benefit of business plan to an entrepreneur

14 Reasons Why You Need a Business Plan

10 min. read

Updated May 10, 2024

There’s no question that starting and running a business is hard work. But it’s also incredibly rewarding. And, one of the most important things you can do to increase your chances of success is to have a business plan.

A business plan is a foundational document that is essential for any company, no matter the size or age. From attracting potential investors to keeping your business on track—a business plan helps you achieve important milestones and grow in the right direction.

A business plan isn’t just a document you put together once when starting your business. It’s a living, breathing guide for existing businesses – one that business owners should revisit and update regularly.

Unfortunately, writing a business plan is often a daunting task for potential entrepreneurs. So, do you really need a business plan? Is it really worth the investment of time and resources? Can’t you just wing it and skip the whole planning process?

Good questions. Here’s every reason why you need a business plan.

• 1. Business planning is proven to help you grow 30 percent faster

Writing a business plan isn’t about producing a document that accurately predicts the future of your company. The  process  of writing your plan is what’s important. Writing your plan and reviewing it regularly gives you a better window into what you need to do to achieve your goals and succeed. 

You don’t have to just take our word for it. Studies have  proven that companies that plan  and review their results regularly grow 30 percent faster. Beyond faster growth, research also shows that companies that plan actually perform better. They’re less likely to become one of those woeful failure statistics, or experience  cash flow crises  that threaten to close them down. 

• 2. Planning is a necessary part of the fundraising process

One of the top reasons to have a business plan is to make it easier to raise money for your business. Without a business plan, it’s difficult to know how much money you need to raise, how you will spend the money once you raise it, and what your budget should be.

Investors want to know that you have a solid plan in place – that your business is headed in the right direction and that there is long-term potential in your venture. 

A business plan shows that your business is serious and that there are clearly defined steps on how it aims to become successful. It also demonstrates that you have the necessary competence to make that vision a reality. 

Investors, partners, and creditors will want to see detailed financial forecasts for your business that shows how you plan to grow and how you plan on spending their money. 

• 3. Having a business plan minimizes your risk

When you’re just starting out, there’s so much you don’t know—about your customers, your competition, and even about operations. 

As a business owner, you signed up for some of that uncertainty when you started your business, but there’s a lot you can  do to reduce your risk . Creating and reviewing your business plan regularly is a great way to uncover your weak spots—the flaws, gaps, and assumptions you’ve made—and develop contingency plans. 

Your business plan will also help you define budgets and revenue goals. And, if you’re not meeting your goals, you can quickly adjust spending plans and create more realistic budgets to keep your business healthy.

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• 4. Crafts a roadmap to achieve important milestones

A business plan is like a roadmap for your business. It helps you set, track and reach business milestones. 

For your plan to function in this way, your business plan should first outline your company’s short- and long-term goals. You can then fill in the specific steps necessary to reach those goals. This ensures that you measure your progress (or lack thereof) and make necessary adjustments along the way to stay on track while avoiding costly detours.

In fact, one of the top reasons why new businesses fail is due to bad business planning. Combine this with inflexibility and you have a recipe for disaster.

And planning is not just for startups. Established businesses benefit greatly from revisiting their business plan. It keeps them on track, even when the global market rapidly shifts as we’ve seen in recent years.

• 5. A plan helps you figure out if your idea can become a business

To turn your idea into reality, you need to accurately assess the feasibility of your business idea.

You need to verify:

• If there is a market for your product or service
• Who your target audience is
• How you will gain an edge over the current competition
• If your business can run profitably

A business plan forces you to take a step back and look at your business objectively, which makes it far easier to make tough decisions down the road. Additionally, a business plan helps you to identify risks and opportunities early on, providing you with the necessary time to come up with strategies to address them properly.

Finally, a business plan helps you work through the nuts and bolts of how your business will work financially and if it can become sustainable over time.

6. You’ll make big spending decisions with confidence

As your business grows, you’ll have to figure out when to hire new employees, when to expand to a new location, or whether you can afford a major purchase. 

These are always major spending decisions, and if you’re regularly reviewing the forecasts you mapped out in your business plan, you’re going to have better information to use to make your decisions.

7. You’re more likely to catch critical cash flow challenges early

The other side of those major spending decisions is understanding and monitoring your business’s cash flow. Your  cash flow statement  is one of the three key financial statements you’ll put together for your business plan. (The other two are your  balance sheet  and your  income statement  (P&L). 

Reviewing your cash flow statement regularly as part of your regular business plan review will help you see potential cash flow challenges earlier so you can take action to avoid a cash crisis where you can’t pay your bills. 

• 8. Position your brand against the competition

Competitors are one of the factors that you need to take into account when starting a business. Luckily, competitive research is an integral part of writing a business plan. It encourages you to ask questions like:

• What is your competition doing well? What are they doing poorly?
• What can you do to set yourself apart?
• What can you learn from them?
• How can you make your business stand out?
• What key business areas can you outcompete?
• How can you identify your target market?

Finding answers to these questions helps you solidify a strategic market position and identify ways to differentiate yourself. It also proves to potential investors that you’ve done your homework and understand how to compete. 

• 9. Determines financial needs and revenue models

A vital part of starting a business is understanding what your expenses will be and how you will generate revenue to cover those expenses. Creating a business plan helps you do just that while also defining ongoing financial needs to keep in mind. 

Without a business model, it’s difficult to know whether your business idea will generate revenue. By detailing how you plan to make money, you can effectively assess the viability and scalability of your business. 

Understanding this early on can help you avoid unnecessary risks and start with the confidence that your business is set up to succeed.

• 10. Helps you think through your marketing strategy

A business plan is a great way to document your marketing plan. This will ensure that all of your marketing activities are aligned with your overall goals. After all, a business can’t grow without customers and you’ll need a strategy for acquiring those customers. 

Your business plan should include information about your target market, your marketing strategy, and your marketing budget. Detail things like how you plan to attract and retain customers, acquire new leads, how the digital marketing funnel will work, etc. 

Having a documented marketing plan will help you to automate business operations, stay on track and ensure that you’re making the most of your marketing dollars.

• 11. Clarifies your vision and ensures everyone is on the same page

In order to create a successful business, you need a clear vision and a plan for how you’re going to achieve it. This is all detailed with your mission statement, which defines the purpose of your business, and your personnel plan, which outlines the roles and responsibilities of current and future employees. Together, they establish the long-term vision you have in mind and who will need to be involved to get there. 

Additionally, your business plan is a great tool for getting your team in sync. Through consistent plan reviews, you can easily get everyone in your company on the same page and direct your workforce toward tasks that truly move the needle.

• 12. Future-proof your business

A business plan helps you to evaluate your current situation and make realistic projections for the future.

This is an essential step in growing your business, and it’s one that’s often overlooked. When you have a business plan in place, it’s easier to identify opportunities and make informed decisions based on data.

Therefore, it requires you to outline goals, strategies, and tactics to help the organization stay focused on what’s important.

By regularly revisiting your business plan, especially when the global market changes, you’ll be better equipped to handle whatever challenges come your way, and pivot faster.

You’ll also be in a better position to seize opportunities as they arise.

Further Reading: 5 fundamental principles of business planning

• 13. Tracks your progress and measures success

An often overlooked purpose of a business plan is as a tool to define success metrics. A key part of writing your plan involves pulling together a viable financial plan. This includes financial statements such as your profit and loss, cash flow, balance sheet, and sales forecast.

By housing these financial metrics within your business plan, you suddenly have an easy way to relate your strategy to actual performance. You can track progress, measure results, and follow up on how the company is progressing. Without a plan, it’s almost impossible to gauge whether you’re on track or not.  

Additionally, by evaluating your successes and failures, you learn what works and what doesn’t and you can make necessary changes to your plan. In short, having a business plan gives you a framework for measuring your success. It also helps with building up a “lessons learned” knowledge database to avoid costly mistakes in the future.

• 14. Your business plan is an asset if you ever want to sell

Down the road, you might decide that you want to sell your business or position yourself for acquisition. Having a solid business plan is going to help you make the case for a higher valuation. Your business is likely to be worth more to a buyer if it’s easy for them to understand your business model, your target market, and your overall potential to grow and scale. 

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• Writing your business plan

By taking the time to create a business plan, you ensure that your business is heading in the right direction and that you have a roadmap to get there. We hope that this post has shown you just how important and valuable a business plan can be. While it may still seem daunting, the benefits far outweigh the time investment and learning curve for writing one. 

Luckily, you can write a plan in as little as 30 minutes. And there are plenty of excellent planning tools and business plan templates out there if you’re looking for more step-by-step guidance. Whatever it takes, write your plan and you’ll quickly see how useful it can be.

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.

Table of Contents

• 6. You’ll make big spending decisions with confidence
• 7. You’re more likely to catch critical cash flow challenges early

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Importance of Business Plan to an Entrepreneur – A business plan is an essential road map that entrepreneurs use to navigate the difficult process of starting and expanding a profitable firm. It performs as a strategic instrument for outlining the goals. Also, serve as a financial prediction of a company.

Importance of a Business Plan to an Entrepreneurs

A strong business plan’s importance cannot be overstated since it provides entrepreneurs with a comprehensive framework for making decisions, attracting investors , securing funding, and navigating the dynamic business world. This article will cover the significance of a business plan. Also, offer practical guidance on how entrepreneurs can utilize it to advance their ventures. Let’s discuss what are the importance of a business plan to an entrepreneur.

A Business Plan Provides a Roadmap for a Business

Picture you are going on a road trip to a dream destination. Before setting off, you would carefully plan your route, mark critical milestones, estimate travel time, and consider alternative paths in case of detours. Similarly, a business plan helps entrepreneurs chart their course by defining their vision, identifying target markets, assessing competition, setting financial goals, and mapping out strategies to overcome challenges.

Read – Can Anyone Be an Entrepreneur

Helps Entrepreneurs to Define Their Objectives

Imagine that an entrepreneur wishes to launch a sustainable clothing line. They would specify their goals through the business planning process, such as advancing ethical fashion, minimizing environmental effects, and making a good social impact. The business plan would outline these objectives and establish strategies and action steps to align the business activities with these goals.

Defined objectives in a business plan help entrepreneurs think critically, establish purpose, and guide decision-making. By setting SMART objectives, entrepreneurs can track performance, evaluate strategies, and make necessary adjustments to achieve desired outcomes. For example, an e-commerce business can increase online sales by 50% within a year, allowing regular monitoring, analysis, and adjustments to achieve its target.

Importance of Entrepreneurs to Identifying Their Target Market

When determining the target market for their goods or services, businesses place a lot of weight on their business plans. A business plan aids entrepreneurs in comprehending their potential clients, their demands, and their preferences by doing in-depth market research and analysis. This knowledge is essential for creating efficient marketing plans and modifying the company’s product offerings to satisfy the needs of the target market.

Let’s use the example of an entrepreneur who wants to launch a line of fitness clothes to demonstrate the significance of this. They would do market research as part of the process of writing a business plan to pinpoint their target consumers, such as fitness fanatics, gym visitors, or athletes. The business plan would include insightful information on the target market’s demographics, hobbies, and purchase patterns. With this knowledge, the business owner may carefully coordinate their product offering, price, and marketing messaging to appeal to the determined target demographic.

Entrepreneurs may focus on the appropriate audience, avoid one-size-fits-all techniques, and customize their products, services, and marketing strategies to their consumers’ needs by determining their target market. This aids in comprehending the competitive landscape, spotting gaps, and creating distinctive value propositions that appeal to the target market.

Helps Entrepreneurs to Assesses Competition

A business plan is a valuable tool that helps entrepreneurs assess their competition and gain a deeper understanding of the market landscape in which they operate. By following a structured approach, a business plan guides entrepreneurs on how to effectively analyze and evaluate their competitors.

A business plan helps entrepreneurs identify their key competitors by conducting research and gathering information about their products or services, pricing strategies, target market, marketing tactics, distribution channels, and customer reviews. This helps entrepreneurs understand their unique selling points and position themselves in the market. Entrepreneurs can compare their strengths and weaknesses to those of their competitors, identifying areas for differentiation. They also analyze market demand and customer preferences to identify gaps or underserved segments, tailoring their products or services to cater to these needs. A business plan guides entrepreneurs in positioning themselves against their competition, developing a unique value proposition that resonates with the target market. This roadmap helps entrepreneurs stay agile and adapt their strategies accordingly.

Importance to Evaluate Feasibility

Read – Benefits of Being an Entrepreneur

Importance of Entrepreneurs to Attract Investors

A business plan holds immense importance for entrepreneurs when it comes to attracting investors to support their venture. A well-crafted business plan serves as a persuasive tool that demonstrates the potential of the business and convinces investors to provide financial backing.

Helps Entrepreneurs to Secures Their Funding

A business plan is essential for assisting entrepreneurs in obtaining finance for their projects. It acts as a roadmap that details the company’s potential, financial estimates, and growth plans. Entrepreneurs should write a succinct executive summary, thorough business description, market and competitive analysis, financial projections, funding requirements, marketing and sales strategy, management team, risk assessment, and mitigation, and supporting documents to obtain funding through a business plan.

These elements help investors and lenders understand the business’s unique value proposition, target market, revenue potential, and funding requirements. By presenting realistic financial projections, well-supported financial projections, and a well-thought-out marketing and sales strategy, entrepreneurs can secure funding and attract investors and lenders.

Read – Common Myths about Entrepreneurs

Business Plan Guides Entrepreneurs to Resource Allocation

A business plan serves as a valuable tool that guides entrepreneurs in allocating their resources effectively. It provides a clear roadmap for resource allocation by outlining the key areas of the business that require attention and investment.

Importance to Facilitate Decision-Making

A business plan holds great importance for entrepreneurs in facilitating effective decision-making throughout their entrepreneurial journey. It provides a framework that helps entrepreneurs make informed decisions by considering various factors and evaluating potential outcomes.

To effectively use a business plan for decision-making, entrepreneurs should define goals and objectives, gather relevant information, evaluate alternatives, consider financial implications, analyze risks and mitigation strategies, seek input from experts, regularly review and update the plan, and trust intuition and vision. This balances analytical thinking with an entrepreneurial instinct, ensuring long-term sustainability and informed decisions.

Identifies Risks and Mitigation Strategies

To identify risks and develop mitigation strategies in a business plan, conduct a comprehensive risk assessment, analyze the impact and likelihood of risks, and develop specific strategies. Allocate resources, including financial, personnel, and time, to support the implementation of these strategies. Regularly monitor and update the business plan, seeking external expertise or consulting with industry professionals to gain insights. Communicate the identified risks and mitigation strategies clearly to stakeholders, including investors, lenders, and partners, to demonstrate professionalism and confidence in the business.

Importance of Entrepreneurs to Assists in Team Building

Read – Entrepreneurship Books for Students

Business Plan Supports Marketing and Sales Efforts

A business plan holds significant importance in supporting marketing and sales efforts for entrepreneurs. It provides a strategic roadmap for effectively promoting products or services and attracting customers. A business plan helps understand the target market, define the unique selling proposition (USP), develop marketing strategies, allocate budgets, monitor and measure results, and adapt and evolve.

Guides Product or Service Development

A business plan is essential for directing entrepreneurs as they create their goods or services. It offers a methodical way to determine consumer demands, specify product characteristics, and create a schedule for product development.

A business plan can guide product or service development by identifying customer needs, defining product or service features, setting development milestones, determining resource requirements, conducting testing and iteration, and integrating marketing and launch strategies. This helps entrepreneurs stay focused, track progress, and ensure the timely completion of activities. The plan should also outline the necessary funding, collaborations, and resources needed for the development process. By incorporating continuous improvement and iterative development, entrepreneurs can create a high-quality offering that meets or exceeds customer expectations.

Importance of Entrepreneurs to Manage Finances Effectively

A business plan holds great importance for entrepreneurs when it comes to managing finances effectively. It offers a thorough foundation for comprehending the financial facets of the firm and aids business owners in making defensible choices to maximize financial resources.

Business Plan Measures Progress and Success

A business plan holds significant importance for entrepreneurs in measuring their progress and success. They may compare their accomplishments to it as a standard to see if they are progressing in the correct path.

Establish Key Performance Indicators (KPIs) that are in line with the goals of the business’s plan to successfully measure the growth and success of entrepreneurs. Regularly track and monitor KPIs to assess progress and make informed decisions. Conduct periodic reviews to evaluate progress against the plan, identify areas for adjustments or course corrections, and celebrate milestones and successes. Continuously update and evolve the business plan to reflect evolving goals, strategies, and market conditions.

Business Plan Importance to Enhance Credibility

To enhance entrepreneurs’ credibility, a well-presented business plan should present a professional image, conduct thorough market research, highlight the unique selling proposition, provide detailed financial projections, incorporate risk analysis and mitigation strategies, seek third-party validation, and regularly update and refine the plan. This shows credibility and commitment to continuous improvement, demonstrating the business’s ability to adapt and thrive in the ever-changing landscape.

Business Plan Provides a Basis for Partnerships

Read – Imitative Entrepreneurship

Importance of Entrepreneurs to Do Business Expansion

A business plan plays a crucial role for entrepreneurs when it comes to business expansion. It provides a strategic framework and guidance for expanding operations, entering new markets, or launching new products or services.

Guides Entrepreneurs to Succession Planning

A business plan is of significant importance when it comes to guiding entrepreneurs in succession planning, which involves preparing for the future transition of leadership and ownership within a business.

To effectively use a business plan for succession planning, assess current leadership and ownership, identify potential successors, define succession goals and timeline, develop a succession plan, communicate with stakeholders, and regularly review and update the plan. This process ensures alignment with the long-term vision and aspirations of the business and its stakeholders. Regularly assess the progress of potential successors and provide development opportunities to enhance their skills and knowledge.

Importance to Increases Self-Awareness

Entrepreneurs should consider their objectives and values, perform a SWOT analysis, create reasonable company goals, ask for criticism and mentoring, constantly evaluate their success, and change to improve their self-awareness. By identifying strengths, weaknesses, opportunities, and threats, entrepreneurs can create a clear vision and align their business plans with their values. By seeking feedback and mentoring, entrepreneurs can develop a stronger self-awareness and improve their business strategies.

An effective business plan is a crucial tool for entrepreneurs . It gives them a path to success. A successful business plan may help entrepreneurs define clear goals. Also, identify their target market, analyze the competition, determine whether their idea is feasible, draw in investors, manage funds, and track their progress. It functions as a manual to assist business owners make wise decisions, manage resources effectively, and adjust to changing conditions.

A solid business plan is crucial for entrepreneurs to navigate the complex commercial world, guiding their companies toward expansion, profitability, and long-term success. It should be evaluated and revised regularly to reflect company demands, serving as a compass for entrepreneurs.

FAQ about the Importance of Business Plans to Entrepreneurs

Why is a business plan important, when is the best time to write a business plan.

Typically, before launching a new firm. It is the ideal time to draft a business plan. Likewise, when a current firm is expected to undergo significant adjustments. Be sure you have a solid strategy in place before approaching investors, looking for finance. Especially, starting a business. Making a business plan, though, is never too late, and you can always change it as your company grows.

What is a Business Plan’s Main Objective?

A business plan’s main objective is to outline an organization’s goals, strategies, and financial predictions. It helps business owners communicate their vision, pinpoint their target market, assess the profitability of their endeavor, entice investors, and allocate their resources effectively. It serves as a compass for monitoring growth and making adjustments as needed.

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Why is a business plan important to an entrepreneur?

A business plan is essential and plays a vital role in an entrepreneur’s success. It assists in setting up plain goals and guidelines for how you will operate your business.

WHAT IS A BUSINESS PLAN

A business plan is an important written document that gives a full description and outline of your organization’s future. All companies or businesses should have a business plan. 

The plan should clarify your business procedure and your critical objectives from where you are present to where you will be in the nearest future. 

Business plans are required for all business owners and entrepreneurs. It has an important role in all businesses. 

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A decent business plan not just assists entrepreneurs in focusing on the specific parts essential for them to make business thoughts succeed. However, it likewise assists them in accomplishing short-term and long-term targets.

Many business financing specialists support the possibility that having a decent business plan isn’t sufficient. Even brilliant business thoughts can be useless if you can not figure out, execute and carry out a smart plan to make your business thoughts work. 

If you are hoping to raise funds from loan specialists and investors, remember that having a great business plan is very important. You should intend to have a documented plan that represents itself with no issue. 

It should be clear and simple to read and comprehend. The Important of a business plan are:

To raise money for your business

Lenders or potential investors want a well-composed business plan before giving you cash. A simple description of your business idea is not sufficient. 

Instead, make sure you have a careful business and monetary plan that shows the probability of progress and the amount you will require for your business to find true success in the long term.

To make sound decisions

As a business visionary, having a business plan assists you in characterizing and focusing on your business strategies and ideas. 

You not only focus on monetary issues but also on management matters, innovation, and making value for your client.

To assist you in knowing any potential weaknesses

Having a business plan assists you in knowing the potential fault in your thought. Likewise, you can share the business plan with other people who can offer you their viewpoints and guidance.

Identify specialists and experts who are in a situation to offer you important guidance and offer your plan with them.

To discuss your ideas with stakeholders

A business plan is a discussion device that you can use to get speculation capital from lenders or financial institutions. Likewise, you can utilize it to convince individuals to work for your venture and attract potential clients.

What are the 3 main purposes of a business plan?

If you are getting ready to go into business, you should initially draft a business plan. A decent business plan acts as a unique diagram for running and growing your business.

To compose a business plan, you have to understand the main purpose of a business plan. These purposes are explained below.

TO SECURE FINANCING FOR THE BUSINESS VENTURE.

The first purpose of a business plan is to get financing for the business. In some cases, financial institutions, banks, venture capitalists, and finance businesses assessed a well-written business plan composed by an expert.

A well-composed plan shows them that you have carefully studied each part of starting and working on your proposed business before telling them to fund it.

It additionally shows that you have carefully studied all possible results before making any conclusions about expanding your business.

TO ORGANIZE YOUR BUSINESS AND SET ITS DIRECTION. 

The second purpose behind a business plan is to sort out your thoughts about beginning your new independent venture into a coordinated organization.

So you can set its direction by choosing where it should be heading.

When you compose a business plan, you are pushed to figure out your business that you probably won’t have thought about previously. It

is how you put together your ideas on how you will start, work and develop your business.

TO PROVIDE A WRITTEN RECORD OF YOUR PLANS, GOALS, AND ACHIEVEMENTS. 

Finally, a business plan is a written document of your plans and objectives for your business to assist you with accomplishing those objectives. Composing a business plan assists you with explaining your objectives and coordinating the data about your business so that it’s simple for others to understand.

If you plan to start a new business with others, having a well-composed business plan is useful because it lets everyone know what their responsibilities will be in the activity of the new company.

Your business mentor is there to assist you, and they have your best interests on a basic level. Be 100% open to feedback and be honest with them. why every Successful entrepreneur needs a business mentor

What is the most important part of the business plan?

The executive summary is the most important part of the business plan for entrepreneurship, and perhaps the one, in particular, that will get perused, so make it great! The executive summary has only one goal. Get the lenders and potential investors to read the remaining of your business plan.

4 Types of Business Plans

• Operational Planning.
• Contingency Planning.
• Tactical Planning.
• Strategic Planning.

How does a well-written business plan benefit an entrepreneur?

Whether you’re starting a private venture or investigating ways of extending a current business, a Business Plan is a significant instrument to assist with directing your choices.

A compelling business plan is a guide to progress, giving clarity on all parts of your business, from finance and marketing, products, people, and how you will be outstanding among your competitors.

Your plan should involve explicit goals for recruiting new employees, what structure you will have, what services and products your business will give, how you will develop them, and how you will fund business activities.

These are the benefits of a well-written business plan for an entrepreneur:

1. Increased Clarity

A business plan can attract clarity to the choice-making process regarding main aspects of the business like leases, resourcing, capital investments, and so on. A good Business Plan will assist you with identifying business-basic needs and milestones to base on.

2. Creation of a Marketing Roadmap

Marketing is a significant part of a business plan. It assists in defining your objective market, target clients, and how you will enhance and place your product/service to these markets/clients.

3. Support for Funding

Whether you are looking for capital from investors or credit from a bank, a business plan that answers questions concerning income age and benefit generation is frequently required.

4. Helps to Secure Talent

For a business to succeed, attracting partners and capable workers is important. Part of a business plan’s reason is to assist with getting the right talent at the right time.

Staff wants to know the vision, how the business will accomplish its objectives, and how they can add to this in their roles. 

5. Provides Structure

A business plan gives structure and characterizes business management goals. It turns into a reference device to keep the business on the path with targets, sales, and operational milestones.

When utilized appropriately and counseled regularly, it can assist measure and operating your needed areas of concentration.

Conclusion 

In short, creating a business plan involves a great deal of thought. It would help if you considered what you should do and involved that as a beginning stage. It does not need to be complex.

At its center, your plan should show where you are currently, how you want your business to go, and how you will arrive there. Writing a decent business plan does not ensure a positive outcome, but it can decrease the chance of failure.

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What Is a Business Plan?

Understanding business plans, how to write a business plan, common elements of a business plan, 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 outlines a company's goals and the strategies to achieve them. It's valuable for both startups and established companies. For startups, a well-crafted business plan is crucial for attracting potential lenders and investors. Established businesses use business plans to stay on track and aligned with their growth objectives. This article will explain the key components of an effective business plan and guidance on how to write one.

Key Takeaways

• A business plan is a document detailing a company's business activities and strategies for achieving its goals.
• Startup companies use business plans to launch their venture and to attract outside investors.
• For established companies, a business plan helps keep the executive team focused on short- and long-term objectives.
• There's no single required format for a business plan, but certain key elements are essential for most companies.

Investopedia / Ryan Oakley

Any new business should have a business plan in place before beginning operations. Banks and venture capital firms often want to see a business plan before considering making a loan or providing capital to new businesses.

Even if a company doesn't need additional funding, having a business plan helps it stay focused on its goals. Research from the University of Oregon shows that businesses with a plan are significantly more likely to secure funding than those without one. Moreover, companies with a business plan grow 30% faster than those that don't plan. According to a Harvard Business Review article, entrepreneurs who write formal plans are 16% more likely to achieve viability than those who don't.

A business plan should ideally be reviewed and updated periodically to reflect achieved goals or changes in direction. An established business moving in a new direction might even create an entirely new plan.

There are numerous benefits to creating (and sticking to) a well-conceived business plan. It allows for careful consideration of ideas before significant investment, highlights potential obstacles to success, and provides a tool for seeking objective feedback from trusted outsiders. A business plan may also help ensure that a company’s executive team remains aligned on strategic action items and priorities.

While business plans vary widely, even among competitors in the same industry, they often share basic elements detailed below.

A well-crafted business plan is essential for attracting investors and guiding a company's strategic growth. It should address market needs and investor requirements and provide clear financial projections.

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, gathering the basic information into a 15- to 25-page document is best. Any additional crucial elements, such as patent applications, can be referenced in the main document and included as appendices.

Common elements in many business plans include:

• 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 : Describe the products and services the company offers or plans to introduce. Include details on pricing, product lifespan, and unique consumer benefits. Mention production and manufacturing processes, relevant patents , proprietary technology , and research and development (R&D) information.
• Market analysis : Explain the current state of the industry and the competition. Detail where the company fits in, the types of customers it plans to target, and how it plans to capture market share from competitors.
• Marketing strategy : Outline the company's plans to attract and retain customers, including anticipated advertising and marketing campaigns. Describe the distribution channels that will be used to deliver products or services to consumers.
• Financial plans and projections : Established businesses should include financial statements, balance sheets, and other relevant financial information. New businesses should provide financial targets and estimates for the first few years. This section may also include any funding requests.

Investors want to see a clear exit strategy, expected returns, and a timeline for cashing out. It's likely a good idea to provide five-year profitability forecasts and realistic financial estimates.

2 Types of Business Plans

Business plans can vary in format, often categorized into traditional and lean startup plans. According to the U.S. Small Business Administration (SBA) , the traditional business plan is the more common of the two.

• Traditional business plans : These are detailed and lengthy, requiring more effort to create but offering comprehensive information that can be persuasive to potential investors.
• Lean startup business plans : These are concise, sometimes just one page, and focus on key elements. While they save time, companies should be ready to provide additional details if requested by investors or lenders.

Why Do Business Plans Fail?

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

How Often Should a Business Plan Be Updated?

How frequently a business plan needs to be revised will depend on its nature. Updating your business plan is crucial due to changes in external factors (market trends, competition, and regulations) and internal developments (like employee growth and new products). While 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 ideal for quickly explaining a business, especially for new companies that don't have much information yet. Key sections may include a value proposition , major activities and advantages, resources (staff, intellectual property, and capital), partnerships, customer segments, and revenue sources.

A well-crafted business plan is crucial for any company, whether it's a startup looking for investment or an established business wanting to stay on course. It outlines goals and strategies, boosting a company's chances of securing funding and achieving growth.

As your business and the market change, update your business plan regularly. This keeps it relevant and aligned with your current goals and conditions. Think of your business plan as a living document that evolves with your company, not something carved in stone.

University of Oregon Department of Economics. " Evaluation of the Effectiveness of Business Planning Using Palo Alto's Business Plan Pro ." Eason Ding & Tim Hursey.

Bplans. " Do You Need a Business Plan? Scientific Research Says Yes ."

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

Harvard Business Review. " How to Write a Winning Business Plan ."

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

SCORE. " When and Why Should You Review Your Business Plan? "

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Do you REALLY need a business plan?

The top three questions that I get asked most frequently as a professional business plan writer will probably not surprise you:

• What is the purpose of a business plan – why is it really required?
• How is it going to benefit my business if I write a business plan?
• Is a business plan really that important – how can I actually use it?

Keep reading to get my take on what the most essential advantages of preparing a business plan are—and why you may (not) need to prepare one.

The importance, purpose and benefit of a business plan is in that it enables you to validate a business idea, secure funding, set strategic goals – and then take organized action on those goals by making decisions, managing resources, risk and change, while effectively communicating with stakeholders.

Let’s take a closer look at how each of the important business planning benefits can catapult your business forward:

1. Validate Your Business Idea

The process of writing your business plan will force you to ask the difficult questions about the major components of your business, including:

• External: industry, target market of prospective customers, competitive landscape
• Internal: business model, unique selling proposition, operations, marketing, finance

Business planning connects the dots to draw a big picture of the entire business.

And imagine how much time and money you would save if working through a business plan revealed that your business idea is untenable. You would be surprised how often that happens – an idea that once sounded so very promising may easily fall apart after you actually write down all the facts, details and numbers.

While you may be tempted to jump directly into start-up mode, writing a business plan is an essential first step to check the feasibility of a business before investing too much time and money into it. Business plans help to confirm that the idea you are so passionate and convinced about is solid from business point of view.

Take the time to do the necessary research and work through a proper business plan. The more you know, the higher the likelihood that your business will succeed.

2. Set and Track Goals

Successful businesses are dynamic and continuously evolve. And so are good business plans that allow you to:

• Priorities: Regularly set goals, targets (e.g., sales revenues reached), milestones (e.g. number of employees hired), performance indicators and metrics for short, mid and long term
• Accountability: Track your progress toward goals and benchmarks
• Course-correction: make changes to your business as you learn more about your market and what works and what does not
• Mission: Refer to a clear set of values to help steer your business through any times of trouble

Essentially, business plan is a blueprint and an important strategic tool that keeps you focused, motivated and accountable to keep your business on track. When used properly and consulted regularly, it can help you measure and manage what you are working so hard to create – your long-term vision.

As humans, we work better when we have clear goals we can work towards. The everyday business hustle makes it challenging to keep an eye on the strategic priorities. The business planning process serves as a useful reminder.

3. Take Action

A business plan is also a plan of action . At its core, your plan identifies where you are now, where you want your business to go, and how you will get there.

Planning out exactly how you are going to turn your vision into a successful business is perhaps the most important step between an idea and reality. Success comes not only from having a vision but working towards that vision in a systematic and organized way.

A good business plan clearly outlines specific steps necessary to turn the business objectives into reality. Think of it as a roadmap to success. The strategy and tactics need to be in alignment to make sure that your day-to-day activities lead to the achievement of your business goals.

4. Manage Resources

A business plan also provides insight on how resources required for achieving your business goals will be structured and allocated according to their strategic priority. For example:

Large Spending Decisions

• Assets: When and in what amount will the business commit resources to buy/lease new assets, such as computers or vehicles.
• Human Resources: Objectives for hiring new employees, including not only their pay but how they will help the business grow and flourish.
• Business Space: Information on costs of renting/buying space for offices, retail, manufacturing or other operations, for example when expanding to a new location.

Cash Flow It is essential that a business carefully plans and manages cash flows to ensure that there are optimal levels of cash in the bank at all times and avoid situations where the business could run out of cash and could not afford to pay its bills.

Revenues v. Expenses In addition, your business plan will compare your revenue forecasts to the budgeted costs to make sure that your financials are healthy and the business is set up for success.

5. Make Decisions

Whether you are starting a small business or expanding an existing one, a business plan is an important tool to help guide your decisions:

Sound decisions Gathering information for the business plan boosts your knowledge across many important areas of the business:

• Industry, market, customers and competitors
• Financial projections (e.g., revenue, expenses, assets, cash flow)
• Operations, technology and logistics
• Human resources (management and staff)
• Creating value for your customer through products and services

Decision-making skills The business planning process involves thorough research and critical thinking about many intertwined and complex business issues. As a result, it solidifies the decision-making skills of the business owner and builds a solid foundation for strategic planning , prioritization and sound decision making in your business. The more you understand, the better your decisions will be.

Planning Thorough planning allows you to determine the answer to some of the most critical business decisions ahead of time , prepare for anticipate problems before they arise, and ensure that any tactical solutions are in line with the overall strategy and goals.

If you do not take time to plan, you risk becoming overwhelmed by countless options and conflicting directions because you are not unclear about the mission , vision and strategy for your business.

6. Manage Risk

Some level of uncertainty is inherent in every business, but there is a lot you can do to reduce and manage the risk, starting with a business plan to uncover your weak spots.

You will need to take a realistic and pragmatic look at the hard facts and identify:

• Major risks , challenges and obstacles that you can expect on the way – so you can prepare to deal with them.
• Weaknesses in your business idea, business model and strategy – so you can fix them.
• Critical mistakes before they arise – so you can avoid them.

Essentially, the business plan is your safety net . Naturally, business plan cannot entirely eliminate risk, but it can significantly reduce it and prepare you for any challenges you may encounter.

7. Communicate Internally

Attract talent For a business to succeed, attracting talented workers and partners is of vital importance.

A business plan can be used as a communication tool to attract the right talent at all levels, from skilled staff to executive management, to work for your business by explaining the direction and growth potential of the business in a presentable format.

Align performance Sharing your business plan with all team members helps to ensure that everyone is on the same page when it comes to the long-term vision and strategy.

You need their buy-in from the beginning, because aligning your team with your priorities will increase the efficiency of your business as everyone is working towards a common goal .

If everyone on your team understands that their piece of work matters and how it fits into the big picture, they are more invested in achieving the objectives of the business.

It also makes it easier to track and communicate on your progress.

Share and explain business objectives with your management team, employees and new hires. Make selected portions of your business plan part of your new employee training.

8. Communicate Externally

Alliances If you are interested in partnerships or joint ventures, you may share selected sections of your plan with the potential business partners in order to develop new alliances.

Suppliers A business plan can play a part in attracting reliable suppliers and getting approved for business credit from suppliers. Suppliers who feel confident that your business will succeed (e.g., sales projections) will be much more likely to extend credit.

In addition, suppliers may want to ensure their products are being represented in the right way .

Professional Services Having a business plan in place allows you to easily share relevant sections with those you rely on to support the organization, including attorneys, accountants, and other professional consultants as needed, to make sure that everyone is on the same page.

Advisors Share the plan with experts and professionals who are in a position to give you valuable advice.

Landlord Some landlords and property managers require businesses to submit a business plan to be considered for a lease to prove that your business will have sufficient cash flows to pay the rent.

Customers The business plan may also function as a prospectus for potential customers, especially when it comes to large corporate accounts and exclusive customer relationships.

9. Secure Funding

If you intend to seek outside financing for your business, you are likely going to need a business plan.

Whether you are seeking debt financing (e.g. loan or credit line) from a lender (e.g., bank or financial institution) or equity capital financing from investors (e.g., venture or angel capital), a business plan can make the difference between whether or not – and how much – someone decides to invest.

Investors and financiers are always looking at the risk of default and the earning potential based on facts and figures. Understandably, anyone who is interested in supporting your business will want to check that you know what you are doing, that their money is in good hands, and that the venture is viable in the long run.

Business plans tend to be the most effective ways of proving that. A presentation may pique their interest , but they will most probably request a well-written document they can study in detail before they will be prepared to make any financial commitment.

That is why a business plan can often be the single most important document you can present to potential investors/financiers that will provide the structure and confidence that they need to make decisions about funding and supporting your company.

Be prepared to have your business plan scrutinized . Investors and financiers will conduct extensive checks and analyses to be certain that what is written in your business plan faithful representation of the truth.

10. Grow and Change

It is a very common misconception that a business plan is a static document that a new business prepares once in the start-up phase and then happily forgets about.

But businesses are not static. And neither are business plans. The business plan for any business will change over time as the company evolves and expands .

In the growth phase, an updated business plan is particularly useful for:

Raising additional capital for expansion

• Seeking financing for new assets , such as equipment or property
• Securing financing to support steady cash flows (e.g., seasonality, market downturns, timing of sale/purchase invoices)
• Forecasting to allocate resources according to strategic priority and operational needs
• Valuation (e.g., mergers & acquisitions, tax issues, transactions related to divorce, inheritance, estate planning)

Keeping the business plan updated gives established businesses better chance of getting the money they need to grow or even keep operating.

Business plan is also an excellent tool for planning an exit as it would include the strategy and timelines for a transfer to new ownership or dissolution of the company.

Also, if you ever make the decision to sell your business or position yourself for a merger or an acquisition , a strong business plan in hand is going to help you to maximize the business valuation.

Valuation is the process of establishing the worth of a business by a valuation expert who will draw on professional experience as well as a business plan that will outline what you have, what it’s worth now and how much will it likely produce in the future.

Your business is likely to be worth more to a buyer if they clearly understand your business model, your market, your assets and your overall potential to grow and scale .

Related Questions

Business plan purpose: what is the purpose of a business plan.

The purpose of a business plan is to articulate a strategy for starting a new business or growing an existing one by identifying where the business is going and how it will get there to test the viability of a business idea and maximize the chances of securing funding and achieving business goals and success.

Business Plan Benefits: What are the benefits of a business plan?

A business plan benefits businesses by serving as a strategic tool outlining the steps and resources required to achieve goals and make business ideas succeed, as well as a communication tool allowing businesses to articulate their strategy to stakeholders that support the business.

Business Plan Importance: Why is business plan important?

The importance of a business plan lies in it being a roadmap that guides the decisions of a business on the road to success, providing clarity on all aspects of its operations. This blueprint outlines the goals of the business and what exactly is needed to achieve them through effective management.

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15 Reasons Why You Need a Business Plan in 2024

Posted august 5, 2024 by noah parsons.

Imagine you’re going on a road trip. You know your final destination, but you haven’t figured out how to get there. 

While it might be fun to start driving and figure things out as you go, your trip will likely take longer than expected and end up costing more. But, if you take the time to look at a map and chart the best way to get to your destination—you’ll arrive on time and on budget. 

Planning for your business isn’t much different, which is why a business plan is so important to your continued success.

What is the purpose of a business plan? 

The primary purpose of a business plan is to help you figure out where you want to go with your business and how you will get there. Writing a business plan helps you set your direction and determine a winning strategy. A solid business plan will set your business up for success and help you build an unbeatable company.

If you start off without a plan, you may go down some interesting detours, but you’re unlikely to grow quickly or stick to your budget.

15 reasons why you need a business plan

“Creating a road map for my business is all well and good, but do I really need a business plan? I’d rather just get started.”

If you’re still thinking like this and decide to skip writing a business plan, you’re making a big mistake and setting yourself up to fail. Even if your business survives, without a plan, you’ll miss valuable growth opportunities and never truly be in control.

Still not convinced? Here are the critical reasons why a business plan is important for small businesses. 

1. You’re more likely to start

Documenting your business idea makes it more official. It takes rough ideas and turns them into the making of a real business. 

According to a study by the Harvard Business Review , entrepreneurs who write formal plans are 16% more likely to achieve viability than those who don’t.

Even if it’s just notes about your potential business, writing things down will make you more likely to proceed with your business. Without a plan, you can’t prove to yourself, partners, mentors, or investors that you’re serious about starting.

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2. Reduce potential risks

Writing a business plan takes some of the risk out of starting a business. It helps you think through every facet of your business to determine if it can truly be viable. 

• Does your solution fit the market? Are your startup or operational costs manageable?
• Will your proposed business model actually generate sales?
• What sort of milestones would you need to hit to achieve profitability?

Your business plan can answer these startup questions .

For those already running a business, writing a plan can help you better manage ongoing risk. 

• Should you bring on a new employee?
• What does cash flow look like for your next month, quarter, or even year?
• Will you meet your milestones or do you need to change your focus?

Keep your plan up to date, review it regularly and you can easily answer these growth questions and mitigate risk.

3. Test a new business idea and prove it’s viable

When you have a new business idea, it helps to spend time thinking through all the details. 

A business plan will help you think about your:

• Target market
• How much money you’ll need to launch
• How your idea will actually work before you spend any real money

A business plan will also help you easily share your idea with other people to get input and feedback before you get started. 

There’s no need to create a detailed business plan either. 

Instead, I recommend using a one-page business plan to quickly test your ideas and determine if you have a viable business. 

4. Understand your market and build a marketing plan

No matter how good your idea is, you have to figure out who your ideal customers are and how you will get the word out to them. 

That’s where a marketing plan comes in. It can be an indispensable tool to figure out how you get your first customers as well as your thousandth customer. It can start as a simple bulleted list of potential marketing channels that expands in detail as you need it.

5. Build a better budget and a financial forecast

Without a business plan, it’s impossible to know how much money it will cost to start and run a business. You don’t just need money for your initial purchases; you need enough cash in the bank to maintain your cash runway and keep your business afloat while you get fully up and running.

When you plan, you’ll need to create your expense budget , set sales goals, and identify how much cash is needed to keep your doors open, purchase inventory, and more. 

The beauty of incorporating forecasts into your business plan is that you don’t need exact numbers to start. You can work with general assumptions and compare against competitive benchmarks to set a baseline for your business. 

As you operate and collect financial data, you can revisit your business plan and update your forecasts to generate a more accurate picture of your business’s future.

6. Attract investors and get funding

Sharing your business idea with investors requires a business plan. 

Investors may never actually ask for your full business plan, but they will certainly ask you questions that you’ll only be able to answer if you’ve taken the time to write a plan. 

At the very least, they’ll want to see your financial forecasts, so you should be prepared for this. If you pitch your business to investors, having a business plan makes it much easier to translate the right information into a pitch deck. 

In short, you’ll have all of the right information ready and available to show why your business is worth investing in.

7. Plan for different scenarios

Things rarely actually go to plan. The world is always changing, customer tastes change, and new competitors arrive. 

Having a plan allows you to experiment with different scenarios to see how changes to your business will impact your forecasts, budgets, profitability, and cash flow.

Without a business plan, you’ll be reacting blindly with no way to track if your decisions are making a real impact.

8. Attract employees

Especially if you’re a young startup company, attracting employees can be hard. Without a proven track record, why should someone take a risk to work for you? 

Having a business plan can help solve that problem. Your plan can help prospective employees understand your business strategy and growth plans so that they can feel confident joining your team. It’s also incredibly useful in determining when and if it’s feasible for you to hire more employees . 

9. Get your team on the same page

A great business strategy can only be successful if your team understands it. By documenting your strategy with a business plan, you can easily get everyone on the same page and working towards the same goals. 

It’s even better if you regularly review your plan with members of your team. Have everyone revisit your core strategy, analyze it, and explore how it impacts individual and team goals .

10. Manage your business better 

A business plan is all about setting goals for your company — both financial goals and milestones you hope to accomplish. 

When you use your business plan to manage your business, you’ll see which parts of your strategy are working and which aren’t. 

For example, you may have invested in new marketing efforts to sell one of your products, but that strategy just isn’t working out. With a business plan in hand, you’ll be able to see what’s going to plan and where you need to adjust your strategy, pivoting to new opportunities that will drive profitability.

Regular business plan reviews , ideally monthly, will help you build a strong, resilient business.

11. Effectively navigate a crisis

Having a business plan not only helps you create a roadmap for your business but also helps you navigate unforeseen events. Large-scale economic downturns, supply shortages, payment delays, cash flow problems, and any number of other issues are bound to pop up. But by leveraging your business plan, you can be prepared to face each crisis head-on.

A plan helps you assess your current situation, determine how the crisis will alter your plan, and explore what it will take to recover. 

With a little planning, you can even prepare your business for future downturns with this same process. Having the right plan and processes in place will make crisis planning easier and, ideally, recession-proof your business .

12. You’ll be ready to sell

You might decide to sell your business or position yourself for acquisition down the road. Having a solid business plan helps make the case for a higher valuation. 

Your business is likely worth more to a buyer if it’s easy for them to understand your business model, your target market, and your overall potential to grow and scale. 

Remember, if you were buying a business , you’d likely want to see their business plan and any previous documentation. So, the more organized and professional your plan is, the easier it will be for a buyer to say yes.

13. It’s easier than you think

You may be procrastinating in writing a business plan because it sounds like a lot of work. The truth is that planning is much less complicated than you think. 

Start small by writing a simple business plan you can complete in about half an hour. With the emergence of AI business plan generators , getting stuck with a blank page is a thing of the past. Just be sure that you don’t just let AI write your plan for you and keep yourself involved in the planning process.

From there, refine your plan until your idea is solid. At that point, you can invest more time in a more detailed business plan. Just start with the basics and expand from there.

14. You’ll sleep better at night

When you have a plan for your business, you have peace of mind. You know that you’ve invested the time to figure out a business model that works, and you’ve considered different financial scenarios so you can handle the unexpected. 

Plus, you have a management tool to run your business better than your competitors. 

15. Research shows that business plans work

A Journal of Management Studies study found that businesses that take the time to plan grow 30% faster than those that don’t. 

Our own 2021 small business research study found that 58% of small business owners who have or are working on a plan feel confident in their business, even amidst a crisis. 

A study in Small Business Economics found that entrepreneurs who write business plans for their ideas are 152% more likely to actually start their businesses.

There’s plenty of additional research linking business planning with success, so it’s a proven fact that you won’t waste time when you write your plan.

Why is a business plan important? Because it sets you up for success

There are plenty of reasons to write a business plan, but they all relate to one thing—increasing the likelihood of success for you and your business. 

Taking the time to plan is an investment in yourself and your business that will pay dividends, whether you’re starting a new business or taking your existing business to the next level. 

If you’ve been putting off writing a business plan, now is the time to do it. Start by downloading one of the many free business plan templates out there, or for additional guidance, invest in an online business plan builder .

No matter what business planning tool you choose, just deciding to write a business plan will set you up to build, run, and grow your business. So, don’t wait—start planning today.

What is a business plan?

A business plan is a structured document that outlines the goals, strategies, target market, and financial forecasts of a business. It serves as a roadmap for the business, detailing the steps necessary to achieve success.

Why is planning necessary?

Business planning is essential because it helps businesses set clear goals, allocate resources efficiently, identify potential challenges, and develop strategies to overcome them. It also provides a framework for decision-making and helps attract investors by demonstrating the viability of the business.

What happens if a business doesn’t plan?

Without planning, a business may lack direction and clarity, leading to inefficient use of resources, missed opportunities, and an inability to respond effectively to market changes. This can result in financial difficulties, operational challenges, and ultimately, business failure.

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Nine reasons why you need a business plan

Building a great business plan helps you plan, strategize and succeed. Presented by Chase for Business .

Making the decision to create a new business is an exciting yet stressful experience. Starting a business involves many tasks and obstacles, so it’s important to focus before you take action. A solid business plan can provide direction, help you attract investors and ensure you maintain momentum.

No matter what industry you plan on going into, a business plan is the first step for any successful enterprise. Building your business plan helps you figure out where you want your business to go and identify the necessary steps to get you there. This is a key document for your company to both guide your actions and track your progress.

What is the purpose of a business plan?

Think of a business plan like a roadmap. It enables you to solve problems and make key business decisions, such as marketing and competitive analysis, customer and market analysis and logistics and operations plans.

It can also help you organize your thoughts and goals, as well as give you a better idea of how your company will work. Good planning is often the difference between success and failure.

Here are nine reasons your company needs a business plan.

1. Prove your idea is viable

Through the process of writing a business plan, you can assess whether your company will be successful. Understanding market dynamics, as well as competitors, will help determine if your idea is viable.

This is also the time to develop financial projections for your business plan, like estimated startup costs, a profit and loss forecast, a break-even analysis and a cash flow statement . By taking time to investigate the viability of your idea, you can build goals and strategies to support your path to success.

A proper business plan proves to all interested parties—including potential investors, customers, employees, partners and most importantly yourself — that you are serious about your business.

2. Set important goals

As a business owner, the bulk of your time will mostly likely be spent managing day-to-day tasks. As a result, it might be hard to find time after you launch your business to set goals and milestones. Writing a business plan allows you to lay out significant goals for yourself ahead of time for three or even five years down the road. Create both short- and long-term business goals. 

3. Reduce potential risks

Prevent your business from falling victim to unexpected dangers by researching before you break ground. A business plan opens your eyes to potential risks that your business could face. Don’t be afraid to ask yourself the hard questions that may need research and analysis to answer. This is also good practice in how your business would actually manage issues when they arise. Incorporate a contingency plan that identifies risks and how you would respond to them effectively.

The most common reasons businesses fail include:

• Lack of capital
• Lack of market impact or need
• Unresearched pricing (too high or low)
• Explosive growth that drains all your capital
• Stiff competition

Lack of capital is the most prevalent reason why businesses fail. To best alleviate this problem, take time to determine how your business will generate revenue. Build a comprehensive model to help mitigate future risks and long-term pain points. This can be turned into a tool to manage growth and expansion.

4. Secure investments

Whether you’re planning to apply for an SBA loan , build a relationship with angel investors or seek venture capital funding, you need more than just an elevator pitch to get funding. All credible investors will want to review your business plan. Although investors will focus on the financial aspects of the plan, they will also want to see if you’ve spent time researching your industry, developed a viable product or service and created a strong marketing strategy.

While building your business plan, think about how much raised capital you need to get your idea off the ground. Determine exactly how much funding you’ll need and what you will use it for. This is essential for raising and employing capital.

5. Allot resources and plan purchases

You will have many investments to make at the launch of your business, such as product and services development, new technology, hiring, operations, sales and marketing. Resource planning is an important part of your business plan. It gives you an idea of how much you’ll need to spend on resources and it ensures your business will manage those resources effectively.  

A business plan provides clarity about necessary assets and investment for each item. A good business plan can also determine when it is feasible to expand to a larger store or workspace.

In your plan, include research on new products and services, where you can buy reliable equipment and what technologies you may need. Allocate capital and plan how you’ll fund major purchases, such as with a Chase small business checking account or business credit card .

6. Build your team

From seasoned executives to skilled labor, a compelling business plan can help you attract top-tier talent, ideally inspiring management and employees long after hiring. Business plans include an overview of your executive team as well as the different roles you need filled immediately and further down the line.

Small businesses often employ specialized consultants, contractors and freelancers for individual tasks such as marketing, accounting and legal assistance. Sharing a business plan helps the larger team work collectively in the same direction. 

This will also come into play when you begin working with any new partners. As a new business, a potential partner may ask to see your business plan. Building partnerships takes time and money, and with a solid business plan you have the opportunity to attract and work with the type of partners your new business needs.

7. Share your vision 

When you start a business, it's easy to assume you'll be available to guide your team. A business plan helps your team and investors understand your vision for the company. Your plan will outline your goals and can help your team make decisions or take action on your behalf. Share your business plan with employees to align your full staff toward a collective goal or objective for the company.  Consider employee and stakeholder ownership as a compelling and motivating force. 

8. Develop a marketing strategy

A marketing strategy details how you will reach your customers and build brand awareness. The clearer your brand positioning is to investors, customers, partners and employees, the more successful your business will be.

Important questions to consider as you build your marketing strategy include:

• What industry segments are we pursuing?
• What is the value proposition of the products or services we plan to offer?
• Who are our customers?
• How will we retain our customers and keep them engaged with our products or services and marketing?
• What is our advertising budget?
• What price will we charge?
• What is the overall look and feel of our brand? What are our brand guidelines?
• Will we need to hire marketing experts to help us create our brand?
• Who are our competitors? What marketing strategies have worked (or not worked) for them?

With a thoughtful marketing strategy integrated into your business plan, your company goals are significantly more in reach.

9. Focus your energy

Your business plan determines which areas of your business to focus on while also avoiding possible distractions. It provides a roadmap for critical tradeoffs and resource allocation.

As a business owner, you will feel the urge to solve all of your internal and customers’ problems, but it is important to maintain focus. Keep your priorities at the top of your mind as you set off to build your company.

As a small business owner, writing a business plan should be one of your first priorities. Read our checklist for starting a business, and learn how to take your business from a plan to reality. When you’re ready to get started, talk with a Chase business banker to open a Chase business checking or savings account today.

For Informational/Educational Purposes Only: The views expressed in this article may differ from other employees and departments of JPMorgan Chase & Co. Views and strategies described may not be appropriate for everyone and are not intended as specific advice/recommendation for any individual. You should carefully consider your needs and objectives before making any decisions and consult the appropriate professional(s). Outlooks and past performance are not guarantees of future results.

JPMorgan Chase Bank, N.A. Member FDIC. Equal Opportunity Lender, ©2023 JPMorgan Chase & Co

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A step-by-step guide to writing a business plan that will boost your startup's chance at success

• For all of the popularity of pitch decks , business plans still serve an important function for entrepreneurs who are building a business.
• A 2017 study of more than 1,000 entrepreneurs found that those with a business plan were more successful than those without.
• Business Insider asked entrepreneur, business mentor, and former Wall Street bank executive Cate Luzio to distill her decades of experience into a guide.
• Her advice is the basis for these eight essential elements founders should include in a business plan, and why they matter.
• Visit BI Prime for more stories.

A pitch deck is not a plan.

For all of the popularity of pitch decks, business plans still serve an important function for entrepreneurs who are building a business.

A 2017 study of more than 1,000 entrepreneurs found that those with a business plan were more successful than those without. Among pairs of otherwise identical founders, planners were 16% more likely to be profitable for at least 6 months out of the preceding year.

Professor Francis Greene, who co-authored the study with Christian Hopp, told Business Insider the pairs of entrepreneurs were "like twins" in every observable way, and that the results were "fairly definitive."

"It's pretty clear that if you plan, it pays," Greene said.

Of course, a fancy plan won't save a bad business model, but a thoughtful strategy can give a promising idea the winning edge in a competitive market.

And that edge doesn't exclusively apply to startups seeking venture funding. Just ask former Wall Street bank executive Cate Luzio, who left her 17-year corporate career to launch Luminary NYC, a co-working and event hub for professional women.

The importance of time — and timing

Luzio attributes Luminary's success to the business plan she wrote in one week, a feat that Greene says typically takes founders about 2 months to produce. 

Greene also stresses that his research shows that much of the value of a plan is tied to when you write it. In an earlier study, he and Hopp found a sort of Goldilocks zone of time — roughly 7-12 months after the initial idea, and usually 1-2 years before launching the product or service — as the optimal time to start writing.

Still, Greene says there can be significant internal value to the practice of writing a plan beyond simply raising funds, and Luzio would agree. As a self-financed bootstrapper, Luzio told Business Insider that she's often asked why she wrote a plan if she's not out raising money.

"I need a business plan to run the business," she said. "Business plans weren't created 50 years ago for founders to sell their companies. Business plans were created to build their business, understand cash flow and, and manage the business."

For first-time founders and seasoned pros

As Managing Director and the Global Head of Multinational Corporate Banking at HSBC, Luzio had a $2 billion portfolio and a team of more than 2,000 people across 72 countries.

"It's important for startups to make sure their product/service produces value and meets needs," Luzon said. "It's not about any method being the preferred way. I think it's important to have a plan with actionable-steps and a mission 'North Star' for your business."

Greene describes a good business plan as a "pre-mortem," or an analysis of everything that could go wrong with the business, from which even serial founders with numerous exits under their belt could benefit.

"A plan is a corrective device for solving for your biases," he said.

A strategic framework for your business' growth

Over the years, Luzio has reviewed countless plans and she regularly helps entrepreneurs write their own. This February, she will lead a business plan bootcamp at Luminary in New York.

Business Insider asked Luzio to distill her decades of experience into a guide, which she emphasizes is exactly that: a guide, not a rubric.

"I don't want to focus on a one size fits all approach. I want to underscore for new entrepreneurs the importance of fully mapping out their vision," she said. "Whatever the plan or the framework you use, you have to be able to execute."

Related stories

A business plan simply happens to be a very useful framework, and Luzio's advice is the basis for these 8 essential elements founders should include in their plans, and why they matter.

If you have written a plan for your business that you'd like to share with Business Insider, please get in touch via email at dreuter[at]businessinsider.com .

1. Executive Summary

The first section of a business plan is best written last, once you've worked through the questions raised in the other sections.

Here is where you introduce your company's narrative, and define what success will look like. What problem or opportunity will your business address, and who are your target customers?

This is also where you'll introduce your finance strategy. Are you looking for equity investors, taking on debt, or working with existing cash? How much financing will you need from different sources, and when will you be profitable enough to deliver returns?

Boil down the work you've done in the following sections into a few sentences that get straight to the point.

2. Company Overview

If you have an elevator pitch prepared, this is where it belongs. Summarize what your company stands for, and what its guiding principles are. Why does your business do what it does ? Who are the stakeholders that are concerned with your company's success?

Briefly introduce your target market or customer base, how your product or service will meet a demand, and what operational and staffing considerations are necessary for the business to function.

Lastly, Luzio said you should be very upfront about your financial needs and goals, like start-up costs and revenue forecasts. Businesses depend on cash flow, so don't be coy about how you're going to manage that necessity.

3. Business Description

Here is where you start to delve into the details of the market opportunity your company will capitalize on. Consider factors like geographies, demographics, and industries, and demonstrate how your product or service is different.

Identify who the key suppliers or partners are and the extent to which your business will depend on those relationships.

As before, remember to think carefully about the financial picture. Base your revenue and pricing models on thoughtful research and design a structure that can compete in your target market. If you're charging more or less than the competition, provide a solid rationale as to why.

4. Market Research and Analysis

Expand on the market discussion from the previous section, and demonstrate how well you understand your competitive landscape. Who are the dominant players, and what are the growth trends in your industry?

With nearly eight billion people in the world, your odds of success are improved if you can narrow your target to a more specific segment. Depending on your competition, what percentage of that segment do you realistically think your business can address, and how big does your business need to be to handle that percentage?

Round out the section with a good old-fashioned SWOT analysis . Listing the strengths, weaknesses, opportunities, and threats, is a time-honored method of keeping track of the concerns you'll need to manage for your company.

5. Operating Plan

Your company's operations will possibly be the hardest thing to plan in advance. Do your best to spell out how you will generate sales, deliver your product or service to the market, and handle payments from customers.

Think about what you'll need in terms of facilities (like offices, warehouses, storefronts, coworking spaces) and technology (like web services, payment processing, customer resource management), or other capital investments that may be specific to your business.

Review your mission-critical suppliers from earlier, and also identify any key customer relationships that could have a significant impact on your success. Luzio categorizes a key partners as any single customer who delivers more than 10% of your annual revenue.

This is also the beginning of one of the biggest ongoing challenges all business owners face: building your team. Luzio recommends outlining the key roles that need filling in the first two years of operation for your company to succeed. Determine if these must be hires or can be contracted out.

In addition to defining an organizational structure and each position's responsibilities, make a plan for recruiting, retaining, and compensating your team. You may need professional consultation to navigate HR issues, or if you'll be offering equity ownership of the company.

6. Marketing and Sales Plan

Once you've established your target customer segment, you'll need to develop a strategy for crafting the right messaging to reach them.

"How you promote the business is an important element of your success," Luzio said.

With the vast array of available marketing channels, you may need some help from public relations and marketing professionals to choose the right ones for your business and shaping the messaging that's appropriate for each.

This also figures into your hiring plan, since you many need to staff up for sales and support.

7. Financial Plan

Luzio said estimating your startup costs and projected earnings growth "is critical to see when the business becomes profitable or is targeted to be."

Startup costs include one-time and ongoing expenses that are essential to get the business up and running, and should be summarized here and laid out in greater detail in the Appendix.

Your profit-and-loss (P&L) model, also known as a pro forma income statement, is a projection of your expected income and expenses for the first 12 months, and up to a period up to five years. A summary P&L will suffice here, but be based on a more thorough model that is included in the Appendix.

Much as you would love to see the so-called hockey-stick growth curve for your business, few founders will ever see that sort of rapid scale-up. If you've done your diligence in preparing your startup costs and P&L projections, you should have a reasonable idea of when your business will break even and start earning profits.

Equity investors appear to exempt some companies or industries from expectations of foreseeable profitability, but debt investors and lenders are generally less tolerant of cash-burning businesses. They'll want to know when you expect to become EBITDA-positive, since that's when they'll begin seeing repayment on your loans.

8. Appendix

The appendix is the home for any other matters you need to include, but may not merit a fully fleshed-out section.

It's also that place for the tables, charts, and analyses that are summarized in earlier sections, such as:

• Estimated start-up costs: A more detailed breakdown of the expenses and investments required to get your business up and running.
• P&L projections: Also known as pro-forma income statements, here's where you'd go into more detail about your revenues and expenses, forecast up to five years out.
• Additional market research: Provide more specific details about the basis for the analysis and assumptions discussed in section four.
• Competitive analysis: Deeper analysis of individual competitors or potential competitors that could challenge your model.

Now that you've completed all the sections, you're ready to return to the top and work on the Executive Summary.

You can use this guide to inform your own original plan, or if you would like more detailed instructions, check out the Startup Business Plan Template from SCORE, the business mentoring organization .

Watch: It's time for iTunes to die, even though it was key to Apple's early success

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Checklist for a Business Plan

Why is an effective business plan introduction important, what does "abridged" mean on a business plan.

• What Does a Business Plan Consist Of?
• Importance of Following a Business Plan

What is a business plan, and what’s the point of a business plan? To understand the benefits of a business plan, it is important to first understand why it's useful and how to create one.

In essence, a business plan describes a business in detail, including its goals and how it intends to achieve them. Business plans are typically written for new businesses, though they can be written for existing ones as well. The plan includes the operational, financial and marketing aspects of the venture.

The business plan is a fundamental tool and is necessary for a startup that needs a sense of direction. One of the reasons a business plan is so important is that it is one of the main requirements of venture capital firms and banks interested in investing funds in businesses. The business plan usually starts with an executive summary, followed by a description of the business in detail, including its products and services, and a section on how the business is going to achieve its goals from operational, financial and marketing standpoints. The business plan also typically includes a brief look at the industry within which the business will operate and how the business will differentiate itself from the competition.

What Are the Various Types of Business Plans?

There are many types of business plans. These include: feasibility plans, annual plans, internal plans, operations plans, growth plans and more. These different types of plans are drafted to match the different business situations. For example, if you’re preparing a business plan for internal reasons and not to seek funding from a financial institution, there is absolutely no need to include background information in your business plan. When you’re preparing a business plan for external investors, you should describe the management team; if you’re preparing the business plan for a bank, you should include the financial history and background of the company. With different circumstances, different pieces of information are included in the business plan.

Business Plans for Start-Ups

The business plan you prepare for a startup is about as standard as it gets when it comes to explaining all the steps that need to be taken by a new business to achieve its goals. These plans typically include information on the financial analysis of the business, the milestones for implementation, the management team, the strategy of the business, various forecasts, the marketplace and the product or service offering of the organization.

Notable among the plan's forecasts are predictions for the sales, profit, loss, cash flow and balance sheet of the company. There will also likely be additional tables included in the section on financial analysis, as well as the monthly projections for the first year. The plan for a startup usually begins with an abstract and contains an appendix at the end.

Internal Business Plans

Any business plan you do not prepare with the intent to show a financial institution, an external investor or any other third party is known as an internal business plan. In such plans, you don’t really need to describe in detail the organization or the management team. You may also choose whether or not to include financial projections like forecasts and budget. Usually, in internal business plans, the whole plan is written as a report using paragraph form. The main points will either be depicted as bullet points or as slides, in the case of a PowerPoint presentation.

Operational Business Plans

Operational business plans are typically prepared for use by the business itself, so they are strictly a type of internal business plan. They are also known as annual plans and include detailed information on deadlines, implementation milestones, specific dates, and the responsibilities of teams and their managers.

The operational business plan doesn’t go into much detail about who needs to do what and when. It looks at the responsibilities and dates from the perspective of what is a top priority and what is high level. It typically arranges data in the form of bullet points on slides in a presentation. There's no need for descriptions of the management teams or the organization. You also won’t find detailed explanations of all financial projections in these business plans. They are typically not regarded at all when the business plan is being used to formulate strategies going forward.

Growth Business Plans

Some business plans do not concern themselves with the entirety of the business. They are only interested in a part of the business or a specific area of interest. These are called growth plans, new product plans or expansion plans, depending on what they are looking to achieve. They may or may not be internal plans, depending whether they are meant to attract outside investment or meet the loan requirements of a bank. For example, you could prepare a startup plan to attract new investment when the business is just starting out. When you need to attract new funding or some kind of debt finance, you would prepare an expansion plan. Both plans should include a detailed description of the organization as well as extensive background data on each member of the management team. If, however, the expansion plan is for the business’s own internal consumption, it will be categorized as an internal business plan and won’t contain details about the organizations or the management team. Internal expansion and growth plans are used to strategize on the steps the business needs to take to expand and grow. Such internal plans also involve internal funding provided by the business itself. There may or may not be detailed financial projections. However, the projections of the sales and costs of any expansion plans are typically laid out in detail.

The bigger picture: This is one of the key advantages of a business plan. When you plan your business right, you can get a clearer picture of the business as a whole. You can easily comnect the dots between strategy and tactics, and everything is easier to work out.

Strategic focus: As a startup, you need to create an identity and focus on building that identity. It is usually defined by your target market, and the products and services you are tailoring to match their needs.

Set priorities: It’s impossible to do everything at once in a business. When you plan your business, you can order things in terms of their importance and allocate your effort, resources and time in an efficient and strategic manner.

Manage change: When you plan your business effectively, you can check your assumptions, track your progress and see new developments right from the beginning, allowing you to adjust accordingly.

Forces you to be accountable: When you plan effectively, you set expectations for yourself and a means by which you will be able to track your results. You can constantly review your business plan in terms of what you expect and what eventually happens.

• Score: What is the purpose of a business plan?
• Investment Bank: Types of Business Plans
• Reference for Business: BUSINESS PLAN
• U.S. Small Business Administration: Handle Legal Concerns--Legal FAQ's
• My Own Business: Business Licenses, Permits, and Business Names

Nicky is a business writer with nearly two decades of hands-on and publishing experience. She's been published in several business publications, including The Employment Times, Web Hosting Sun and WOW! Women on Writing. She also studied business in college.

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So You Want to Be an Entrepreneur?

• Emily Heyward

One founder’s advice on what you should know before you quit your day job.

Starting a business is not easy, and scaling it is even harder. You may think you’re sitting on a completely original idea, but chances are the same cultural forces that led you to your business plan are also influencing someone else. That doesn’t mean you should give up, or that you should rush to market before you’re ready. It’s not about who’s first, it’s about who does it best, and best these days is the business that delivers the most value to the consumer. Consumers have more power and choice than ever before, and they’re going to choose and stick with the companies who are clearly on their side. How will you make their lives easier, more pleasant, more meaningful? How will you go out of your way for them at every turn? When considering your competitive advantage, start with the needs of the people you’re ultimately there to serve. If you have a genuine connection to your idea, and you’re solving a real problem in a way that adds more value to people’s lives, you’re well on your way.

When I graduated from college in 2001, I didn’t have a single friend whose plan was to start his or her own business. Med school, law school, finance, consulting: these were the coveted jobs, the clear paths laid out before us. I took a job in advertising, which was seen as much more rebellious than the reality. I worked in advertising for a few years, and learned an incredible amount about how brands get built and communicated. But I grew restless and bored, tasked with coming up with new campaigns for old and broken products that lacked relevance, unable to influence the products themselves. During that time, I was lucky to have an amazing boss who explained a simple principle that fundamentally altered my path. What she told me was that stress is not about how much you have on your plate; it’s about how much control you have over the outcomes. Suddenly I realized why every Sunday night I was overcome with a feeling of dread. It wasn’t because I had too much going on at work. It was because I had too little power to effect change.

• EH Emily Heyward is the author of Obsessed: Building a Brand People Love from Day One (Portfolio; June 9, 2020). She is the co-founder and chief brand officer at Red Antler, a full-service brand company based in Brooklyn. Emily was named among the Most Important Entrepreneurs of the Decade by Inc.  magazine, and has also been recognized as a Top Female Founder by Inc. and one of Entrepreneur’s Most Powerful Women of 2019.

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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.

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• Oct 24, 2020

The Top 5 Benefits of Having a Business Plan

Whether you’re starting a small business or exploring ways to expand an existing business, a Business Plan is an important tool to help guide your decisions. An effective Business Plan is a roadmap to success, providing clarity on all aspects of your business, from marketing and finance, through to operations, products, services, people and how you will be better than your competitors.

The purpose of a business plan is to help articulate a strategy for starting or changing your business. It defines how you will achieve your most important business objectives. A good Business Plan should help you to sleep at night if you are a business owner.

For existing businesses, a business plan should be updated annually as a way to guide growth and navigate expansion into new markets. Your plan should include explicit objectives for hiring new employees, what structure you will have, what products and services your business will provide, how you will promote them and how you will finance business operations.

If you are considering starting a business, a Business Plan can help you to check the viability of a business before investing too much time or money in it. It also provides insight on steps to be taken, resources required for achieving your business goals and a timeline of anticipated results.

The Benefits of Having a Business Plan:​

1. Increased Clarity

A business plan can bring clarity to the decision-making process regarding key aspects of the business such as capital investments, leases, resourcing, etc. You can't do everything. A good Business Plan will help you identify business critical priorities and milestones to focus on.

2. Creation of a Marketing Roadmap

Marketing is an important aspect of a business plan. It helps to define your target market(s), target customers and how you will promote and place your product / service to these markets / customers.

3. Support for Funding

Whether you’re seeking credit from a bank or capital from investors, a business plan that answers questions about profitability and revenue generation is often required.

4. Helps to Secure Talent

For a business to succeed, attracting talented workers and partners is vital. Part of a business plan’s purpose is to help bring in the right talent, at the right time. Staff want to understand the vision, how the business will achieve its goals, and how they can contribute to this in their own roles.

5. Provides Structure

A business plan provides structure and defines business management objectives. It becomes a reference tool to keep the business on track with sales targets and operational milestones. When used properly and consulted regularly, it can help measure and manage your priority areas of focus.

Download your Business Plan template for $49.99 + GST here.

Many people engage us as business coaches to take a weekly / fortnightly step-by-step approach to the development of their own Business Plans, with the added benefit of our expertise and guidance throughout the process. In this way, you learn the essential aspects of running a successful business, while crafting your very own business plan over 8-12 weeks.

If you would like more information about how to create an effective Business Plan for your business, with our guidance, then please don't hesitate to contact Business Agility. We are business coaches who are former CEOs and MDs. We know what it takes to be successful in business.

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• Credit Cards

Business Credit Cards: Statistics And Trends In 2024

Fact Checked

Updated: Jul 31, 2024, 10:17am

Table of Contents

What is a business credit card, how businesses utilize credit cards, most attractive credit card features for businesses, most businesses plan to pay off credit card debt reasonably quickly, how many credit cards does an average business have, how entrepreneurs use credit cards to kick start their businesses, benefits of business credit cards.

In an era of economic volatility, it’s become more difficult for businesses to access traditional financing options. This has driven some entrepreneurs to alternative funding sources. Recognizing this trend, Forbes Advisor conducted a survey to shed light on how businesses use business credit cards to navigate challenging times.

As its name implies, a business credit card is only open to business owners and is intended for business use. Unlike a corporate card, however, your business doesn’t need to be incorporated for you to qualify for a business credit card.

For this reason, anyone from sole proprietors to large company owners could be eligible for a business credit card. Side gigs , such as rideshare driving or online reselling, may qualify someone for a business credit card. Having employees or an office is not required. The best credit cards for startups may even be available to new businesses without revenue.

Business credit cards are meant to be used for business expenses, like purchasing supplies, office furniture or business travel. In fact, most business cards have a stipulation in their terms and conditions that prohibit cardholders from using them for personal expenses.

More Than Half of Business Leaders Use Credit Cards For Speed and Convenience

When asked the primary reasons business leaders (including business owners, presidents, partners and C-level employees) use a credit card for business expenses, convenience for making payment was the top driver. Additionally:

• 44% report using credit cards to improve business cash flow or use as financing
• 40% use credit cards to build business credit
• 31% use credit cards to earn rewards

Most Businesses Hold and Use a Dedicated Credit Card for Business Expenses

Most business leaders have smartly obtained a business card for relevant charges rather than using personal credit cards for business expenses. More than three-quarters of survey respondents (81%) report using a business card exclusively for business expenses.

Some business leaders do blur the lines, though:

• 17% of respondents reported they use personal credit cards exclusively for business expenses
• 17% report using a personal credit card for both personal and business expenses
• 11% use a business card for both personal and business expenses

The Most Common Type of Expense Charged on Business Cards are Supplies

Supplies for internal operations are the most commonly charged item for business leaders, as reported by 57% of respondents. However, other types of expenses aren’t far behind. More than half of respondents also use business cards to pay for hotels during business travel (55%), business meals (54%) and inventory (51%).

Many Businesses Use Credit Cards to Pay For More Than Half of Their Total Spending

A whopping 44% of businesses charge more than half of their total spending on credit cards, according to our survey. Additionally, a quarter of business leaders reported charging between 0% to 25% of total business spending on credit cards while 30% of businesses charge between 26% to 50% of their expenses on a card.

The Majority of Business Leaders Always Pay Their Balances in Full

When asked how often business leaders pay their business credit card balance in full:

• 56% reported always paying in full
• 31% reported often paying in full
• 8% reported sometimes paying in full
• 3% reported paying rarely
• 1% reported never paying in full

Introductory APRs Are the Most Attractive Feature When Considering New Cards

When business leaders consider applying for a new business credit card, it's all about the money. When asked about their top motivators for getting a new card, 0% APR offers on new purchases or balance transfers edged out other reasons, with 33% of respondents selecting this response. However, the opportunity to earn rewards on ongoing spending barely trails behind, appealing to 32% of survey respondents.

Other motivators for getting a new card were the ability to access additional capital (29%), access to card benefits or statement credits related to business operations (27%), travel benefits or credits (18%) or one-time welcome offers (17%).

Business Credit Card Rejections: A Common Challenge for Entrepreneurs

When asked were asked in a 2023 poll from Forbes Advisor why, if for any reason, they did not use personal or business credit cards to start their business, 22.13% reported that they applied for one but were rejected.

Furthermore, a 2022 survey of 5,000 small business owners revealed that of the 25% of respondents who applied for a business credit card, 85% of those applications were denied.

How Business Owners Redeem Credit Rewards

Two-thirds of business owners prefer cash back.

Though credit cards may earn many types of rewards, ranging from cash back to travel rewards to merchandise, 67% of business owners are most attracted to cash back or statement credits when considering card rewards. Points or miles used for travel are second-most attractive, as reported by 18% of respondents, and retail redemption options (such as gift cards or merchandise) were less popular, appealing to only 12% of respondents.

Roughly 20% of Business Owners Have Reward Balances of $1,000 or More

Approximately one in five business owners currently have unspent credit card rewards valued at over $1,000. On the other end of the spectrum, 13% of respondents report spending their rewards as soon as they are earned, therefore carrying no unspent credit card rewards. The vast majority (53%) currently hold smaller balances, anywhere between $1 to $1,000.

Over a quarter (28%) of business leaders expect their company to pay off all their credit card debt in less than three months. A further 30% anticipate it will take between three months and a year to pay down their balance, and 11% expect it to take more than a year.

According to our survey, 31% of business leaders report that their company has no credit card debt.

Due to businesses’ higher monthly expenses and incomes, business cards often have significantly higher credit limits . The number of cards a business needs will depend on its specific financing requirements.

A reseller or freelancer might find that one business credit card is sufficient. A consulting firm with multiple employees might benefit from both cash-back business cards and travel business cards that provide benefits like rental car insurance. Additionally, more credit cards mean more access to lines of credit, which might be needed to purchase inventory or help manage vendor payments.

According to the data collected by Forbes Advisor, 82.54% of new businesses applying for business cards had at least three cards. Further, 31.75% acquired three new cards, 41.27% secured a total of four cards and 9.52% had five or more.

According to a Forbes Advisor poll in 2023, 4.67% of respondents reported using business credit cards as their primary source of funding.

Of those who utilized either a business or personal credit card to primarily fund their business, one in four (25.4%) chose to use a credit card because of restricted access to conventional financing alternatives.

There are numerous potential benefits to holding a business credit card, provided you have the capital to pay your balance every month. Some of those benefits are as follows:

• Keeping personal and business finances separate. Having a separation between personal and business expenses can simplify your finances, especially during tax season.
• Less impact on your personal credit. Most business credit cards won’t report to your personal credit as long as the account is in good standing.
• Boosting your business credit rating. Business credit cards can help you establish business credit if you make timely payments. This is especially useful if you apply for a business loan in the future.
• Improving business cash flow. Having a healthy cash flow is important for any business. By having access to credit, you can pay for expenses throughout the month and take advantage of your credit card grace period to increase your access to cash.
• Personalized spending controls. You can monitor employee spending patterns by adding employee cards to your account. Many business cards also allow you to set spending limits on employee cards.
• Numerous company-specific rewards. The rewards earnings, travel benefits and welcome bonuses that come with business credit cards may be higher than those of personal credit cards and will typically target business-specific categories.
• Travel and other business-related perks. Many premium business cards offer perks such as airport lounge access, discounts on shipping or software services, or car rental insurance for business travel.

Find the Best Business Credit Cards of 2024

Credit Cards Expert Dylan Pearl contributed to this article.

Forbes Advisor: Survey Conducted by Talker Research (June 2024) Forbes Advisor: Survey Conducted by OnePoll (February 2023) Hello Alice: 2022 Survey

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With more than 50 million redeemed miles under her belt, Becky Pokora is a rewards travel expert. She's been writing about credit cards and reward travel since 2011 with articles on Forbes Advisor, BoardingArea, The Points Guy and more. Her redemptions have helped her travel to more than 50 countries and all seven continents.

7 steps to design a benefit plan that you and your employees will love

Use these tips to enhance or extend your benefits and stay ahead of your competitors.

Every business has different worries, from inflation to customer growth to succession. But nearly all businesses share two top concerns: retaining both existing employees and key employees. That’s according to April 2024 Principal ® research of small and midsize businesses.

While you may fret about employees leaving, your workforce may think about why they want to stay, and it turns out benefits (or lack thereof) make a big impact. Three out of four employees want their employers to add benefits within the year, according to the Principal survey. If those workers go looking for a job, they may find competitors that offer the benefits they feel are lacking.

One thing that can help you gain an edge in recruitment and retention: Create (and share) with employees your plans for extending or enhancing benefits. Here’s how to use your benefit plan to help keep up with employee needs and business growth goals—and stay one step ahead of your competitors.

Step 1: Establish a benefits philosophy.

A benefits philosophy typically has three prongs:

• How do your benefits protect your employees?
• How do your benefits protect your business?
• How do your benefits protect yourself and your family?

The three prongs are interdependent and affect one another. For example, benefits you use as an edge to attract the best talent (protect your employees) also serve to encourage growth (protect your business).

Step 2: Compare coverage with your peers.

Competition is more expansive than it used to be. “You're not only competing in [your] business; you're competing with other small businesses in different industries,” says Rusty Rohe, owner, Dahl Air Conditioning and Heating in Van Meter, Iowa. “Benefits are a big deal to people.”

If you’re unsure how to compare coverage based on your business’s size, industry, and region, two options can help: the insights from a financial professional, or the Principal ® Benefit Design Tool , with a downloadable report that compares relative levels of coverage for dental, life, and disability insurance as well as retirement plans.

Step 3: Listen to and learn from employees.

Listening can be both formal and informal; the smaller your business, the more you can rely on everyday conversations. Even so, more structured opportunities—during annual reviews, for example—can help you glean employee sentiment and expectations around benefits. You might also see trends in exit interviews: Are people leaving because of a benefit you don’t offer? If you need the honesty of anonymous feedback, survey tools including SurveyMonkey, Google Forms , and Typeform can help.

PlanOmatic, a rental real estate design company in Denver, surveys employees once a month, with a benefits and retirement survey every six months. “People's lives change a lot. There's a lot of flexibility that goes into benefits, a lot of flexibility that goes into retirement plans,” says Kennedy Watson in human resources. “We listen and incorporate that feedback into our conversations internally.”

Step 4: Calculate the true benefit costs.

It’s easy to overestimate the cost of adding benefits. Nate Schelhaas, senior vice president with Principal, has found that many employee benefit costs are less expensive than decision-makers realize. “Because they use health insurance as a point of reference, they assume everything else is expensive, too, and assume they can’t do anything,” he says.

But there are often ways to add benefits, monitor costs, and meet employee needs. For example, most traditional benefit costs such as healthcare tend to be largely covered by employers. Now let’s say there’s a potential benefit your employees want, but it’s outside your benefits budget. Maybe all your employees really need is easier access to buy that benefit as part of your workplace benefit plan. The cost to you may be all, some, or none.

Step 5: Balance cost with long-term benefits for employees, the business, and you.

For your long-term goals, some hardworking benefits offer a more concrete way to plan for next steps. Take key employee benefits: Nearly every employer ranks worries about retaining key employees as a top concern, according to Principal research. To create a robust key employee benefits retention plan, you have to balance the investment in benefits such as non-qualified deferred compensation or bonuses with what it would cost you—today and in the future—should you lose the talents of that person.

Step 6: Prioritize extended or enhanced benefits.

Your master benefit plan can outline the future in broad strokes—what you’d like to add or boost based on timing, budgets, wants, and needs. Complement that with details about what’s next—something you’re going to add this year, for example—to level-set expectations. And think about what you need to grow your business—perhaps a focus on key employee benefits first.

Step 7: Continuously adapt your benefits.

Year over year, your business, workforce, and customers change—and you change with them. Today’s multi-generational workforce has diverse needs and wants —and if you’re able to accommodate some of those asks, you may be able to improve your employee retention. And a team of experts including a tax advisor and financial professional can help you understand how employee benefit goals can balance with your business’s challenges and opportunities.

Learn more about the package of benefits that’s a good fit for your business .

Offer the benefits your employees really want (that you can also afford) with these 5 tips

Discover what employees want to see in a benefits package and how your business can accommodate without overspending.

How to create a voluntary benefits package your employees want and need

A just-for-your-business voluntary benefits package can help recruit and retain employees while you grow your business.

Need a better key employee benefits plan? These 4 tips can help

You value your key employees. Here’s how to help create a benefits plan that rewards them—and helps you achieve your goals, too.

Dahl Air Conditioning and Heating and PlanOmatic are not affiliates of any member company of the Principal Financial Group ® . Dahl Air Conditioning and Heating and PlanOmatic employee viewpoints may not be representative of other clients' experiences.

Links to survey tools are provided as a courtesy. Principal does not endorse any specific tools.

The subject matter in this communication is educational only and provided with the understanding that Principal ® is not rendering legal, accounting, investment or tax advice. You should consult with appropriate counsel, financial professionals, and other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.​

As the situation in Ukraine evolves, businesses should be mindful of potential risks to their people, assets, operations, or supply chains in the region and globally. Marsh, as part of the Marsh McLennan family of companies, has created a page with information, tools, and resources related to the Russia-Ukraine conflict.  Please visit the page  for the latest information.

• United States(English)
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August 9, 2024

Securing success: your comprehensive guide to business continuity plans

Build a strong business continuity plan to protect against business disruptions with the help of this step-by-step guide.

• What a business continuity plan is

Steps to plan for the future of your company

• Business continuity plans vs natural disaster recovery plans

What are the consequences of a company lacking a contingency plan that addresses incidents that disrupt operations? The major loss of profits and reputational standing are two examples. Negative results like these force businesses to put countless hours toward rebuilding.

Let’s look at how organizations can avoid these impactful outcomes by creating a strong business continuity plan.

What is a business continuity plan?

A business continuity plan is a comprehensive strategy designed to ensure an organization can continue its essential operations during and after a significant disruption. The goal is to minimize downtime, protect assets, and quickly return to normal operations.

According to PwC, 96% of business leaders stated their organizations experienced disruption in the past two years. Also, 76% said their most serious disruption had a medium to high impact on business operations. 

A successful plan should assess all risks, including weather events and cyberattacks. Once a company identifies these vulnerabilities, the plan should also:

• Determine how these risks can impact key business processes.
• Implement safeguards and processes to prevent the risks.
• Develop and exercise recovery procedures to ensure they’re effective.
• Regularly review the plan to make sure it’s up to date.

Why is a business continuity plan important for organizations?

Enhanced risk management.

Business continuity is a big part of risk management. It enables teams to develop recovery procedures and strategies to mitigate the risks and ensure continuity.

The main goal of risk management is to identify, assess, and manage potential risk. Business continuity planning focuses on proactive actions that help ensure resiliency.

Increased customer confidence

Business continuity increases customer confidence by demonstrating that an organization can handle disruptions and continue delivering products or services without significant interruption.

As a result, customers feel more secure and confident in their ongoing relationship with the organization, knowing their business will be met even in adverse situations.

Regulatory compliance

In today’s business landscape, there are countless rules and regulations. A business continuity plan can help account for regulatory obligations. A business continuity plan starts with a realistic assessment of potential risks.

Companies can use these plans to mitigate these risks, track requirements to meet regulatory compliance during and after a disaster and help teams avoid fines and penalties.

Improved decision-making

Pre-established plans empower business leaders to act fast during a disruption. This proactively minimizes confusion for team members. It also ensures a coordinated response across the organization.

Stakeholders look to business leaders to take charge when situations occur. Investors, lenders, and other individuals need to know a business can manage risks and uncertainties. A business continuity plan shows that a leader will protect the stakeholders’ investments.

Profit protection

Yes, developing and implementing a business continuity plan requires an initial investment. However, creating this plan can ultimately result in significant cost savings. Businesses save money over time by mitigating the financial losses associated with operational disruption.

Additionally, it provides aid for expenses related to rebuilding operations. Rather than having no documentation or plan for consistency, workers can save time and energy by following the steps outlined. While this doesn’t keep employers from spending money, it gives businesses a jumping-off point.

A strong business continuity plan analyzes all the risks affecting a company’s normal operations. Possible incidents include natural disasters, civil unrest, political violence, and cyberattacks. With this plan, employers can:

• Create safeguards to lower the risk of these threats.
• Exercise action plans to ensure they work.
• Review the determined business process to ensure its effectiveness.

Follow these steps to create a plan:

1. Build a team

Most teams don’t have a designated business continuity specialist. These professionals are responsible for specific tasks within the business continuity framework. They focus on:

• Analyzing potential risk.
• Developing a continuity plan
• Implementing the continuity plan.
• Training staff members.
• Updating plans as business needs and environments change.

Employers can create a continuity team instead of hiring one person to handle the tasks. This group spearheads the review process and manages the disruption if an incident arises. The business continuity team also ensures the plan is consistent across all business units and updated regularly.

2. Assess risks

To reduce problems and plan for the future, businesses must understand their risks. Start the planning process by listing every potential threat to operations. Assess the probability and impact of each threat.  This planning should be a team effort. Address every threat, including:

• Civil unrest 
• Cyberattacks
• Domestic and global political violence
• Natural disasters
• Power outages
• System failures

3. Perform a business impact analysis

Employers must identify and prioritize key business processes, resources, and dependencies should there be a business disruption. These observations can help teams assign recovery time objectives and make decisions about recovery priorities and strategies.

4. Plan for recovery

Every business has different recovery requirements. Business leaders must develop strategies to respond to risk events and recover critical functions within their recovery time objectives identified during the risk assessment and business impact analysis.

Creating a recovery strategy includes brainstorming solutions that can create consistency.

5. Train team members

Offering training and exercises can help prepare an organization for potential business disruptions. Performing trial runs can make recovery easier during a disruption. This preparation can help identify any missing aspects and possible improvements.

6. Review regularly

It’s vital to update the organization’s continuity plan regularly. The continuity team should make necessary adjustments as staff members change and emerging risks arise. Learning from past mistakes and trial runs can make business continuity management impactful.

Business continuity plan vs disaster recovery plan: What’s the difference?

While these two plan types are similar, one can’t replace the other. Disaster recovery plans focus on technology and information technology infrastructure, while business continuity plans examine the operational recovery of key business processes, resources, and dependencies.

Both support critical business functions and incident management, especially for companies that struggle with technology downtimes and related costs. IT professionals generally lead disaster recovery planning by creating plans to recover from unexpected technology disruptions. The prioritized IT resources identified during the business impact analysis will help guide disaster recovery planning.

How we help you craft a plan

 A business continuity plan can help ensure your team prepares for what’s next. Marsh McLennan Agency's risk management specialists can help you create a proactive plan to address potential disruptive incidents.

Partnering with our team offers your business:

• Analytics to support better decision-making.
• Deep carrier relationships to leverage resources.
• Integrated employee health and safety to strengthen client culture.
• Strategic relationships with clients, carriers, and vendors.
• Crisis management specialists and services.
• Business interruption valuation services by seasoned forensic accountants.
• Supply chain mapping site-level assessments.

Ready to elevate your business’s incident preparation and improve resiliency and risk management?

Reach out to a specialist today to learn more.

Reach out to a specialist today.

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Here's The Crucial Lesson I Learned When Choosing a New CEO for My Business As a founder, transitioning your business's operational processes to someone else is crucial. When it was the right time for me to step back, here's how I chose the right successor.

By Serge Baidin Edited by Micah Zimmerman Aug 5, 2024

Key Takeaways

• If you do something for the first time in your business, always hire professionals to help you.

Opinions expressed by Entrepreneur contributors are their own.

Every business reaches the point where its founder becomes the biggest blocker to growth. It's the moment to pass the reins to someone else and step back.

For the last couple of years, I have seen this need for my web development company, Markupus. But at the end of 2023, it finally became crystal clear: it was time to step away from operations and appoint a new CEO.

I had two options: bring in someone new or promote from within . The clock was ticking, and integrating a new face seemed time-consuming. At the same time, none of our current managers felt fully ready.

However, nurturing leaders internally is part of our company culture , which tilted me toward option #2. There were three candidates:

• Candidate A was in charge of operations. This person was my first choice for a CEO. He took on the role every time I was away and was good at setting up processes.
• Candidate B was responsible for tech, had been with the company since day one and was the most knowledgeable about our product.
• Candidate C was responsible for sales and hadn't been with us as long, so I hadn't seen him in action beyond his usual tasks. Honestly, I added him to round out the options.

My gut favored Candidate A, but I knew I needed more than my gut instinct. So, I hired a professional assessment company to conduct a thorough analysis using global methodologies.

After we agreed on the key competencies for evaluation, they offered a 3-stage Assessment Center and business interviews to see the picture clearly, and that's exactly what we did. So, if you're in my shoes and looking to choose a successor, this process could give you insights. Let's get into it.

Psychometric test

Each candidate completed the questionnaire provided by the psychometric test developer. It was just the first stage of the Assessment Center. Before interviewing everyone in person, the experts had to know what everyone was like "on paper."

The test results described each candidate's typical behavior, thinking style and ways of coping with stress . Reports include Leadership Styles, preferred Team Roles, Career Themes, and so on.

However, no crucial conclusions were made yet: these test results gave the experts further material for analysis. After that, they moved on to other tools.

Related: 5 Internal People Every CEO Needs

Business simulations

First, the assessors gave our prospective CEOs a comprehensive document containing data for analysis. The candidates had some time to study the material and make connections within it. Then, they presented their findings to a mock board, which tested their ability to analyze information .

This exercise wasn't just about crunching numbers; it was about seeing how the candidates formed hypotheses and made decisions based on their analysis.

The second business simulation was a group discussion. As a point A, candidates had a limited budget and many company needs. They had to fight for their departments' resources but also consider the overall company's good.

Here, the team of assessors observed how candidates influenced others, who took the lead, and who stood firm for their department's interests.

Related: Hiring A CEO? Use These 5 Methods to Find A Leader You Can Trust

Competency interview

The last stage of the Assessment Center was one-on-one competency interviews. This was an important step to confirm or challenge the competencies the experts observed during the simulations.

During these interviews, the assessor mostly asked candidates to provide examples from their past business practice: for instance, a particular problem they faced and how they solved it.

Business Interview

The competency interview I mentioned was based on the candidates' past performance, but the business interview put them into hypothetical situations.

For instance, the business consultant asked what the candidates would do if the current CEO left without explanation and asked them to look after the company. What would their first steps be? What would their strategy look like?

The reaction here was also important. Does the candidate have an immediate answer, or are they confused? Everything was taken into account.

After all these stages, the assessment team went on to analyze the massive number of results on each of the candidates. In a few weeks, they came back with the conclusions — to my surprise.

Related: Hiring Is Cooling, Job Report Latest Data Shows

The candidate I least expected turned out to be the most equipped for the CEO role

While all the candidates had strong soft skills, Candidate C excelled in competencies like strategic thinking and adaptability to change. His leadership potential also turned out to be higher than others. Additionally, we shared a mutual understanding of the company's direction, and he brought a proactive approach to the team's routine.

While he still had a lot to learn, Candidate C was our clear choice at the time.

And what happened to Candidate A, whom I favored? According to the assessment, his ideal role would involve working with data rather than leading. Eventually, he changed his career path and went into a different field.

After getting that report, I spent a month deciding how to move further. But after some thinking, I officially fired myself on my birthday — February 29th. A rare present for a rare occasion!

On paper, I'm still a CEO, but in practice, all the decisions are made by the newly appointed CBDO, Candidate C, aka our former sales manager, together with our Head of Development, Candidate B.

My role now is more of an advisor. I dedicate one day per week to work with the team and address any issues or questions that arise. For the rest of the week, I will focus on my other ventures, which will give me more time to pursue new opportunities.

After being responsible for everything for nine years, it felt strange to step back and help others figure things out.

But guess what? It's been almost five months since we decided, and the business hasn't fallen apart! It's doing well. More importantly, we've set up a good foundation for future growth.

So, my main takeaway here is: if you do something for the first time in your business, always hire professionals to help you. Sometimes, this will yield unexpected but more promising results.

Entrepreneur Leadership Network® Contributor

Founder and CEO of Bride&Groom and Markupus

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

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