- A business plan is a road map that strategizes how a new business will achieve its goals.
- Every business, regardless of size or age, needs a business plan.
- Business plans should answer specific questions. For example, does it have a competitive advantage? Is it in a growth industry?
- This article is for entrepreneurs and business leaders writing or revising a business plan.
An actionable business plan is crucial, whether your business is brand-new or an established player in its field. A business plan is especially vital for SMBs, which often must contend with lower name recognition, fewer loyal customers and other typical business challenges. While it doesn’t guarantee success, creating a business plan with research and care can help a business prepare for any future uncertainties.
Entrepreneurs and small business owners must ensure their business plans address six primary questions. Thinking through these questions and developing potential solutions helps set up your venture for success.
What is a business plan, and why does it matter?
A business plan is a formal document designed to help you set achievable business goals and outline how you’ll accomplish them. The business plan should include various road maps dedicated to the following operational elements:
- Product creation
- Operational goals
A business plan is a valuable tool internally and externally.
- Internal business plan functions: Internally, a business plan helps align its decisions with an overall road map to help it stay on track. Businesses can also use road maps to help think through difficult choices, such as headcount decisions.
- External business plan functions: Externally, a road map is critical for securing funding from outside investors like angel investors. A business must demonstrate to investors that it has a solid business plan with achievable goals and a road map to success.
Tip: When pitching your business idea to investors, emphasize how your product or service solves a problem and frame your pitch as a story to demonstrate your passion.
What should a business plan include?
Typically, a business plan should include the following elements:
- Executive summary. An executive summary highlights a business plan’s essential elements. Readers should be able to understand your business plan by reading your executive summary, even if they don’t read the rest of the document.
- Budget. A small business budget should include overall operational and personnel costs. Consider your payroll budget, marketing budget and other departmental budgets.
- Market analysis. A market analysis should include a thorough market assessment that identifies competitors, your target customer, customer buying habits, marketing demographics and what customers are willing to pay. A market analysis may include a competitive analysis that dives more deeply into direct and indirect competitors.
- Product analysis. A product analysis outlines decisions about optimal product pricing. While you want to sell as many products as possible, low prices can scare off customers and eat into your profit margins, while prices that are too high will have customers turning to your competitors.
- Marketing strategy. Your marketing plan should outline how best to market the business and its products or services. Consider digital marketing targeted to specific online and social platforms, email marketing and local marketing.
Business plans vary in length depending on your business’s size, industry and scope. An SMB typically has a shorter and more succinct business plan than a larger, established business that operates across industries.
Questions every business plan should answer
We spoke with six business leaders who shared their thoughts on the crucial questions a business plan should answer. Consider these six essential questions to optimize your business plan.
1. What is the competitive advantage?
Scott Locke, chair of the intellectual property department at Dorf and Nelson LLP, advises thoroughly researching copyright infringement issues when determining your competitive advantage.
“I always look for what will give the business a competitive advantage relative to businesses that want to offer the same or similar goods and services and an analysis of the competitive landscape,” Locke explained. “I pay particular attention as to whether there is valuable intellectual property, be it patents, trademarks, copyrights or trade secrets, that will serve as barriers to entry for competitors. Similarly, I like to see a discussion of the intellectual property of the most direct competitors and how the new business will avoid infringing on it.”
2. Is the business in a growth market?
Walter Recher, principal consultant at SmallBall Marketing, says your business plan should emphasize how you plan to grow your business.
“The key to any successful business is to be a growing company in a growth market. A business plan should articulate how the entrepreneurs will enter the market, apply their investment to prepare them to grow quickly, and participate in the expansion of an industry that is thriving, with a better-than-average growth trajectory,” Recher said. “As I have spent my career working for hyper-growth companies in rapidly expanding markets, a founder of several small businesses and adjunct professor of a course on entrepreneurship, this has been the common denominator.”
3. Will customers pay for it?
Andi Gray, founder and president of Strategy Leaders, advises examining the risks of entrepreneurship and determining what and how customers will pay for their products and services.
“When looking at business plans, I always want to know how the owners plan to get paying customers to engage at a fee and quantity that allows them, as owners, to be in business and sustain themselves,” Gray advised. “My frequently asked question is, ‘How do you plan to feed and clothe yourself, and where do you plan to sleep while you’re getting this venture off the ground?’ My hope is that it will cause the students to consider why they are planning to take the risks of entrepreneurship.”
4. How will the business be staffed?
Larry Holfelder, senior consultant at DJL Insurance Services Inc., emphasizes the importance of staffing considerations.
“In every business plan, I like to see the recognition of the need to cover and staff the production, sales and finance parts of the business. Roles should be established for the entity as if it were mature and successful,” Holfelder advised. “Multiple roles should be assigned at first, if necessary, and filled with the right people as the entity grows and the timing is right.”
Holfelder says thoughtful staffing coverage shows that the business owners are realistic. “I like to see that type of thought process because it shows me they recognize that they won’t be able to do it all themselves and that business success revolves around collaboration and management,” Holfelder said. “It also shows that they recognize their own limitations, their ability to focus on their strengths, and the need to bring in others who know what they don’t in order to reach the goals they envision.”
Key takeaway: Consider using a staffing agency if you need to scale quickly and want flexibility and reduced legal risks.
5. Is the product innovative?
Irwin Glenn, chief identity scientist at Hunova, stresses the importance of innovation and inventiveness as well as the team’s level of inspiration.
“Is the idea for the product or service innovative, a unique invention, or is the dream truly inspired? Glenn asked. “By innovative, I want to understand if the business plan is centered around a new twist on already-existing technology or services delivered in a new and compelling way. If inventive, can the idea be protected against new or existing competition? Finally, is the team assembled an excellent group that can’t be stopped from succeeding? Are they inspiring to me, each other, and their marketplace?”
6. Are the plans and goals realistic?
Charles North, former president and CEO of the Dutchess County Regional Chamber of Commerce, prioritizes a realistic business plan with reasonable expectations.
“I look for it to be a realistic business plan, not something that is pie-in-the-sky. I want to see reasonable expectations,” North explained. “I tend to look more on the conservative side, since I feel that is the safest way to go. The idea doesn’t have to be reasonable; the plan does. The idea can be anything.”
North also emphasizes the importance of sales forecasts. “I always look for projections on what the business will do in the first year, second year, third year and fourth year showing sales, expenses [and the] bottom line as the business progresses. Those assumptions have to be reasonable.”
How planning for success pays off
Business plans are a vital resource for businesses of all sizes. While business plans should, at minimum, lay out a series of goals and a road map for achieving them, a business plan should also help answer questions ranging from analyzing a business’ competitive advantages to considering if its goals are realistic.
If you think through these questions while creating your business plan, your business will be in a better position to achieve its goals and weather any challenges it may face.
David Mielach contributed to the reporting and writing in this article.