Types of Business Plans

Business plans guide owners, management and investors as businesses start up and grow through
stages of success.
A business owner or prospective business owner writes a business plan to clarify each aspect of
his business, describing the objectives that will anticipate and prepare for growth.
Start-Up Business Plans
New businesses should detail the steps to start the new enterprise with a start-up business
plan. This document typically includes sections describing the company, the product or service
your business will supply, market evaluations and your projected management team
Internal Business Plans
. This document will describe the company’s current state, including operational costs and
profitability, then calculate if and how the business will repay any capital needed for the project
. Internal plans provide information about project marketing, hiring and tech costs. They also
typically include a market analysis illustrating target demographics, market size and the market’s
positive effect on the company income.
Strategic Business Plans
A strategic business plan provides a high-level view of a company’s goals and how it will
achieve them, laying out a foundational plan for the entire company.
While the structure of a strategic plan differs from company to company, most include five
elements: business vision, mission statement, definition of critical success factors, strategies for
achieving objectives and an implementation schedule.
A strategic business plan brings all levels of the business into the big picture, inspiring
employees to work together to create a successful culmination to the company’s goals.
Feasibility Business Plans
A feasibility business plan answers two primary questions about a proposed business
venture: who, if anyone, will purchase the service or product a company wants to sell, and if the
venture can turn a profit.
Feasibility business plans include, but are not limited to, sections describing the need for the
product or service, target demographics and required capital. A feasibility plan ends with
recommendations for going forward.

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Operations Business Plans
Operations plans are internal plans that consist of elements related to company operations. An
operations plan, specifies implementation markers and deadlines for the coming year
. The operations plan outlines employees’ responsibilities.
Growth Business Plans
Growth plans or expansion plans are in-depth descriptions of proposed growth and are written
for internal or external purposes.
If company growth requires investment, a growth plan may include complete descriptions of the
company, its management and officers.
The plan must provide all company details to satisfy potential investors. If a growth plan needs
no capital, the authors may forego obvious company descriptions, but will include financial sales
and expense projections.

Purposes of A Business Plan

A Business Plan Brings Out Clarity Of Idea

a business is the clarity of idea i.e., what you specifically want to do and why you want to
venture into that kind of business. Once an idea is conceived, putting it down on paper should be
the ultimate goal. It is usually done before other logistics such as getting an office or hiring a
manager. Without a clear idea, goals and objectives will not be prioritised, giving room for
errors.

In doing this, inspiration can be drawn from mother companies or respectable brands in the
society. For example, entrepreneurs who seek to venture into the fashion hub can get a clearer
vision of idea from Gucci, H&M or Versace.

A Business Plan Tracks Progress

When there is a business plan, there will be clarity of ideas and goals, making the progress of a
business visible enough, strengthening the will to meet targets promptly.

When your plan is clearly stated, it becomes a tracking system for action steps and progress as
well as a substantial means to identify potential problems without making blunders.

Distinctiveness from other competitors

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A business plan well-tailored helps you to know your likely rivals in the industry. If you fail to
come up with some solidly unique components, you will be perceived just as another
commodity. Here, it is important to note that if you fail to create a powerful and distinctive
difference to your customer, your product and services will be viewed as the same.

Mapping out operational plans

. It gives a clear explanation on the direction, services and the path to thread

. It can be a vivid diagram on the strategy to document the team’s primary goals. A strategic map
should be created for your organisation as a whole and for smaller teams whose concepts may
differ.

A good planning contains all necessary information and demonstrates explicit relationships
between the company and customers.

It Is Easy To Source For Fund With A Business Plan

In present-day society, no one wants to finance a business without an appropriate structure.

Financing is mostly done with legal backing where a lot of considerations are made before
support is given. Financing begins with the start-up costs and expenses and then to the business
expansion and new product development. It is also necessary to plan the commercialisation
chain, estimate costs, revenues, cash flows and financing tools. 

To cover milestone

. When a plan is documented, direction is made easy. This will avail you the opportunity to
visualise your company’s future if they are commensurate with your progress as you proceed.

It is important to note that visions can be improved on and you can as well update your
milestones when the previous becomes less useful or archaic.

Although the purpose of setting milestones is to be able to evaluate your progress, sometimes it
is necessary to take a deep breath and redirect once the business expandsSee Also: How to get
capital to start your own business.

A Business Plan Helps Analyse Customers’ Needs

No entrepreneur can thrive without a careful consideration for the target audience. This will
enable you to have a brief thought on what the potential customer’s needs are, how the product
and services you want to provide will benefit him, or proffer solutions to his problems.

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Projection of staff strength

A business plan is written to give a glimpse of the team’s level of efficiency and productivity. It
shows a great level of performance that uses minimal input to create great amounts of outputs. It
can be expressed as the ratio of the outputs to the inputs used in the production process.

Forecasting new opportunities

Once you have a good understanding of the company goals and areas of expertise, the next step
is to analyse the market, assessing the consumer’s needs and how they can be helped.

 Opportunities can also be found by analysing substitute industries and their loopholes. This type
of analysis helps to establish competitive advantage

Components of a Good Business Plan

1. Executive Summary
Your executive summary should appear first in your business plan. It should summarize what
you expect your business to accomplish. Since it’s meant to highlight what you intend to discuss
in the rest of the plan, the Small Business Administration suggests that you write this section last.
A good executive summary is compelling. It reveals the company’s mission statement, along
with a short description of its products and services. It might also be a good idea to briefly
explain why you’re starting your company and include details about your experience in the
industry that you’re entering.
2. Company Description
A company description includes key information about your business, goals and the target
customers that you want to serve. This is where you explain why your company stands out from
other competitors in the industry and break down its strengths, including how it offers solutions
for customers, and the competitive advantages that will give your business an edge to succeed.

3. Market Analysis
This is where you show that you have a key understanding of the ins and outs of the industry and
the specific market you plan to enter.
Here you will substantiate the strengths that you highlighted in your company description with
data and statistics that break down industry trends and themes.
Show what other businesses are doing and how they are succeeding or failing.

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Your market analysis should also help visualize your target customers — how much money they
make, what their buying habits are, which services do they want and need, etc. Above all, the
numbers should help answer why your business can do it better.
4. Competitive Analysis
A good business plan will present a clear comparison of your business vs your direct and indirect
competitors. This is where you prove your knowledge of the industry by breaking down their
strengths and weaknesses
Your end goal is show how your business will stack up. And if there are any issues that could
prevent you from jumping into the market, like high upfront costs, this is where you will need to
be forthcoming. Your competitive analysis will go in your market analysis section.
5. Description of Management and Organization
Your business must also outline how your organization is set up. Introduce your company
managers here and summarize their skills and primary job responsibilities. An effective way
could be to create a diagram that maps out your chain of command.
Don’t forget to indicate whether your business will operate as a partnership, a sole proprietorship
or a business with a different ownership structure. If you have a board of directors, you’ll need to
identify the members.
6. Breakdown of Your Products and Services
While your company description is an overview, a detailed breakdown of your products and
services is intended to give a complementary but fuller description about the products that you
are creating and selling, how long they could last and how they will meet existing demand.
This is where you should mention your suppliers, as well as other key information about how
much it will cost to make your products and how much money you are hoping to bring in. You
should also list here all relevant information pertaining to patents and copyright concerns as well.
7. Marketing Plan
This is where you describe how you intend to get your products and services in front of your
target customers. Break down here the steps that you will take to promote your products and the
budget that you will need to implement your strategies.
8. Sales Strategy
This section should answer how you will sell the products that you are building or carry out the
services that you intend to offer. Your sales strategy must be specific. Break down how many
sales reps you will need to hire and how you will recruit them and bring them on board. Make
sure to include your sales targets as well.
9. Request for Funding

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If you need funding, this section focuses on the amount of money that you need to set up your
business and how you plan to use the capital that you are raising. You might want to include a
timeline here for additional funding that you may require to complete other important projects.
10. Financial Projections

This final section breaks down the financial goals and expectations that you’ve set based on
market research. You’ll report your anticipated revenue for the first 12 months and your annual
projected earnings for the second, third, fourth and fifth years of business.
If you’re trying to apply for a personal loan or a small business loan, you can always add an
appendix or another section that provides additional financial or background information.
Bottom Line
Every company is different so your business plan might look nothing like another entrepreneur’s.
But there are key components that every good plan needs to have, and it’s always a good idea to
provide a clear and accurate summary of your business goals in your business plan.
FEATURES OF A GOOD BUSINESS PLAN

Executive Summary

Executive summary of a business plan provides the reader with an overview of your company
profile and goals.

People often neglect it, but interestingly, it is the most important part of a business plan. It
points out to your prospective investors why your business will attain success within a short
period of time using few words.

It includes a mission statement, a brief history of your business, highlight of your company’s
growth trajectory,the product or services you are intending to thread on and most important, the
summary of your business future plan. It should also explain why you areseeking funding.

Market Analysis

The market analysis segment of your business plan discusses your industry. It gives a detailed
information about your target audience. It describes how the goods or services you intend to
render will meet the needs of your target market.

it equally discusses the market share you hope to gain, the pricing of your product or services
and your product gross margin. It talks about your competitors; who they are, what part of the
market they hold, their strength and weaknesses. It equally discusses the barriers to your entry
into the market and if there are regulatory constraints that will block your entry into the market.

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Company Information

The organization of your company is very much important to investors. They would love to
know if they are lending to a corporation, a partner, or a business owner. They will want to know
who is in charge of the business. The experience they have garnered running such a business, the
extent of their ownership of the business and their record of accomplishment.

If it is a company owned by a group of individuals, each member of the team will have to
provide a resume, which will be included in the appendix to the business plan.

A unique experience, past record of accomplishment, any industry recognition or community

involvement, how long they have been involved with your company and their remuneration. 
Also should be included would be the names of the members of the Board of Directors along
with their position on the board.

The extent of their involvement with your company,their general background and contribution
to the success of the company should all be included.

Marketing and Sales

This segment should discuss your business marketing penetration strategy. The strategy for
growing the business once penetration has been achieved.

Your channels of distribution and a suitable communication strategy for reaching your target
customers.

It is equally very important that you include an overall sales strategy that outlines your selling
activities.

Product Description

This segment usually begins with the description of how your product or services affect your
customers. It includes the details of the product lifecycle, intellectual property issues and any
research and development activities planne

Financials

You will have to provide complete financial information as part of your business plan. It is most
important if you are seeking external funding.

The financial data will encompass both the historical (company income statement balance sheet)
and the company’s cash flow. If possible the company’s cash flow for the last three to five years.
It will equally include financial projections, the impact of the new product, the new service and
its cash infusion.
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Business Guide/Plan your business/Write your business plan
Write your business plan
Your business plan is the foundation of your business. Learn how to write a business plan
quickly and efficiently with a business plan template.
Business plans help you run your business
A good business plan guides you through each stage of starting and managing your business.
You’ll use your business plan as a roadmap for how to structure, run, and grow your new
business. It’s a way to think through the key elements of your business.
Business plans can help you get funding or bring on new business partners. Investors want to feel
confident they’ll see a return on their investment. Your business plan is the tool you’ll use to
convince people that working with you — or investing in your company — is a smart choice.
Pick a business plan format that works for you
There’s no right or wrong way to write a business plan. What’s important is that your plan meets
your needs.
Most business plans fall into one of two common categories: traditional or lean startup.
Traditional business plans are more common, use a standard structure, and encourage you to go
into detail in each section. They tend to require more work upfront and can be dozens of pages
long.
Lean startup business plans are less common but still use a standard structure. They focus on
summarizing only the most important points of the key elements of your plan. They can take as
little as one hour to make and are typically only one page.
Traditional business plan
This type of plan is very detailed, takes more time to write, and is comprehensive. Lenders and
investors commonly request this plan.
Lean startup plan
This type of plan is high-level focus, fast to write, and contains key elements only. Some lenders
and investors may ask for more information.
Traditional business plan format
You might prefer a traditional business plan format if you’re very detail-oriented, want a
comprehensive plan, or plan to request financing from traditional sources.
When you write your business plan, you don’t have to stick to the exact business plan outline.
Instead, use the sections that make the most sense for your business and your needs. Traditional
business plans use some combination of these nine sections.

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Executive summary
Briefly tell your reader what your company is and why it will be successful. Include your
mission statement, your product or service, and basic information about your company’s
leadership team, employees, and location. You should also include financial information and
high-level growth plans if you plan to ask for financing.
Copany description
Use your company description to provide detailed information about your company. Go into
detail about the problems your business solves. Be specific, and list out the consumers,
organization, or businesses your company plans to serve.
Explain the competitive advantages that will make your business a success. Are there experts on
your team? Have you found the perfect location for your store? Your company description is the
place to boast about your strengths.
Market analysis
You'll need a good understanding of your industry outlook and target market. Competitive
research will show you what other businesses are doing and what their strengths are. In your
market research, look for trends and themes. What do successful competitors do? Why does it
work? Can you do it better? Now's the time to answer these questions.
Organization and management
Tell your reader how your company will be structured and who will run it.
Describe the legal structure of your business. State whether you have or intend to incorporate
your business as a C or an S corporation, form a general or limited partnership, or if you're a sole
proprietor or limited liability company (LLC).
Use an organizational chart to lay out who's in charge of what in your company. Show how each
person's unique experience will contribute to the success of your venture. Consider including
resumes and CVs of key members of your team.
Service or product line
Describe what you sell or what service you offer. Explain how it benefits your customers and
what the product lifecycle looks like. Share your plans for intellectual property, like copyright or
patent filings. If you're doing research and development for your service or product, explain it in
detail.
Marketing and sales
There's no single way to approach a marketing strategy. Your strategy should evolve and change
to fit your unique needs.
Your goal in this section is to describe how you'll attract and retain customers. You'll also
describe how a sale will actually happen. You'll refer to this section later when you make

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financial projections, so make sure to thoroughly describe your complete marketing and sales
strategies.
Funding request
If you're asking for funding, this is where you'll outline your funding requirements. Your goal is
to clearly explain how much funding you’ll need over the next five years and what you'll use it
for.
Specify whether you want debt or equity, the terms you'd like applied, and the length of time
your request will cover. Give a detailed description of how you'll use your funds. Specify if you
need funds to buy equipment or materials, pay salaries, or cover specific bills until revenue
increases. Always include a description of your future strategic financial plans, like paying off
debt or selling your business.
Financial projections
Supplement your funding request with financial projections. Your goal is to convince the reader
that your business is stable and will be a financial success.
If your business is already established, include income statements, balance sheets, and cash flow
statements for the last three to five years. If you have other collateral you could put against a
loan, make sure to list it now.
Provide a prospective financial outlook for the next five years. Include forecasted income
statements, balance sheets, cash flow statements, and capital expenditure budgets. For the first
year, be even more specific and use quarterly — or even monthly — projections. Make sure to
clearly explain your projections, and match them to your funding requests.
This is a great place to use graphs and charts to tell the financial story of your business.  
Appendix
Use your appendix to provide supporting documents or other materials were specially requested.
Common items to include are credit histories, resumes, product pictures, letters of reference,
licenses, permits, patents, legal documents, and other contracts.
Example traditional business plans
Before you write your business plan, read the following example business plans written by
fictional business owners. Rebecca owns a consulting firm, and Andrew owns a toy company
Lean startup format
You might prefer a lean startup format if you want to explain or start your business quickly, your
business is relatively simple, or you plan to regularly change and refine your business plan.
Lean startup formats are charts that use only a handful of elements to describe your company’s
value proposition, infrastructure, customers, and finances. They’re useful for visualizing
tradeoffs and fundamental facts about your company.

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There are different ways to develop a lean startup template. You can search the web to find free
templates to build your business plan. We discuss nine components of a model
business plan here:
Key partnerships
Note the other businesses or services you’ll work with to run your business. Think about
suppliers, manufacturers, subcontractors, and similar strategic partners.
Key activities
List the ways your business will gain a competitive advantage. Highlight things like selling
direct to consumers, or using technology to tap into the sharing economy.
Key resources
List any resource you’ll leverage to create value for your customer. Your most important assets
could include staff, capital, or intellectual property. Don’t forget to leverage business resources
that might be available to women, veterans, Native Americans, and HUBZone businesses.
Value proposition
Make a clear and compelling statement about the unique value your company brings to the
market.
Customer relationships
Describe how customers will interact with your business. Is it automated or personal? In person
or online? Think through the customer experience from start to finish.
Customer segments
Be specific when you name your target market. Your business won’t be for everybody, so it’s
important to have a clear sense of whom your business will serve.
Channels
List the most important ways you’ll talk to your customers. Most businesses use a mix of
channels and optimize them over time.
Cost structure
Will your company focus on reducing cost or maximizing value? Define your strategy, then list
the most significant costs you’ll face pursuing it.
Revenue streams
Explain how your company will actually make money. Some examples are direct sales,
memberships fees, and selling advertising space. If your company has multiple revenue streams,
list them all.
Example lean business plan

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 Before you write your business plan, read this example business plan written by a fictional
business owner, Andrew, who owns a toy company.
BUSINESS PLAN
INTRODUCTION

A key factor in determining the success of an entrepreneur is the ability to plan. Preparing a
formal business plan is crucial to the ultimate success of an enterprise. A business plan evaluates
the viability of the venture, assists an entrepreneur in establishing goals and objectives and
guides him in selecting the appropriate methods of achieving the goals and objectives.
In this introductory chapter, we will give the meaning and importance of a business plan and its
components. Qualities of a good business plan will be analyzed. The chapter ends presenting
how a business description can be written.

DEFINITION OF A BUSINESS PLAN

A business plan is a written document that describes the goals and objectives of the business and
lists the steps that will be taken to achieve those goals and objectives.

IMPORTANCE OF A BUSINESS PLAN.

A business plan is useful in the following ways:

 It is a financial tool
A good business plan should provide more information than merely what is required to secure a
loan from financial institution. A separate loan package will not therefore be required. It should
be objectively prepared for it to be accepted a financier.
 A business plan is a blueprint
A business plan serves as a blue-print for starting, expanding and/or operating a business. Just as
a builder draws plans before starting the construction of a house, a businessman should plan his
business operations prior to implementation.
 A business plan reduces fire fighting. Many small business persons spend time solving small
problems and they never have opportunity to do anything else. By preparing a business plan,
problems can be anticipated and decision as to how they should be avoided can be determined.
 A business plan forces owners to justify their plans of action
Often, a decision is made to do something because it ‘sounds’ or feels’ right. Alternatively,
something may be done because traditionally that is the way it has always been done. Preparing a
business plan forces owners to prove the validity, or explain the reasoning of the plan. The
ability of management is-demonstrated. All management is involved in the planning, the
budgeting, forecasting and reporting process of repairing the business plan
 A business plan tests ideas on paper
It is much better to do a business plan and find Chat the business is likely to be.
Unprofitable than to start a business and find out the same thing (i.e. that it fails).
 A business plan indicates the owner’s ability and commitment
A well prepared business plan is an important document. It shows outsiders such as loan officers,
potential partners and suppliers that the owner understands the business. The fact that the owner
has spent time to prepare the business plan shows commitment to the business.

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 The business plan has many uses. By analyzing the industry market and the firm, the owner will
become aware of many important issues. These issues can be put into a clearer perspective
through the preparation of a written business plan. The business plan can provide guidance to
employees in the firm. The documents can also be used with banks, investors and management
consultants.

Qualities of a good Business plan

One of the reasons why you may be compelled to prepare a business plan is when you want to
get a loan either from a bank, a non-bank financial institution or any other lending institution.
To you, your business is of supreme interest and importance to a bank or fund manager, your
plan is just like any other document that he finds on his desk. You must win his approval and
keep his interest while reading it. For it to do this, your business plan should have the following
qualities:

 Simplicity and clarity

 Brevity
 Logical
 Truthful
 Be backed up with figures whenever possible

Introduction to the Module Unit

Business Plan is a unit offered to diploma students in business related courses to equip them with
the right attitudes, knowledge and skills to prepare a business plan.

General Objectives
By the end of this module unit, the learner should be able to:

 Prepare a background information necessary to start a successful business

 Scan the market environment of a business
 Recognize the roles played by organisation and management plan in a business plan
 Recognize the role of an operational plan in a business plan
 Prepare financial projections
 Prepare a workable business plan

Topic 1: Introduction to Business Planning

1.1. Meaning of a Business Plan

1.2. Purpose of a Business Plan

1.3. Features of a Business Plan

1.4. Guidelines for Developing an Effective Business Plan

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Topic 2: Business Description
2.1. Business Name

2.2. Business Location

2.3. Form of Business Ownership

2.4. Products/Services

2.5. Justification of the opportunity

2.6. The Industry

2.7. Business Goals and Objectives

2.8. Entry and Growth Strategy

2.9. SWOT Analysis

Topic 3: Marketing Plan

3.1. Customer identification

3.2. Competitor analysis

3.3. Market share

3.4. Promotion

3.5. Pricing strategy

3.6. Sales target

3.7. Sales tactics

3.8. Distribution strategy

3.9. Customer service

Topic 4: Organization and Management Plan

4.1. Organization structure

4.2. Management team/business personnel

4.3. Recruitment, training and promotion

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4.4. Remuneration and incentives

4.5. Legal/statutory requirements

4.6. Supporting services

Topic 5: Operational/Production Plan

5.1. Production facilities and capacity utilization

5.2. Production and operation strategy

5.3. Production process

5.4. Regulations affecting operations

5.5. Operational timetable/production schedule

Topic 6: Financial Plan

6.1. Pre-Operations cost

6.2. Working capital

6.3. Cash flow projections

6.4. Pro-forma income statements

6.5. Pro-forma balance sheets

6.6. Break-even analysis

6.7. Profitability ratios

6.8. Proposed capitalization

6.9. Potential risks

Topic 7: Presentation
7.1. Business plan writing

7.2. Presentation of the Business Plan

Topic 8: Emerging Trends and Issues

8.1. Emerging Issues and Trends in Business Planning

8.2. Challenges posed by emerging trends and issues in business planning

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8.3. Ways of coping with the challenges posed by emerging trends and issues in business
planning

What is a business description? 

The business description is an aspect of your business plan that combines the key details of your
company, such as what it does and what makes it unique.
It provides interested parties with an overview of your business idea’s scope and can span from
just a few paragraphs to several pages in length, depending on the plan’s complexity.
If your business plan is relatively simple, you can keep it short by detailing the industry and
product in a paragraph each and then using three to four paragraphs to describe your business
and its components for success.
A longer business description may be necessary in some cases but you should always strive to
communicate all of the required information as succinctly as possible
 
Though primarily used when first starting a business, it should be regularly maintained and
updated as your business grows.
This information is used for many reasons but is especially useful to potential investors and
lenders so that they can understand your concept, the benefits it will provide your customers and
how your brand will be placed in the market.
 
How to create an effective business description 
Every business plan and description is different based on the industry and type of company that it
has been created for. Here are some basic steps to help you create an effective business
description to meet your company’s needs:
 
1. Research the industry and competition
In order to create an effective business and business description, conduct research into the
industry you are entering and the top competitors in that market. You can find this information
from a wide range of credible sources, such as news sources, trade magazines, published studies
or by speaking with industry veterans.
Additionally, interviewing or surveying your target market can give you valuable insight into
creating your business description.
 
2. Describe the industry’s current and future state
Discuss the developments or trends that will affect the industry you are entering and your
business as it grows.
These developments can be in areas such as operations, production and technology and could
have both positive and negative repercussions for your business.
Include all possible impacts in your business description.
 
3. Provide your business’s basic information
Include the basics of your business, such as the origin, name, location, business structure,
management, number of employees and hours of operation.
It can also be helpful to categorize your business in a specific industry to provide context for the
reader.
Possible categories are project development, manufacturing, service, wholesale or retail.

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4. Craft a problem statement
A problem statement is used to identify a common problem that your target audience faces and
how your business will solve it using the services or products that you will offer. Detail the
services and products that your company will provide, as well as the benefits and features that
will set your brand apart from the competition.
 
5. Identify your target market
Describe your target audience, including their age range, geographical location, values,
relationship status, income level, attitudes and spending habits. Then, explain the types of
information that will resonate with your market and the modes that should be used to make sure
that they see it.
 
6. Explain plans for manufacturing and distribution
Detail how and who will manufacture and distribute the products and services that your company
will provide. If you already have a team in mind, provide a list of the employees, suppliers and
vendors that you will use to facilitate the process.
 
7. Detail how the business will be profitable
Explain how your business will make a profit and what indicators you will use to measure your
company’s success.
 
Best practices for effective business descriptions
Here are a few tips that will help you write an effective business description:
 

 Begin with an elevator pitch: The first paragraph of your business description should
communicate all of your vital information. It can be helpful to view it as an elevator pitch
in which you only have a few sentences to express your company’s key characteristics.
 Use only high-level information: Some of the information that you include in your
company description will also appear in other areas of your business plan. Focus on
providing just a high-level overview of these parts, leaving the specific details for another
section.
 Communicate your passion: A business description is supposed to encourage the reader
to review the rest of your business plan. To do this, make sure the tone used in your
description properly communicates your passion for the company and what it will
accomplish. 
 Check for length: Though the actual length can vary depending on how complicated the
business plan is, b usiness descriptions should remain clear and concise. After you have
drafted your company description, go back through to edit out any redundant or
unnecessary information.
 Have it proofread:  Consider someone who is seeing the description for the very first time
review your final draft to check for flow, syntax, grammatical errors and typos. A
business description free of these issues, though small, could positively affect how the
reader interprets the information.
 

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Business description FAQs
Here are some answers to frequently asked questions regarding business descriptions:
 
What should you include in a business description?
When creating a business description, the information provided can vary depending on the type
of business. However, these are some of the elements that are commonly incorporated:
 

 Company name
 Type of business structure
 Owners
 Location
 Company origin story
 Mission statement
 Offered services/products and target audience
 Short-term objectives
 Vision statement
Business Plan Section 2: Company Description

The company description provides a snapshot of your business. Check out the 11 components to
include in this section of your business plan.

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Think of the company description section of your business plan as a snapshot of who you are and
what your company is all about. What do you do? How are you different from other businesses?
What niche does your product or service fill? It doesn’t have to be lengthy, but it should be well-
thought out to present you in the best light while being as accurate as possible. Some specifics to
include:

1. Company Name

The official legal name of your business.

2. Business Structure

Are you a sole proprietorship, limited liability corporation, partnership or corporation?

3. Ownership or Management Team

Who are the key players? What makes them (or you) qualified to run your business?

4. Location

Where are you headquartered?

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5. Company History

When and where were you founded? What inspired you to come up with the idea for your
business?

6. Mission Statement

What is the purpose of your company? What need does your product or service fill?

7. Products or Services

What are you making or selling, or what service are you providing?

8. Target Market

Who are you selling to? Who are the customers, organizations, or other businesses that your
company will serve?

9. Competitive Advantages

What separates you from the competition? What is it about you that will make your business a
success? Why will people want to do business with you?

10. Objectives

What would you like to accomplish in the immediate future, and what are your longer-term
goals?

11. Vision Statement

What does the future of your company look like? How will you craft your vision statement?

 
The Marketing Plan Section of the Business Plan
The marketing plan section of the business plan explains how you're going to get your customers
to buy your products or services. The marketing plan, then, will include sections detailing your:
 Products and services and your unique selling proposition (USP)
 Pricing strategy
 Sales and distribution plan
 Advertising and promotions plan
The easiest way to develop your marketing plan is to work through each of these sections,
referring to the market research you completed when you were writing the previous sections of
the business plan. (Note that if you are developing a marketing plan on its own, rather than as
part of a business plan, you will also need to include a target market and
a competitors' analysis section.)
Let's look at each of these four sections in detail.

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Products, Services, and Your Unique Selling Proposition

Focus on the uniqueness of your product or service and how the customer will benefit from what
you're offering. Use these questions to write a paragraph summarizing these aspects for your
marketing plan:

 What are the features of your product or service?

 Describe the physical attributes of your product or service and any other relevant
features such as what it does or how it differs from competitors' offerings.

 How will your product or service benefit the customer?

 Remember that benefits can be intangible as well as tangible; for instance, if you're
selling a cleaning product, your customers will benefit by having a cleaner house, but
they may also benefit by enjoying better health. Brainstorm as many benefits as possible
to begin with, then choose to emphasize the benefits that your targeted customers will
most appreciate in your marketing plan.

 What is it that sets your product or service apart from all the rest? In other words, what is
your USP, the message you want your customers to receive about your product or
service? This will be at the heart of your marketing plan.

Examples of Unique Selling Propositions

Unique selling propositions should be short (no more than a sentence) and concise. Here are a
few great examples:

 Domino's Pizza: "We deliver hot, fresh pizza in 30 minutes or less, or it's free."

 FedEx Corporation: "When it absolutely, positively has to be there overnight."

 M&Ms: "The milk chocolate melts in your mouth, not in your hand."

 Dollar Shave Club: “Everything you need in the bathroom—from razor blades to

grooming products—automatically delivered to your door. It doesn’t get any simpler than
that.”

Pricing and Positioning Strategy

The pricing strategy portion of the marketing plan involves determining how you will price your
product or service. The price you charge has to be competitive but still allow you to make a
reasonable profit.

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Basically, you set your pricing through a process of calculating your costs, estimating the
benefits to consumers, and comparing your products, services, and prices to others that are
similar.

Set your pricing by examining how much it cost you to produce the product or service and
adding a fair price for the benefits that the customer will enjoy. You may find it useful to
conduct a breakeven analysis to determine your minimum threshold.

Competitor pricing will also help guide you toward the fair market value and help you determine
how high you can reasonably go.1

The pricing strategy you outline in your marketing plan will answer the following questions:

 What is the cost of your product or service? Make sure you include all your fixed and
variable costs when you're calculating this. The costs of labor and materials are obvious,
but you may also need to include freight costs, administrative costs, and selling costs, for
example.

 How does the pricing of your product or service compare to the market price of similar
products or services?

 Explain how the pricing of your product or service is competitive. For instance, if the
price you plan to charge is lower, why are you able to do this? If it's higher, why would
your customers be willing to pay more? This is where the strategy aspect comes into
play; will your business be more competitive if you charge more, less, or the same as
your competitors, and why?

 What kind of return on investment (ROI) are you expecting with this pricing strategy, and
within what time frame?

Sales and Distribution Plan

Remember, the primary goal of the marketing plan is to get people to buy your products or
services. Here's where you detail how this is going to happen.

There are usually three parts to the sales and distribution section, although all three parts may not
apply to your business.

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Distribution Methods

 How is your product or service going to get to the customer? Will you distribute your
product or service through a website, through the mail, through sales representatives,
home delivery, or through retail?

 What distribution channel is going to be used? In a direct distribution channel, the

product or service goes directly from the manufacturer to the consumer. In a one-stage
distribution channel, it goes from manufacturer to retailer to consumer. The traditional
distribution channel is from manufacturer to wholesaler to retailer to consumer. Outline
all the different companies, people and technologies that will be involved in the process
of getting your product or service to your customer.

 What are the costs associated with distribution?

 What are the delivery terms?

 How will the distribution methods affect production time frames or delivery? How long
will it take to get your product or service to your customer?

If your business involves selling a product, you should also include information about inventory
levels and packaging in this part of your marketing plan. For instance:

 How are your products to be packaged for shipping and for display?

 Does the packaging meet all regulatory requirements (such as labeling)?

 Is the packaging appropriately coded, priced, and complementary to the product?

 What minimum inventory levels must be maintained to ensure that there is no loss of
sales due to problems such as late shipments and backorders?

Transaction Process

 What system will be used for processing orders, shipping, and billing?

 What methods of payment will customers be able to use?

 What credit terms will customers be offered? If you will offer discounts for early
payment or impose penalties for late payment, they should be mentioned in this part of
your marketing plan.

 What is your return policy?

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  What warranties will the customer be offered? Describe these or any other service
guarantees.

 What after-sale support will you offer customers and what will you charge (if anything)
for this support?

 Is there a system for customer feedback so customer satisfaction (or the lack of it) can be
tracked and addressed?

Sales Strategy

 What types of salespeople will be involved (commissioned salespeople, product

demonstrators, telephone solicitors, etc.)?

 Describe your expectations of these salespeople and how sales effectiveness will be

measured.

 Will a sales training program be offered? If so, describe it in this section of the marketing
plan.

 Describe the incentives salespeople will be offered to encourage their achievements (such
as getting new accounts, the most orders, etc.).

Advertising and Promotion Plan

Essentially the advertising and promotion section of the marketing plan describes how you're
going to deliver your USP to your prospective customers. While there are literally thousands of
different promotion avenues available to you, what distinguishes a successful plan from an
unsuccessful one is the focus—and that's what your USP provides.

So think first of the message that you want to send to your target audience. Then look at these
promotion possibilities and decide which to emphasize in your marketing plan:

Advertising

The best approach to advertising is to think of it in terms of media—specifically, which media

will be most effective in reaching your target market. Then you can make decisions about how
much of your annual advertising budget you're going to spend on each medium.

What percentage of your annual advertising budget will you invest in applicable methods of
advertising, such as:

 The internet (including business website, email, social media campaigns, etc.)

 Direct mail

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  Door-to-door flyer delivery

 Cooperative advertising with wholesalers, retailers, or other businesses

 Radio

 Newspapers

 Magazines

 Directories

 Billboards

 Bench/bus/subway ads

 Television

Include not only the cost of the advertising but your projections about how much business the
advertising will bring in. 

Sales Promotion

If it's appropriate to your business, you may want to incorporate sales promotional activities into
your advertising and promotion plan, such as:

 Offering free samples

 Coupons

 Point of purchase displays

 Product demonstrations

Marketing Materials

Every business will include some of these in its promotion plans. The most common marketing
material is the business card, but brochures, pamphlets, and service sheets are also popular.

Publicity

This is another avenue of promotion that every business should use. Describe how you plan to
generate publicity. While press releases spring to mind, that's only one way to get people
spreading the word about your business. Consider:

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  Product launches

 Social media

 Special events, including community involvement

 Writing articles

 Getting and using testimonials

Your Business's Website

If your business has or will have a website and a business Facebook page, describe how these fit
into your advertising and promotion plan.

Trade Shows

Trade shows can be incredibly effective promotion and sales opportunities if you pick the right
ones and go equipped to put your promotion plan into action.

Other Promotion Activities

Your promotion activities are limited only by your imagination. But whether you plan to teach a
course, sponsor a community event, or conduct an email campaign, you'll want to include it in
your advertising and promotion plan. Sporadic, disconnected attempts to promote your product
or service are bound to fail. Your goal is to plan and carry out a sequence of focused promotion
activities that will communicate the message you want to send about your products or services.

No business is too small to have a marketing plan. After all, no business is too small for
customers or clients. And if you have these, you need to communicate with them about what you
have to offer.

Organization and Management Section of Your Biz Plan

•••
BY 
RANDY DUERMYER
 
Updated on November 22, 2019

The organization and management section of your business plan should summarize information
about your business' structure and team. It usually comes after the market analysis section in
a business plan. It's especially important to include this section if you have a partnership or a

25
multi-member limited liability company (LLC). However, if you're starting a home business or
are writing a business plan for one that's already operating, and you're the only person involved,
then you don't need to include this section.

What to Put in the Organization and Management Section

This section of your business plan covers two main areas:

1. The organization, or how your business is structured and the people involved
2. The management team, or details about what your team brings to the business

Within these sections, you have specific areas to cover about how your business is structured and
who's involved.

In the opening of the section, you want to give a brief summary of your management team,
including size, composition, and years experience (i.e., Our management team of five has more
than 20 years of experience in the widget industry.)

Organizational Structure

The organization section sets up the hierarchy of the people involved in your business. It's often
set up in a chart form. If you have a partnership or multi-member LLC, this is where you indicate
who is president or CEO, the CFO, director of marketing, and any other roles you have in your
business.

spxChrome / Getty Images

If you're a single-person home business, this becomes easy as you're the only one on the chart.
While technically, this part of the plan is about owner members, if you plan to outsource work or
hire a virtual assistant, you can include them as well.

For example, you might have a freelance webmaster, marketing assistant, and copywriter. You
might even have a virtual assistant whose job it is to work with your other freelancers. These
people aren't owners but have significant duties in your business.

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The Management Team

This section highlights what you and the others involved in the running of your business brings
to the table. This not only includes owners and managers but also your board of directors (if you
have one) and support professionals. Start by indicating your business structure (i.e. partnership
or LLC), and then list the team members.

Owner/Manager/Members

Provide the following information on each owner/manager/member:

 Name
 Percentage of ownership (LLC, corporation, etc.)
 Extent of involvement (active or silent partner)
 Type of ownership (stock options, general partner, etc.)
 Position in the business (CEO, CFO, etc.)
 Duties and responsibilities
 Educational background
 Experience or skills that are relevant to the business and the duties
 Past employment
 Skills will benefit the business
 Awards and recognition
 Compensation (how paid)
 How each persons' skills and experience will complement you and each other

Board of Directors

A board of directors is another part of your management team. If you don't have a board of
directors, you don't need this information.

But even a one-person business could benefit from a small group of other business owners who
might be willing to provide you with the feedback, support, and accountability that comes from
an advisory board. 

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This section provides much of the same information as in the ownership and management team
sub-section. 

 Name
 Expertise
 Position (if there are positions)
 Involvement with the company

Support Professionals

Especially if you're seeking funding, let potential investors know you're on the ball with a
lawyer, accountant, and other professionals that are involved in your business.

This is the place to list any freelancers or contractors you're using. Like the other sections, you'll
want to include:

 Name
 Title 
 Background information such as education or certificates
 Services provided to your business
 Relationship information (i.e. retainer, as-needed, regular)
 Skills and experience making them ideal for the work you need
 Anything else that makes them stand out as quality professionals to have helping you in
your business such as awards

What goes into developing an operational Plan?

All of the components that allow your business to create value.

The operations portion of the business plan serves two purposes:

1. Allow you to take a holistic approach to your business, and

2. Provide interested third parties with a description of your business.

The operational plan outlines the particular components that allow your business to create value.

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Below, we discuss the primary components of the businessoperations plan, including: a
description of the product produced, the businesslocation, personnel, inventory, suppliers,
payment processing (credit policies and accounts receivable/payable). You will describe each of
these sections in detail to the extent that it is relevant or applicable to your business. You will
need to outline where are you in the creation of your business. Specifically, what steps have you
taken to put your business in motion? Now, what do you have left to accomplish?  

Next Article: Business Plan, Part 8 (Management and Organization) Back To: BUSINESS

PLANS
What is Product or Service Development?

How do you plan to make your product or carry out your service? Start with an outline of the
process for delivering value to your customers. You will need to account for the necessary
production activity at each stage. Outline the day-to-day activity necessary to carry out your
business.

 Production Process/How Services Carried Out: Here you should outline the process of
manufacturing your product. If you provide a service, you should outline all of the
moving parts and individuals necessary to carry out the service. Provide a generally
checklist or flowchart for delivering value.

 Production Timeline: Explain how long it takes to produce a unit, and when you'll be
able to start producing your product or service. Include factors that may affect the time
frame of production and how you'll deal with potential problems, such as rush orders.

 Production Feasibility: You will want to give an overview of any research or testing you
have done to prove the feasibility of producing your product in accordance with your
operational plans. This could include Market Research, Questionnaires, Competitor
Process Analysis, Beta Testing, etc.

 Vulnerability: You should identify any potential problems that could arise in the
production process. How will you handle any such issues? What would be the effect on
the business?

 Quality Control: How will you maintain oversight of the production or service provision
process? Develop a plan for supervision of the process.

 Customer Service: What is your plan for customer service? This includes sales
communication, return products, and customer follow-up.

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Equipment and Other Assets

 Necessary Equipment: What equipment do you need to carry out the basic operations?

 Current Assets: You may already have some of the necessary equipment to carry out
operations. Identify these assets and explain what asset requirements they fulfill.

 Equipment Priority: Some equipment is may be desirable but not a necessity. Ascribe a
level of priority to obtaining it. The priority should be higher depending upon the
likelihood of the equipment to increase production or efficiency.It may also be helpful to
outline the equipment output, required maintenance/repair, and expected life.

 Equipment Pricing: Outline a projected cost for purchasing (new or used) and renting
the necessary equipment. You need to explain your rationale for your decision.

 Equipment Financing: Explain any financing arrangements. Make a list of your assets,
such as land, buildings, inventory, furniture, equipment, and vehicles. Include legal
descriptions and the worth of each asset.

Special Requirements

Are there any special requirements or situational factors necessary for carrying on your business?
In this section, you will list any requirements that are unique to your business and would fall
outside general expect ions.

This could include special assets, economic conditions, legal conditions, etc.  

Location

What qualities do you need in a location?

 Physical Buildings: Describe the type of location youll have. You may have multiple
locations or locations designed with specific purposes, such as manufacturing,
administrative office, and sales locations. If it's applicable, your plan should include:

o Drawings of the building, copies of lease agreements, and/or recent real estate
appraisals.

o What is the expected value of the land or buildings required for your business
operations?

o Explain the significance of each physical location to your business.

 Physical Building Requirements: Give specifics, such as a breakdown of cost per

square-foot, materials, design, interior layout, parking, etc.

30
 o Amount of Space: Explain the use of space. Have a plan for space demands with
the expected growth.

o Type of Building: Justify your decision to rent vs. buy, and a class of facility.

o Zoning: Make certain the anticipated activity meets the applicable zoning
requirements. If not, explain a plan to request a variance or petition the
municipality for re-zoning.

o Power and other utilities: What will be your specific power needs. Have
estimates for the cost of power and the resources/regulatory approvals necessary
to obtain such funding. A strong plan will discuss preliminary data and on-going
discussions with the available utility providers.

o Access: What type of access do you need for your location? Detail how
customers, employees, logistics personnel, etc., will access your business. Ex. Do
you need easy walkin access? Is it convenient for customers and suppliers?

o Construction: Will you build or rent a building? You should explain the benefits
of one over the other. This justification should include a cost/benefit analysis of
each option.

 Costs: Determine a preliminary figure for costs associated with building/occupying the
intended location. Examples of expenses include: rent/mortgage, maintenance, utilities,
property taxes, insurance, construction/remodeling, etc. These numbers will become part
of your financial plan.

 Hours of Operation: Indicate and give a justification for your intended hours of
operation. Does your location support these hours of operation? Does it conflict with
other local or resident businesses?

Personnel

In this section, you provide an overview of the key personnel involved in the business and the
types of positions that will be necessary.

Basically, you are going to tell who will do what. Describe whether you intend to hire new
personnel or contract with independent contractors to carry out business functions. You will need
to account for the personnel requirements as the business grows.

 Startup Team: Who is part of your startup team? What will be their primary area of
responsibility? Describe what you understand their role and duties to be and explain how
they are qualified or competent for these duties.

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  Types of Personnel: Give a general description of the main employees or positions that
you will need to fill. This includes skilled, unskilled, and professionals.

As part of this process, your will outline who performs the specific tasks at each stage of
operations. Some of these positions may be filled by independent contractors who render
services on a fee basis. If so, document the nature of these anticipated relationships. At
first, there will only be a few positions. Try to determine the types of personnel that will
be needed as the business grows.

 Number of employees: Construct a timeline depicting the growth in personnel in

accordance with the projected business growth.

 Procedural Protocol: Begin by describing the procedures necessary to effectively carry

out each position or function of the business. This is necessary to maintain operational
stability as well as consistency in operations. This could include procedural steps or
written manuals for carrying out individual stages of the operations.

 Methods for Recruiting Employees: This is most important for professional service or
high-tech companies. You will need to have a plan for recruiting new service providers
and skilled professionals. This will first require establishing job descriptions and desired
employee skills. Note: A good place to start is documented any established relationship
with local universities with technical programs and professional schools.

 Personnel Training: How will you conduct the training? What will be your plan for
preparing new employees? Do you have a continuation plan in the event you lose a key
employee? Be careful not to place too much operational importance on any single
individual without developing a training plan for replacements.

 Compensation: Along with the description of personnel and timeline for employment,
you will want to associate an estimated cost at each period in time. As such, you will
need to devise a projected compensation structure for employees. It is important to
develop a realistic plan that fits the companies revenue projections and incentivizes the
employee to perform and remain with the business. The startup team or key leadership
compensation (including benefits and equity options) is often the most difficult to
structure.

Inventory & Materials

In this section, you explain where you are going to receive your inventory or the materials
necessary to produce your product or carry out your service. You should indicate your suppliers
or manufacturers and outline the nature or terms of your agreement.

 Inventory: What type of inventory (finished product, supplies, raw materials, etc.) will
you keep on hand and where will you get it?

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  Cost/Value of Inventory: You will need to use the projections for the cost of inventory
in your financial projections. A key provision in the pre-money valuation (pre-equity
funding) of your business will be an accurate assessment of the value of assets, including
inventory.

 Inventory Turn-Over: At what rate will you need to restock your inventory? This is an
important figure used in assessing the sales strength of the business. You will want to
make a special note about how the inventory turn-over compares to industry averages.

 Special Inventory Requirements: You will also want to outline a plan for dealing with
inventory requirements seasonally. This includes a plan for lead-time ordering.

 Inventory Control: You will have to establish a plan for monitoring and controlling
inventory. This should be incorporated into an employee/personnel description.

Production Costs

All of the above information will be combined as an estimate of production costs to include in
your financials.

You may want to maintain separate figures regarding the cost of goods and the cost of labor. You
may also want to create a third category of production costs for non-recurring, incidental costs
associated with operations.  

Suppliers

Now is the place to provide detailed information about the companies/individuals who will
supply you with the inventory/materials outlined above.

 Supplier Background: You should include background information on the supplier. This
lends credibility to the stability/dependability of their service.

 Inventory Details: Attribute the type, amount, and cost of inventory supplied by each
supplier. This should include a description of any anticipated fluctuations in the
requirements or costs of the inventory. For example, you will want to outline the spikes
in seasonal cost.

 Payment Terms: Outline the terms of performance of the supplier-purchaser

relationship. What are the terms of payment? What are the terms of delivery?

 Back-Up Plan:It is important to have a back-up plan in the event you lose a supplier or
the supplier is unable to meet for operational needs. This could include options of
alternative suppliers. This avoids placing too much operational importance on third
parties.

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Payment Policies

In this section, you will outline how you will be compensated for the goods you sell or services
you provide.

 Issuing Credit: Are you planning on accepting in-house credit? You will want to look at
industry standards and the payment policies of your competitors. Don't forget, your
payment policies can be a point of differentiation between you and those competitors.
What will be the terms of payment for customers who purchase on account?

 Determining Who Can Purchase on Credit: You will have to have some established
policies in place to determine who can purchase on credit and under what terms.
Remember, you will have to comply with applicable laws prior to carrying out a
background check. Also, extending credit could implicate fairness or anti-discrimination
in lending laws.

 Terms of Credit: What will be the term of payment? If you extend credit you will need
to decide on the terms of repayment and the interest, if any, attributable to giving the
credit. What will be the rate of interest charged and penalties for late payment? Will there
be a discount for early payment?

 Security Interests: Will you take a security interest in the goods sold? If so, do you have
a standard documenting these transactions?

 Slow-Paying or Non-Paying Customers:You will need a policy for dealing with

slowpaying customers. What process will you establish for reminding, urging, and
possibly threatening customers to render payment? You should outline an escalating plan
for requesting payment, such as making a phone call, sending a letter, using a collection
agency, and hiring a collection attorney.

 Credit Cards: If you accept commercial credit, doyou have a service provider to process
the payment?

 Costs of Extending Credit: Any time that you extend credit there will be a cost
involved. The cost could be the risk of the purchaser not paying or it could be the cost of
capital over the credit period. Regardless, you will need to build these costs into your
financials. For example, there always needs to be some allowance for bad accounts.

Managing Your Accounts Payable

As part of the operations process, you may be in the role of a creditor to a servicer or supplier.
You should develop a plan for payment of accounts owed.

The key considerations in developing a payment plan include: maintaining positive relations
with the supplier/servicer, optimizing the use of available cash. If the supplier/servicer offers a
discount for early payment then you should consider whether this option is in your best interest.
34
If your business would greatly benefit from making a payment toward the end of the available
period, then it may be worth extending the payment obligation out.  

Legal Environment

Establishing and maintaining operations will require the crossing of numerous legal hurdles. You
should describe the anticipated legal issues in advance and outline a plan for addressing them.
Below are some sample, but common, legal issues.

 Entity Selection and Formation: Outline your justification for choosing a given entity
structure. Explanations should include: taxation, equity funding, and ownership and
control.

 Business License, Professional Licenses, Inspections, and Zoning Requirements:

Identify all of the licensing requirements for carrying on your business. This includes the
licensing of your business, personnel, property, etc.

 Insurance and Bonding Requirements: Outline the requirement for bonding of

professional insurance. You should indicate the plan for obtaining coverage, as well as
the cost of such coverage.

 Permits: Certain business activities in specific places require special permits. You must
conduct the necessary background research on the legal requirements and provide a
synopsis of how you will handle those requirements.

 Workplace and Environmental Regulations: Outline a plan for the necessary

workplace inspections and standards. These standards can drastically affect your
construction plans and applicable costs. Environmental regulations include proper
documentation and accountability for waste, waste and environmental surveys of the
location, etc.

 Employment Laws: Develop a plan for legal compliance with all employment laws. This
includes hiring/firing procedures, employee benefits (Health Insurance, etc.), worker's
compensation, affirmative action (if accept federal contracts), etc.

 Taxation: Federal tax registration, state tax registration, estimated tax payments,
employee payroll withholdings, sales tax registration and withholding, property tax, etc.

 Protecting Intellectual Property: You will need to develop a plan for protecting and
maintaining all applicable forms of intellectual property, including: trade secrets,
trademarks, copyrights, and patents.

 In some cases, protecting your intellectual property can be very costly (such as patent
filings). Account for these costs within the financials.

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How to Write a Financial Plan for Your Small Business

Building a financial plan can be the most intimidating part of writing your business plan. It’s also
one of the most vital. Businesses that have a full financial plan in place more prepared to pitch to
investors, receive funding, and achieve long-term success.

Thankfully, you don’t need an accounting degree to successfully put one together. All you need
to know is the key elements and what goes into them. Read on for the six components that need
to go into your financial plan and successfully launch your business.

What is a financial plan?

A financial plan is simply an overview of your current business financials and projections for
growth. Think of any documents that represent your current monetary situation as a snapshot of
the health of your business and the projections being your future expectations. 

Why is a financial plan important for your business?

As said before, the financial plan is a snapshot of the current state of your business. The
projections, inform your short and long-term financial goals and gives you a starting point for
developing a strategy. 

It helps you, as a business owner, set realistic expectations regarding the success of your
business. You’re less likely to be surprised by your current financial state and more prepared to
manage a crisis or incredible growth, simply because you know your financials inside and out. 

And aside from helping you better manage your business, a thorough financial plan also makes
you more attractive to investors. It makes you less of a risk and shows that you have a firm plan
and track record in place to grow your business. 

Components of a successful financial plan

All business plans, whether you’re just starting a business or building an expansion plan for an
existing business, should include the following:

1. Profit and loss statement

2. Cash flow statement
3. Balance sheet
4. Sales forecast
5. Personnel plan
6. Business ratios and break-even analysis

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How to write a financial plan for your small business

The good news is that they don’t have to be difficult to create or hard to understand. With just a
few educated guesses about how much you might sell and what your expenses will be, you’ll be
well on your way to creating a complete financial plan.

1. Profit and loss statement

This is a financial statement that goes by a few different names—profit and loss statement,
income statement, pro forma income statement, P&L (short for “profit and loss”)— and is
essentially an explanation of how your business made a profit (or incur a loss) over a certain
period of time. 

It’s a table that lists all of your revenue streams and all of your expenses—typically over a three-
month period—and lists at the very bottom the total amount of net profit or loss.

There are different formats for profit and loss statements, depending on the type of business
you’re in and the structure of your business (nonprofit, LLC, C-Corp, etc.).

What to include in your profit and loss statement

 Your revenue (also called sales) 

 Your “cost of sale” or “cost of goods sold” (COGS)—keep in mind, some types of
companies, such as a services firm, may not have COGS

 Your gross margin, which is your revenue less your COGS

These three components (revenue, COGS, and gross margin) are the backbone of your business
model — i.e., how you make money.

You’ll also list your operating expenses, which are the expenses associated with running your
business that isn’t directly associated with making a sale.

They’re the fixed expenses that don’t fluctuate depending on the strength or weakness of your
revenue in a given month—think rent, utilities, and insurance.

How to find operating income

To find your operating income with the P&L statement you’ll take the gross margin less your
operating expenses:

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Gross Margin – Operating Expenses = Operating Income

Depending on how you classify some of your expenses, your operating income will typically be
equivalent to your “earnings before interest, taxes, depreciation, and amortization” (EBITDA).
This is basically, how much money you made in profit before you take your accounting and tax
obligations into consideration. It may also be called your “profit before interest and taxes,” gross
profit, and “contribution to overhead”—many names, but they all refer to the same number.

How to find net income

Your so-called “bottom line”—officially, your net income, which is found at the very end (or,
bottom line) of your profit and loss statement—is your EBITDA less the “ITDA.” Just subtract
your expenses for interest, taxes, depreciation, and amortization from your EBITDA, and you
have your net income:

Operating Income – Interest, Taxes, Depreciation, and Amortization Expenses = Net Income

For further reading on profit and loss statements (a.k.a., income statements), including an
example of what a profit and loss statement actually looks like, check out “How to Read and
Analyze an Income Statement.” And if you want to start building your own, download our
free Profit and Loss Statement Template.

2. Cash flow statement

Your cash flow statement is just as important as your profit and loss statement. Businesses run
on cash—there are no two ways around it. A cash flow statement is an explanation of how much
cash your business brought in, how much cash it paid out, and what its ending cash balance was,
typically per-month.

Without a thorough understanding of how much cash you have, where your cash is coming from,
where it’s going, and on what schedule, you’re going to have a hard time running a healthy
business. And without the cash flow statement, which lays that information out neatly for lenders
and investors, you’re not going to be able to raise funds. 

The cash flow statement helps you understand the difference between what your profit and loss
statement reports as income—your profit—and what your actual cash position is.

It is possible to be extremely profitable and still not have enough cash to pay your expenses and
keep your business afloat. It is also possible to be unprofitable but still have enough cash on hand
to keep the doors open for several months and buy yourself time to turn things around—that’s
why this financial statement is so important to understand.

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Cash versus accrual accounting

There are two methods of accounting—the cash method and the accrual method.

The accrual method means that you account for your sales and expenses at the same time—if you
got a big preorder for a new product, for example, you’d wait to account for all of your preorder
sales revenue until you’d actually started manufacturing and delivering the product. Matching
revenue with the related expenses is what’s referred to as “the matching principle,” and is the
basis of accrual accounting.

The cash method means that you just account for your sales and expenses as they happen,
without worrying about matching up the expenses that are related to a particular sale or vice
versa.

If you use the cash method, your cash flow statement isn’t going to be very different from what
you see in your profit and loss statement. That might seem like it makes things simpler, but I
actually advise against it. 

I think that the accrual method of accounting gives you the best sense of how your business
operates and that you should consider switching to it if you aren’t using it already.

Why you should use accrual accounting for cash flow

For the best sense of how your business operates, you should consider switching to accrual
accounting if you aren’t using it already.

Here’s why: Let’s say you operate a summer camp business. You might receive payment from a
camper in March, several months before camp actually starts in July—using the accrual method,
you wouldn’t recognize the revenue until you’ve performed the service, so both the revenue and
the expenses for the camp would be accounted for in the month of July.

With the cash method, you would have recognized the revenue back in March, but all of the
expenses in July, which would have made it look like you were profitable in all of the months
leading up to the camp, but unprofitable during the month that camp actually took place.

Cash accounting can get a little unwieldy when it comes time to evaluate how profitable an event
or product was, and can make it harder to really understand the ins and outs of your business
operations. For the best look at how your business works, accrual accounting is the way to go.

3. Balance sheet

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Your balance sheet is a snapshot of your business’s financial position—at a particular moment in
time, how are you doing? How much cash do you have in the bank, how much do your
customers owe you, and how much do you owe your vendors?

What to include in your balance sheet

 Assets: Your accounts receivable, money in the bank, inventory, etc.

 Liabilities: Your accounts payable, credit card balances, loan repayments, etc.

 Equity: For most small businesses, this is just the owner’s equity, but it could include
investors’ shares, retained earnings, stock proceeds, etc.

It’s called a balance sheet because it’s an equation that needs to balance out:

Assets = Liabilities + Equity

The total of your liabilities plus your total equity always equals the total of your assets.

At the end of the accounting year, your total profit or loss adds to or subtracts from your retained
earnings (a component of your equity). That makes your retained earnings your business’s
cumulative profit and loss since the business’s inception.

However, if you are a sole proprietor or other pass-through tax entity, “retained earnings”
doesn’t really apply to you—your retained earnings will always equal zero, as all profits and
losses are passed through to the owners and not rolled over or retained like they are in a
corporation.

If you’d like more help creating your balance sheet, check out our free downloadable Balance
Sheet Template.

4. Sales forecast

The sales forecast is exactly what it sounds like: your projections, or forecast, of what you think
you will sell in a given period. Your sales forecast is an incredibly important part of your
business plan, especially when lenders or investors are involved, and should be an ongoing
part of your business planning process.

Your sales forecast should be an ongoing part of your business planning process.

You should create a forecast that is consistent with the sales number you use in your profit and
loss statement. In fact, in our business planning software, LivePlan, the sales forecast auto-fills
the profit and loss statement.

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There isn’t a one-size-fits-all kind of sales forecast—every business will have different needs.
How you segment and organize your forecast depends on what kind of business you have and
how thoroughly you want to track your sales.

Generally, you’ll want to break down your sales forecast into segments that are helpful to you for
planning and marketing purposes.

If you own a restaurant, for example, you’ll want to separate your forecasts for dinner and lunch
sales. But a gym owner may find it helpful to differentiate between the membership types. If you
want to get really specific, you might even break your forecast down by product, with a separate
line for every product you sell.

Along with each segment of forecasted sales, you’ll want to include that segment’s “cost of
goods sold” (COGS). The difference between your forecasted revenue and your forecasted
COGS is your forecasted gross margin.

5. Personnel plan

Think of the personnel plan as a justification of each team member’s necessity to the business. 

The overall importance of the personnel plan depends largely on the type of business you have.
If you are a sole proprietor with no employees, this might not be that important and could be
summarized in a sentence of two. But if you are a larger business with high labor costs, you
should spend the time necessary to figure out how your personnel affects your business.

If you opt to create a full personnel plan, it should include a description of each member of your
management team, and what they bring to the table in terms of training, expertise, and product or
market knowledge. Think of this as a justification of each team member’s necessity to the
business, and a justification of their salary (and/or equity share, if applicable). This would fall in
the company overview section of your business plan.

You can also choose to use this section to list entire departments if that is a better fit for your
business and the intentions you have for your business plan. There’s no rule that says you have to
list only individual members of the management team.

This is also where you would list team members or departments that you’ve budgeted for but
haven’t hired yet. Describe who your ideal candidate(s) is/re, and justify your budgeted salary
range(s).

6. Business ratios and break-even analysis

Business ratios explained

If you have your profit and loss statement, your cash flow statement, and your balance sheet, you
have all the numbers you need to calculate the standard business ratios. These ratios aren’t

41
necessary to include in a business plan—especially for an internal plan—but knowing some key
ratios is always a good idea.

Common profitability ratios include:

 Gross margin

 Return on sales

 Return on assets

 Return on investment

Common liquidity ratios include:

 Debt-to-equity

 Current ratio

 Working capital

Of these, the most common ratios used by business owners and requested by bankers are
probably gross margin, return on investment (ROI), and debt-to-equity.

Break-even analysis explained

Your break-even analysis is a calculation of how much you will need to sell in order to “break-
even” i.e. cover all of your expenses.

In determining your break-even point, you’ll need to figure out the contribution margin of what
you’re selling. In the case of a restaurant, the contribution margin will be the price of the meal
less any associated costs. For example, the customer pays $50 for the meal. The food costs are
$10 and the wages paid to prepare and serve the meal are $15. Your contribution margin is $25
($50 – $10 – $15 = $25).

Using this model you can determine how high your sales revenue needs to be in order for you to
break even. If your monthly fixed costs are $5,000 and you average a 50 percent contribution
margin (like in our example with the restaurant), you’ll need to have sales of $10,000 in order to
break even.

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Make financial planning a recurring part of your business

Your financial plan might feel overwhelming when you get started, but the truth is that this
section of your business plan is absolutely essential to understand. 

Even if you end up outsourcing your bookkeeping and regular financial analysis to an accounting
firm, you—the business owner—should be able to read and understand these documents and
make decisions based on what you learn from them. Using a business dashboard tool like
LivePlan can help simplify this process, so you’re not wading through spreadsheets to input and
alter every single detail.

If you create and present financial statements that all work together to tell the story of your
business, and if you can answer questions about where your numbers are coming from, your
chances of securing funding from investors or lenders are much higher.

Additional small business financial resources

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Use this pro forma income statement template to project income and expenses over a three-year
time period. Pro forma income statements consider historical or market analysis data to calculate
the estimated sales, cost of sales, profits, and more.

Small Business Profit and Loss Statement

Small businesses can use this simple profit and loss statement template to project income and
expenses for a specific time period. Enter expected income, cost of goods sold, and business
expenses, and the built-in formulas will automatically calculate the net income.

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Use this income statement template to calculate and assess the profit and loss generated by your
business over three years. This template provides room to enter revenue and expenses associated
with operating your business and allows you to track performance over time.

For additional resources, including how to use profit and loss statements, visit “Download Free
Profit and Loss Templates.”

Cash Flow Statement Templates for Business Plan

Use these free cash flow statement templates to convey how efficiently your company manages
the inflow and outflow of money. Use a cash flow statement to analyze the availability of liquid
assets and your company’s ability to grow and sustain itself long term.

Sim Use this basic cash flow template to compare your business cash flows against different
time periods. Enter the beginning balance of cash on hand, and then detail itemized cash
receipts, payments, costs of goods sold, and expenses. Once you enter those values, the built-in
formulas will calculate total cash payments, net cash change, and the month ending cash
position.

12-Month Cash Flow Forecast Template

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Use this cash flow forecast template, also called a pro forma cash flow template, to track and
compare expected and actual cash flow outcomes on a monthly and yearly basis. Enter the cash
on hand at the beginning of each month, and then add the cash receipts (from customers,
issuance of stock, and other operations).

Finally, add the cash paid out (purchases made, wage expenses, and other cash outflow). Once
you enter those values, the built-in formulas will calculate your cash position for each month
with.

3-Year Cash Flow Statement Template Set

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Use this cash flow statement template set to analyze the amount of cash your company has
compared to its expenses and liabilities. This template set contains a tab to create a monthly cash
flow statement, a yearly cash flow statement, and a three-year cash flow statement to track cash
flow for the operating, investing, and financing activities of your business.

Download 3-Year Cash Flow Statement Template

Excel | Smartsheet

For additional information on managing your cash flow, including how to create a cash flow
forecast, visit “Free Cash Flow Statement Templates.”

Balance Sheet Templates for a Business Plan

Use these free balance sheet templates to convey the financial position of your business during a
specific time period to potential investors and stakeholders.

Small Business Pro Forma Balance Sheet

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Small businesses can use this pro forma balance sheet template to project account balances for
assets, liabilities, and equity for a designated period. Established businesses can use this template
(and its built-in formulas) to calculate key financial ratios, including working capital.

Download Pro Forma Balance Sheet Template

Excel | Smartsheet

Monthly and Quarterly Balance Sheet Template

Use this balance sheet template to evaluate your company’s financial health on a monthly,
quarterly, and annual basis. You can also use this template to project your financial position for a
specified time in the future. Once you complete the balance sheet, you can compare and analyze
your assets, liabilities, and equity on a quarter-over-quarter or year-over-year basis

Yearly Balance Sheet Templat

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Use this balance sheet template to compare your company’s short and long-term assets,
liabilities, and equity year-over-year. This template also provides calculations for common
financial ratios with built-in formulas, so you can use it to evaluate account balances annually.

Download Yearly Balance Sheet Template - Excel

For more downloadable resources for a wide range of organizations, visit “Free Balance Sheet
Templates.”

Sales Forecast Templates for Business Plan

Sales projections are a fundamental part of a business plan, and should support all other
components of your plan, including your market analysis, product offerings, and marketing plan.
Use these sales forecast templates to estimate future sales, and ensure the numbers align with the
sales numbers provided in your income statement.

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Basic Sales Forecast Sample Template

Use this basic forecast template to project the sales of a specific product. Gather historical and
industry sales data to generate monthly and yearly estimates of the number of units sold and the
price per unit. Then, the pre-built formulas will calculate percentages automatically. You’ll also
find details about which months provide the highest sales percentage, and the percentage change
in sales month-over-month. 

12-Month Sales Forecast Template for Multiple Products

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Use this sales forecast template to project the future sales of a business across multiple products
or services over the course of a year. Enter your estimated monthly sales, and the built-in
formulas will calculate annual totals. There is also space to record and track year-over-year sales,
so you can pinpoint sales trends.

3-Year Sales Forecast Template for Multiple Products

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Use this sales forecast template to estimate the monthly and yearly sales for multiple products
over a three-year period. Enter the monthly units sold, unit costs, and unit price. Once you enter
those values, built-in formulas will automatically calculate revenue, margin per unit, and gross
profit. This template also provides bar charts and line graphs to visually display sales and gross
profit year over year.

For a wider selection of resources to project your sales, visit “Free Sales Forecasting Templates.”

Break-Even Analysis Template for Business Plan

A break-even analysis will help you ascertain the point at which a business, product, or service
will become profitable. This analysis uses a calculation to pinpoint the number of service or unit
sales you need to make to cover costs and make a profit.

Break-Even Analysis Template

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Use this break-even analysis template to calculate the number of sales needed to become
profitable. Enter the product's selling price at the top of the template, and then add the fixed and
variable costs. Once you enter those values, the built-in formulas will calculate the total variable
cost, the contribution margin, and break-even units and sales values.

Download Break-Even Analysis Template

Excel | Smartsheet

For additional resources, visit, “Free Financial Planning Templates.”

Business Budget Templates for Business Plan

These business budget templates will help you track costs (e.g., fixed and variable) and expenses
(e.g., one-time and recurring) associated with starting and running a business. Having a detailed
budget enables you to make sound strategic decisions, and should align with the expense values
listed on your income statement.

Startup Budget Template

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This business budget template is ideal for small businesses that want to record estimated revenue
and expenditures on a monthly and yearly basis. This customizable template comes with a tab to
list income, expenses, and a cash flow recording to track cash transactions and balances.

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Established organizations will appreciate this customizable business budget template, which 
contains a separate tab to track projected business expenses, actual business expenses, variances,
and an expense analysis. Once you enter projected and actual expenses, the built-in formulas will
automatically calculate expense variances and populate the included visual charts. 

Other Financial Templates for Business Plan

In this section, you’ll find additional financial templates that you may want to include as part of
your larger business plan.

Startup Funding Requirements Template

This simple startup funding requirements template is useful for startups and small businesses that
require funding to get business off the ground. The numbers generated in this template should
align with those in your financial projections, and should detail the allocation of acquired capital
to various startup expenses.

Personnel Plan Template

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Use this customizable personnel plan template to map out the current and future staff needed to
get — and keep — the business running. This information belongs in the personnel section of a
business plan, and details the job title, amount of pay, and hiring timeline for each position. This
template calculates the monthly and yearly expenses associated with each role using built-in
formulas. Additionally, you can add an organizational chart to provide a visual overview of the
company’s structure. 

Elements of the Financial Section of a Business Plan

Whether your financial section should demonstrate the feasibility and profitability of your idea
and should support all other aspects of the business plan. 

Below, you’ll find a quick overview of the components of a solid financial plan.

 Financial Overview: This section provides a brief summary of the financial section, and
includes key takeaways of the financial statements. If you prefer, you can also add a brief
description of each statement in the respective statement’s section.
 Key Assumptions: This component details the basis for your financial projections,
including tax and interest rates, economic climate, and other critical, underlying factors.
 Break-Even Analysis: This calculation helps establish the selling price of a product or
service, and determines when a product or service should become profitable.
 Pro Forma Income Statement: Also known as a profit and loss statement, this section
details the sales, cost of sales, profitability, and other vital financial information to
stakeholders.

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  Pro Forma Cash Flow Statement: This area outlines the projected cash inflows and
outflows the business expects to generate from operating, financing, and investing
activities during a specific timeframe.
 Pro Forma Balance Sheet: This document conveys how your business plans to manage
assets, including receivables and inventory.
 Key Financial Indicators and Ratios: In this section, highlight key financial indicators
and ratios extracted from financial statements that bankers, analysts, and investors can
use to evaluate the financial health and position of your business.

Need help putting together the rest of your business plan? Check out our free simple business
plan templates to get started. You can learn how to write a successful simple business plan here. 

Visit this free non-profit business plan template roundup or download a fill-in-the-blank business
plan template to make things easy. If you are looking for a business plan template by file type,
visit our pages dedicated specifically to Microsoft Excel, Microsoft Word, and Adobe
PDF business plan templates. Read our articles offering startup business plan templates or free
30-60-90-day business plan templates to find more tailored options.

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