Preparing a Business Plan

Once you have determined that you are up to the challenge of starting and running your own business, your next step will be to develop a business plan.

The saying goes that you only get one chance to make a first impression and that thinking certainly applies in the business world. A business plan is often what people see and remember about a company.

A business plan is one of the most important documents for a business because it allows you to convince potential investors and employees that you know what it will take for a business to succeed. A well-organized business plan presents a clear and convincing description of a company that can be shared with others.

There are several resources available to assist with preparing a business plan. Additionally, sample business plans, a business planning workbook, and business plan software can be found online. Some companies will offer to write a business plan for a fee, but turning over the entire plan to a third party is usually not in the best interest of a business owner, a great deal of insight into the nuts and bolts of what makes your company work can be gained through the process of writing a plan.

Business Plan Overview

There are variations on how to organize a business plan, but the United States Small Business Administration (SBA) recommends the following:

  • Executive Summary
  • Market Analysis
  • Company Description
  • Organization and Management
  • Marketing and Sales Management
  • Service or Product Line
  • Funding Request
  • Financials
  • Appendices

Executive Summary

The executive summary is the most important section of a business plan. It provides a concise overview of the entire plan along with a history of your company. This section tells a reader where a company is and where it is headed. It is the first thing your readers see; therefore it is the thing that will either grab their interest and compel them to invest in or embrace your concept or make them abandon it. More than anything else, this section is important because it tells the reader why you think your business will be successful.

The executive summary should be the last section you write. After all the details of the plan have been worked out, you will be in a better position to summarize it—and it should be a summary (e.g., no more than four pages).

Contents of the Executive Summary:  The mission statement (The mission statement briefly explains the concept of a business. It could be two words, two sentences, a paragraph, or even a single image. It should be as direct and focused as possible, and it should leave the reader with a clear picture of what your business is all about.)

  • Date business began
  • Names of founders and the functions they perform
  • Number of employees
  • Location of business and any branches or subsidiaries
  • Description of the offered plant or facilities
  • Products/services
  • Banking relationships and information regarding current investors
  • Summary of company growth, including financial or market highlights (e.g., your company doubled its worth in twelve-month period; you became the first company in your industry to provide a certain service)
  • Summary of management’s future plans

With the exception of the mission statement, all of the information in the executive summary should be highlighted in a brief, even-bulleted fashion. Remember, these facts are laid out in-depth further along in the plan.

If you are just starting a business, you will not have a lot of information to plug into the areas mentioned above. Instead, focus on your experience and background, as well as the decisions that led you to start this particular enterprise. Include information about the problems the target market has and what solutions can be provided. Show how your expertise will allow you to make significant inroads into the market. Tell your reader what you are going to do differently or better, and how. Convince the reader that there is a need for your product or service, then address your company’s future plans.

To assist the reader in locating specific sections within the business plan, include a table of contents directly following the executive summary. Make sure that the content titles are very broad—avoid detailed descriptions.

Market Analysis

The market analysis should convey knowledge of the particular industry business. It should also present general highlights and conclusions of any marketing research data; however, the specific details of the marketing research should be included in the appendix section of the business plan.

This section should include an industry description and outlook, target market information, market test results, lead times, and an evaluation of your competition.

Industry Description and Outlook:  This overview should include a description of the primary industry, the current size of the industry, as well as its historic growth rate, trends, and characteristics related to the industry as a whole (e.g., what lifecycle stage the industry is in, its projected growth rate), and the major customer groups within the industry (e.g., businesses, governments, consumers, etc.).

Identifying A Target Market:  A target market is simply the market (or group of customers) that you want to focus on and sell. When you are defining a target market, it is important to narrow it to a manageable size. Many businesses make the mistake of trying to be everything to everybody. Oftentimes, this philosophy leads to failure.

In this section, gather information that identifies the following:

  • Distinguishing characteristics of the major/primary market you are targeting – This section might include information about the critical needs of potential customers, the degree to which those needs are (or are not) currently being met, and the demographics of the group. It would also include the geographic location of the target market, the identification of the major decision makers, and any seasonal or cyclical trends which may impact the industry or the business.
  • Size of the primary target market – Here, it will be necessary to quantify the number of potential customers in the primary market, the number of annual purchases they make in products or services similar to your own, the geographic area in which they reside, and the forecasted market growth for this group.
  • The extent to which you feel you will be able to gain market share and the reasons why – Estimate market share percentage and number of customers the business is to obtain in a defined geographic area. Specify how these estimates were derived and document assumptions.
  • Pricing and gross margin targets – Here, define the levels of your pricing, gross margin levels, and any discount structures that will be set up for the business, such as volume/bulk discounts or prompt payment discounts.
  • Resources for finding information related to your target market – These resources might include directories, trade association publications, and government documents.
  • Media you will use to reach the target audience – These might include publications, radio or television broadcasts, blogs/podcasts, or any other type of credible source that may have influence with the target market.
  • Purchasing cycle of the potential customers – Here, identify the needs of the target market, do research to find the solutions to their needs, evaluate the solutions, and finally, identify who actually has the authority to choose the final solution.
  • Trends and potential changes that may impact your primary target market and key characteristics of the secondary markets – Just like with the primary target market, identify here the needs, demographics, and significant trends that will influence the secondary markets in the future.

Market Tests:  When including information about any of the market tests completed for the business plan, be sure to focus only on the results. Any specific details should be included in the appendix. Market test results might include the potential customers who were contacted, any information or demonstrations that were given to prospective customers, how important it is to satisfy the target market’s needs, and the target market’s desire to purchase the business’ products or services at varying prices.

Lead Times:  Lead time is the amount of time between when a customer places an order and when the product or service is actually delivered. When researching this information, determine what the lead time will be for the initial order, reorders, and volume purchases.

Competitive Analysis:  When performing a competitive analysis, identify the competition by product line or service as well as by market segment; assess their strengths and weaknesses; determine how important the target market is to the competitors; and identify any barriers which may hinder the businesses that are entering the market.

Be sure to identify all the key competitors for each of the products or services offered. For each key competitor, determine their market share, then try to estimate how long it will take before new competitors enter the marketplace. In other words, what is the window of opportunity? Finally, identify any indirect or secondary competitors that may have an impact on the business’ success. The strengths of competitors are also competitive advantages that you, too, can provide. The strengths of competitors may take many forms, but the most common include:

  • An ability to satisfy customer needs
  • A large share of the market and the consumer awareness that comes with it
  • A good track record and reputation
  • Solid financial resources and the subsequent staying power which that provides
  • Key personnel

Weaknesses are simply the flip side of strengths. In other words, analyze the same areas as before to determine what the competitors’ weaknesses are. Are they unable to satisfy their customers’ needs? Do they have poor market penetration? Is their track record or reputation not up to par? Do they have limited financial resources? Can they not retain good employees? All of these can be red flags for any business. If you identify weaknesses among the competition, be sure to find out why they are having problems. This way, similar mistakes can be avoided.

If the target market is unique, then you will most likely enjoy a competitive advantage—at least for a while. However, if the competition is high for the target market, be prepared to overcome some barriers.

Barriers to any market might include:

  • A high investment cost
  • The time it takes to set up a business
  • Changing technology
  • The lack of quality personnel
  • Customer resistance (e.g., long-standing relationships, brand loyalty)
  • Existing patents and trademarks that cannot be infringed upon

Regulatory Environment:  The final area for consideration is the regulatory environment. This includes information related to current customer or governmental regulatory requirements, as well as any changes that may be upcoming. Specific details needed include the methods for meeting any of the requirements which will affect your business, the timing involved (e.g., how long do you have to comply, when do the requirements go into effect), and the costs associated with regulatory compliance.

Company Description

Without going into detail, this section should include a high-level overview of how the different elements of the business fit together. The company description should include information about the nature of the business, as well as primary factors that you believe will make the business a success.

When defining the nature of your business (or why you are in business), be sure to list the marketplace needs that you are trying to satisfy; include the plan to satisfy these needs using the products or services offered. Finally, list the specific individuals and/or organizations that have been identified as having these needs.

Primary success factors might include a superior ability to satisfy the customers’ needs, highly efficient methods of delivering your product or service, outstanding personnel, or a key location. Each of these would give your business a competitive advantage.

Organization and Management

This section should include the company’s organizational structure, details about the ownership of the company, profiles of the management team, and the qualifications of the board of directors.

Who does what in the business? What is their background and why are they qualified to serve on the board or as employees? For what are they responsible? These may seem like unnecessary questions to answer in a one- or two-person organization, but the people reading your business plan want to know who is in charge. Give a detailed description of each division or department and its function. This section should include who is on the board (if there is an advisory board) and how you intend to keep them there. What kind of salary and benefits package is in place for employees? What incentives are being offered? How about promotions? Reassure the reader that the people on staff are more than just names on letterhead.

Organizational Structure:  A simple, but effective way to establish the structure of your company is to create an organizational chart with a narrative description. This will prove that nothing is being left to chance, you have thought out exactly who is doing what, and there is someone in charge of every function of the company. Nothing will fall through the cracks, and conversely, efforts will not be duplicated. To a potential investor or employee, that is very important.

Ownership Information:  This section should also include the legal structure of the business along with the subsequent ownership information it relates to. Has the business been incorporated? If so, is it a C or S corporation? Or perhaps you have formed a partnership with someone. If so, is it a general or limited partnership? Or maybe you are a sole proprietor.

Important ownership information that should be incorporated into a business plan includes:

  • Names of owners
  • Percentage of ownership
  • Extent of involvement with the company
  • Forms of ownership (e.g., common stock, preferred stock, general partner, limited partner)
  • Outstanding equity equivalents (e.g., options, warrants, convertible debt)
  • Common stock (e.g., authorized or issued)

Management Profiles:  Experts agree that one of the strongest factors for success in any growth company is the ability and track record of its owner/management. Therefore, inform the reader about the key people in the company and their backgrounds.

Provide resumes that include the following information:

  • Name
  • Position (include brief position description along with primary duties)
  • Primary responsibilities and authority
  • Education
  • Unique experience and skills
  • Prior employment
  • Special skills
  • Past track record
  • Industry recognition
  • Community involvement
  • Number of years with company
  • Compensation basis and levels (make sure these are reasonable—not too high or too low)

Be sure you quantify achievements (e.g., managed a sales force of ten people, managed a department of fifteen people, increased revenue by 15 percent in the first six months, expanded the retail outlets at the rate of two each year, improved the customer service as rated by our customers from a 60 percent to a 90 percent rating).

Also highlight how the people surrounding you complement your own skills. If you are just starting out, show how each person’s unique experience will contribute to the success of your venture.

Board of Directors’ Qualifications:  The major benefit of an unpaid advisory board is that it can provide expertise that your company cannot otherwise afford. A list of well-known, successful business owners/managers can go a long way toward enhancing your company’s credibility and perception of management expertise.

If you have a board of directors, be sure to gather the following information when developing the outline for your business plan:

  • Names
  • Positions on the board
  • Extent of involvement with company
  • Background
  • Historical and future contribution to the company’s success

Marketing and Sales Management

Marketing is the process of creating customers and customers are the lifeblood of your business. In this section, the priority is to define the marketing strategy. There is no single way to approach a marketing strategy; your strategy should be part of an ongoing self-evaluation process and unique to your company. However, there are simple steps that will help you think through the most appropriate strategy.

An overall marketing strategy should include a:

  • Market penetration strategy
  • Strategy for growing your business (This growth strategy might include an internal strategy such as how to increase human resources, an acquisition strategy such as buying another business, a franchise strategy for branching out, a horizontal strategy where the same type of products would be provided to different users, or a vertical strategy where the same products would continue to be provided but offered at different levels of the distribution chain.)
  • Channels of distribution strategy (Choices for distribution channels could include original equipment manufacturers (OEMs), an internal sales force, distributors, or retailers.)
  • Communication strategy (How are you going to reach your customers? Usually some combination website, social media, direct marketing, promotions, advertising, public relations, personal selling, and printed materials such as brochures, catalogs, flyers, etc.)

Once the marketing strategy is defined, a sales strategy can be created. How will you actually sell your product?

  • The overall sales strategy should include:
  • A sales force strategy (If you are going to have a sales force, do you plan to use internal or independent representatives? How many salespeople will you recruit for your sales force? What type of recruitment strategies will you use? How will you train your sales force? What about compensation for your sales force?)
  • Your sales activities (When defining a sales strategy, it is important to break it down into activities. For instance, identify your prospects. Once there is a list of prospects, prioritize it. Next, identify the number of sales calls planned over a certain period of time. From there, determine the average number of sales calls needed per sale, the average dollar size per sale, and the average dollar size per vendor.)

Service or Product Line

What are you selling? In this section, describe the product or service, emphasizing the benefits to potential and current customers. For example, do not tell readers which eighty-nine foods are carried in the “Gourmet-To-Go” shop. Tell readers why busy, two-career couples will prefer shopping in a service-oriented store that records clients’ food preferences and caters even the smallest parties on short notice.

Focus on the areas where you have a distinct advantage. Identify the problem in your target market for which your service or product provides a solution.

Give the reader hard evidence that people are, or will be, willing to pay for your solution. List the company’s services and products and attach any marketing/promotional materials. Provide details regarding suppliers, availability of products/services, and service or product costs. Also include information addressing new services or products that will soon be added to the company’s line.

Overall, this section should include:

  • A detailed description of the product or service (from the customers’ perspective) – Include information here about the specific benefits of your product or service. Talk about the product’s or service’s ability to meet consumer needs, any advantages the product has over that of the competition, and the development stage the product is in (e.g., idea, prototype, etc.).
  • Information related to your product’s life cycle – Include information about where the product or service is in its life cycle, as well as any factors that may influence its cycle in the future.
  • Any copyright, patent, and trade secret information that may be relevant – Include information related to existing, pending, or anticipated copyright and patent filings along with any key characteristics of the product or service in which you cannot obtain a copyright or patent. Also incorporate key aspects of the products or services that may be classified as trade secrets. Last, but not least, be sure to add any information pertaining to existing legal agreements, such as nondisclosure or non-compete agreements.
  • Research and development (R&D) activities you are involved in or in which you plan to become involved – R&D activities would include any in-process or future activities related to the development of new products or services. Also include information about what the expectations of future R&D activities are. Be sure to analyze the R&D efforts of not only your own business, but also that of others in your industry.

Funding Request

In this section, specify the amount of funding needed to start or expand your business. If necessary, include different funding scenarios, such as a best and worst case. Later in the financial section, these requests and scenarios should be backed up with corresponding financial statements.

Include in this section, current funding requirements, future funding requirements over the next five years, how funds received will be used, and any long-range financial strategies that would have any impact on the funding request.

When outlining current and future funding requirements, be sure to include the amount desired now and the amount desired in the future, the time period that each request will cover, the type of funding (e.g., equity, debt), and the terms requested.

How you will use the funds is very important to a creditor. Is the funding request for capital expenditures? Working capital? Debt retirement? Acquisitions? Whatever it is, be sure to list it in this section.

Last, make sure to include any strategic information related to the business that may have an impact on your financial situation in the future, such as going public with the company, having a leveraged buyout, being acquired by another company, the method with which debt will be serviced, or whether there is a plan to sell the business in the future. Each of these is extremely important to a future creditor since they will directly impact your ability to repay your loan(s).


The financials should be developed after the market has been analyzed and clear objectives have been set. Then you can allocate resources efficiently. The following is a list of the critical financial statements to include in a business plan packet.

Historical Financial Data:  If you own an established business, you will be required to supply historical data related to the company’s performance. Most creditors request data for the last three to five years depending on the length of time the business has been in operation.

The historical financial data includes the company’s income statements, balance sheets, and cash flow statements for each year in operation (usually for up to three to five years). Often creditors are also interested in any collateral that could be used to ensure the loan regardless of the stage of the business.

Prospective Financial Data:  All businesses, whether startup or growing, will be required to supply prospective financial data. Most of the time, creditors will want to see what you expect your company to be able to do within the next five years. Each year’s documents should include forecasted income statements, balance sheets, cash flow statements, and capital expenditure budgets. For the first year, supply monthly or quarterly projections. After that, move to quarterly and/or yearly projections for years two through five.

Make sure that the projections match the funding requests; creditors will be on the lookout for inconsistencies. If assumptions have been made in projections, be sure to provide documentation. This way, the reader will not be left guessing.

Finally, include a short analysis of the financial information. Include a ratio and trend analysis for all financial statements (both historical and prospective). Since pictures speak louder than words, adding graphs of the trend analysis (especially if they are positive) may be helpful.

Security Note:  Any copies of your business plan should be controlled. Keep a distribution record. This will allow you to update and maintain your business plan on an as-needed basis. You should include a private placement disclaimer with your business plan if you plan to use it to raise capital.


The appendix section should be provided to readers on an as-needed basis. It should not be included with the main body of a business plan. Your plan is your communication tool; as such, it will be seen by a lot of people. Some of the information in the business section is not intended for everyone to see, but, specific individuals (such as creditors) may want access to this information in order to make lending decisions. Therefore, it is important to have the appendix within reach.

The appendix should include:

  • Credit history (personal and business)
  • Resumes of key managers
  • Product pictures
  • Letters of reference
  • Details of market studies
  • Relevant magazine articles or book references
  • Licenses, permits, or patents
  • Legal documents
  • Copies of leases
  • Building permits
  • Contracts
  • List of business consultants, including attorney and accountant

Business Plan Tips

  • Do your homework (Learn all you can about your industry to demonstrate that you understand your market.)
  • Be realistic (Do not overestimate sales and underestimate costs. Being realistic will allow potential investors to have more confidence in what you say and realistic projections are easier to defend.)
  • Know your customers (Do not just assume that you will be able to sell your product or services to a certain percentage of the market. Show that you know who your customers will be, how you will reach them, and how you will keep them coming back.)
  • Acknowledge the competition (Research who is offering similar products and services and be up front about why you think you have a competitive advantage. Ignoring the competition will appear naive.)
  • Be clear and concise (Starting a new business is an exciting process, but do not rely on hype to win over investors. Keep your explanations professional and focused.)
  • Check yourself (Writing a great business plan is a lengthy process. Be sure to check and recheck your plan and have others review your work to make sure that the information you present is consistent and error-free.)
  • Be open to feedback (Being too committed to offering certain products or structuring your business a certain way can be harmful. Be open to the feedback that you get when you present your plan and be willing to consider making modifications based on suggestions you receive.)

Sample Business Plans:  The internet is a source for numerous sample business plans. Reading through a few will give you an idea of what your plan may look like. Visit the following website for The Complete Guide to Business Planning, including access to over 500 sample business plans: