Business Plan Definition: A Breakdown

Anthony Cuadro, Preferred Banking Offices District Manager, First Republic Bank
November 23, 2021

  • A business plan outlines a roadmap to success for your startup business.
  • It includes an executive summary, a market analysis, any cash flow projections, and more.
  • A business plan can be used to attract investors and lenders to help your business idea become a viable reality.

While the idea of creating a blueprint for your new startup may sound simple, writing a business plan actually can be somewhat complex. An effective business plan comprises several different components, which — when done correctly — can help you get a firmer grasp on your business idea and lead you toward success.

Business plan definition

A business plan is a written document to help businesses and startups identify their business objectives and lay out strategies for bringing them to fruition. This detailed plan includes an outline of the business model, market research, a marketing plan, and more.

Put simply, a business plan is a “roadmap” for a new business, identifying all its milestones to success.

Purpose of a business plan

A detailed plan is an essential tool for entrepreneurs in their startups’ earliest days, as well as for existing businesses. Business plans lay out a strategy for business owners to follow in guiding their businesses toward viability and growth. The way a business owner lays out their business plan often varies from business to business, as does their objectives.

Regardless of how a business plan takes shape, this document can serve several key purposes:

  • Offers a thorough, focused guide for the growth and development of a business
  • Outlines a detailed roadmap for financial viability and overall business goals
  • Communicates business owners’ intentions and strategies to succeed
  • Helps startups attract potential investors, including venture capitalists
  • Lays out detailed financials important to lenders to get a business loan (Note: Changed the interlink URL)
  • Helps catch the attention of prospective executives and other talent

When to create a business plan

A good business plan is especially important for startups looking to attract venture capitalists and appeal to other types of funding; small businesses with a clearly defined strategy are more likely to instill confidence in prospective investors and lenders.

Companies may create business plans at any stage, but putting together a detailed plan within a small business’s first year can help best position the startup for success. Later down the line, you may want to create an additional written document that lays a roadmap for debuting a new product or service, or expanding into a new geographic market.

Types of business plans

The Small Business Administration (SBA) identifies two types of business plans: 

  • Traditional business plan: More comprehensive and preferred by lenders and investors
  • Lean startup plan: Brief, high-level plans that are quicker to produce, but might result in a request for more information

Not every business plan explicitly follows one of these formats, however, as the final result tends to be highly customized based on the needs of the business in question.

What is in a business plan?

There’s no one-size-fits-all business plan template. In fact, business plans should be highly customized to reflect the business goals of the individual business, varying in content and composition. For instance, a business plan for a consumer packaged goods company may focus on its product, while a restaurant business plan could place greater emphasis on location. Additionally, regardless of the type of business plan you draw up, business plans are often complemented by other documentation like business continuity plans.

As a starting point, however, let’s look at what the two major kinds of business plans include, per the SBA.

Traditional business plans

Traditional business plans commonly include:

  • Executive summary: The first part of a business plan, which provides a summary of your startup’s overall vision, mission statement and business goals.
  • Company description: A comprehensive description of your business, your business model, its products or services and its place in the industry, including a rundown of your industry’s major competitors and the competitive advantages that set your business apart.
  • Market analysis: A detailed picture of your business’s target demographic and your marketing strategy to serve this niche market. This includes consumer behavior data, as well as pain points your product or service will help address and mitigate for this target market.
  • Management and organization plan: The legal structure of your business and the organizational structure and workflow. You may want to include the biographies and resumes of your management team and executive team members to help illustrate how they will execute these operations.
  • Service or product line: A specific rundown of the products or services your business plans to offer, including why they’re unique in the current market, what needs they fill in the existing industry and their pricing model.
  • Marketing and sales: A description of how your business will attract and retain customers in your target market, as well as the sales process.
  • Funding request: A detailed picture of the resources you will need for the next five years, where you plan to source them and how you’ll repay them.
  • Financial projections: A critical part of your business plan, which highlights the soup-to-nuts financial information. This includes financial projections and path to profitability, assets and liabilities and financial statements, including forecasted income statements, balance sheets and cash flow statements.

Lean startup plans

Meanwhile, lean startup plans commonly include:

  • Key partnerships: Relationships with other businesses that will be crucial to your own success, e.g., distributors.
  • Key activities: The strategies you’ll employ to gain a competitive advantage.
  • Key resources: Anything that will add value to your company, e.g., intellectual property.
  • Value proposition: A description of the unique value your business brings to the table.
  • Customer relationships: A description of how your customers interact with your business, from discovering it via marketing to long-term retention.
  • Customer segments: A clear definition of your target market.
  • Channels: All the methods of communication you’ll use with your customers.
  • Cost structure: Your strategy of prioritizing various costs in the pursuit of profitability.
  • Revenue streams: All the ways your business will make money.

Some business plans will also attach appendices, which include documents highly specific to the business. These may include charts and graphs, details on products or services, legal or business documentation, research and more — even a table of contents if you have a lot of documentation.

What to include in a business plan and how sections are formatted or emphasized can vary by company, industry, business goals and more.

Plan for a profitable future

Creating a business plan is a fundamental step during the formative stages of a startup. Understanding what a business plan is and what to include in it is a good start, but understanding its purpose and potential is key to creating an effective document that will help you reach your business goals.

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