Business Owner's Handbook: How to Write a Business Plan
- Ashley Chivalette
- 1 day ago
- 13 min read
A business plan is a living, written document that describes in detail how a business is going to achieve its goals. It's a road map that provides management, operations, marketing, and financial direction for your company. A good one covers ten core areas, from your executive summary through your financial projections and appendices, and it gets updated as the business changes. The keyword there's living. A plan that sits in a drawer isn't a plan, it's paperwork.
In this edition of the Business Owner's Handbook, we're going to provide a quick and easy guide to small business planning. While much of this guide is focused on the overall creation of a business plan, you can easily pick and choose which sections you feel would benefit you business most.
Now, full disclosure before we go one step further. It isn't much of a secret for those who follow our guides that we have a serious love / hate relationship with business plans. We've watched owners spend three months polishing a forty page document nobody ever read again, and we've watched other owners scribble a plan on a legal pad and build something real. We wrote a whole piece on why you might not need a business plan at all, and we stand by every word of it.
But here's where we'll happily argue against ourselves, because the research doesn't fully back the cynics. Harvard Business Review reported on a study finding that entrepreneurs who write formal plans are about 16% more likely to reach viability than otherwise identical non-planners. A 2010 meta-analysis that pooled 46 separate studies covering more than 11,000 companies reached a similar conclusion: on balance, planning improved performance. And the most interesting wrinkle in that meta-analysis is one nobody quotes. The benefit was stronger for established small firms than for brand new startups, which makes sense once you think about it. An existing business actually knows its customers, so its plan is built on evidence instead of hope.
So here's our honest reconciliation of the two camps. If you're on day one with an untested idea, an elaborate plan can be expensive procrastination. If you've been in business a few years and you're deciding where to push next, planning is one of the highest-return things you can do with a quiet afternoon. Either way, when a lender or investor asks for the document, you need it to be good. That's what the rest of this guide is for.
So what exactly are the components of a business plan? According to the U.S. Small Business Administration and the Small Business Development Centers, a traditional plan runs through a standard set of sections, and the SBA's own guide walks through nine of them. We use ten, because we've found splitting the financial plan from the financial projections saves people a lot of confusion.
As small business coaches, we've read a lot of business plans over the years, and the most thorough and genuinely useful ones all had these ten sections:
Executive Summary, your elevator pitch on paper
Business Description, the full story of what you do
Products and Services, what you actually sell
Management and Organization, who does what
Marketing Plan, how customers find you
Competition Analysis, who else wants that dollar
Pricing, what you charge and why
Financial Plan, how you pay for it all
Financial Projections, the numbers behind the promises
Appendices, everything else worth showing
Which Type of Business Plan Do You Need?
Most business plans fall into one of two formats: a traditional plan or a lean startup plan. A traditional plan is detailed, follows a standard structure, and can run dozens of pages. It's what lenders and investors typically ask for. A lean startup plan summarizes only the key elements, often on a single page, and can take about an hour to put together. Per the SBA, neither one is wrong. The right choice depends on who's reading it.
Our rule of thumb after years of this: if someone else is deciding whether to hand you money, write the traditional plan. If the plan is for you and your team, and you want something you'll actually revisit, go lean and keep it alive. The rest of this guide covers the traditional format, since that's the one people get stuck on. You can absolutely pull just the sections you need for a lean version.
And if the whole exercise is making you want to lie down, we get it. Our "Sleep Well" planning approach is the saner, less exhausting way to think about this.
1. What Goes in the Executive Summary?
The Executive Summary is just that, a summary. It's a short dive into what your business idea is, the market opportunity, and how you intend to make it succeed.
You'll want to include brief information regarding the financials and the management team's experience, but don't worry, you'll be able to go more in depth later on. Focus on providing the information that you think provide the critical information you'd want an investor to know.
Don't provide too much information or description, you only have a maximum of three pages for the summary. You'll need to fight the urge to "sell" your idea here in the executive summary. The entire business plan is the sales pitch, you'll have plenty of opportunity to fit in all the information that makes your idea amazing.
Think of the executive summary as your elevator pitch!
2. What Is the Business Description Section?
Guess what you go over in the Business Description section? That's right, your business! We jest because it's so self explanatory.
As we said earlier, a lot of people will make the mistake of going into too much detail about their idea in the executive summary. However, THIS is really where you want to provide that information. This is your chance to expand on your idea in depth.
In the Business Description section you'll describe some of the following:
General Business Idea:
Describe the business in more detail. Imagine taking your elevator pitch and expanding it a bit. The items you mention here should be referenced throughout the remaining document.
History:
Describe the history of your business to date. Try to organize the history in a timeline as best as possible. Make sure to notate key points of success or even missteps. If you're a start-up, this might be a good chance to describe the history and experience of the entrepreneurs involved.
Performance:
List out how the business has performed thus far. Making note of every up and down if possible. If you're just starting out, lay out how you envision your 1st year.
Key Goals and Timelines:
Lay out your short and long term goals for the business. In order for this section to be effective, make sure that each of your goals follows the SMART Goal methodology.
Legal, Investment, and Ownership:
Describe all the technical legal items along with the ownership structure of the business. Refer to your Operating Agreement... that you should have as well.
3. How Do You Describe Your Products and Services?
This is the section where you'll list out what you are providing through your business. You can be as detailed or generic here to fit your needs with respect to the business plan. If you're aiming for funding or investors, the more detail the better.
For each of your products you'll want to speak to the special or unique benefits provided to your customer. List out the basics for the service, but also dive in to why your product is superior to those offered by your potential competitors.
You'll also want to include the raw materials and time needed to provide these goods or services. List anything that offers a strategic competitive advantage for your business.
One last note on this section, you'll be addressing the market related items like price etc. in the other sections.
4. What Goes in Management and Organization?
This is where you'll describe the management structure of your business. Depending on the initial size of your business, it's entirely possible that the owner represents the majority of this section.
It's great to start off with an organization chart listing out all the essential roles needed to make the company successful. This is the perfect spot to describe the structure and hierarchy of your business. Are you planning to run as a flat or vertical type of organization? Why?
With each position, you should list out the basic job description and how it impacts success. Your next move is to list out the persons responsible for each role. Specify their background and why they're suited for the role.
This section should convince the reader of the management team's ability to make the company succeed.
5. What Should Your Marketing Plan Include?
Personally, marketing is my favorite part and that's why I consider it the heart of the plan! It's also our main focus when addressing the business plan fallacy as well! In fact, this section is so important we have a service dedicated just to marketing coaching.
This section requires a ton more research than the rest (except for the financial plan, maybe). Just about every item within your marketing plan will require some in depth research and/or critical thinking.
You'll want to address some of these points:
Identify your target market
Address the market size and potential
Trends within the industry and your plan for how you'll keep up
Seasonality of the cash flows
Advertising, promotion, and packaging
Branding strategy
Pricing analysis
And most importantly the budget!
Many businesses don't invest much thought or money into the marketing side of things. From our experience that ends up being a major pitfall. There's an old business saying, you gotta spend money to make money, and I believe it to be true. How else are people going to know about your business?
It doesn't even necessarily have to be cold-hard-cash, just invest some time into spreading your business ideas. In fact, we have a whole article about ways you can market your small business on a budget. There are many ways you can promote your business without breaking the bank.
6. How Do You Analyze Your Competition?
This is where the SWOT analysis comes in. Have you heard of a SWOT analysis? If not, it stands for Strengths and Weaknesses, which are internal to the company, and Opportunities and Threats, which are external factors impacting the business. If you want a structured way to work through it, SCORE publishes a free SWOT worksheet with guiding questions that keeps you honest about the weaknesses part, which is the section everyone rushes.
Be sure to consider all kinds of competitors, both direct and indirect.
Many small business owners will make the mistake of disregarding a competitor, because they don't do EXACTLY what they're doing. Remember a competitor should be anyone or anything a potential customer can spend their time or money instead of yours.
For example, a secondary competitor of Chuck E. Cheese is a public park. People can choose to host their kid's birthday party at a free park; however, a strength of Chuck E. Cheese is that it's indoors, so it's climate-controlled, which sounds pretty great in the summer heat!
As you can see, you need to address both your primary and alternative competition within your business plan. If you neglect to include both, you may miss a potential risk to your success.
7. How Do You Set Pricing in a Business Plan?
This is where you'll discuss the pricing structure of your business. You need to take into account and address both the cost side as well as the pricing tolerance of the market. The pricing of your products should also be heavily weighted by what you learned in your research for your competitors.
On the cost side: Be detailed on the all the costs to provide your products. Service based businesses need to be extra vigilant here. Things like fuel, time, and insurance are all things that can impact the cost side of things.
On the market side: Using a combination of your own research along with information gained from your competition you should be able to formulate the price tolerance of the market. Keep in mind that can be on both the high an low end.
Your business plan should merge those two concepts together to craft and validate the pricing you decide to set for your product or service.
8. What Is the Financial Plan Section?
The Financial Plan is where you go into detail about how you actually plan to pay for everything. You'll discuss things from investors to loan repayment plans. If building these from scratch sounds miserable, it doesn't have to be. SCORE's free financial planning templates cover startup expenses, cash flow, and balance sheets, and they're built for exactly this.
This is the one section that might rival marketing for the most important. Yes, most people would lean to giving the prize to the financial plan, but we're fairly biased towards the thought that without people actually buying your products your financial plan is moot.
It's extremely important that you're extremely pragmatic for your revenue projections. This is especially true for those of you writing this for investments. Banks and VC's are well versed in the markets and can easily sniff out if you're being overly optimistic. Plus, if you're far more pessimistic here and your numbers still lead to success then you're sitting pretty well.
Speaking of being pessimistic, you'll also need a contingency plan outlined in this section. Life happens and nothing in life is guaranteed, this is an important component, which is often overlooked.
The key here's that you want to showcase that you did your due diligence. Whomever is reading your business plan should have a solid feeling that the data contained here's valid and well thought out.
9. What Financial Projections Do You Need?
You described these projections in the section prior, but here's where you provide the worksheets, graphs, images, and otherwise fun accounting type items. Rather than reinventing the spreadsheet, grab SCORE's financial projections template, which forecasts expenses, sales, cash flow, income statements, and break-even for up to three years in one workbook.
Here are a few of the items you'll want to include in this area of your business plan:
A list of financial assumptions:
List out all of the assumptions that set the tone for the rest of your projections. This is another great chance to showcase how well you thought through your business plan.
A Break-Even analysis:
Combining a few other items in the business plan, this is where you show what the bare minimum is for you to be sustainable.
Cash Flow Projections:
You should show the projections for the next three years. Your first year should be broken down into months. Be hyper realistic.
Profit and Loss Projections:
Show P&L's for the next three years. This is way easier with a historical P&L, but if you don't have one, make your best possible guess. SCORE's profit and loss projection template even includes industry average benchmarks, which is a handy sanity check on whether your margins are realistic.
End-of-Year Balance Sheets
Balance sheet for the next three years. If you're just starting out, try to include any future assets if you plan to make purchases in the short term.
10. What Goes in the Appendices?
The appendices are where you can put anything extra such as, financial statements, advertising samples, resumes, patents or copyrights, market studies, etc.
Again, the more detailed you can be the better!
More From the Business Owner's Handbook
This guide is one chapter in our ongoing Business Owner's Handbook, our plain-English series on the fundamentals every owner has to get right. If this one was useful, the rest of the shelf is here:
What Type of Business Are You Anyway?, figuring out your strategy before you build the plan
Taking Care of Your People, the part of the business no spreadsheet captures
Don't Be "That" Boss, a friendly warning, with examples
How to Re-Frame Your Perspective, for when you're too close to the problem
How to Boost Business Growth With Solid Communication, the skill that quietly runs everything
The most important thing to remember is that a business plan should be a living document. That means updating it and keeping it current with your goals and aspirations for the business. If you'd rather start from a blank framework than a blank page, SCORE's business plan outline is a solid free starting point.
As the business matures, you may find yourself focusing less on certain areas of the plan and adapting other parts. Having a business plan aids in keeping focused on your business's goals and growth!
If you find this a bit overwhelming or if you just want a bit of help, consider bringing on a small business coach! They have experience developing business plans for many businesses and if anything, they can make the whole process easier.
At Out of the Box Advisors, we offer a free consultation with one of our business coaches to help you sort out where to put your efforts and how we can help you get there. Bring your half-finished plan, your legal pad, or just your questions. We've seen all three.
Frequently Asked Questions
What are the components of a business plan?
A traditional business plan covers ten core sections: the executive summary, business description, products and services, management and organization, marketing plan, competition analysis, pricing, financial plan, financial projections, and appendices. The SBA outlines a similar set of nine sections, combining the financial areas. You don't have to follow the outline rigidly. Use the sections that make sense for your business and the person who will be reading it.
Do business plans actually work? What does the research say?
The evidence generally favors planning, with an important nuance. Harvard Business Review reported research finding that entrepreneurs who write formal plans are roughly 16% more likely to reach viability than comparable non-planners. A 2010 meta-analysis pooling 46 studies across more than 11,000 companies also found that planning improved performance on balance. The nuance worth knowing: that meta-analysis found the benefit was stronger for established small firms than for brand new startups, likely because existing businesses can build their plans on real customer knowledge rather than assumptions. So if you're already operating, planning tends to pay off well. If you're on day one with an untested idea, a lighter plan and faster real-world testing may serve you better.
What is a business plan and why do you need one?
A business plan is a living, written document describing in detail how your business will achieve its goals. It provides direction for management, operations, marketing, and finances. You mainly need one when someone else is making a decision about you, such as a lender, an investor, or a potential partner. Internally, its real value is forcing you to think through pricing, competition, and cash flow before those things become expensive surprises.
What is the difference between a traditional and a lean startup business plan?
A traditional business plan is detailed, follows a standard structure, and can run dozens of pages. Lenders and investors typically expect this format. A lean startup plan summarizes only the key elements, often fits on one page, and can be written in about an hour. Choose traditional when someone else is deciding whether to fund you, and lean when the plan is a working tool for you and your team.
How long should a business plan be?
There's no fixed length, but the format drives it. Traditional plans commonly run dozens of pages because each section goes into detail, while lean startup plans are usually a single page. One firm rule from our experience: keep the executive summary to a maximum of about three pages. It's a summary, not the whole pitch, and reviewers judge your discipline by how tightly you write it.
What goes in a business plan for a loan?
If you're writing for a lender, use the traditional format and be especially rigorous in the financial sections. Include a list of your financial assumptions, a break-even analysis, cash flow projections for three years with the first year broken down by month, profit and loss projections, and end-of-year balance sheets. Be pragmatic rather than optimistic with revenue projections, and include a contingency plan. Lenders are looking for evidence you did your due diligence, not for the rosiest possible numbers.
Do I really need a business plan to start a business?
Honestly, not always. Plenty of successful businesses started without a formal plan, and we've written about why the business plan can be a bit of a fallacy when it becomes a procrastination exercise. You need a real plan when someone else requires it, such as a lender or investor, or when your business is complex enough that the thinking genuinely helps. What you always need is clarity on your customer, your pricing, and your cash flow. Whether that lives in a forty page document or on a legal pad matters less than whether you actually know it.