There are several distribution methods: Retail distribution - you will sell your product through established retail locations which can be physical or online, and Direct distribution - the customer will purchase the product directly from you and you will send it directly to the customer.

Manufacturer’s representatives. A salesperson typically working on commission who sells your product to established retailers and distributors.

This section of the business plan includes:

• The team members, including your management team


• The business structure


• Intellectual property


• Business location

Having the right management team is more important to investors than simply the idea. Business plans that ignore or short-change this section are inherently weaker. Investors want to see that you have the ability to overcome the inevitable challenges and make the right decisions and the business plan is a good place to show this.

Some things you can share: past successful companies the team has started or been a part of, specific experiments lead at other companies that created results, experience in a different industry and how it makes the team member more valuable for tackling this company’s problem, specific skill sets, educational background, the network of a specific person.

Are you not able to tell a strong story about the team? You might want to consider why this group is working together. Simply having the idea is not a good enough reason for founding team members.

Intellectual property consists of all the pieces of your business that you, your employees, or contractors or advisors (under contract to do so), have thought of or invented. This includes business ideas, works, processes that stem from ideas, and creative elements such as your business name and logo. Intellectual property is a corporate assets of the business. In the United States, intellectual property can be protected through patents, trademarks, and copyrights.

If your company owns any intellectual property, talk briefly about that here. Intellectual property can serve as a barrier to entry for new companies and will make your business look more attractive. Not all business plans need to address intellectual property. If you don’t have intellectual property you can skip this section in your business plan.

You don’t need an accountant to create a financial plan. Simply understanding how your business plans to spend and make money will allow you to complete this section of the business plan.

There are specific documents you will need to make this section of the business plan as strong as possible.

Below are details about each of the financial documents you should include in your business plan.

This section of the business plan details how many employees you will have and what you will pay them. Feel free to list each position or just group them into teams like admin and sales if the company is larger.

The 'employee burden' should also be included which is the cost of having an employee beyond their salary. This will include taxes, medical and insurance that you pay monthly as a cost to having these employees.

The P&L statement shows how much money is coming in and out, but it doesn’t show how much cash you have in the bank at a specific point in time. That is the job of the Cash Flow Statement.

A P&L statement shows if a company is tackling a problem in a way that produces a profit. It’s your bottom line. A cash flow statement shows if a company’s model and cash on hand is strong enough for them to pay all its bills on time and have the cash to follow the business plan.

Sometimes you will make a sale but the customer might not pay for 30-90 days.

You still need to pay cash out as identified by your Cost Of Goods Sold which will reduce your cash on hand.

Knowing this number helps understand when it might be a good time to make a large purchase and at what time you might need an infusion of cash from a loan or investment.

The cash flow statement first identifies how much money you have on hand at the start of the company. Then it adds the revenue in from sales and subtracts the cash you pay out for employees, taxes, marketing etc.

For example if your typical customer pays after 60 days of performing the service and you expect it to take 60 days to get your first customer, your cash flow statement will show you do not bring in cash for 120 days but you will still have expenses during that time reducing your cash on hand.

If you are raising funds from investors, this section of the business plan will detail broadly how the money will be spent. This does not need to account for every dollar spent but can provide a direction like research and development or marketing. And, if you have unique circumstances, such as a mission statement that commits to donating a portion of your sales or profits to charity, mention this here.

The business plan appendis is a great place to include:

• Financial documents like your income statement, profit and loss statement, and cash flow statement.


• Credit history.


• Illustrations of your product.


• Marketing materials.


• Licenses obtained.


• Detailed market studies.


• Resumes of the founders.


• Contracts with vendors or prospects.


• Survey results from potential customers.

When adding items to the appendix make sure they are numbered and include the number in the body of the business plan when you reference that item.

Pro tips for a business plan appendix:

• The appendix should supplement the business plan. Make sure your business plan can stand alone if someone never reads the appendix.


• Make sure everything included in the appendix is relevant and is referenced within the body of the business plan.


• If the appendix is really long or has a lot of different parts consider adding a table of contents at the beginning.