3 most important parts of a business plan

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12 Key Elements of a Business Plan (Top Components Explained)

Starting and running a successful business requires proper planning and execution of effective business tactics and strategies .

You need to prepare many essential business documents when starting a business for maximum success; the business plan is one such document.

When creating a business, you want to achieve business objectives and financial goals like productivity, profitability, and business growth. You need an effective business plan to help you get to your desired business destination.

Even if you are already running a business, the proper understanding and review of the key elements of a business plan help you navigate potential crises and obstacles.

This article will teach you why the business document is at the core of any successful business and its key elements you can not avoid.

Let’s get started.

Why Are Business Plans Important?

Business plans are practical steps or guidelines that usually outline what companies need to do to reach their goals. They are essential documents for any business wanting to grow and thrive in a highly-competitive business environment .

1. Proves Your Business Viability

A business plan gives companies an idea of how viable they are and what actions they need to take to grow and reach their financial targets. With a well-written and clearly defined business plan, your business is better positioned to meet its goals.

2. Guides You Throughout the Business Cycle

A business plan is not just important at the start of a business. As a business owner, you must draw up a business plan to remain relevant throughout the business cycle .

During the starting phase of your business, a business plan helps bring your ideas into reality. A solid business plan can secure funding from lenders and investors.

After successfully setting up your business, the next phase is management. Your business plan still has a role to play in this phase, as it assists in communicating your business vision to employees and external partners.

Essentially, your business plan needs to be flexible enough to adapt to changes in the needs of your business.

3. Helps You Make Better Business Decisions

As a business owner, you are involved in an endless decision-making cycle. Your business plan helps you find answers to your most crucial business decisions.

A robust business plan helps you settle your major business components before you launch your product, such as your marketing and sales strategy and competitive advantage.

4. Eliminates Big Mistakes

Many small businesses fail within their first five years for several reasons: lack of financing, stiff competition, low market need, inadequate teams, and inefficient pricing strategy.

Creating an effective plan helps you eliminate these big mistakes that lead to businesses' decline. Every business plan element is crucial for helping you avoid potential mistakes before they happen.

5. Secures Financing and Attracts Top Talents

Having an effective plan increases your chances of securing business loans. One of the essential requirements many lenders ask for to grant your loan request is your business plan.

A business plan helps investors feel confident that your business can attract a significant return on investments ( ROI ).

You can attract and retain top-quality talents with a clear business plan. It inspires your employees and keeps them aligned to achieve your strategic business goals.

Key Elements of Business Plan

Starting and running a successful business requires well-laid actions and supporting documents that better position a company to achieve its business goals and maximize success.

A business plan is a written document with relevant information detailing business objectives and how it intends to achieve its goals.

With an effective business plan, investors, lenders, and potential partners understand your organizational structure and goals, usually around profitability, productivity, and growth.

Every successful business plan is made up of key components that help solidify the efficacy of the business plan in delivering on what it was created to do.

Here are some of the components of an effective business plan.

1. Executive Summary

One of the key elements of a business plan is the executive summary. Write the executive summary as part of the concluding topics in the business plan. Creating an executive summary with all the facts and information available is easier.

In the overall business plan document, the executive summary should be at the forefront of the business plan. It helps set the tone for readers on what to expect from the business plan.

A well-written executive summary includes all vital information about the organization's operations, making it easy for a reader to understand.

The key points that need to be acted upon are highlighted in the executive summary. They should be well spelled out to make decisions easy for the management team.

A good and compelling executive summary points out a company's mission statement and a brief description of its products and services.

An executive summary summarizes a business's expected value proposition to distinct customer segments. It highlights the other key elements to be discussed during the rest of the business plan.

Including your prior experiences as an entrepreneur is a good idea in drawing up an executive summary for your business. A brief but detailed explanation of why you decided to start the business in the first place is essential.

Adding your company's mission statement in your executive summary cannot be overemphasized. It creates a culture that defines how employees and all individuals associated with your company abide when carrying out its related processes and operations.

Your executive summary should be brief and detailed to catch readers' attention and encourage them to learn more about your company.

Components of an Executive Summary

Here are some of the information that makes up an executive summary:

• The name and location of your company
• Products and services offered by your company
• Mission and vision statements
• Success factors of your business plan

2. Business Description

Your business description needs to be exciting and captivating as it is the formal introduction a reader gets about your company.

What your company aims to provide, its products and services, goals and objectives, target audience , and potential customers it plans to serve need to be highlighted in your business description.

A company description helps point out notable qualities that make your company stand out from other businesses in the industry. It details its unique strengths and the competitive advantages that give it an edge to succeed over its direct and indirect competitors.

Spell out how your business aims to deliver on the particular needs and wants of identified customers in your company description, as well as the particular industry and target market of the particular focus of the company.

Include trends and significant competitors within your particular industry in your company description. Your business description should contain what sets your company apart from other businesses and provides it with the needed competitive advantage.

In essence, if there is any area in your business plan where you need to brag about your business, your company description provides that unique opportunity as readers look to get a high-level overview.

Components of a Business Description

Your business description needs to contain these categories of information.

• Business location
• The legal structure of your business
• Summary of your business’s short and long-term goals

3. Market Analysis

The market analysis section should be solely based on analytical research as it details trends particular to the market you want to penetrate.

Graphs, spreadsheets, and histograms are handy data and statistical tools you need to utilize in your market analysis. They make it easy to understand the relationship between your current ideas and the future goals you have for the business.

All details about the target customers you plan to sell products or services should be in the market analysis section. It helps readers with a helpful overview of the market.

In your market analysis, you provide the needed data and statistics about industry and market share, the identified strengths in your company description, and compare them against other businesses in the same industry.

The market analysis section aims to define your target audience and estimate how your product or service would fare with these identified audiences.

Market analysis helps visualize a target market by researching and identifying the primary target audience of your company and detailing steps and plans based on your audience location.

Obtaining this information through market research is essential as it helps shape how your business achieves its short-term and long-term goals.

Market Analysis Factors

Here are some of the factors to be included in your market analysis.

• The geographical location of your target market
• Needs of your target market and how your products and services can meet those needs
• Demographics of your target audience

Components of the Market Analysis Section

Here is some of the information to be included in your market analysis.

• Industry description and statistics
• Demographics and profile of target customers
• Marketing data for your products and services
• Detailed evaluation of your competitors

4. Marketing Plan

A marketing plan defines how your business aims to reach its target customers, generate sales leads, and, ultimately, make sales.

Promotion is at the center of any successful marketing plan. It is a series of steps to pitch a product or service to a larger audience to generate engagement. Note that the marketing strategy for a business should not be stagnant and must evolve depending on its outcome.

Include the budgetary requirement for successfully implementing your marketing plan in this section to make it easy for readers to measure your marketing plan's impact in terms of numbers.

The information to include in your marketing plan includes marketing and promotion strategies, pricing plans and strategies , and sales proposals. You need to include how you intend to get customers to return and make repeat purchases in your business plan.

5. Sales Strategy

Sales strategy defines how you intend to get your product or service to your target customers and works hand in hand with your business marketing strategy.

Your sales strategy approach should not be complex. Break it down into simple and understandable steps to promote your product or service to target customers.

Apart from the steps to promote your product or service, define the budget you need to implement your sales strategies and the number of sales reps needed to help the business assist in direct sales.

Your sales strategy should be specific on what you need and how you intend to deliver on your sales targets, where numbers are reflected to make it easier for readers to understand and relate better.

6. Competitive Analysis

Providing transparent and honest information, even with direct and indirect competitors, defines a good business plan. Provide the reader with a clear picture of your rank against major competitors.

Identifying your competitors' weaknesses and strengths is useful in drawing up a market analysis. It is one information investors look out for when assessing business plans.

The competitive analysis section clearly defines the notable differences between your company and your competitors as measured against their strengths and weaknesses.

This section should define the following:

• Your competitors' identified advantages in the market
• How do you plan to set up your company to challenge your competitors’ advantage and gain grounds from them?
• The standout qualities that distinguish you from other companies
• Potential bottlenecks you have identified that have plagued competitors in the same industry and how you intend to overcome these bottlenecks

In your business plan, you need to prove your industry knowledge to anyone who reads your business plan. The competitive analysis section is designed for that purpose.

7. Management and Organization

Management and organization are key components of a business plan. They define its structure and how it is positioned to run.

Whether you intend to run a sole proprietorship, general or limited partnership, or corporation, the legal structure of your business needs to be clearly defined in your business plan.

Use an organizational chart that illustrates the hierarchy of operations of your company and spells out separate departments and their roles and functions in this business plan section.

The management and organization section includes profiles of advisors, board of directors, and executive team members and their roles and responsibilities in guaranteeing the company's success.

Apparent factors that influence your company's corporate culture, such as human resources requirements and legal structure, should be well defined in the management and organization section.

Defining the business's chain of command if you are not a sole proprietor is necessary. It leaves room for little or no confusion about who is in charge or responsible during business operations.

This section provides relevant information on how the management team intends to help employees maximize their strengths and address their identified weaknesses to help all quarters improve for the business's success.

8. Products and Services

This business plan section describes what a company has to offer regarding products and services to the maximum benefit and satisfaction of its target market.

Boldly spell out pending patents or copyright products and intellectual property in this section alongside costs, expected sales revenue, research and development, and competitors' advantage as an overview.

At this stage of your business plan, the reader needs to know what your business plans to produce and sell and the benefits these products offer in meeting customers' needs.

The supply network of your business product, production costs, and how you intend to sell the products are crucial components of the products and services section.

Investors are always keen on this information to help them reach a balanced assessment of if investing in your business is risky or offer benefits to them.

You need to create a link in this section on how your products or services are designed to meet the market's needs and how you intend to keep those customers and carve out a market share for your company.

Repeat purchases are the backing that a successful business relies on and measure how much customers are into what your company is offering.

This section is more like an expansion of the executive summary section. You need to analyze each product or service under the business.

9. Operating Plan

An operations plan describes how you plan to carry out your business operations and processes.

The operating plan for your business should include:

• Information about how your company plans to carry out its operations.
• The base location from which your company intends to operate.
• The number of employees to be utilized and other information about your company's operations.
• Key business processes.

This section should highlight how your organization is set up to run. You can also introduce your company's management team in this section, alongside their skills, roles, and responsibilities in the company.

The best way to introduce the company team is by drawing up an organizational chart that effectively maps out an organization's rank and chain of command.

What should be spelled out to readers when they come across this business plan section is how the business plans to operate day-in and day-out successfully.

10. Financial Projections and Assumptions

Bringing your great business ideas into reality is why business plans are important. They help create a sustainable and viable business.

The financial section of your business plan offers significant value. A business uses a financial plan to solve all its financial concerns, which usually involves startup costs, labor expenses, financial projections, and funding and investor pitches.

All key assumptions about the business finances need to be listed alongside the business financial projection, and changes to be made on the assumptions side until it balances with the projection for the business.

The financial plan should also include how the business plans to generate income and the capital expenditure budgets that tend to eat into the budget to arrive at an accurate cash flow projection for the business.

Base your financial goals and expectations on extensive market research backed with relevant financial statements for the relevant period.

Examples of financial statements you can include in the financial projections and assumptions section of your business plan include:

• Projected income statements
• Cash flow statements
• Balance sheets
• Income statements

Revealing the financial goals and potentials of the business is what the financial projection and assumption section of your business plan is all about. It needs to be purely based on facts that can be measurable and attainable.

11. Request For Funding

The request for funding section focuses on the amount of money needed to set up your business and underlying plans for raising the money required. This section includes plans for utilizing the funds for your business's operational and manufacturing processes.

When seeking funding, a reasonable timeline is required alongside it. If the need arises for additional funding to complete other business-related projects, you are not left scampering and desperate for funds.

If you do not have the funds to start up your business, then you should devote a whole section of your business plan to explaining the amount of money you need and how you plan to utilize every penny of the funds. You need to explain it in detail for a future funding request.

When an investor picks up your business plan to analyze it, with all your plans for the funds well spelled out, they are motivated to invest as they have gotten a backing guarantee from your funding request section.

Include timelines and plans for how you intend to repay the loans received in your funding request section. This addition keeps investors assured that they could recoup their investment in the business.

12. Exhibits and Appendices

Exhibits and appendices comprise the final section of your business plan and contain all supporting documents for other sections of the business plan.

Some of the documents that comprise the exhibits and appendices section includes:

• Legal documents
• Licenses and permits
• Credit histories
• Customer lists

The choice of what additional document to include in your business plan to support your statements depends mainly on the intended audience of your business plan. Hence, it is better to play it safe and not leave anything out when drawing up the appendix and exhibit section.

Supporting documentation is particularly helpful when you need funding or support for your business. This section provides investors with a clearer understanding of the research that backs the claims made in your business plan.

There are key points to include in the appendix and exhibits section of your business plan.

• The management team and other stakeholders resume
• Marketing research
• Permits and relevant legal documents
• Financial documents

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Martin loves entrepreneurship and has helped dozens of entrepreneurs by validating the business idea, finding scalable customer acquisition channels, and building a data-driven organization. During his time working in investment banking, tech startups, and industry-leading companies he gained extensive knowledge in using different software tools to optimize business processes.

This insights and his love for researching SaaS products enables him to provide in-depth, fact-based software reviews to enable software buyers make better decisions.

11 Key Components of a Business Plan

3 min. read

Updated May 10, 2024

Somebody asked me what the key components of a good business plan were, and I’m glad they did—it’s one of my favorite topics.

It gives me a chance to review and revise another of the lists that I’ve done off and on for years (such as the one from yesterday on  common business plan mistakes ).

• 1. Measure a business plan by the decisions it causes

I’ve written about this one in several places. Like everything else in business, business plans have business objectives.

Does the plan accomplish its objective ? Whether it is better management, accountability, setting stepping stones to the future, convincing somebody to invest, or something else?

Realistically, it doesn’t matter whether your business plan is well-written, complete, well-formatted, creative, or intelligent. It only matters that it does the job it’s supposed to do. It’s a bad plan if it doesn’t.

• 2. Concrete specifics

Dates, deadlines, major milestones, task responsibilities, sales forecasts, spending budgets, and cash flow projections.

Ask yourself how executable it is. Ask yourself how you’ll know, on a regular basis, how much progress you’ve made and whether or not you’re on track.

• 3. Cash flow

Cash flow is the single most important concept in business. A business plan without cash flow is a marketing plan, strategic plan, summary, or something else—and those can be useful, but get your vocabulary right.

A business model, lean canvas, pitch deck, and so on can be useful in some contexts, like raising investment. But those aren’t business plans.

• 4. Realistic

While it is true that all business plans are wrong , assumptions, drivers, deadlines, milestones, and other such details should be realistic, not crazy.

The plan is to be executed. Impossible goals and crazy forecasts make the whole thing a waste of time.

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• 5. Short, sweet, easy-to-read summaries of strategy and tactics

Not all business plans need a lot of text.

The text and explanations are for outsiders, such as investors and bankers; however, many companies ought to use business planning to improve their business operations. If you don’t need the extra information, leave it out.

Define strategy and tactics in short bullet point lists. Tactics, by the way, are related to the marketing plan, product plan, financial plan, and so on. Strategy without tactics is just fluff.

• 6. Alignment of strategy and tactics

It’s surprising how often they don’t match.

Strategy is focus, key target markets , key product/service features, important differentiators, and so forth. Tactics are things like pricing, social media, channels, and financials, and the two should match.

A gourmet restaurant (strategy) should not have a drive-through option (tactics.)

• 7. Covers the event-specific, objective-specific bases

A lot of components of a business plan depend on the usage.

Internal plans have no need for descriptions of company teams. Market analysis hits one level for an internal plan but often has to be proof of market or validation for a plan associated with investment. Investment plans need to know something about exits; internal plans don’t.

• 8. Easy in, easy out

Don’t make anybody work to find what information is where in the plan. Keep it simple.

Use bullets as much as possible, and be careful with naked bullets for people who don’t really know the background. Don’t show off.

• 9. As lean as possible

Just big enough to do the job . It has to be reviewed and revised regularly to be useful. Nothing should be included that isn’t going to be used.

• 10. Geared for change

A good business plan is the opposite of written in stone. It’s going to change in a few weeks.

List assumptions because reviewing assumptions is the best way to determine when to change the plan and when to stick with it.

• 11. The right level of aggregation and summary

It’s not accounting. It’s planning.

Projections look like accounting statements, but they aren’t. They are summarized. They aren’t built on elaborate financial models. They are just detailed enough to generate good information.

Tim Berry is the founder and chairman of Palo Alto Software , a co-founder of Borland International, and a recognized expert in business planning. He has an MBA from Stanford and degrees with honors from the University of Oregon and the University of Notre Dame. Today, Tim dedicates most of his time to blogging, teaching and evangelizing for business planning.

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What Is a Business Plan?

Understanding business plans, how to write a business plan, common elements of a business plan, how often should a business plan be updated, the bottom line, business plan: what it is, what's included, and how to write one.

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

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A business plan is a document that details a company's goals and how it intends to achieve them. Business plans can be of benefit to both startups and well-established companies. For startups, a business plan can be essential for winning over potential lenders and investors. Established businesses can find one useful for staying on track and not losing sight of their goals. This article explains what an effective business plan needs to include and how to write one.

Key Takeaways

• A business plan is a document describing a company's business activities and how it plans to achieve its goals.
• Startup companies use business plans to get off the ground and attract outside investors.
• For established companies, a business plan can help keep the executive team focused on and working toward the company's short- and long-term objectives.
• There is no single format that a business plan must follow, but there are certain key elements that most companies will want to include.

Investopedia / Ryan Oakley

Any new business should have a business plan in place prior to beginning operations. In fact, banks and venture capital firms often want to see a business plan before they'll consider making a loan or providing capital to new businesses.

Even if a business isn't looking to raise additional money, a business plan can help it focus on its goals. A 2017 Harvard Business Review article reported that, "Entrepreneurs who write formal plans are 16% more likely to achieve viability than the otherwise identical nonplanning entrepreneurs."

Ideally, a business plan should be reviewed and updated periodically to reflect any goals that have been achieved or that may have changed. An established business that has decided to move in a new direction might create an entirely new business plan for itself.

There are numerous benefits to creating (and sticking to) a well-conceived business plan. These include being able to think through ideas before investing too much money in them and highlighting any potential obstacles to success. A company might also share its business plan with trusted outsiders to get their objective feedback. In addition, a business plan can help keep a company's executive team on the same page about strategic action items and priorities.

Business plans, even among competitors in the same industry, are rarely identical. However, they often have some of the same basic elements, as we describe below.

While it's a good idea to provide as much detail as necessary, it's also important that a business plan be concise enough to hold a reader's attention to the end.

While there are any number of templates that you can use to write a business plan, it's best to try to avoid producing a generic-looking one. Let your plan reflect the unique personality of your business.

Many business plans use some combination of the sections below, with varying levels of detail, depending on the company.

The length of a business plan can vary greatly from business to business. Regardless, it's best to fit the basic information into a 15- to 25-page document. Other crucial elements that take up a lot of space—such as applications for patents—can be referenced in the main document and attached as appendices.

These are some of the most common elements in many business plans:

• Executive summary: This section introduces the company and includes its mission statement along with relevant information about the company's leadership, employees, operations, and locations.
• Products and services: Here, the company should describe the products and services it offers or plans to introduce. That might include details on pricing, product lifespan, and unique benefits to the consumer. Other factors that could go into this section include production and manufacturing processes, any relevant patents the company may have, as well as proprietary technology . Information about research and development (R&D) can also be included here.
• Market analysis: A company needs to have a good handle on the current state of its industry and the existing competition. This section should explain where the company fits in, what types of customers it plans to target, and how easy or difficult it may be to take market share from incumbents.
• Marketing strategy: This section can describe how the company plans to attract and keep customers, including any anticipated advertising and marketing campaigns. It should also describe the distribution channel or channels it will use to get its products or services to consumers.
• Financial plans and projections: Established businesses can include financial statements, balance sheets, and other relevant financial information. New businesses can provide financial targets and estimates for the first few years. Your plan might also include any funding requests you're making.

The best business plans aren't generic ones created from easily accessed templates. A company should aim to entice readers with a plan that demonstrates its uniqueness and potential for success.

2 Types of Business Plans

Business plans can take many forms, but they are sometimes divided into two basic categories: traditional and lean startup. According to the U.S. Small Business Administration (SBA) , the traditional business plan is the more common of the two.

• Traditional business plans : These plans tend to be much longer than lean startup plans and contain considerably more detail. As a result they require more work on the part of the business, but they can also be more persuasive (and reassuring) to potential investors.
• Lean startup business plans : These use an abbreviated structure that highlights key elements. These business plans are short—as short as one page—and provide only the most basic detail. If a company wants to use this kind of plan, it should be prepared to provide more detail if an investor or a lender requests it.

Why Do Business Plans Fail?

A business plan is not a surefire recipe for success. The plan may have been unrealistic in its assumptions and projections to begin with. Markets and the overall economy might change in ways that couldn't have been foreseen. A competitor might introduce a revolutionary new product or service. All of this calls for building some flexibility into your plan, so you can pivot to a new course if needed.

How frequently a business plan needs to be revised will depend on the nature of the business. A well-established business might want to review its plan once a year and make changes if necessary. A new or fast-growing business in a fiercely competitive market might want to revise it more often, such as quarterly.

What Does a Lean Startup Business Plan Include?

The lean startup business plan is an option when a company prefers to give a quick explanation of its business. For example, a brand-new company may feel that it doesn't have a lot of information to provide yet.

Sections can include: a value proposition ; the company's major activities and advantages; resources such as staff, intellectual property, and capital; a list of partnerships; customer segments; and revenue sources.

A business plan can be useful to companies of all kinds. But as a company grows and the world around it changes, so too should its business plan. So don't think of your business plan as carved in granite but as a living document designed to evolve with your business.

Harvard Business Review. " Research: Writing a Business Plan Makes Your Startup More Likely to Succeed ."

U.S. Small Business Administration. " Write Your Business Plan ."

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10 Essential Components of a Business Plan and How to Write Them

Business Plan Template

Ayush Jalan

• January 4, 2024

12 Min Read

A business plan is an essential document for any business, whether it’s a startup or an established enterprise. It’s the first thing any interested investor will ask for if they like your business idea and want to partner with you. 

That’s why it’s important to pay attention when writing your business plan and the components inside it. An incomplete business plan can give the impression that you’re unqualified—discouraging investors and lenders. 

A good business plan reduces ambiguity and communicates all essential details such as your financials, market analysis, competitive analysis, and a timeline for implementation of the plan. In this article, we’ll discuss the 10 important business plan components. 

10 Important Business Plan Components

A comprehensive and well-thought-out business plan acts as a roadmap that guides you in making sound decisions and taking the right actions at the right times. Here are its key components and what to include in them.

1. Executive summary

The executive summary is one of the most important parts of a business plan. It’s the first thing potential investors will read and should therefore provide a clear overview of your business and its goals.

In other words, it helps the reader get a better idea of what to expect from your company. So, when writing an executive summary of your business, don’t forget to mention your mission and vision statement.

Mission statement

A mission statement is a brief statement that outlines your objectives and what you want to achieve. It acts as a guiding principle that informs decisions and provides a clear direction for the organization to follow.

For instance, Google’s mission is to “organize the world’s information and make it universally accessible and useful.” It’s short, inspiring, and immediately communicates what the company does.

A mission statement should be realistic, and hint towards a goal that is achievable in a reasonable amount of time with the resources you currently have or are going to acquire in the near future.

Vision statement

While a mission statement is more actionable and has an immediate effect on the daily activities of the company, a vision statement is more aspirational and has a much broader scope.

In other words, it highlights where the company aims to go in the future and the positive change it hopes to make in the world within its lifetime.

2. Company description

The second component of your business plan is the company description. Here, you provide a brief overview of your company, its products or services, and its history. You can also add any notable achievements if they are significant enough for an investor to know.

A company overview offers a quick bird’s-eye view of things such as your business model , operational capabilities, financials, business philosophy, size of the team, code of conduct, and short-term and long-term objectives.

Products and services

The products and services part of your company description explains what your business offers to its customers, how it’s delivered, and the costs involved in acquiring new customers and executing a sale.

Company History

Company history is the timeline of events that took place in your business from its origin to the present day. It includes a brief profile of the founder(s) and their background, the date the company was founded, any notable achievements and milestones, and other similar facts and details.

If you’re a startup, you’ll probably not have much of a history to write about. In that case, you can share stories of the challenges your startup faced during its inception and how your team overcame them.

3. Market analysis

The market analysis section of your business plan provides an in-depth analysis of the industry, target market, and competition. It should underline the risks and opportunities associated with your industry, and also comment on the attributes of your target customer.

Demographics and segmentation

Understanding the demographics of your customers plays a big role in how well you’re able to identify their traits and serve them.

By dividing your target audience into smaller and more manageable groups, you can tailor your services and products to better meet their needs.

You can use demographics such as age, gender, income, location, ethnicity, and education level to better understand the preferences and behaviors of each segment, and use that data to create more effective marketing strategies.     

Target market and size

Understanding your target market lies at the core of all your marketing endeavors. After all, if you don’t have a clear idea of who you’re serving, you won’t be able to serve well no matter how big your budget is.

For instance, Starbucks’ primary target market includes working professionals and office workers. The company has positioned itself such that many of its customers start their day with its coffee.

Estimating the market size helps you know how much scope there is to scale your business in the future. In other words, you’re trying to determine how much potential revenue exists in this market and if it’s worth the investment.

Market need

The next step is to figure out the market need, i.e., the prevalent pain points that people in that market experience. The easiest way to find these pain points is to read the negative reviews people leave on Amazon for products that are similar to yours.

The better your product solves those pain points, the better your chances of capturing that market. In addition, since your product is solving a problem that your rivals can’t, you can also charge a premium price.

To better identify the needs of your target customers, it helps to take into account things such as local cultural values, industry trends, buying habits, tastes and preferences, price elasticity, and more.

4. Product Summary

The product summary section of your business plan goes into detail about the features and benefits that your products and services offer, and how they differ from your competitors. It also outlines the manufacturing process, pricing, cost of production, inventory, packaging, and capital requirements.

5. Competitive analysis

Unless you’ve discovered an untapped market, you’re probably going to face serious competition and it’s only going to increase as you scale your business later down the line.

This is where the competitive analysis section helps; it gives an overview of the competitive landscape, introduces your immediate rivals, and highlights the current dominant companies and their market share.

In such an environment, it helps to have certain competitive advantages against your rivals so you can stand out in the market. Simply put, a competitive advantage is the additional value you can provide to your customers that your rivals can’t—perhaps via unique product features, excellent customer service, or more.

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6. Marketing and sales plan

The marketing and sales plan is one of the most important business plan components. It explains how you plan to penetrate the market, position your brand in the minds of the buyers, build brand loyalty, increase sales, and remain competitive in an ever-changing business environment.

Unique selling proposition

A unique selling proposition (USP) conveys how your products and services differ from those of your competitors, and the added value those differences provide.

A strong USP will stand out in a competitive market and make potential customers more likely to switch to your brand—essentially capturing the market share of your rivals.

Marketing Plan

Your product might be unique, but if people don’t even know that it exists, it won’t sell. That’s where marketing comes in.

A marketing plan outlines strategies for reaching your target market and achieving sales goals. It also outlines the budget required for advertising and promotion.

You may also include data on the target market, target demographics, objectives, strategies, a timeline, budget, and the metrics considered for evaluating success.

Sales and distribution plan

Once people are made aware of your product, the next step is to ensure it reaches them. This means having a competent sales and distribution plan and a strong supply chain.

Lay out strategies for reaching potential customers, such as online marketing, lead generation, retail distribution channels, or direct sales.

Your goal here is to minimize sales costs and address the risks involved with the distribution of your product. If you’re selling ice cream, for example, you would have to account for the costs of refrigeration and cold storage.

Pricing strategy

Pricing is a very sensitive yet important part of any business. When creating a pricing strategy , you need to consider factors such as market demand, cost of production, competitor prices, disposable income of target customers, and profitability goals.

Some businesses have a small profit margin but sell large volumes of their product, while others sell fewer units but with a massive markup. You will have to decide for yourself which approach you want to follow.

Before setting your marketing plans into action, you need a budget for them. This means writing down how much money you’ll need, how it will be used, and the potential return you are estimating on this investment.

A budget should be flexible, meaning that it should be open to changes as the market shifts and customer behavior evolves. The goal here is to make sure that the company is making the best use of its resources by minimizing the wastage of funds.

7. Operations plan

The operations plan section of your business plan provides an overview of how the business is run and its day-to-day operations. This section is especially important for manufacturing businesses.

It includes a description of your business structure, the roles and responsibilities of each team member, the resources needed, and the procedures you will use to ensure the smooth functioning of your business. The goal here is to maximize output whilst minimizing the wastage of raw material or human labor.

8. Management team

At the core of any successful business lies a dedicated, qualified, and experienced management team overlooking key business activities. 

This section provides an overview of the key members of your management team including their credentials, professional background, role and responsibilities, experience, and qualifications.

A lot of investors give special attention to this section as it helps them ascertain the competence and work ethic of the members involved.

Organizational structure

An organizational structure defines the roles, responsibilities, decision-making processes, and authority of each individual or department in an organization.

Having a clear organizational structure improves communication, increases efficiency, promotes collaboration, and makes it easier to delegate tasks. Startups usually have a flatter organizational hierarchy whereas established businesses have a more traditional structure of power and authority.

9. Financial Plan

Financials are usually the least fun thing to talk about, but they are important nonetheless as they provide an overview of your current financial position, capital requirements, projections, and plans for repayment of any loans. 

Your financial plan should also include an analysis of your startup costs, operating costs, administration costs, and sources of revenue.

Funding requirements

Once an investor has read through your business plan, it’s time to request funding. Investors will want to see an accurate and detailed breakdown of the funds required and an explanation of why the requested funds are necessary for the operation and expansion of your business.

10. Appendix

The appendix is the last section of your business plan and it includes additional supporting documents such as resumes of key team members, market research documents, financial statements, and legal documents. 

In other words, anything important or relevant that couldn’t fit in any of the former sections of your business plan goes in the appendix.

Write a Business Plan Worth Reading

Starting a business is never easy, but it’s a little less overwhelming if you have a well-made business plan. It helps you better navigate the industry, reduce risk, stay competitive, and make the best use of your time and money.

Remember, since every business is unique, every business plan is unique too, and must be regularly updated to keep up with changing industry trends. Also, it’s very likely that interested investors will give you feedback, so make sure to implement their recommendations as well.

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About the Author

Ayush is a writer with an academic background in business and marketing. Being a tech-enthusiast, he likes to keep a sharp eye on the latest tech gadgets and innovations. When he's not working, you can find him writing poetry, gaming, playing the ukulele, catching up with friends, and indulging in creative philosophies.

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What Is a Business Plan? Definition and Planning Essentials Explained

Posted february 21, 2022 by kody wirth.

What is a business plan? It’s the roadmap for your business. The outline of your goals, objectives, and the steps you’ll take to get there. It describes the structure of your organization, how it operates, as well as the financial expectations and actual performance. 

A business plan can help you explore ideas, successfully start a business, manage operations, and pursue growth. In short, a business plan is a lot of different things. It’s more than just a stack of paper and can be one of your most effective tools as a business owner. 

Let’s explore the basics of business planning, the structure of a traditional plan, your planning options, and how you can use your plan to succeed. 

What is a business plan?

A business plan is a document that explains how your business operates. It summarizes your business structure, objectives, milestones, and financial performance. Again, it’s a guide that helps you, and anyone else, better understand how your business will succeed.  

Why do you need a business plan?

The primary purpose of a business plan is to help you understand the direction of your business and the steps it will take to get there. Having a solid business plan can help you grow up to 30% faster and according to our own 2021 Small Business research working on a business plan increases confidence regarding business health—even in the midst of a crisis. 

These benefits are directly connected to how writing a business plan makes you more informed and better prepares you for entrepreneurship. It helps you reduce risk and avoid pursuing potentially poor ideas. You’ll also be able to more easily uncover your business’s potential. By regularly returning to your plan you can understand what parts of your strategy are working and those that are not.

That just scratches the surface for why having a plan is valuable. Check out our full write-up for fifteen more reasons why you need a business plan .  

What can you do with your plan?

So what can you do with a business plan once you’ve created it? It can be all too easy to write a plan and just let it be. Here are just a few ways you can leverage your plan to benefit your business.

Test an idea

Writing a plan isn’t just for those that are ready to start a business. It’s just as valuable for those that have an idea and want to determine if it’s actually possible or not. By writing a plan to explore the validity of an idea, you are working through the process of understanding what it would take to be successful. 

The market and competitive research alone can tell you a lot about your idea. Is the marketplace too crowded? Is the solution you have in mind not really needed? Add in the exploration of milestones, potential expenses, and the sales needed to attain profitability and you can paint a pretty clear picture of the potential of your business.

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For those starting or managing a business understanding where you’re going and how you’re going to get there are vital. Writing your plan helps you do that. It ensures that you are considering all aspects of your business, know what milestones you need to hit, and can effectively make adjustments if that doesn’t happen. 

With a plan in place, you’ll have an idea of where you want your business to go as well as how you’ve performed in the past. This alone better prepares you to take on challenges, review what you’ve done before, and make the right adjustments.

Pursue funding

Even if you do not intend to pursue funding right away, having a business plan will prepare you for it. It will ensure that you have all of the information necessary to submit a loan application and pitch to investors. So, rather than scrambling to gather documentation and write a cohesive plan once it’s relevant, you can instead keep your plan up-to-date and attempt to attain funding. Just add a use of funds report to your financial plan and you’ll be ready to go.

The benefits of having a plan don’t stop there. You can then use your business plan to help you manage the funding you receive. You’ll not only be able to easily track and forecast how you’ll use your funds but easily report on how it’s been used. 

Better manage your business

A solid business plan isn’t meant to be something you do once and forget about. Instead, it should be a useful tool that you can regularly use to analyze performance, make strategic decisions, and anticipate future scenarios. It’s a document that you should regularly update and adjust as you go to better fit the actual state of your business.

Doing so makes it easier to understand what’s working and what’s not. It helps you understand if you’re truly reaching your goals or if you need to make further adjustments. Having your plan in place makes that process quicker, more informative, and leaves you with far more time to actually spend running your business.

What should your business plan include?

The content and structure of your business plan should include anything that will help you use it effectively. That being said, there are some key elements that you should cover and that investors will expect to see. 

Executive summary

The executive summary is a simple overview of your business and your overall plan. It should serve as a standalone document that provides enough detail for anyone—including yourself, team members, or investors—to fully understand your business strategy. Make sure to cover the problem you’re solving, a description of your product or service, your target market, organizational structure, a financial summary, and any necessary funding requirements.

This will be the first part of your plan but it’s easiest to write it after you’ve created your full plan.

Products & Services

When describing your products or services, you need to start by outlining the problem you’re solving and why what you offer is valuable. This is where you’ll also address current competition in the market and any competitive advantages your products or services bring to the table. Lastly, be sure to outline the steps or milestones that you’ll need to hit to successfully launch your business. If you’ve already hit some initial milestones, like taking pre-orders or early funding, be sure to include it here to further prove the validity of your business. 

Market analysis

A market analysis is a qualitative and quantitative assessment of the current market you’re entering or competing in. It helps you understand the overall state and potential of the industry, who your ideal customers are, the positioning of your competition, and how you intend to position your own business. This helps you better explore the long-term trends of the market, what challenges to expect, and how you will need to initially introduce and even price your products or services.

Check out our full guide for how to conduct a market analysis in just four easy steps .  

Marketing & sales

Here you detail how you intend to reach your target market. This includes your sales activities, general pricing plan, and the beginnings of your marketing strategy. If you have any branding elements, sample marketing campaigns, or messaging available—this is the place to add it. 

Additionally, it may be wise to include a SWOT analysis that demonstrates your business or specific product/service position. This will showcase how you intend to leverage sales and marketing channels to deal with competitive threats and take advantage of any opportunities.

Check out our full write-up to learn how to create a cohesive marketing strategy for your business. 

Organization & management

This section addresses the legal structure of your business, your current team, and any gaps that need to be filled. Depending on your business type and longevity, you’ll also need to include your location, ownership information, and business history. Basically, add any information that helps explain your organizational structure and how you operate. This section is particularly important for pitching to investors but should be included even if attempted funding is not in your immediate future.

Financial projections

Possibly the most important piece of your plan, your financials section is vital for showcasing the viability of your business. It also helps you establish a baseline to measure against and makes it easier to make ongoing strategic decisions as your business grows. This may seem complex on the surface, but it can be far easier than you think. 

Focus on building solid forecasts, keep your categories simple, and lean on assumptions. You can always return to this section to add more details and refine your financial statements as you operate. 

Here are the statements you should include in your financial plan:

• Sales and revenue projections
• Profit and loss statement
• Cash flow statement
• Balance sheet

The appendix is where you add additional detail, documentation, or extended notes that support the other sections of your plan. Don’t worry about adding this section at first and only add documentation that you think will be beneficial for anyone reading your plan.

Types of business plans explained

While all business plans cover similar categories, the style and function fully depend on how you intend to use your plan. So, to get the most out of your plan, it’s best to find a format that suits your needs. Here are a few common business plan types worth considering. 

Traditional business plan

The tried-and-true traditional business plan is a formal document meant to be used for external purposes. Typically this is the type of plan you’ll need when applying for funding or pitching to investors. It can also be used when training or hiring employees, working with vendors, or any other situation where the full details of your business must be understood by another individual. 

This type of business plan follows the outline above and can be anywhere from 10-50 pages depending on the amount of detail included, the complexity of your business, and what you include in your appendix. We recommend only starting with this business plan format if you plan to immediately pursue funding and already have a solid handle on your business information. 

Business model canvas

The business model canvas is a one-page template designed to demystify the business planning process. It removes the need for a traditional, copy-heavy business plan, in favor of a single-page outline that can help you and outside parties better explore your business idea. 

The structure ditches a linear structure in favor of a cell-based template. It encourages you to build connections between every element of your business. It’s faster to write out and update, and much easier for you, your team, and anyone else to visualize your business operations. This is really best for those exploring their business idea for the first time, but keep in mind that it can be difficult to actually validate your idea this way as well as adapt it into a full plan.

One-page business plan

The true middle ground between the business model canvas and a traditional business plan is the one-page business plan. This format is a simplified version of the traditional plan that focuses on the core aspects of your business. It basically serves as a beefed-up pitch document and can be finished as quickly as the business model canvas.

By starting with a one-page plan, you give yourself a minimal document to build from. You’ll typically stick with bullet points and single sentences making it much easier to elaborate or expand sections into a longer-form business plan. This plan type is useful for those exploring ideas, needing to validate their business model, or who need an internal plan to help them run and manage their business.

Now, the option that we here at LivePlan recommend is the Lean Plan . This is less of a specific document type and more of a methodology. It takes the simplicity and styling of the one-page business plan and turns it into a process for you to continuously plan, test, review, refine, and take action based on performance.

It holds all of the benefits of the single-page plan, including the potential to complete it in as little as 27-minutes . However, it’s even easier to convert into a full plan thanks to how heavily it’s tied to your financials. The overall goal of Lean Planning isn’t to just produce documents that you use once and shelve. Instead, the Lean Planning process helps you build a healthier company that thrives in times of growth and stable through times of crisis.

It’s faster, keeps your plan concise, and ensures that your plan is always up-to-date.

Try the LivePlan Method for Lean Business Planning

Now that you know the basics of business planning, it’s time to get started. Again we recommend leveraging a Lean Plan for a faster, easier, and far more useful planning process. 

To get familiar with the Lean Plan format, you can download our free Lean Plan template . However, if you want to elevate your ability to create and use your lean plan even further, you may want to explore LivePlan. 

It features step-by-step guidance that ensures you cover everything necessary while reducing the time spent on formatting and presenting. You’ll also gain access to financial forecasting tools that propel you through the process. Finally, it will transform your plan into a management tool that will help you easily compare your forecasts to your actual results. 

Check out how LivePlan streamlines Lean Planning by downloading our Kickstart Your Business ebook .

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The 10 Key Components of a Business Plan

Written by Dave Lavinsky

Over the past 20+ years, we have helped over 1 million entrepreneurs and business owners write business plans. These plans have been used to raise funding and grow countless businesses.

Download our Ultimate Business Plan Template here >

From working with all these businesses, we know what the 10 elements in any great business plan. Providing a comprehensive assessment of each of these components is critical in attracting lenders, angel investors, venture capitalists or other equity investors.

Get started with a title page that includes your company name, logo and contact information, since interested readers must have a simple way to find and reach out to you. After that be sure to include the 10 parts of a business plan documented below.

What are the 10 Key Components of a Business Plan?

The 10 sections or elements of a business plan that you must include are as follows:

1. Executive Summary

The executive summary provides a succinct synopsis of the business plan, and highlights the key points raised within. It often includes the company’s mission statement and description of the products and services. It’s recommended by me and many experts including the Small Business Administration to write the executive summary last.

The executive summary must communicate to the prospective investor the size and scope of the market opportunity, the venture’s business and profitability model, and how the resources/skills/strategic positioning of the company’s management team make it uniquely qualified to execute the business plan. The executive summary must be compelling, easy-to-read, and no longer than 2-4 pages.  

2. Company Analysis

This business plan section provides a strategic overview of the business and describes how the company is organized, what products and services it offers/will offer, and goes into further detail on the business’ unique qualifications in serving its target markets. As any good business plan template will point out, your company analysis should also give a snapshot of the company’s achievements to date, since the best indicator of future success are past accomplishments.

3. Industry or Market Analysis

This section evaluates the playing field in which the company will be competing, and includes well-structured answers to key market research questions such as the following:

• What are the sizes of the target market segments?
• What are the trends for the industry as a whole?
• With what other industries do your services compete?

To conduct this market research, do research online and leverage trade associations that often have the information you need.  

4. Analysis of Customers

The customer analysis business plan section assesses the customer segment(s) that the company serves. In this section, the company must convey the needs of its target customers. It must then show how its products and services satisfy these needs to an extent that the customer will pay for them.

The following are examples of customer segments: moms, engaged couples, schools, online retailers, teens, baby boomers, business owners, etc.

As you can imagine, the customer segment(s) you choose will have a great impact on the type of business you operate as different segments often have different needs. Try to break out your target customers in terms of their demographic and psychographic profiles. With regards to demographics, including a discussion of the ages, genders, locations and income levels of the customers you seek to serve. With regards to psychographic variables, discuss whether your customers have any unique lifestyles, interests, opinions, attitudes and/or values that will help you market to them more effectively.

5. Analysis of Competition

All capable business plan writers discuss the competitive landscape of your business. This element of your plan must identify your direct and indirect competitors, assesses their strengths and weaknesses and delineate your company’s competitive advantages. It’s a crucial business plan section.

Direct competitors are those that provide the same product or service to the same customer. Indirect competitors are those who provide similar products or services. For example, the direct competitors to a pizza shop are other local pizza shops. Indirect competitors are other food options like supermarkets, delis, other restaurants, etc.

The first five components of your business plan provide an overview of the business opportunity and market research to support it. The remaining five business plan sections focus mainly on strategy, primarily the marketing, operational, financial and management strategies that your firm will employ.

6. Marketing, Sales & Product Plan

The marketing and sales plan component of your business plan details your strategy for penetrating the target markets. Key elements include the following:

• A description of the company’s desired strategic positioning
• Detailed descriptions of the company’s product and service offerings and potential product extensions
• Descriptions of the company’s desired image and branding strategy
• Descriptions of the company’s promotional strategies
• An overview of the company’s pricing strategies
• A description of current and potential strategic marketing partnerships/ alliances

7. Operations Strategy, Design and Development Plans

These sections detail the internal strategies for building the venture from concept to reality, and include answers to the following questions:

• What functions will be required to run the business?
• What milestones must be reached before the venture can be launched?
• How will quality be controlled?

8. Management Team

The management team section demonstrates that the company has the required human resources to be successful. The business plan must answer questions including:

• Who are the key management personnel and what are their backgrounds?
• What management additions will be required to make the business a success?
• Who are the other investors and/or shareholders, if any?
• Who comprises the Board of Directors and/or Board of Advisors?
• Who are the professional advisors (e.g., lawyer, accounting firm)?

9. Financial Plan

The financial plan involves the development of the company’s revenue and profitability model. These financial statements detail how you generate income and get paid from customers,. The financial plan includes detailed explanations of the key assumptions used in building the business plan model, sensitivity analysis on key revenue and cost variables, and description of comparable valuations for existing companies with similar business models.

One of the key purposes of your business plan is to determine the amount of capital the firm needs. The financial plan does this along with assessing the proposed use of these funds (e.g., equipment, working capital, labor expenses, insurance costs, etc.) and the expected future earnings. It includes Projected Income Statements, Balance Sheets (showing assets, liabilities and equity) and Cash Flow Statements, broken out quarterly for the first two years, and annually for years 1-5.

Importantly, all of the assumptions and projections in the financial plan must flow from and be supported by the descriptions and explanations offered in the other sections of the plan. The financial plan is where the entrepreneur communicates how he/she plans to “monetize” the overall vision for the new venture. Note that in addition to traditional debt and equity sources of startup and growth funding that require a business plan (bank loans, angel investors, venture capitalists, friends and family), you will probably also use other capital sources, such as credit cards and business credit, in growing your company.

10. Appendix

The appendix is used to support the rest of the business plan. Every business plan should have a full set of financial projections in the appendix, with the summary of these financials in the executive summary and the financial plan. Other documentation that could appear in the appendix includes technical drawings, partnership and/or customer letters, expanded competitor reviews and/or customer lists.

Find additional business plan help articles here.

Expertly and comprehensively discussing these components in their business plan helps entrepreneurs to better understand their business opportunity and assists them in convincing investors that the opportunity may be right for them too.

In addition to ensuring you included the proper elements of a business plan when developing your plan always think about why you are uniquely qualified to succeed in your business. For example, is your team’s expertise something that’s unique and can ensure your success? Or is it marketing partnerships you have executed? Importantly, if you don’t have any unique success factors, think about what you can add to make your company unique. Doing so can dramatically improve your success. Also, whether you write it on a word processor or use business plan software , remember to update your plan at least annually. After several years, you should have several business plans you can review to see what worked and what didn’t. This should prove helpful as you create future plans for your company’s growth.

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When you’re starting a small business, a sound business plan is a critical element you need to secure funding and develop your operational and marketing tactics. While there are several different sections within a business plan, it’s critical to focus on the most important ones so that you can guide your business where you want it to go.

The four most important sections of a business plan include your unique value proposition, details about your management team, your market analysis and your financial projections.

The 4 Most Important Elements of a Business Plan

According to the U.S. Small Business Administration , a business plan is like a GPS for your new venture. Without it, you can often feel lost or confused. Taking time to write out a solid business plan helps to cement your ideas and fine tune your tactics. This is a good exercise to do even if you don’t need to get funding for your business. A business plan helps entrepreneurs think through their ideas carefully, and provides the next steps they need to take to succeed.

When you’re writing a business plan, it’s important to consider your audience. In many cases, this includes potential investors, partners or financial institutions. They want to understand why your business is posed to succeed and why you are the person that’s going to get it there. As a result, there are four key areas you need to focus on in your business plan, in addition to the rest of its contents:

• The unique value proposition of your business
• The experience, education and successes of your management team
• A detailed market analysis
• A realistic financial projection

Anyone who is looking at your business plan will pay special attention to these four key areas because they summarize your plan for success.

Describe Your Unique Value Proposition

Directly after your executive summary, you need to include a section in your business plan where you describe your company and the products or services you sell. This section should include details on your business structure, legal form and whether you need any special licenses or permits. This practical information is key, according to Entrepreneur , because investors need to see that you have the logistical details in place.

This section is a key element of your business plan because you have the opportunity to showcase what makes your business unique. According to Forbes , it’s critical to show how your products and services are different from your competition. For example, do you use a new ingredient that other cafés don't have, or do you have a unique process no one else in the industry knows? These are the types of things you’ll need to include in this section of your business plan.

Plus, be sure to outline who your market is. Who are your ideal customers and why will they be interested in what you have to offer? You can provide an overview of your prospects here and delve deeper into it in your market analysis.

Showcase Your Management Team

A most important aspect of a business plan is the management bios. When it comes to small businesses, your successes are interlinked with the company leadership. A business can succeed based on the experience, education and expertise of its owner. Similarly, it may fail if the leadership team makes poor decisions, lacks the proper experience or isn’t interested in learning new skills.

As a result, investors and financial institutions will want to know who is heading up your organization. Take some time to write up professional bios of your core management team. This may include the business owner and heads of key departments such as sales, marketing and product development.

The bios should contain previous positions the management team have held and what kind of accolades they have received. Adding quantitative metrics is key, such as a sales manager increasing sales in their last position by 110 percent. If anyone of the leadership team has previous experience starting a business, be sure to highlight this information and provide the successes of that business. You’ll also need to point out any skills gaps, and discuss how you plan to fill them with additional resources or outsourced assets, according to Constant Contact .

Conduct a Market Analysis

Another most important component of a business plan is the market analysis. In this key section, you need to cover why this is a viable market from a financial standpoint, according to The Business Plan Shop . This requires a lot of detailed quantitative and qualitative research into your target audience and your competition.

Begin by outlining who your audience is, and provide their demographic, geographic, behavioral and psychographic characteristics. It’s important to provide numbers wherever possible to show how big your potential market segment is and whether it can support your business. Be sure to outline what kind of problems or challenges they are experiencing and how your business can solve them.

You’ll also need to provide a competitive analysis by reviewing other players in your industry. Provide estimations on how much market share each competitor has and where you have opportunities to take market share from them. This section should also include any barriers to entry. For example, can anyone open up a similar store and take market share away from you?

Provide Financial Statements and Projections

Perhaps the most important part of a business plan, especially for investors, partners and financial institutions, is your financial projections. These show the viability of your business in the years to come, according to Constant Contact. While complicated graphs, charts and spreadsheets can look intimidating, it’s important to be familiar with them and be able to talk about them in plain English. Entrepreneur recommends providing a cover page to the financial document section describing the content in detail.

Be sure to include these three financial statements in this section:

• Income statement: Entrepreneur recommends listing your income projections monthly for your first year of business, quarterly for your second year of business and annually after that.
• Cash flow statement: This document is important for investors because it shows how much money is required for your business, where it’s going to come from and when it’s going to come in.
• Balance sheet: This document summarizes your business’ assets, liabilities and equity.

Other Important Elements of Your Business Plan

While these four sections are key to your business plan, it’s important to also focus on the other necessary sections. Typically, business plans follow a templated order so that information is provided in a logical format to meet your investors’ needs. Be sure to include these sections within your business plan:

• Executive summary
• Mission and vision statement
• Business description and unique value proposition
• Management team biographies
• Market analysis with competitor details and target market segmentation
• Marketing plan
• SWOT analysis (strengths, weaknesses, opportunities, threats)
• Logistics and operations plan
• Financial statements and projections

Some investors or financial institutions may have separate requirements for business plans, so it’s important to keep your audience in mind when writing it out. Whenever possible, be sure to provide concrete examples, quantitative information and intricate details. Remember that writing out a business plan is useful for you even if you’re not seeking investment or funds, because it will help you clarify your plans and develop market strategies for success.

• U.S. Small Business Administration: 5 Reasons You Need a Business Plan
• Constant Contact: 4 Sections Every Business Plan Must Have (And Why they’re Important)
• Entrepreneur: Elements of a Business Plan
• Forbes: 10 Essential Business Plan Components
• The Business Plan Shop: How to Do a Market Analysis for a Business Plan

Anam Ahmed is a Toronto-based writer and editor with over a decade of experience helping small businesses and entrepreneurs reach new heights. She has experience ghostwriting and editing business books, especially those in the "For Dummies" series, in addition to writing and editing web content for the brand. Anam works as a marketing strategist and copywriter, collaborating with everyone from Fortune 500 companies to start-ups, lifestyle bloggers to professional athletes. As a small business owner herself, she is well-versed in what it takes to run and market a small business. Anam earned an M.A. from the University of Toronto and a B.A.H. from Queen's University. Learn more at www.anamahmed.ca.

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The importance of a business plan

Business plans are like road maps: it’s possible to travel without one, but that will only increase the odds of getting lost along the way.

Owners with a business plan see growth 30% faster than those without one, and 71% of the fast-growing companies have business plans . Before we get into the thick of it, let’s define and go over what a business plan actually is.

What is a business plan?

A business plan is a 15-20 page document that outlines how you will achieve your business objectives and includes information about your product, marketing strategies, and finances. You should create one when you’re starting a new business and keep updating it as your business grows.

Rather than putting yourself in a position where you may have to stop and ask for directions or even circle back and start over, small business owners often use business plans to help guide them. That’s because they help them see the bigger picture, plan ahead, make important decisions, and improve the overall likelihood of success. ‍

Why is a business plan important?

A well-written business plan is an important tool because it gives entrepreneurs and small business owners, as well as their employees, the ability to lay out their goals and track their progress as their business begins to grow. Business planning should be the first thing done when starting a new business. Business plans are also important for attracting investors so they can determine if your business is on the right path and worth putting money into.

Business plans typically include detailed information that can help improve your business’s chances of success, like:

• A market analysis : gathering information about factors and conditions that affect your industry
• Competitive analysis : evaluating the strengths and weaknesses of your competitors
• Customer segmentation : divide your customers into different groups based on specific characteristics to improve your marketing
• Marketing: using your research to advertise your business
• Logistics and operations plans : planning and executing the most efficient production process
• Cash flow projection : being prepared for how much money is going into and out of your business
• An overall path to long-term growth

What is the purpose of a business plan?

A business plan is like a map for small business owners, showing them where to go and how to get there. Its main purposes are to help you avoid risks, keep everyone on the same page, plan finances, check if your business idea is good, make operations smoother, and adapt to changes. It's a way for small business owners to plan, communicate, and stay on track toward their goals.

10 reasons why you need a business plan

I know what you’re thinking: “Do I really need a business plan? It sounds like a lot of work, plus I heard they’re outdated and I like figuring things out as I go...”.

The answer is: yes, you really do need a business plan! As entrepreneur Kevin J. Donaldson said, “Going into business without a business plan is like going on a mountain trek without a map or GPS support—you’ll eventually get lost and starve! Though it may sound tedious and time-consuming, business plans are critical to starting your business and setting yourself up for success.

To outline the importance of business plans and make the process sound less daunting, here are 10 reasons why you need one for your small business.

1. To help you with critical decisions

The primary importance of a business plan is that they help you make better decisions. Entrepreneurship is often an endless exercise in decision making and crisis management. Sitting down and considering all the ramifications of any given decision is a luxury that small businesses can’t always afford. That’s where a business plan comes in.

Building a business plan allows you to determine the answer to some of the most critical business decisions ahead of time.

Creating a robust business plan is a forcing function—you have to sit down and think about major components of your business before you get started, like your marketing strategy and what products you’ll sell. You answer many tough questions before they arise. And thinking deeply about your core strategies can also help you understand how those decisions will impact your broader strategy.

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2. To iron out the kinks

Putting together a business plan requires entrepreneurs to ask themselves a lot of hard questions and take the time to come up with well-researched and insightful answers. Even if the document itself were to disappear as soon as it’s completed, the practice of writing it helps to articulate your vision in realistic terms and better determine if there are any gaps in your strategy.

3. To avoid the big mistakes

Only about half of small businesses are still around to celebrate their fifth birthday . While there are many reasons why small businesses fail, many of the most common are purposefully addressed in business plans.

According to data from CB Insights , some of the most common reasons businesses fail include:

• No market need : No one wants what you’re selling.
• Lack of capital : Cash flow issues or businesses simply run out of money.
• Inadequate team : This underscores the importance of hiring the right people to help you run your business.
• Stiff competition : It’s tough to generate a steady profit when you have a lot of competitors in your space.
• Pricing : Some entrepreneurs price their products or services too high or too low—both scenarios can be a recipe for disaster.

The exercise of creating a business plan can help you avoid these major mistakes. Whether it’s cash flow forecasts or a product-market fit analysis , every piece of a business plan can help spot some of those potentially critical mistakes before they arise. For example, don’t be afraid to scrap an idea you really loved if it turns out there’s no market need. Be honest with yourself!

Get a jumpstart on your business plan by creating your own cash flow projection .

4. To prove the viability of the business

Many businesses are created out of passion, and while passion can be a great motivator, it’s not a great proof point.

Planning out exactly how you’re going to turn that vision into a successful business is perhaps the most important step between concept and reality. Business plans can help you confirm that your grand idea makes sound business sense.

A critical component of your business plan is the market research section. Market research can offer deep insight into your customers, your competitors, and your chosen industry. Not only can it enlighten entrepreneurs who are starting up a new business, but it can also better inform existing businesses on activities like marketing, advertising, and releasing new products or services.

Want to prove there’s a market gap? Here’s how you can get started with market research.

5. To set better objectives and benchmarks

Without a business plan, objectives often become arbitrary, without much rhyme or reason behind them. Having a business plan can help make those benchmarks more intentional and consequential. They can also help keep you accountable to your long-term vision and strategy, and gain insights into how your strategy is (or isn’t) coming together over time.

6. To communicate objectives and benchmarks

Whether you’re managing a team of 100 or a team of two, you can’t always be there to make every decision yourself. Think of the business plan like a substitute teacher, ready to answer questions any time there’s an absence. Let your staff know that when in doubt, they can always consult the business plan to understand the next steps in the event that they can’t get an answer from you directly.

Sharing your business plan with team members also helps ensure that all members are aligned with what you’re doing, why, and share the same understanding of long-term objectives.

7. To provide a guide for service providers

Small businesses typically employ contractors , freelancers, and other professionals to help them with tasks like accounting , marketing, legal assistance, and as consultants. Having a business plan in place allows you to easily share relevant sections with those you rely on to support the organization, while ensuring everyone is on the same page.

8. To secure financing

Did you know you’re 2.5x more likely to get funded if you have a business plan?If you’re planning on pitching to venture capitalists, borrowing from a bank, or are considering selling your company in the future, you’re likely going to need a business plan. After all, anyone that’s interested in putting money into your company is going to want to know it’s in good hands and that it’s viable in the long run. Business plans are the most effective ways of proving that and are typically a requirement for anyone seeking outside financing.

Learn what you need to get a small business loan.

9. To better understand the broader landscape

No business is an island, and while you might have a strong handle on everything happening under your own roof, it’s equally important to understand the market terrain as well. Writing a business plan can go a long way in helping you better understand your competition and the market you’re operating in more broadly, illuminate consumer trends and preferences, potential disruptions and other insights that aren’t always plainly visible.

10. To reduce risk

Entrepreneurship is a risky business, but that risk becomes significantly more manageable once tested against a well-crafted business plan. Drawing up revenue and expense projections, devising logistics and operational plans, and understanding the market and competitive landscape can all help reduce the risk factor from an inherently precarious way to make a living. Having a business plan allows you to leave less up to chance, make better decisions, and enjoy the clearest possible view of the future of your company.

Business plan FAQs

How does having a business plan help small business owners make better decisions.

Having a business plan supports small business owners in making smarter decisions by providing a structured framework to assess all parts of their businesses. It helps you foresee potential challenges, identify opportunities, and set clear objectives. Business plans help you make decisions across the board, including market strategies, financial management, resource allocation, and growth planning.

What industry-specific issues can business plans help tackle?

Business plans can address industry-specific challenges like regulatory compliance, technological advancements, market trends, and competitive landscape. For instance, in highly regulated industries like healthcare or finance, a comprehensive business plan can outline compliance measures and risk management strategies.

How can small business owners use their business plans to pitch investors or apply for loans?

In addition to attracting investors and securing financing, small business owners can leverage their business plans during pitches or loan applications by focusing on key elements that resonate with potential stakeholders. This includes highlighting market analysis, competitive advantages, revenue projections, and scalability plans. Presenting a well-researched and data-driven business plan demonstrates credibility and makes investors or lenders feel confident about your business’s potential health and growth.

Understanding the importance of a business plan

Now that you have a solid grasp on the “why” behind business plans, you can confidently move forward with creating your own.

Remember that a business plan will grow and evolve along with your business, so it’s an important part of your whole journey—not just the beginning.

Related Posts

Now that you’ve read up on the purpose of a business plan, check out our guide to help you get started.

The information and tips shared on this blog are meant to be used as learning and personal development tools as you launch, run and grow your business. While a good place to start, these articles should not take the place of personalized advice from professionals. As our lawyers would say: “All content on Wave’s blog is intended for informational purposes only. It should not be considered legal or financial advice.” Additionally, Wave is the legal copyright holder of all materials on the blog, and others cannot re-use or publish it without our written consent.

Table of Contents

What is a business plan, the advantages of having a business plan, the types of business plans, the key elements of a business plan, best business plan software, common challenges of writing a business plan, become an expert business planner, business planning: it’s importance, types and key elements.

Every year, thousands of new businesses see the light of the day. One look at the  World Bank's Entrepreneurship Survey and database  shows the mind-boggling rate of new business registrations. However, sadly, only a tiny percentage of them have a chance of survival.   

According to the Bureau of Labor Statistics, about 20% of small businesses fail in their first year, about 50% in their fifth year.

Research from the University of Tennessee found that 44% of businesses fail within the first three years. Among those that operate within specific sectors, like information (which includes most tech firms), 63% shut shop within three years.

Several  other statistics  expose the abysmal rates of business failure. But why are so many businesses bound to fail? Most studies mention "lack of business planning" as one of the reasons.

This isn’t surprising at all. 

Running a business without a plan is like riding a motorcycle up a craggy cliff blindfolded. Yet, way too many firms ( a whopping 67%)  don't have a formal business plan in place. 

It doesn't matter if you're a startup with a great idea or a business with an excellent product. You can only go so far without a roadmap — a business plan. Only, a business plan is so much more than just a roadmap. A solid plan allows a business to weather market challenges and pivot quickly in the face of crisis, like the one global businesses are struggling with right now, in the post-pandemic world.  

But before you can go ahead and develop a great business plan, you need to know the basics. In this article, we'll discuss the fundamentals of business planning to help you plan effectively for 2021.  

Now before we begin with the details of business planning, let us understand what it is.

No two businesses have an identical business plan, even if they operate within the same industry. So one business plan can look entirely different from another one. Still, for the sake of simplicity, a business plan can be defined as a guide for a company to operate and achieve its goals.  

More specifically, it's a document in writing that outlines the goals, objectives, and purpose of a business while laying out the blueprint for its day-to-day operations and key functions such as marketing, finance, and expansion.

A good business plan can be a game-changer for startups that are looking to raise funds to grow and scale. It convinces prospective investors that the venture will be profitable and provides a realistic outlook on how much profit is on the cards and by when it will be attained. 

However, it's not only new businesses that greatly benefit from a business plan. Well-established companies and large conglomerates also need to tweak their business plans to adapt to new business environments and unpredictable market changes. 

Before getting into learning more about business planning, let us learn the advantages of having one.

Since a detailed business plan offers a birds-eye view of the entire framework of an establishment, it has several benefits that make it an important part of any organization. Here are few ways a business plan can offer significant competitive edge.

• Sets objectives and benchmarks: Proper planning helps a business set realistic objectives and assign stipulated time for those goals to be met. This results in long-term profitability. It also lets a company set benchmarks and Key Performance Indicators (KPIs) necessary to reach its goals. 
• Maximizes resource allocation: A good business plan helps to effectively organize and allocate the company’s resources. It provides an understanding of the result of actions, such as, opening new offices, recruiting fresh staff, change in production, and so on. It also helps the business estimate the financial impact of such actions.
• Enhances viability: A plan greatly contributes towards turning concepts into reality. Though business plans vary from company to company, the blueprints of successful companies often serve as an excellent guide for nascent-stage start-ups and new entrepreneurs. It also helps existing firms to market, advertise, and promote new products and services into the market.
• Aids in decision making: Running a business involves a lot of decision making: where to pitch, where to locate, what to sell, what to charge — the list goes on. A well thought-out business plan provides an organization the ability to anticipate the curveballs that the future could throw at them. It allows them to come up with answers and solutions to these issues well in advance.
• Fix past mistakes: When businesses create plans keeping in mind the flaws and failures of the past and what worked for them and what didn’t, it can help them save time, money, and resources. Such plans that reflects the lessons learnt from the past offers businesses an opportunity to avoid future pitfalls.
• Attracts investors: A business plan gives investors an in-depth idea about the objectives, structure, and validity of a firm. It helps to secure their confidence and encourages them to invest. 

Now let's look at the various types involved in business planning.

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Business plans are formulated according to the needs of a business. It can be a simple one-page document or an elaborate 40-page affair, or anything in between. While there’s no rule set in stone as to what exactly a business plan can or can’t contain, there are a few common types of business plan that nearly all businesses in existence use.  

Here’s an overview of a few fundamental types of business plans. 

• Start-up plan: As the name suggests, this is a documentation of the plans, structure, and objections of a new business establishments. It describes the products and services that are to be produced by the firm, the staff management, and market analysis of their production. Often, a detailed finance spreadsheet is also attached to this document for investors to determine the viability of the new business set-up.
• Feasibility plan: A feasibility plan evaluates the prospective customers of the products or services that are to be produced by a company. It also estimates the possibility of a profit or a loss of a venture. It helps to forecast how well a product will sell at the market, the duration it will require to yield results, and the profit margin that it will secure on investments. 
• Expansion Plan: This kind of plan is primarily framed when a company decided to expand in terms of production or structure. It lays down the fundamental steps and guidelines with regards to internal or external growth. It helps the firm to analyze the activities like resource allocation for increased production, financial investments, employment of extra staff, and much more.
• Operations Plan: An operational plan is also called an annual plan. This details the day-to-day activities and strategies that a business needs to follow in order to materialize its targets. It outlines the roles and responsibilities of the managing body, the various departments, and the company’s employees for the holistic success of the firm.
• Strategic Plan: This document caters to the internal strategies of the company and is a part of the foundational grounds of the establishments. It can be accurately drafted with the help of a SWOT analysis through which the strengths, weaknesses, opportunities, and threats can be categorized and evaluated so that to develop means for optimizing profits.

There is some preliminary work that’s required before you actually sit down to write a plan for your business. Knowing what goes into a business plan is one of them. 

Here are the key elements of a good business plan:

• Executive Summary: An executive summary gives a clear picture of the strategies and goals of your business right at the outset. Though its value is often understated, it can be extremely helpful in creating the readers’ first impression of your business. As such, it could define the opinions of customers and investors from the get-go.  
• Business Description: A thorough business description removes room for any ambiguity from your processes. An excellent business description will explain the size and structure of the firm as well as its position in the market. It also describes the kind of products and services that the company offers. It even states as to whether the company is old and established or new and aspiring. Most importantly, it highlights the USP of the products or services as compared to your competitors in the market.
• Market Analysis: A systematic market analysis helps to determine the current position of a business and analyzes its scope for future expansions. This can help in evaluating investments, promotions, marketing, and distribution of products. In-depth market understanding also helps a business combat competition and make plans for long-term success.
• Operations and Management: Much like a statement of purpose, this allows an enterprise to explain its uniqueness to its readers and customers. It showcases the ways in which the firm can deliver greater and superior products at cheaper rates and in relatively less time. 
• Financial Plan: This is the most important element of a business plan and is primarily addressed to investors and sponsors. It requires a firm to reveal its financial policies and market analysis. At times, a 5-year financial report is also required to be included to show past performances and profits. The financial plan draws out the current business strategies, future projections, and the total estimated worth of the firm.

The importance of business planning is it simplifies the planning of your company's finances to present this information to a bank or investors. Here are the best business plan software providers available right now:

• Business Sorter

The importance of business planning cannot be emphasized enough, but it can be challenging to write a business plan. Here are a few issues to consider before you start your business planning:

• Create a business plan to determine your company's direction, obtain financing, and attract investors.
• Identifying financial, demographic, and achievable goals is a common challenge when writing a business plan.
• Some entrepreneurs struggle to write a business plan that is concise, interesting, and informative enough to demonstrate the viability of their business idea.
• You can streamline your business planning process by conducting research, speaking with experts and peers, and working with a business consultant.

Whether you’re running your own business or in-charge of ensuring strategic performance and growth for your employer or clients, knowing the ins and outs of business planning can set you up for success. 

Be it the launch of a new and exciting product or an expansion of operations, business planning is the necessity of all large and small companies. Which is why the need for professionals with superior business planning skills will never die out. In fact, their demand is on the rise with global firms putting emphasis on business analysis and planning to cope with cut-throat competition and market uncertainties.

While some are natural-born planners, most people have to work to develop this important skill. Plus, business planning requires you to understand the fundamentals of business management and be familiar with business analysis techniques . It also requires you to have a working knowledge of data visualization, project management, and monitoring tools commonly used by businesses today.   

Simpliearn’s Executive Certificate Program in General Management will help you develop and hone the required skills to become an extraordinary business planner. This comprehensive general management program by IIM Indore can serve as a career catalyst, equipping professionals with a competitive edge in the ever-evolving business environment.

What Is Meant by Business Planning?

Business planning is developing a company's mission or goals and defining the strategies you will use to achieve those goals or tasks. The process can be extensive, encompassing all aspects of the operation, or it can be concrete, focusing on specific functions within the overall corporate structure.

What Are the 4 Types of Business Plans?

The following are the four types of business plans:

Operational Planning

This type of planning typically describes the company's day-to-day operations. Single-use plans are developed for events and activities that occur only once (such as a single marketing campaign). Ongoing plans include problem-solving policies, rules for specific regulations, and procedures for a step-by-step process for achieving particular goals.

Strategic Planning

Strategic plans are all about why things must occur. A high-level overview of the entire business is included in strategic planning. It is the organization's foundation and will dictate long-term decisions.

Tactical Planning

Tactical plans are about what will happen. Strategic planning is aided by tactical planning. It outlines the tactics the organization intends to employ to achieve the goals outlined in the strategic plan.

Contingency Planning

When something unexpected occurs or something needs to be changed, contingency plans are created. In situations where a change is required, contingency planning can be beneficial.

What Are the 7 Steps of a Business Plan?

The following are the seven steps required for a business plan:

Conduct Research

If your company is to run a viable business plan and attract investors, your information must be of the highest quality.

Have a Goal

The goal must be unambiguous. You will waste your time if you don't know why you're writing a business plan. Knowing also implies having a target audience for when the plan is expected to get completed.

Create a Company Profile

Some refer to it as a company profile, while others refer to it as a snapshot. It's designed to be mentally quick and digestible because it needs to stick in the reader's mind quickly since more information is provided later in the plan.

Describe the Company in Detail

Explain the company's current situation, both good and bad. Details should also include patents, licenses, copyrights, and unique strengths that no one else has.

Create a marketing plan ahead of time.

A strategic marketing plan is required because it outlines how your product or service will be communicated, delivered, and sold to customers.

Be Willing to Change Your Plan for the Sake of Your Audience

Another standard error is that people only write one business plan. Startups have several versions, just as candidates have numerous resumes for various potential employers.

Incorporate Your Motivation

Your motivation must be a compelling reason for people to believe your company will succeed in all circumstances. A mission should drive a business, not just selling, to make money. That mission is defined by your motivation as specified in your business plan.

What Are the Basic Steps in Business Planning?

These are the basic steps in business planning:

Summary and Objectives

Briefly describe your company, its objectives, and your plan to keep it running.

Services and Products

Add specifics to your detailed description of the product or service you intend to offer. Where, why, and how much you plan to sell your product or service and any special offers.

Conduct research on your industry and the ideal customers to whom you want to sell. Identify the issues you want to solve for your customers.

Operations are the process of running your business, including the people, skills, and experience required to make it successful.

How are you going to reach your target audience? How you intend to sell to them may include positioning, pricing, promotion, and distribution.

Consider funding costs, operating expenses, and projected income. Include your financial objectives and a breakdown of what it takes to make your company profitable. With proper business planning through the help of support, system, and mentorship, it is easy to start a business.

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Parts of a Business Plan

Whether you are starting a pizza shop or a plumbing business, a flower shop or a factory, you need a solid plan. In fact, your Business Plan will be an essential tool throughout the life of your business – from starting out to cashing in. It will help you to start out on the right foot, stay focused, get financing, manage your growth, and more.

Not every Business Plan will be the exactly same, but every Plan should incorporate several key elements.

The Parts of the Plan

Here are the key pieces to a solid Business Plan.

• The title, or heading, of the plan, and very brief description of the business.
• The name of the owner
• The company name and location
• A copyright or confidentiality notice

Table of Contents

• A list of the individual sections and their page numbers, starting with the Title Page and ending with a section for Special Materials (references, etc.).

Summary/Overview

• A brief, but focused statement (a few sentences or paragraphs) stating why the business will be successful. This is the most important piece of a Business Plan because it brings everything together.

Market Analysis

• Identifies specific knowledge about the business and its industry, and the market (or customers) it serves.
• An analysis that identifies and assesses the competition.

Description of the Company

• Information about the nature of the business and the factors that should make it successful .
• Special business skills and talents that provide the business with a competitive advantage, such as a unique ability to satisfy specific customer needs, special methods of delivering a product or service, and so on.

Organization & Management

• The company’s organizational and legal structure, Is it a sole proprietorship? A partnership? A corporation? (See: “ Ownership Structures “)
• Profiles of the ownership and management team: What is their background, experience and responsibilities?

Marketing & Sales

• The company’s process of identifying and creating a customer base. (See: “ Market Research “)

Description of Product or Service

• How they will benefit from the product or service?
• Specific needs or problems that the business can satisfy or solve, focusing especially on areas where the business has the strongest skills or advantages.
• The amount of current and future funding needed to start or expand the business. Includes the time period that each amount will cover, the type of funding for each (i.e., equity, debt), and the proposed or requested repayment terms.
• How the funds will be used: For equipment and materials? Everyday working capital? Paying off debt?
• Explains or projects how the company is expected to perform financially over the next several years. (Sometimes called a “pro-forma projection.”)  Because investors and lenders look closely at this projection as a measure of your company’s growth potential, professional input is strongly recommended.
• Credit histories (personal & business)
• Resumes of key personnel and partners
• Letters of reference
• Details of market studies
• Copies of licenses, permits, patents, leases, contracts, etc.
• A list of business consultants, attorneys, accountants, etc.

These are just the basic essentials to creating a Business Plan. Each plan should be tailored to the specific business. (See: Business Plan Assistance )

The state of customer care in 2022

Customer care leaders are facing a perfect storm of challenges: call volumes are up, employees are leaving and harder to replace, and digital solutions aren’t yet delivering on their full promise. Add rising customer expectations and decades-high inflation  to the mix, and it’s easy to understand why customer care leaders are feeling the pressure.

About the authors

This article is a collaborative effort by Jeff Berg , Eric Buesing , Paul Hurst, Vivian Lai, and Subhrajyoti Mukhopadhyay, representing views of McKinsey’s Customer Care service line.

The stakes couldn’t be higher as teams try to adapt to a postpandemic era of customer care. Over the past two years, leaders have had to quickly adapt systems and ways of working to accommodate the shift to working from home—up to 85 percent of their workforces, in some cases. Contact center employees are harder to hold onto, and nearly half of customer care managers experienced increased attrition in 2021, leading to performance variability.

Over the past two years, customer care leaders have had to quickly adapt systems and ways of working to accommodate the shift to working from home.

While digital solutions and the shift to self-service channels will solve many of these challenges, they aren’t quite reaching the goal. For most organizations, the vast majority of digital customer contacts require assistance, and only 10 percent of newly built digital platforms are fully scaled or adopted by customers.

Not surprisingly, McKinsey’s 2022 State of Customer Care Survey has found that customer care is now a strategic focus for companies. Respondents say their top three priorities over the next 12 to 24 months will be retaining and developing the best people, driving a simplified customer experience (CX)  while reducing call volumes and costs, and building their digital care and advanced analytics ecosystems.

With challenges on all fronts, the question now confronting leaders is how best to prioritize investment across the people, operations, and technology aspects of their customer care strategies. Knowing where to focus or what to do first isn’t easy, and businesses need to move quickly. Companies that don’t invest in this area face the possibility of further talent attrition, customer dissatisfaction, and even loss of market share.

But customer care is also now a major opportunity for businesses. Done well—through a combination of tech and human touch—it is an area where companies can drive loyalty through a more personalized customer journey while unlocking greater productivity, increased revenue, improved job satisfaction, and real-time customer insights.

This article presents the key findings of the 2022 State of Customer Care Survey and how businesses are shifting priorities at this critical time.

Challenges on all fronts

To uncover the latest trends in customer care, McKinsey surveyed more than 160 industry leaders and experts at the director, senior director, vice president, and C-suite levels to find out how their operations have been affected over the past two years of the COVID-19 pandemic.

Care is at an inflection point

The survey findings indicate that customer care is at an inflection point. Call volumes are higher and more complex than before, while companies find themselves struggling to find talent and train them to proficiency at pace.

As customer care increasingly moves online, the distinction between digital and live interactions has also begun to blur. Organizations are looking for new capabilities that will enhance both the customer and employee experience in “moments that matter”—those interactions that may have previously happened face to face or have significant influence on overall CX.

Compared with results of the 2019 State of Customer Care Survey, customer care leaders are now more focused on improving CX, reducing contact volumes, deploying AI assistance, and increasing revenue generation on service calls (Exhibit 1).

Customer care talent is increasingly scarce

Higher call volumes and more complex calls are challenging existing capacity—61 percent of surveyed care leaders report a growth in total calls, with increased contacts per customer and a growing customer base as the key drivers. And 58 percent of care leaders expect call volumes to increase even further over the next 18 months.

While a growing customer base is a positive sign for business, it puts greater pressure on contact centers that are already under strain. More customers mean increased call numbers, and with more complex calls, customers tend to have to phone contact centers over and over again—further affecting capacity and resulting in a more negative CX overall.

To make matters worse, talent attrition is affecting customer care capacity. Employees are leaving faster than they did before the pandemic—a result of the Great Attrition—and are more difficult to replace. Nearly half of surveyed managers report increased employee attrition over the past 12 months.

The top-cited reason for employees leaving is poaching by competitors—58 percent—alongside employee burnout, employee dissatisfaction, lack of advancement opportunities, and poor work–life balance (Exhibit 2).

Retaining talent could prove vital in the race to maintain capacity. New hires require significant staff training, with 41 percent of surveyed leaders reporting that it takes between three and six months to train a new employee for optimal performance and a further 20 percent saying it takes more than six months.

Uniting self-service and live channels

Many companies have made significant investments in digital care capacity in recent years, though cross-channel integration and migration issues continue to hamper progress. For example, 77 percent of survey respondents report that their organizations have built digital platforms, but only 10 percent report that those platforms are fully scaled and adopted by customers. Only 12 percent of digital platforms are highly integrated, and, for most organizations, only 20 percent of digital contacts are unassisted.

In an increasingly digital first environment, however, customer care is fundamental to how organizations interact with their customers. Leaders in this field are asking, “How do we create a better, more personalized experience through digitally enabled services?”

Businesses are investing in three critical areas

Faced with the challenges of a fast-changing and demanding environment, companies can’t afford to refrain from acting on the customer care storm. Over the past two years, customers have flocked to digital channels because of the pandemic, and organizations have had to race to meet their needs with new channels that support remote and digital transactions.

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In a postpandemic future, this pivot to digital is likely to keep growing. And while many companies believe that they have made significant strides in their customer care transformation journey, a significant number remain at a foundational level—they are improving self-service options and automating common requests but haven’t yet moved far enough along the journey to distinguish from their competitors. Meanwhile, those that have the leading edge are leveraging real-time customer behavior insights and conversational AI to deliver proactive customer outreach.

Customer care leaders say their top three priorities over the next 12 to 24 months are to retain and develop the best people, drive a simplified CX while reducing call volumes and costs, and build out their digital care ecosystems.

Retain and develop the best people

Traditionally, customer care talent has been regarded as cheap, easy to replace, and relatively low skilled. But with call volumes growing and calls becoming more complex to resolve, these employees now require more strategic consideration.

With three out of five surveyed leaders citing attracting, training, and retaining talent as a top priority, businesses are looking at ways to build a better organizational culture. Two of the most effective ways to do this—according to customer care leaders—are to find ways to motivate and build trust with employees and to encourage leaders to listen and act on employee feedback (Exhibit 3).

Shift the interactions

Shifting the workload away from transactional, repetitive calls can address a number of the headaches facing customer care leaders. The move can free up capacity to improve CX while offering more rewarding work to employees.

Companies are looking to shift from a transactional to a solution-oriented interaction during the live, complex calls that matter most to customers. Organizations are also turning to self-service channels and tech to resolve high volumes. And the strategy is working. Nearly two-thirds of those surveyed that decreased their call volumes identified improved self-service as a key driver (Exhibit 4).

Organizations are planning to increase digital interactions one and a half times by 2024. The top three areas identified for investment include tech that improves omnichannel and digital capabilities—for example, chatbots and AI tools—automated manual activities in contact centers, and advanced analytics capabilities.

Despite digital tech taking on more of the burden for customer service interactions, human assistance will likely remain an important driver of overall CX, especially in the moments that matter. Customers want fast, efficient service, but they also want personalized customer care, whatever the channel of engagement.

Develop AI-powered customer care ecosystems

The growing challenges around increasing volumes, rising complexity, and limited talent availability are unlikely to be solved at scale without AI and data analytics. Companies can optimize the entire customer operations footprint by using tech to measure performance, identify opportunities, and deploy value-capturing change management, thus delivering critical operations insights and impact at scale.

For customers, AI-driven tools like predictive analytics can deliver a personalized and proactive experience that resolves issues before customers are even aware that they exist—enhancing CX at every point along the customer journey. Tech can also assist in developing a high-performing workforce by identifying optimal work processes and practices using analytics. Automated coaching can potentially be deployed to every individual, supporting efforts to attract, develop, and retain scarce talent.

How CEOs can win the new service game

In the AI-powered care ecosystem, around 65 percent of tasks and 50 to 70 percent of contacts are automated, creating a true omnichannel experience that provides a consistent and seamless experience across interactions. In this way, the potential of contact centers could be unlocked to become loyalty-building revenue generators through greater solutioning and sales excellence.

Putting priorities into practice

CX is fast becoming a key competitive area. Companies that don’t prioritize their strategy and digital transformation journeys are likely to face continued customer dissatisfaction, as well as talent attrition—thus threatening their brand and market competitiveness.

Getting customer care right depends on prioritizing and investing across the people, operations, and tech aspects of the customer care strategy. Companies can consider the following key steps as they look to build out their capabilities and invest in their digital care ecosystems:

• Start by setting out the vision for the customer care organization, capturing what excellence looks like.
• Conduct a rapid but thorough due-diligence-style assessment of people, processes, and capabilities, looking at the customer care operation in a new light to identify not just incremental changes but a reimagined, large-scale transformation.
• Path one follows a traditional design approach, which may take longer but prove less risky, as the entire transformation is considered at the outset.
• Path two involves an interactive and agile design, test, and iterate methodology, which may lead to new solutions quickly.
• Leverage the full suite of available technologies and analytical approaches that are driving successful outcomes in customer care, including natural language processing (NLP) and AI in frontline operations to match work to workers, together with cognitive AI assistance for resolving simpler customer queries.

Personalized digital interaction nowadays is an expectation rather than a luxury or an added perk, and customer care is the issue at the heart of this digital first environment—companies can’t afford to stumble at this juncture. If done well, however, customer care presents a great opportunity to build loyalty and long-term relationships with customers, creating organizational resilience for the future.

Jeff Berg is a partner in McKinsey’s Southern California office; Eric Buesing is a partner in the Stamford, Connecticut, office; Paul Hurst is a consultant in the Charlotte, North Carolina, office, Vivian Lai is a consultant in the New York office, and Subhrajyoti Mukhopadhyay is an expert in the Chicago office.

The authors wish to thank Karunesh Ahuja and Charles-Michael Berg for their contributions to this article.

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Money blog: New Jaffa Cake flavour launches - and makers admit it might divide people

Disfrutar in Barcelona has been named the world's best restaurant; there's a new cola-flavoured Jaffa Cake launching; our psychology of shopping series concludes with the tricks shops use to get us to spend. Read these and the rest of today's consumer news in the Money blog.

Thursday 6 June 2024 15:06, UK

• ECB cuts interest rates - and it could boost your holiday money
• McVitie's launches first ever non-fruit flavoured Jaffa Cake
• There's a new best restaurant in the world - this is how much it costs to eat there
• Now is the time to lock some of your cash away - here's why
• Asda goes from cheapest to most expensive supermarket for petrol

Essential reads

• How brands get you to buy more, more, more
• Top chef shares his take on an Italian classic - and Warwickshire Cheap Eats
• Ed Conway : Claim of £2k tax rise under Labour is over four years - same maths suggests Tories have raised taxes by £13k in last four years
• How much are student loans, when do you start paying back and what is the interest?
• Best of the Money blog - an archive

Ask a question or make a comment

Britain is less likely to lose power this winter than it was last year, according to the company that runs the grid.

National Grid's Electricity System Operator (ESO) said it expects power plants, wind farms and other generation methods to be able to provide more than enough power to meet demand this time around. 

In an early outlook, it said the grid would have an average margin - the difference between supply of electricity and demand for it - of 5.6 gigawatts (GW) this coming winter. 

This means the period when demand might outstrip supply is just 0.1 hours.

The increased margins are in part because of improved capacity, thanks to a new 765km high-voltage cable that connects the UK's electricity network with Denmark.

The cable, called an interconnector, is known as the Viking Link, and started transporting wind power between the two countries in December.

New gas generation, growth in battery storage capacity and increased generation connected to the distribution networks have also contributed to the higher margins. 

Despite this, ESO's chief operating officer Kayte O'Neill has said it will still need to be "vigilant" due to uncertainties around global energy markets.

"As a prudent system operator we remain vigilant, continuing to monitor potential risks and working closely with our partners to establish any actions necessary to build resilience," she said.

The continent's energy system has been forced to reinvent itself in recent years, faced with potential gas shortages due to the war in Ukraine.

The 20 countries using the euro currency have seen interest rates cut from record highs following progress in the battle against inflation over the past two-and-a-half years.

The Frankfurt-based European Central Bank (ECB) said it was "appropriate" to trim its main deposit rate from 4% to 3.75%.

It followed an assertion last month by its president, Christine Lagarde, that the pace of price increases was now "under control".

But the Bank declared in a statement that the battle was not won - signalling data-driven caution on future policy decisions in the months ahead.

Its staff even revised upwards their forecasts for inflation this year and next.

As we have been discussing in Money this week, the cut before the US and UK could weaken the euro - potentially making Britons' holiday money go further.

McVitie's is selling a new flavour of Jaffa Cake - and it marks the first ever non-fruit flavour since the treat launched in 1927.

Shelves across the country will soon be stocked cola bottle flavoured cakes.

The new flavour will launch in Asda stores from 10 June and be available in other UK supermarkets - including Tesco, Sainsbury's, Morrisons, Iceland and Co-op - in the coming weeks.

Adam Woolf, marketing director at McVitie's, said: "Jaffa Cakes Cola Bottle is certainly one of our more unexpected product launches – stepping away from fruit flavours for the very first time. 

"Jaffa Cakes have always stood out from the crowd (and the biscuit aisle), but we really wanted to try something new with this one. It's no doubt going to cause some debate among our Jaffanatics, and we can't wait to hear what they think."

By  Sarah Taaffe-Maguire , business reporter

Are we entering an era of interest rate cuts? Probably not. Or at least, not yet. 

But the European Central Bank (ECB) which controls the euro currency does look set to make their first cut in four years this afternoon. 

And Canada yesterday became the first country in the club of G7 industrialised nations to bring down borrowing costs by lowering their benchmark interest rate. 

The UK, however, isn't currently expected by markets to make a cut until September. 

Elsewhere, oil prices remain below $80 but are slightly more expensive than earlier this week. A barrel of the benchmark Brent crude oil costs $79.10.

The good news for people going on holidays to countries using the euro continues - the pound is still doing well against the currency with £1 equal to €1.1757. 

That could go even higher after the ECB decision at 1.15pm. A pound also can buy $1.2783. 

Like in the US, the UK's most valuable companies have become more valuable as the FTSE (Financial Times Stock Exchange) 100 and 250 indices are up 0.33% and 0.41% respectively.

Every Thursday  Savings Champion founder Anna Bowes  gives an insight into the savings market and how to make the most of your money...

Can you believe we are almost halfway through 2024?

Although the rate rises that we have seen this year have slowed compared with the previous couple of years, and we have even seen some falls, savers are now able to find hundreds of savings accounts that pay an interest rate higher than inflation.

The latest data from the Office for National Statistics showed inflation was still higher than predicted, however - which means the anticipated base rate cut is likely to be pushed back again – into the second half of this year.

While bad news for borrowers, this is great news for savers.

Incredibly, the latest statistics from the Bank of England show there is over £253bn sitting in current accounts and savings accounts earning no interest at all.

With top rates available paying 5% or even a bit more, that is potentially £12.65bn of gross interest that is not being claimed by savers.

So now really is the time to move your money if you have cash languishing, earning less than inflation, especially if you can lock some away with a fixed rate, as a base rate cut will happen at some stage, we just don't know when.

Easy access

If you think you'll need access to your money, an easy access account is a wise choice.

The base rate cuts that we have been waiting for are yet to start, so the top rates on offer are still paying almost as much as they were at the beginning of the year.

Fixed-term bonds 

There is a strange phenomenon with fixed-term bond rates at the moment: the longer you tie up your cash, the lower the interest rates on offer.

Normally, you'd expect to be rewarded for tying up your cash over the longer term - but base rate forecasts have flipped this.

Fixed-term cash ISAs

A frequent complaint that I hear from savers is that the tax-free rates on ISAs are usually lower than the pre-tax rates on the equivalent non-ISA accounts – and this is particularly true with fixed-term accounts.

As many more savers are paying tax on their interest once again, cash ISAs are more popular than ever, as the tax-free rate of the ISA can still be considerably more than the interest earned after tax has been deducted on the non-ISA bond equivalents.

The renowned "50 Best" list of the world's best restaurants was revealed in Las Vegas last night - with a new restaurant taking top spot.

Disfrutar in Barcelona took the crown from Central in Lima, Peru (previous winners are ineligible and instead join a Best of the Best list).

Eating the standard menu costs £247 (€290) - with an extra £136 (€160) if you want the wine pairing.

To be fair, you do get around 30 courses.

They also offer a unique menu for your table for between €1,050 and €390 per person - the more people, the less it costs.

The 50 Best list says: "The combination of brilliantly imaginative dishes, unsurpassed technical mastery and playful presentation results in the dining experience of a lifetime, as full of surprises as it is memories."

Dishes include:

• Caviar-filled Panchino doughnut
• Frozen gazpacho sandwich
• Thai-style cuttlefish with coconut multi-spherical
• Squab with kombu spaghetti, almond and grape

Two UK restaurants made the top 50 but the UK was eclipsed by countries from across South America as well as Thailand, Italy, France and Spain.

London's Kol moved up slightly to 17, while Ikoyi, which we reported on a few weeks ago following a link-up with Uber Eats, came it at 42.

Three whiskies created by Aldi have been named among the best in the world.

The budget supermarket took home three golds at the International Spirits Challenge awards for: 

• Glen Marnoch Highland Single Scotch Whisky (£18.49, 70cl)
• Highland Earl Blended Scotch Whisky (£16.89, 1L)
• Samuel Joe’s Straight Kentucky Bourbon (£14.99, 70cl)

In the single malt category, Aldi's submission beat the likes of M&S as well as premium brand Lochlea Distillery, which costs around £45 a bottle. 

Other gold winners included Johnnie Walker, Jameson and Glenfiddich. 

Aldi was also given three silver medals for its Highland Black Blended Scotch Whisky, Glen Marnoch Speyside Single Malt Whisky and Glen Marnoch Islay Single Malt Whisky. 

"This industry recognition helps to prove that great quality doesn't have to come with a luxury price tag and customers can be confident they're saving money with us, whilst getting the best whisky taste and experience," said Julie Ashfield, managing director of buying at Aldi UK. 

As we've previously discussed in the Money blog, holidaying Brits can avoid costly roaming charges by using their own travel eSim - and there's now another mainstream option to choose from courtesy of Uswitch.

UK travellers who want to use their phones abroad usually rely on their roaming plans and data passes or sign up for a local SIM at their destination, which can often require time-consuming ID checks and additional documentation.

That can be costly. 

Since Brexit, the UK no longer benefits from several EU-mandated rules, including a worldwide data roaming cap of £45.

Roaming costs, especially in countries outside the EU, can now be as high as £9 for every 1MB of roaming data - equivalent to streaming Netflix for 14.4 seconds.

The savings with eSims are potentially massive, as our cost of living specialist Megan Harwood-Baynes outlined here last month...

USwitch product

Using 10GB of data in Morocco on a UK Pay As You Go network with uncapped fees would cost on average of £56,166, compared to just £17 with a USwitch eSim.

eSims are available online and are entirely digital - meaning customers don't need to visit a phone network store or wait for a physical SIM card to arrive in the post.

Most new smartphones are already compatible with eSim technology, including every iPhone released from 2018 onwards and most Samsung devices released from 2020 onwards.

"eSIMs offer them a newfound freedom that's cheaper than traditional data roaming and with none of the hassle of finding a local SIM card provider when you arrive," said CEO and co-founder of (USwitch's partner in this project) eSIM Go Zacchary Couldrick.

Asda has gone from selling the cheapest petrol out of the supermarket chains to now costing the most, according to the latest fuel price figures.

RAC says Asda's big rivals, Morrisons, Sainsbury's and Tesco, all sold a litre of unleaded petrol for 2.1p less on average at the end of May.

Diesel was also coming out costlier at Asda, with the supermarket 2.5p per litre more expensive than the rest of its supermarket competition.

Drivers are being urged - by the RAC - to change their refuelling habits to find the best prices. 

What makes up the cost of a litre of petrol?

The price you pay for fuel at the pumps is governed by wholesale fuel prices, which are affected by several factors.

These include the global price of crude oil, which itself is governed by supply and demand and oil refinery production and capacity.

Distribution costs, fuel duty (currently 52.95p a litre in the UK), VAT (currently at 20%) and profit margins dictated by fuel retailers all come into account when working out why prices of fuel rise and fall.

Fuel duty rate and VAT largely stay the same, though oil prices and the strength of the pound to the US dollar (refined fuel is sold in dollars per metric tonne) can cause prices to be extremely volatile.

How have UK petrol prices changed in the 21st century

Unleaded fuel in 2000 had an average cost of 80.35p, while the average cost of diesel in the same year was 81.73p.

The lowest average cost for unleaded petrol in the last 24 years came in 2002, where the average was 73.5p. Diesel also had its cheapest average cost in this year at 75.6p.

Unsurprisingly, the most expensive average prices for fuel have fallen in recent years. In 2022, the average cost of unleaded fuel was 165.06p and the average cost of diesel was 178.13p.

By Emily Mee , news reporter

We've all been there. You have a bad day and you need a little pick-me-up - so you head straight to your favourite website to buy something new.

That hit of dopamine you get when buying something is what many businesses rely on - and no one seems to understand it better than fast fashion brands. 

But not only is this hurting our wallets, it's also harming the planet. 

In the final part of our psychology of shopping series, we spoke to fair fashion campaigner Venetia La Manna ( @venetialamanna ) - who advocates for a more sustainable approach to clothing - about the little tricks fast fashion companies use to get people to spend, spend, spend... 

Always in a rush - and slippery floors

Many of the techniques fashion companies use involve ensuring people feel rushed to make purchasing decisions. 

Ms La Manna says websites and social media pages are set up to make them look "very immediate" so we "always feel like we have to buy something before it's gone" - meaning you're not able to sit with a purchase and think about whether you need it. 

Fast fashion companies also keep an eye on trends and push out products as soon as possible to make sure people are "buying very, very quickly without necessarily much thought". 

And the sense of urgency is not just limited to online stores.

Ms La Manna says physical clothes shops will make sure their floors are slippery "so you can almost whizz around with more ease".

Often they will also have loud music to encourage "shopping in a frenzy". 

They know what you want

Fashion sites use "highly advanced" search engine optimisation to find out what kind of products their customers are searching for and push these items to them, Ms La Manna says. 

They also work with popular online influencers and get them to post affiliate links - meaning if you want to look like your favourite influencer or celebrity, you can buy what they're wearing "in just a few clicks". 

Ultimately, they are making things "very easy to buy" and often have shopfronts on popular social media sites like Instagram and TikTok. 

Plus, there is the issue of affordability. 

Many are driving their prices down so low that "it makes you feel like 'hey, why not' when it's cheaper than a sandwich or a coffee", Ms La Manna says. 

Heaters at the entrance

Physical shops use other techniques to entice customers to buy. 

For example, Ms La Manna says the heat changes when you go into the shop so you're "invited into a warmer environment". 

Shops are also set out in a specific way, often placing cheaper items near checkouts and easy outfit formulas near each other. 

The dopamine hit

With lots going on in the world, we may be more susceptible to falling into the spending trap than ever. 

"The world is really heavy and people are struggling. Buying fast fashion or buying stuff gives us a momentary hit of dopamine, and of course we need that - when we're suffering, when we're feeling low, [shopping] is an easy one to reach for," Ms La Manna says. 

Despite practising "slow fashion" - trying to buy less and more consciously - for years, Ms La Manna says she still has moments where she feels that buying something would make her feel better. 

But she says it's possible to get much-needed dopamine hits from elsewhere - including by being active in your community, or by taking your time to find something you really, really want (ideally secondhand!). 

Why does it matter? 

Aside from being bad for your wallet, Ms La Manna says overconsumption is also bad for the planet and for the garment workers making your clothes. 

She says many big fashion companies don't pay their garment workers a fair living wage - with many unable to provide food for their families, living in poverty and lacking paid time off. 

The overproduction of clothing is also harming communities in the global south who are left to deal with vast piles of unwanted items, she says. 

The majority of clothes taken to charity shops or recycling bins don't end up being resold - instead they are shipped off largely to places in the global south, where communities are "left to deal with a problem that's not theirs". 

For more information on slow fashion, Ms La Manna suggests checking out The Or Foundation, Remake and the Clean Clothes Campaign. 

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